-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AU2oyQUFmx+k7BCiUjXOGlJxjbEc/4OlJul1h9hEroWI+y/u03ms02NGC9YoBaTx Jqlu12aNRwtc7/lozbyggw== 0000930661-96-001659.txt : 19961120 0000930661-96-001659.hdr.sgml : 19961120 ACCESSION NUMBER: 0000930661-96-001659 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961118 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOTHIC ENERGY CORP CENTRAL INDEX KEY: 0000878482 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 222663839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19753 FILM NUMBER: 96668285 BUSINESS ADDRESS: STREET 1: 5727 S LEWIS AVE STE 700 STREET 2: P O BOX 186 CITY: TULSARD STATE: OK ZIP: 74105 BUSINESS PHONE: 9187495666 FORMER COMPANY: FORMER CONFORMED NAME: TNC MEDIA INC DATE OF NAME CHANGE: 19930328 10QSB/A 1 FORM 10QSB/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB/A AMENDMENT NO. 1 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period from _______________ to _______________. Commission file number 0-19753 --------------------------- GOTHIC ENERGY CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 22-2663839 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5727 SOUTH LEWIS, #700, TULSA, OKLAHOMA 74105-7148 (Address of principal executive offices) 918-749-5666 (Registrant's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . -------------- ------------ APPLICABLE ONLY TO CORPORATE ISSUERS: As of August 7, 1996, 12,353,190 shares of the Registrant's Common Stock, $.01 par value, were outstanding. FORM 10-QSB/A AMENDMENT NO. 1 INTRODUCTION This amendment to Part 1, Items 1 and 2 of Gothic Energy Corporation's quarterly filing on Form 10-QSB for the quarterly period ended June 30, 1996 includes changes from the previous filing to reflect a $178,004 decrease in depletion expense on oil and gas properties for the six months ended June 30, 1996, and a $270,001 decrease in depletion expense on oil and gas properties for the three months ended June 30, 1996. This filing also amends Part 1, Item 1 and Part 2, Item 1 of Gothic Energy Corporation's quarterly filing on Form 10-QSB for the quarterly period ended June 30, 1996 for legal proceedings that were filed against the Company on May 6, 1996. GOTHIC ENERGY CORPORATION TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE ITEM 1 - FINANCIAL STATEMENTS Consolidated Unaudited Balance Sheets June 30, 1996 and December 31, 1995 3 Consolidated Unaudited Statements of Operations Six Months ended June 30, 1996 and 1995 4 Consolidated Unaudited Statements of Operations Three Months ended June 30, 1996 and 1995 5 Consolidated Unaudited Statements of Cash Flows Six Months ended June 30, 1996 and 1995 6 Notes to Unaudited Consolidated Financial Statements 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis or Plan of Operations 10 PART II - OTHER INFORMATION PAGE Item 1 - Legal Proceedings 14 Item 2 - Changes in Securities 14 Item 3 - Defaults Upon Senior Securities 14 Item 4 - Submission of Matters to a Vote of Security Holders 14 Item 5 - Other Information 14 Item 6 - Exhibits and Reports on Form 8-K 14 Signatures 15
GOTHIC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET June 30, December 31, ASSETS 1996 1995 ----------- ------------ (unaudited) Current assets: Cash and cash equivalents $ 142,811 $ 157,559 Oil and gas receivable 2,743,973 295,344 Receivable from officers and employees 25,861 16,459 Other 77,934 74,697 ----------- ----------- Total current assets 2,990,579 544,059 Property and equipment: Oil and gas properties on full cost method 32,518,219 8,640,480 Equipment, furniture and fixtures 265,576 135,807 Accumulated depreciation and depletion (2,341,414) (780,414) ----------- ----------- Property and equipment, net 30,442,381 7,995,873 Notes receivable: Affiliate - 123,000 Other 61,648 61,648 Investment - 200,000 Other assets, net 1,660,752 377,541 ----------- ----------- Total assets $35,155,360 $ 9,302,121 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable trade $ 712,037 $ 1,019,543 Oil and gas revenue payable 1,762,069 94,841 Accrued liabilities 116,337 516,176 Notes payable 25,000 2,900,000 Current portion long-term debt 4,033,895 2,220,000 ----------- ----------- Total current liabilities 6,649,338 6,750,560 Long-term debt 13,073,696 3,025,573 Gas imbalance liability 1,189,956 - Stockholders' equity: Preferred stock, par value $.05, authorized 500,000 shares; issued and outstanding 5,540 shares 277 - Common stock, par value $.01, authorized 30,000,000 shares; issued and outstanding 12,353,190 and 5,501,785 shares 123,532 55,018 Additional paid in capital 32,530,847 13,965,236 Accumulated deficit (18,412,286) (14,494,266) ----------- ----------- Total stockholders' equity 14,242,370 (474,012) ----------- ----------- Total liabilities and stockholders' equity $35,155,360 $ 9,302,121 =========== ===========
See accompanying notes 3
GOTHIC ENERGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the six months ended June 30, ------------------------- 1996 1995 ----------- ------------ Revenues: Oil and gas sales $ 4,343,126 $ 487,033 Well operations 483,865 12,104 Interest and other income 31,642 7,296 ----------- ----------- Total revenues 4,858,633 506,433 Costs and expenses: Lease operating expenses 2,059,735 275,071 Depletion, depreciation and amortization 1,586,782 175,900 Selling, general and administrative expense 818,324 457,421 Provision for impairment of oil and gas properties 5,050,000 486,000 ----------- ----------- Operating loss (4,656,208) (887,959) Interest expense 648,261 527,265 ----------- ----------- Loss before income taxes and extraordinary item $(5,304,469) $(1,415,224) Income tax benefit 2,992,547 - ----------- ----------- Loss before extraordinary item (2,311,922) (1,415,224) Loss on early extinguishment of debt 1,432,973 - ----------- ----------- Net loss $(3,744,895) $(1,415,224) Preferred dividend 173,125 - ----------- ----------- Net loss available for common shares $(3,918,020) $(1,415,224) =========== =========== Loss per common share $ (.36) $ (.41) =========== =========== Weighted average common shares outstanding 10,954,947 3,422,580 =========== ===========
See accompanying notes 4 GOTHIC ENERGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the three months ended June 30, --------------------------- 1996 1995 ----------- ----------- REVENUES: Oil and gas sales $ 2,734,910 $ 349,506 Well operations 322,652 12,104 Interest and other income 30,485 3,994 ----------- ---------- TOTAL REVENUES 3,088,047 365,604 COSTS AND EXPENSES: Lease operating expenses 1,176,638 188,602 Depletion, depreciation and amortization 960,415 115,000 Selling, general and administrative expense 412,017 224,487 ----------- ---------- Operating income (loss) 538,977 (162,485) Interest expense 326,716 477,955 ----------- ---------- NET INCOME (LOSS) $ 212,261 $ (640,440) PREFERRED DIVIDEND 103,875 - ----------- ----------- NET INCOME (LOSS) AVAILABLE FOR COMMON SHARES 108,386 (640,440) =========== ========== INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.17) =========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,295,564 3,774,713 =========== ==========
See accompanying notes 5
GOTHIC ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the six months ended June 30, -------------- -------------- 1996 1995 -------------- -------------- Cash flows from operating activities: Net loss $ (3,744,895) $ (1,415,224) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 1,586,782 175,900 Amortization of discount and loan costs - 375,625 Provision for impairment of oil and gas properties 5,050,000 486,000 Deferred income tax benefit (2,992,547) - Loss on early extinguishment of debt 1,432,973 - Changes in assets and liabilities: Increase in accounts receivable (1,258,503) (279,167) Decrease in other current assets 13,823 (42,372) Increase (decrease) in accounts and revenues payable 53,129 245,070 Decrease in accrued liabilities (753,874) 99,162 Decrease in other assets 205,700 - ------------ ------------ Net cash used by operating activities (407,412) (355,006) Cash flows from investing activities: Proceeds from sale of investment 200,000 - Proceeds from collection on note receivable 123,000 - Proceeds from sale of property 191,239 129,328 Purchase of property and equipment (7,962,335) (10,403,319) Property development (347,423) (138,473) Acquisition of business, net of cash acquired (17,592,973) - ------------ ------------ Net cash used by investing activities (25,388,492) (10,412,464) Cash flows from financing activities: Payments on short-term debt (1,560,000) (150,000) Proceeds of short-term debt - 2,000,000 Payments on long-term debt (7,608,983) (275,502) Proceeds of long-term debt 18,230,195 6,885,210 Proceeds from sale of common stock, net 13,141,368 1,724,000 Proceeds from sale of preferred stock, net 3,997,430 - Payment of Dividends (173,125) - Other (245,729) (145,056) ------------ ------------ Net cash provided by financing activities 25,781,156 10,038,652 Net change in cash and cash equivalents (14,748) (728,818) Cash and cash equivalents, beginning of period 157,559 824,978 ------------ ------------ Cash and cash equivalents, end of period $ 142,811 $ 96,160 ============ ============
See accompanying notes 6 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. GENERAL AND ACCOUNTING POLICIES BUSINESS - The consolidated financial statements include the accounts of Gothic Energy Corporation, (the "Company"), and its subsidiaries, Gothic Energy of Texas, Inc. ("Gothic Texas"), since its inception in 1995 and Buttonwood Energy Corporation and its subsidiaries Buttonwood Petroleum, Inc. and Dakota Services, Inc. ("Buttonwood") since their acquisition on January 30, 1996. Since November 1994, the Company has been primarily engaged in the business of acquiring, developing and exploiting oil and gas reserves. PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The December 31, 1995 consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles. The condensed financial statements should be read in conjunction with the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. In the opinion of management of the Company, the accompanying financial statements contain all adjustments, none of which were other than normal recurring accruals, necessary to present fairly the financial position of the Company as of June 30, 1996, and the results of its operations and cash flows for the periods ended June 30, 1996 and 1995. The results of operations for the periods represented are not necessarily indicative of the results of operations to be expected for the full year. NOTE 2. OIL AND GAS PROPERTY ACQUISITIONS COMSTOCK ACQUISITION - On May 16, 1996 the Company completed the acquisition, effective as of January 1, 1996, from Comstock Oil and Gas, Inc. and Comstock Offshore Energy, Inc. ("Comstock"), of various working interests in 145 producing oil and gas properties. The Company will operate 70 of the wells. The purchase price for the properties acquired was $6,600,000, subject to certain post-closing adjustments which reduced the amount paid to $6,430,195. Substantially all of the properties acquired are located in the Anadarko Basin of western Oklahoma and the Arkoma Basin of eastern Oklahoma and Arkansas. The purchase was financed through an increase in the amount of borrowings under the Company's Loan Agreement dated January 19, 1996 with Bank One, Texas, N.A. STRATUM OVERRIDE ACQUISITION - On May 16, 1996 the Company completed the acquisition of the Stratum Group, L.L.C. ("Stratum") 7% overriding royalty interests in the Company's Johnson Ranch wells. The purchase price for the interests acquired was $800,000. The purchase price was financed through an increase in the Company's borrowing facility at Bank One, Texas, N.A. and from the Company's working capital. 7 BUTTONWOOD ACQUISITION - On January 30, 1996 the Company completed the acquisition of Buttonwood Energy Corporation (the "Buttonwood Acquisition"), at a price of $17,912,500, net of a $1,000,000 deposit paid in 1995 and charged to expense. The aggregate purchase price of $18,008,712 including acquisition costs of $389,212, was allocated to he assets acquired and liabilities assumed as follows:
Current assets $ 1,632,327 Property and equipment 20,784,016 Other assets 1,435,500 Current liabilities (1,660,628) Gas imbalance (1,189,956) Deferred income taxes (2,992,547) ------------ Aggregate purchase price 18,008,712 Less: Cash acquired (415,739) ------------ Net cash paid $ 17,592,973 ============
The Buttonwood Acquisition was financed with proceeds from a public offering of the Company's common stock and preferred stock, a bridge financing and the establishment of a credit facility with Bank One, Texas. The public offering and the preferred stock financing, generated net proceeds of $17,216,000. The remaining purchase price was paid out of the proceeds from the Bank One, Texas Credit Facility. The acquisition was accounted for under the purchase method and, accordingly, results of operations of the acquired operations are included in the Company's results of operations since the date of acquisition. NOTE 3. FINANCING ACTIVITIES BANK ONE LOAN - Effective January 30, 1996, the Company entered into an $11 million revolving credit facility with Bank One Texas. The proceeds of the borrowing were used to finance a portion of the purchase price of the Buttonwood Acquisition , and to repay outstanding indebtedness to Stratum Group, L.L.C. ("Stratum"). On May 16, 1996 the revolving credit facility was increased to $17.7 million. The proceeds from this increase were used to finance the purchase price of the Comstock and Stratum acquisitions (See Note 2). Of the increase $669,895 was part of a one-time $1 million Special Advance which must be repaid in full prior to October 1, 1996 and bears interest at a rate of 5% over the bank's base rate. The Company anticipates repaying the special advance out of excess working capital and through the sale of marginal properties. The remaining increase was granted under the original terms of the credit facility. The total amount outstanding on the Bank One Loan was $17,092,595 at June 30, 1996. The terms of the Bank One Loan provide for principal reduction payments at the rate of $232,000 per month, plus interest with all outstanding principal and interest due and payable on January 30, 1999. Interest is payable at the option of the Company, either at the rate of 1% over Bank One's base rate or up to 3.75% (based on the principal balance outstanding), over the rate for borrowed dollars by the lending bank in the London Interbank Market. The indebtedness is collateralized by first liens on all of the Company's oil and gas properties, including those acquired from Buttonwood and Comstock. The loan agreement relating to the credit facility includes various affirmative and negative covenants including, among others, the requirements that the Company maintain certain ratios of current assets to current liabilities, and debt service coverage. The loan agreement also established an amount of minimum tangible net worth and places a limitation on annual selling, general and administrative expenses. Material breaches of these or other covenants which are not cured or waived could result in this indebtedness becoming immediately due and payable and empowering the lender to foreclose against the collateral for the loan. 8 STRATUM LOAN - On June 2, 1995, Gothic Texas entered into an agreement with Stratum in which Stratum agreed to loan Gothic Texas a maximum amount of $8,131,500, of which $6,756,500 was drawn and used to complete the Johnson Ranch Acquisition. At January 30, 1996 the amount outstanding was $6,575,687. On that date the Company, with proceeds from its new credit facility, paid Stratum in full and terminated its loan agreement with them. This transaction resulted in a loss on extinguishment of debt of $1,432,973. Effective January 30, 1996 Quest Capital Corporation ("Quest"), converted $1,290,000 of its $1,850,000 note into 1,290 shares of the Company's 7 1/2% Cumulative Convertible Preferred Stock. The remaining $560,000 of indebtedness and $265,000 of accrued interest and other amounts due Quest were converted into a subordinated note in the principal amount of $825,000 which was paid in full by the Company on March 13, 1996. BRIDGE FINANCING - A $1,000,000 note owing to Quest, Epoch Capital Corporation and another lender , along with accrued interest, was paid in full, on January 30, 1996 at the closing of the public offering by the Company. PUBLIC OFFERING - During the quarter ended March 31, 1996, the Company completed a public offering of 2,545,000 Units at a price of $6.00 per Unit. Each Unit consisted of three shares of the Company's $.01 par value common stock and three redeemable common stock purchase warrants, each exercisable for one share of common stock at $2.40 per share. The offering netted the Company approximately $12,970,000, which, together with the proceeds from the credit facility and preferred stock financing, was applied to the purchase of Buttonwood and the repayment of indebtedness. PREFERRED STOCK OFFERING - On January 30, 1996 the Company completed a preferred stock financing of 5,540 shares of the Company's 7 1/2% Cumulative Convertible Preferred Stock. The financing included 1,290 shares issued to Quest in exchange for $1,290,000 principal amount of a note. The remaining 4,250 shares were sold for an aggregate cash price of $4,250,000. The 5,540 shares of 7 1/2% Cumulative Convertible Preferred Stock issued are convertible commencing December 31, 1996, into shares of the Company's Common Stock at a conversion price per share of Common Stock of $2.00. On the basis of the above mentioned conversion price, an aggregate of 2,770,000 shares of Common Stock would be issuable on conversion. NOTE 4. CONTINGENCIES A former officer and employee of the company, on May 6, 1996, commenced an arbitration proceeding under the Rules of the American Arbitration Association against the Company seeking to recover damages for an alleged breach of contract and intentional interference with contract. The damages sought are approximately $384,000. The Company believes that it has adequate basis to prove that the termination for cause was appropriate. NOTE 5. SUBSEQUENT EVENTS ADDITIONAL ACQUISITIONS - Subsequent to the quarter ending June 30, 1996, the Company completed the acquisition of working interests from various sellers, in approximately 120 wells in the Anadarko Basin of Western Oklahoma, and the Arkoma Basin of Eastern Oklahoma and Arkansas. The purchase price of the transactions was approximately $3.3 million and was financed from the Company's working capital and an increase in the revolving credit facility with Bank One, Texas, N.A. The loan facility was increased to approximately $19.3 million on July 31, 1996, with $18.5 million being under the original terms of the loan and $800,000 falling under the terms of the Special Advance (See Note 4). The Company's monthly principal payment will increase to $290,000 beginning September 1, 1996. 9 ITEM 2. MANAGEMENTOS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings, financial condition and liquidity during the periods included in the accompanying Consolidated Financial Statements. On January 19, 1995, the Company completed its first acquisition of oil and gas reserves, the Egolf Acquisition, and on June 2, 1995, the Company completed a second acquisition of oil and gas reserves, the Johnson Ranch Acquisition. On January 30, 1996, the Company completed the following transactions: (i) it completed the acquisition of Buttonwood Energy Corporation (the "Buttonwood Acquisition"); (ii) it borrowed $11 million pursuant to a credit facility (the "Credit Facility") entered into with a bank; (iii) it completed the public sale of securities (the "Offering") yielding net proceeds of approximately $12,970,000; and (iv) it sold 5,540 shares of 7 1/2% Cumulative Preferred Stock (the "Preferred Stock Financing") for aggregate consideration of $5,540,000 inclusive of $1,290,000 principal amount of a note of the Company exchanged for the preferred shares. On May 16, 1996, the Company completed the acquisition from Comstock of various working interests in 145 producing oil and gas properties for the purchase price of $6,430,195. In addition, on May 16, 1996, the Company completed the acquisition of the Stratum 7% overriding royalty interests in the Company's Johnson Ranch wells for the purchase price of $800,000. The purchase prices were financed through an increase in the Company's borrowing facility at Bank One, Texas, N.A. and from the Company's working capital. RESULTS OF OPERATIONS - --------------------- SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 Revenues were $4,858,633 for the six months ended June 30, 1996, as compared to $506,433 for the same period ended June 30, 1995. This increase is primarily the result of acquisitions of oil and gas properties made by the Company since June 1995, as described above. Higher prices for oil and gas sales also contributed to the increase. Oil and gas revenues for the period ended June 30, 1996 were $4,343,126, with $1,577,120 coming from oil sales and $2,766,006 from gas sales. Oil sales were based on the sale of 82,726 barrels at an average price of $19.06 per barrel. Gas sales were based on the sale of 1,399,688 mcf at an average price of $1.98 per mcf. The Company incurred lease operating expenses during the six months ended June 30, 1996 of $2,059,735. This compares to $275,071 for the same period in 1995. This increase is also a result of the acquisitions completed since June 1995, as described above. Depletion, depreciation and amortization expense increased to $1,586,782 for the six months ended June 30, 1996 from $175,900 for the same period in the prior year. Depletion of the oil and gas properties increased to $1,543,000 for the six months ended June 30, 1996 from $165,000 for the comparable period in 1995 primarily due to the acquisitions since June 1995, as described above. Selling, general and administrative costs were $818,324 for the six months ended June 30, 1996, as compared to $457,421 for the six months ended June 30, 1995. The major reason for this increase is the addition of personnel and related costs due to acquisitions made since June of 1995. The increase also includes some nonrecurring costs related to the completion of the Buttonwood transaction. The Company also recorded a $5,050,000 full cost ceiling write- down on its oil and gas properties at March 31, 1996. 10 Interest and financing costs increased to $648,261 for the six months ended June 30, 1996. This compares to $527,265 for the same period in 1995. The increase is the result of interest costs related to the financing used by the Company to acquire oil and gas properties. The Company recorded an extraordinary loss of $1,432,973 on the early extinguishment of debt during the quarter ended March 31, 1996, with the payoff of the Stratum loan. The Company also recognized $173,125 in preferred dividends on its 7 1/2% cumulative preferred stock during the six months ended June 30, 1996. THREE MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 1995. Revenues were $3,088,047 for the three months ended June 30, 1996, as compared to $365,604 for the same period ended June 30, 1995. This increase is the result of acquisitions of oil and gas properties made by the Company since June 0f 1995, as described above. Oil and gas revenues for the period ended June 30, 1996 were $2,734,910, of which $900,570 came from oil sales and $1,834,340 from gas sales. Oil sales were based on the sale of 46,919 barrels at an average price of $19.19 per barrel. Gas sales were based on the sale of 905,287 mcf at an average price of $2.03 per mcf. The Company incurred lease operating expenses during the three months ended June 30, 1996 of $1,176,638. This compares to $188,602 for the same period in 1995. This increase is also a result of the acquisitions completed since June 1995, as described above. Depletion, depreciation and amortization expense was $960,415 for the three months ended June 30, 1996 as compared to $115,000 for the same period in the prior year. Such increase was primarily due to higher volumes of oil and gas sold related to the properties acquired since June of 1995. Selling, general and administrative costs were $412,017 for the three months ended June 30, 1996, as compared to $224,487 for the three months ended June 30, 1995. The major reason for this increase is the addition of personnel and related costs due to acquisitions made since June of 1995. Interest and financing costs decreased $151,239 to $326,716 for the three months ended June 30, 1996 as compared to the same period in 1995. This is a result of the Company's debt restructuring, which was completed in January 1996, and lower financing costs. The Company also recognized $103,875 in preferred dividends on its 7 1/2% cumulative preferred stock during the three months ended June 30, 1996. CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- GENERAL - ------- The Company's capital requirements relate to the acquisition, exploration, enhancement, development and operation of oil and gas producing properties. In general, because oil and gas reserves the Company has acquired and intends to acquire are depleted by production over time, the success of its business strategy is dependent upon a continuous acquisition, exploitation, enhancement, development and operation program. In order to achieve profitability and generate cash flow, the Company will be dependent upon acquiring or developing additional oil and gas properties or entering into joint oil and gas well development arrangements. The Company will continue to require access to debt and equity capital or the availability of joint venture development arrangements, among other possible sources, to pursue its business strategy of additional property acquisition and development. The Company has no present arrangements to raise additional capital from the sale of its securities and no assurance can be given that the Company will be able to obtain additional capital or enter into joint venture development arrangements on 11 satisfactory terms to implement the Company's business strategy. The Company has funded its recent capital needs through the issuance of capital stock and borrowings. Without raising additional capital or entering into joint oil and gas well development arrangements, the Company will be unable to acquire additional producing oil and gas properties and its ability to develop its existing oil and gas properties will be limited to the extent of the available cash flow. No assurance can be given as to the availability or terms of any such additional capital or joint development arrangements or that such terms as are available may not be dilutive to the interests of the CompanyOs stockholders. At June 30, 1996 the Company had a cash position of $142,811 and a working capital deficit of $3,658,759 including $4,033,895 of current portion of long- term debt. ACQUISITION FINANCING - --------------------- Under the terms of the Buttonwood Acquisition agreement, which was completed on January 30, 1996, the Company paid $17,912,500, in consideration for the acquisition, net of a $1,000,000 deposit paid in 1995 and charged to expense. The Bank One Credit Facility currently enables the Company to borrow up to $19.3 million. The proceeds of the borrowing were used on January 30, 1996 to finance a portion of the purchase price for the Buttonwood Acquisition and repay outstanding indebtedness. Additional proceeds were used on May 16, 1996 to finance the purchase of the Comstock and Stratum well interests, and on July 31, 1996 to finance the acquisition of well interests from various sellers. The terms currently provide for amortization payments at the rate of $232,000 per month through August 1996 and $290,000 per month commencing September 1, 1996, with all outstanding principal and interest due and payable on January 30, 1999. Interest is payable, at the option of Company, either at the rate of 1% over the lending bank's base rate or up to 3.75% (based on the principal balance outstanding) over the rate for borrowed dollars by the lending bank in the London Interbank market. The indebtedness is collateralized by first liens on all of the CompanyOs oil and gas properties. The loan agreement relating to the Credit Facility includes various affirmative and negative covenants, including, among others, the requirements that the Company (i) maintain a ratio of current assets to current liabilities, as defined, of not less than 1.0 to 1.0, (ii) maintain a debt service coverage ratio of net cash flow per quarter to required quarterly reduction of indebtedness of not less than 1.10 to 1.0, (iii) maintain minimum tangible net worth at the end of each fiscal quarter of $10,250,000, plus certain percentages of net income and proceeds received from the sale of securities, and (iv) maintain selling, general and administrative expenses per quarter not in excess of 25% of consolidated net revenues. Material breaches of these or other covenants which are not cured or waived could result in a default under the loan agreement resulting in this indebtedness becoming immediately due and payable and empowering the lender to foreclose against the collateral for the loan. Pursuant to the Preferred Stock Financing, the Company issued and sold 5,540 shares of its 7 1/2% Cumulative Convertible Preferred Stock for an aggregate consideration of $5,540,000, of which $4,250,000 was paid in cash, and $1,290,000 was paid by Quest by exchange of $1,290,000 of outstanding principal amount of indebtedness held by Quest for 1,290 shares. The proceeds were used by the Company, together with the net proceeds from the offering and the Credit Facility, for the balance of the purchase price of the Buttonwood Acquisition and to repay indebtedness and expenses of the 1996 transactions. The 5,540 shares of 7 1/2% Cumulative Convertible Preferred Stock are convertible, commencing December 31, 1996, into shares of the Company's Common Stock at a conversion price per share of Common Stock equal to the lesser of (i) $2.00 or (ii) a price equal to the average of the closing prices of the Company's Common Stock during the 30 business days prior to the day the shares are converted less a discount of 12 1/2%. The number of shares of Common Stock to be issued on conversion is determined by multiplying the number of shares of 7 1/2% Cumulative Convertible Preferred Stock to be converted by $1,000 and dividing the result by the conversion price in effect. The shares pay a cumulative preferred dividend of 7 1/2% of the stated value per annum payable semi- annually. The shares of 7 1/2% Cumulative Convertible Preferred Stock have no voting rights. 12 After reflecting the exchange of $1,290,000 principal amount of indebtedness for 1,290 shares of 7 1/2% Cumulative Convertible Preferred Stock in the Preferred Stock Financing, the remaining $560,000 of principal and accrued interest of $173,000 owing to Quest on a note, and other obligations owing to Quest aggregating $92,000 were replaced at the closing of the Preferred Stock Financing with a new subordinated note in the principal amount of $825,000 bearing interest at 7 1/2% per annum, due, together with all accrued interest thereon, ten years from the date it is issued. The $825,000 note was repaid on March 13, 1996. CASH FLOW - --------- Net cash used in operating activities increased to $407,412 for the six months ended June 30, 1996 as compared to net cash used of $355,006 for same period in 1995. This was primarily a result of an increase in cash flow from operations before changes in operating assets and liabilities, offset by an increase in working capital. The Company used $25,388,492 of net cash in investing activities for the first six months of 1996 compared with $10,412,464 for the same period in 1995. This was primarily due to the acquisition of Buttonwood, net of cash acquired, for $17,592,973, the acquisition of Comstock for $6,430,195, net of adjustments, and oil and gas well enhancements in the amount of $347,423 and other producing property acquisitions of $1,532,140. Net cash provided by financing activities for the six months ended June 30, 1996 was $25,781,156 compared to $10,038,652 provided in 1995. During the six months ended June 30, 1996 the Company received proceeds from long-term debt of $18,230,195, proceeds from the issuance of common stock of $13,141,368 and proceeds from the issuance of preferred stock of $3,997,430. The Company also used funds of $9,168,983 to pay short and long-term debt during the period, and $173,125 to pay preferred dividends. CAUTIONARY STATEMENT - Reference is made to the Cautionary Statement for ------------------------ Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation - ----------------------------------------------------------------------------- Reform Act of 1995 contained in the Company's Annual Report on Form 10-KSB for - ------------------ the year ended December 31, 1995, which Cautionary Statement is incorporated herein by reference. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings (a) A former officer and employee of the company, Larry L. Terry, on May 6, 1996, commenced an arbitration proceeding under the Rules of the American Arbitration Association against the Company seeking to recover damages for an alleged breach of contract and intentional interference with contract. The damages sought are approximately $384,000. The Company believes that it has adequate basis to prove that the termination of Mr. Terry for cause was appropriate. Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Financial Data Schedule (b) Reports on Form 8-K During the quarter ended June 30, 1996, the Company filed a Current Report on Form 8-K dated May 16, 1996, reporting under "Item 2 - Acquisition or Disposition of Assets" and "Item 7 - Financial Statements and Exhibits". 14 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. GOTHIC ENERGY CORPORATION DATE: NOVEMBER 18, 1996 BY: /S/ MICHAEL PAULK ------------------------------------ MICHAEL PAULK, PRESIDENT, CHIEF EXECUTIVE OFFICER DATE: NOVEMBER 18, 1996 BY: /S/ ANDREW MCGUIRE ------------------------------------ ANDREW MCGUIRE, CONTROLLER 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 142,811 0 2,839,834 (70,000) 0 2,990,579 32,783,795 (2,341,414) 35,155,360 6,649,338 0 0 277 123,532 14,118,561 35,155,360 4,343,126 4,858,633 0 2,059,735 818,324 5,050,000 648,261 (5,304,469) 2,992,547 0 0 (1,432,973) 0 (3,918,020) (.36) (.36)
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