-----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, IP0YrfQQYWOobz6PTyINh7W02pi0EpSWKhyApqRLZlD9Xg/zQVPIaqVsgZOoIeYA DSHmGUjqiiyEMW4j8XENKw== 0000950144-97-004671.txt : 19970428 0000950144-97-004671.hdr.sgml : 19970428 ACCESSION NUMBER: 0000950144-97-004671 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970210 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970425 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDDLE BAY OIL CO INC CENTRAL INDEX KEY: 0000903267 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 631081013 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21702 FILM NUMBER: 97587875 BUSINESS ADDRESS: STREET 1: 115 S DEARBORNE ST CITY: MOBILE STATE: AL ZIP: 36602 BUSINESS PHONE: 3344327540 MAIL ADDRESS: STREET 1: PO BOX 390 CITY: MOBILE STATE: AL ZIP: 36602 8-K/A 1 MIDDLE BAY OIL COMPANY, INC. 8-K/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 10, 1997 --------------------------- MIDDLE BAY OIL COMPANY, INC. (Exact name of registrant as specified in its charter) FILE NO. 0-21702 (Commission File Number) ALABAMA 63-1081013 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 115 SOUTH DEARBORN STREET, MOBILE, AL 36602 (Address of principal executive offices) (334) 432-7540 (Registrant's telephone number, including area code) N/A ------------------------------------------------------------- (Former name or former address, if changed since last report) Total number of sequentially numbered pages: 36 2 This Form 8-K/A amends the Current Report on Form 8-K of Middle Bay Oil Company, Inc. (the "Registrant") filed with the Securities and Exchange Commission on February 20, 1997 to provide financial statements and financial information with respect to the merged corporation. ITEM 7- FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired Annual Financial Statements: Report of Independent Auditors Audited Balance Sheets as of March 31, 1995 and 1996 Audited Statements of Operations for the Years Ended March 31, 1995 and 1996 Audited Statements of Changes in Stockholders' Equity for the Years Ended March 31, 1995 and 1996 Audited Statements of Cash Flows for the Years Ended March 31, 1995 and 1996 Notes to Audited Financial Statements Interim Financial Statements (unaudited): Balance Sheet as of December 31, 1996 Statements of Operations for the nine months ended December 31, 1995 and 1996 Statements of Cash Flows for the nine months ended December 31, 1995 and 1996 Notes to Unaudited Financial Statements (b) Unaudited Pro Forma Financial Information Pro Forma Combined Balance Sheet as of December 31, 1996 Pro Forma Combined Statement of Operations for the Year Ended December 31, 1996 Notes to Pro Forma Combined Financial Statements (c) Exhibits 3 BISON ENERGY CORPORATION AUDITED CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1996 AND 1995 4 TABLE OF CONTENTS
Page No. ---- Independent Auditors' Report. . . . . . . . . . . . . . . 1 Consolidated Balance Sheets . . . . . . . . . . . . . . . 2 Consolidated Statements of Operations . . . . . . . . . . 3 Consolidated Statements of Changes in Stockholder's Equity . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows . . . . . . . . . . 5 Notes to Consolidated Financial Statements. . . . . . . . 6
5 Independent Auditors' Report Board of Directors and Stockholder Bison Energy Corporation We have audited the accompanying consolidated balance sheets of Bison Energy Corporation as of March 31, 1996 and 1995, and the related statements of operations, changes in stockholder's equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We have conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bison Energy Corporation at March 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /S/ SCHULTZ, WATKINS & COMPANY Jackson, Mississippi March 22, 1997 -1- 6 BISON ENERGY CORPORATION Consolidated Balance Sheets March 31 ASSETS
1996 1995 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 974,462 $ 567,844 Accounts receivable 345,327 369,638 Warehouse stock 173,975 151,698 Other 20,661 - ----------- ----------- Total current assets 1,514,425 1,089,180 NON-CURRENT ASSETS (Note 2) Accounts receivable-stockholder 7,553 35,422 Notes receivable affiliates 357,698 182,000 ----------- ----------- 365,251 217,422 PROPERTY (At Cost)(Note 1) Oil and gas (successful efforts method) (substantially pledged - Note 3) 1,132,858 1,041,280 Land 139,115 134,115 Office building and other 1,185,404 1,091,182 ----------- ----------- 2,457,377 2,266,577 Less accumulated depreciation and depletion 1,116,018 951,457 ----------- ----------- 1,341,359 1,315,120 INVESTMENT IN EQUITY INVESTEES (Note 2) 321,253 187,398 OTHER ASSETS 30,392 72,398 ----------- ----------- $ 3,572,680 $ 2,881,518 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 590,920 $ 445,980 Current maturity of long-term debt - 15,917 Income taxes payable 48,891 29,721 ----------- ----------- Total current liabilities 639,811 491,618 DEFERRED INCOME TAX (Notes 1 & 4) 32,213 25,154 LONG TERM DEBT (Note 3) - - STOCKHOLDER'S EQUITY (Note 7) Common stock, $1.00 par, 3,000 shares authorized, 500 issued and outstanding in 1996 and 1995 500 500 Retained earnings 2,900,156 2,364,246 ----------- ----------- 2,900,656 2,364,746 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 6) $ 3,572,680 $ 2,881,518 =========== ===========
See accompanying notes to consolidated financial statements. -2- 7 BISON ENERGY CORPORATION Consolidated Statements of Operations Years Ended March 31
1996 1995 ---------- ---------- REVENUE Oil, gas and plant income $ 1,770,254 $ 1,805,520 (Loss) Gain on sale of assets (133,748) 28,364 Management income 168,000 128,625 Overhead income 573,056 678,958 Other 322,755 41,058 ----------- ----------- 2,700,317 2,682,525 ----------- ----------- COST AND EXPENSES Operating expenses, including plant, and production taxes 852,374 971,897 Abandonment and dry hole costs 149,754 12,818 Depreciation, depletion and amortization 204,491 297,903 Interest 242 49,815 General and administrative 1,216,534 876,735 ----------- ----------- 2,423,395 2,209,168 ----------- ----------- INCOME BEFORE INCOME TAXES AND INVESTEE EARNINGS (LOSS) 276,922 473,357 INCOME TAX EXPENSE (BENEFIT) (Note 4) Current 50,455 30,056 Deferred 7,059 (340) ----------- ----------- 57,514 29,716 EQUITY IN NET EARNINGS(LOSS) OF EQUITY INVESTEES (Note 2) 316,502 (325,191) ----------- ----------- NET INCOME $ 535,910 $ 118,450 =========== =========== NET INCOME PER SHARE $ 1,072 $ 237 =========== ===========
See accompanying notes to consolidated financial statements. -3- 8 BISON ENERGY CORPORATION Consolidated Statement of Changes in Stockholder's Equity Years Ended March 31, 1996 and 1995
Common Stock ------------ Retained Shares Amount Earnings Total -------- -------- ----------- ----------- BALANCE - April 1, 1994 500 $ 500 $ 2,245,796 $ 2,246,296 Net income 118,450 118,450 --- ------- ----------- ----------- BALANCE - March 31, 1995 500 500 2,364,246 2,364,746 Net Income 535,910 535,910 --- ------- ----------- ----------- BALANCE - March 31, 1996 500 $ 500 $ 2,900,156 $ 2,900,656 === ======= =========== ===========
See accompanying notes to consolidated financial statements. -4- 9 BISON ENERGY CORPORATION Consolidated Statements of Cash Flows Years Ended March 31
1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 535,910 $ 118,450 Depreciation, depletion & amortization 204,491 297,903 Loss (Gain) on sale of assets 69,400 (28,364) (Income) Loss of equity investees (316,502) 325,191 Increase (Decrease) in deferred taxes 7,059 (340) Decrease in receivables 24,311 133,036 Increase in payables and accruals 164,110 51,725 (Increase) Decrease in inventory (22,277) 40,501 Other 30,229 20,526 ----------- ----------- Net cash provided by operating activities 696,731 958,628 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (206,258) (194,118) Proceeds from sale of assets 104,030 118,802 Investment in affiliates and equity investees - (254,523) Advances to affiliates-net (175,698) (182,000) Other 3,730 62,015 ----------- ----------- Net cash (used in) investing activities (274,196) (449,824) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on loans (15,917) (425,700) ----------- ----------- Net cash (used in) financing activities (15,917) (425,700) ----------- ----------- NET INCREASE IN CASH FOR THE YEAR 406,618 83,104 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 567,844 484,740 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 974,462 $ 567,844 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 242 $ 49,815 =========== =========== Income taxes $ 31,285 $ (136,260) =========== =========== Non-cash investing and financing activities: Oil and gas properties contributed to equity investee $ - $ 411,019 =========== =========== Long term debt assumed by equity investee $ - $ 800,000 =========== ===========
See accompanying notes to consolidated financial statements. -5- 10 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Bison Energy Corporation (the Company) was incorporated under the laws of the State of Kansas on October 21, 1981. The Company is engaged in the acquisition, development and production of oil and natural gas in the contiguous United States. Significant Accounting Policies The Company's accounting policies reflect industry standards and conform to generally accepted accounting principles. The more significant of such policies are described below. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Bison Production Company. Intercompany balances and transactions have been eliminated in consolidation. Investments in other equity investments are accounted for by the equity method. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company classifies all cash investments with original maturities of three months or less as cash. -6- 11 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Oil and Gas Property The Company follows the successful efforts method of accounting for oil and gas properties and accordingly, capitalizes all direct costs incurred in connection with the acquisition, drilling and development of productive oil and gas properties. Costs associated with unsuccessful exploration and development are charged to expense currently. Geological and geophysical costs and costs of carrying and retaining unevaluated properties are charged to expense. Depletion, depreciation and amortization of capitalized costs are computed separately for each property. Leasehold and intangible drilling costs are depleted using the unit-of-production method using only proved oil and gas reserves. Lease equipment was depreciated using an accelerated method which approximates the units-of-production method. The Company reviews its undeveloped properties continually and charges then to expense on a property by property basis when it is determined that they have been condemned by dry holes, or will not be retained, sold or drilled upon. Site Restoration, Dismantlement & Abandonment Costs Site restoration, dismantlement and abandonment costs (P & A costs) are common in the oil and gas industry in which the Company conducts operations. P & A costs are costs associated with removing the facilities and equipment required to operate a well and restoring the well site to specified conditions. P & A procedures are governed by federal and state regulations and contractual obligations. P & A costs are incurred when the oil and gas reserves of a well or wells are depleted or when production drops to the point that it is no longer economically feasible to produce. -7- 12 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company continually reviews its working interests with respect to potential P & A costs. When conditions require that a well be abandoned, the appropriate accounting procedures are followed. When a well or the last well of a group of proved properties ceases to produce or is no longer economically feasible to produce, the entire cost related to the well or group of wells, which includes estimated future dismantlement and abandonment cost, is written off and gain or loss is recognized. Any additional liabilities arising for P & A costs, net of salvage value of the equipment, are accrued in the financial statements and charged to expense in the current period. At March 31, 1996 and 1995, there were no P & A costs accrued. Impairment of Long-Lived Assets Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS #121) was issued in March 1995. This statement requires that long-lived assets be reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. This review consists of a comparison of the carrying value of the asset with the asset's expected future undiscounted cash flows without interest costs. Estimates of expected future cash flows are to represent management's best estimate based on reasonable and supportable assumptions and projections. If the expected future cash flows exceed the carrying value of the asset, no impairment is recognized. If the carrying value of the asset exceeds the expected future cash flows, an impairment exists and is measured by the excess of the carrying value over the estimated fair value of the asset. Any impairment provisions recognized in accordance with SFAS #121 are permanent and may not be restored in the future. -8- 13 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) There were no impairment provisions required at March 31, 1996 or 1995. Prior to the adoption of SFAS #121, the Company assessed its proved oil and gas properties on an individual field basis using management's best estimate of the expected future cash flows from the producing properties. Other Property and Equipment Property and equipment are stated at cost and depreciation is computed on the accelerated method over the appropriate life for the property. Additions and betterment's which provide benefits to several periods are capitalized. Income Taxes The Company uses the asset and liability method of accounting for income taxes required by Statement of Financial Accounting Standards No. 109. Under the asset and liability method deferred tax assets and liabilities are determined by applying enacted statutory tax rates applicable to future years to the difference between the financial statement and tax bases of assets and liabilities. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to prepare the financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. -9- 14 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Concentrations of Credit Risk Financial instruments which subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company places its cash investments with high credit qualified financial institutions. Risk with respect to receivables is concentrated primarily in current production revenue receivable from multiple oil and gas producers, both major and independent, and is typical in the Industry. (2) RELATED PARTY TRANSACTIONS On August 5, 1994, NPC Energy Corp. (NPC) was incorporated in the State of Oklahoma for the purpose of exchanging its stock for all the assets and liabilities of ten limited partnerships and certain oil and gas assets and liabilities of the Company. Effective August 1, 1994, the Company received 449,600 shares (56.2%) of NPC common stock for the exchange of certain of its oil and gas properties, the assumption of $800,000 long term debt and its ownership interest in the ten limited partnerships. NPC subsequently merged with Middle Bay Oil Company, Inc. on December 31, 1996 (See Note 7). The Company performs the accounting and administrative functions for NPC. Total cost paid to the Company for these services was $126,000 and $94,500 for the years ended March 31, 1996 and 1995, respectively. In addition, a substantial number of the oil and gas properties owned by NPC are operated by Bison Production Company (BPC) for which BPC receives an overhead fee ranging from $150 to $570 per month per well. BPC collects all the oil and gas revenue, pays all of the lease operating expenses for all the leases it operates and all nonoperated leases owned by NPC, and remits a net check each month to the NPC. BPC does not charge an overhead fee for the nonoperated leases. -10- 15 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) The Company owned 60% of the outstanding common stock of Shawnee Well Service, Inc. (Shawnee). Shawnee is a Kansas corporation engaged in oil and gas well completions and workovers. The majority of Shawnee's work is performed in south central Kansas. The Company sold it ownership interest in Shawnee to a related party of the Company's stockholder on March 31, 1996 for $90,000. The Company performs accounting and administrative functions for Shawnee. Total cost paid to the Company for these services was $18,000 for years ended March 31, 1996 and 1995. Shawnee performs completions and workovers for wells operated by the Company. Total costs paid to Shawnee for these services was $128,058 and $80,030 for the years ended March 31, 1996 and 1995, respectively. The Company owns 57% of the outstanding common stock of Bison NGL, Inc. (NGL). NGL is Delaware corporation engaged in retail propane sales in the state of Colorado. The investment was subsequently sold to the Company's stockholder as part of the Merger Agreement with Middle Bay Oil Company on February 28, 1997 (See Note 7). Bison has a note receivable for $90,000 from NGL at Year ended March 31, 1996. At March 31, 1996 and 1995, the Company had advanced $365,251 and $217,422, respectively, to the Company's stockholder and related affiliates. The advances were subsequently repaid, with interest, prior to or as part of the Merger Agreement with Middle Bay Oil Company, Inc. on February 28, 1997 (Note 7). -11- 16 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) (3) LONG-TERM DEBT The Company has a revolving bank note payable for working capital purposes with a maximum balance of $1,000,000, due August 31, 1996. The note is collateralized by certain oil and gas properties and is guaranteed by the stockholder of the Company. The loan did not have a balance March 31, 1996 and 1995. (4) INCOME TAXES Income tax expense (benefit) for the years ended March 31 consisted of the following:
1996 1995 -------- -------- Current $ 50,455 $ 30,056 Deferred 7,059 (340) -------- --------- Total $ 57,514 $ 29,716 ======== ========
The reconciliation of income taxes computed at the U.S. Federal statutory tax rates to the provision for income taxes is as follows:
1996 1995 --------- --------- Income tax expense (benefit) at statutory rate $ 231,435 $ 57,785 (Decrease) due to statutory depletion (108,429) (81,156) (Decrease) Increase due to deferred income tax (7,059) 340 (Decrease)Increase due to non-consolidated affiliates (54,140) 69,881 (Decrease) due to tax credits (3,838) (190) (Decrease) due to AMT credit carryforward - (6,569) (Decrease) due to effect of graduated tax rates (16,750) (16,750) Increase due to state taxes and other 9,236 6,715 --------- --------- Income tax expense (benefit) $ 50,455 $ 30,056 ========= =========
-12- 17 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) The Company's net deferred tax liability at March 31, 1996 and 1995 is as follows:
1996 1995 --------- --------- Deferred tax liability Oil and gas properties $ 32,213 $ 25,154 ========= =========
As of March 31, 1996, the Company had a statutory depletion carryforward of $264,293. (5) RETIREMENT PLAN The Company maintains a Code Section 401(K) profit sharing plan. All eligible employees may elect to have the Company contribute a portion of their compensation to the plan. For any calendar year these elective deferrals may not exceed a specific dollar amount determined by the Internal Revenue Service. For each plan year, the Company may contribute to the Plan an amount of matching contribution determined by the Company at its discretion. The Company may choose not to make a matching contribution for a particular year. The Company contributed $22,000 to the plan for the year ended March 31, 1996. (6) COMMITMENTS AND CONTINGENCIES The Company is a defendant in various other legal proceedings which are considered routine litigation incidental to the Company's business, the disposition or which management believes will not have a material effect on the financial position or result of operations of the Company. -13- 18 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) (7) SUBSEQUENT EVENTS On December 31, 1996, the Company exchanged all of its NPC Energy Corp. common stock for 562,000 shares of Middle Bay Oil Company, Inc. (Middle Bay) common stock. Middle Bay's common stock is traded in the Over-The-Counter Market on the NASDAQ National Market System under the symbol "MBOC". On February 10, 1997, the Company executed a definitive merger agreement with Middle Bay Oil Company, Inc., whereby Bison would be acquired as a wholly owned subsidiary of Middle Bay. Pursuant to the terms of the agreement, Middle Bay issued 1,167,556 shares of its common stock to the Bison stockholder and cancelled the 562,000 shares of Middle Bay common stock owned by Bison. The balance of the purchase price consisted of cash of $5,900,000. The transaction closed on February 28, 1997. (8) SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) CAPITALIZED COSTS AND COSTS INCURRED (UNAUDITED) The following tables present the (1) capitalized costs related to oil and gas producing activities and the related depreciation, depletion and amortization and (2) costs incurred in oil and gas property acquisition and exploration and development activities (in thousands).
1996 1995 --------- --------- Capitalized Costs Proved properties $ 478,381 $ 399,214 Nonproducing leasehold 60,421 99,202 Support equipment & facilities 594,056 542,864 Accumulated depreciation, depletion & amortization (676,788) (547,363) --------- --------- Net $ 456,070 $ 493,917 ========= =========
-14- 19 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements March 31, 1996 and 1995 (continued) Cost Incurred Proved properties $ 20,483 $ 74,065 Unproved properties 30,100 95,034 Exploration costs 131,363 - Development costs 97,997 118,274 --------- --------- Total $ 279,943 $ 287,373 ========= ========= Depreciation, depletion & amortization $ 111,807 $ 188,759 ========= =========
ESTIMATED QUANTITIES OF RESERVES (UNAUDITED) STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS FROM PROVED RESERVES (UNAUDITED) The Company has interests in oil and gas properties that are principally located in Kansas. The Company does not own or lease any oil and gas properties outside the United States. There are no quantities of oil or gas subject to long-term supply or similar agreements with any governmental agencies. Information with respect to estimated quantities of reserves and future net cash flows from proved reserves at March 31, 1996 and 1995 was not available without retaining an outside engineering firm. Until the subsequent merger with Middle Bay Oil Company, Inc. (Note 7), the Company had only one stockholder and had no reason to assemble this information. Management has therefore elected to omit these disclosures. -15- 20 BISON ENERGY CORPORATION UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED DECEMBER 31, 1996 -16- 21 BISON ENERGY CORPORATION Consolidated Balance Sheets (Unaudited) December 31 ASSETS
1996 1995 ---------- --------- CURRENT ASSETS Cash and cash equivalents $ 815,908 $ 606,767 Accounts receivable 512,632 443,969 Warehouse stock 187,431 175,335 Other 169,399 151,409 ---------- ---------- Total current assets 1,685,370 1,377,480 NON-CURRENT ASSETS (Note 2) Accounts receivable-stockholder 414 296 Notes receivable affiliates 546,163 213,069 ---------- ---------- 546,577 213,365 PROPERTY (At Cost)(Note 1) Oil and gas (successful efforts method) (substantially pledged - Note 3) 1,196,834 1,185,138 Land 139,115 139,115 Office building and other 1,317,556 1,212,847 ---------- ---------- 2,653,505 2,537,100 Less accumulated depreciation and depletion 1,162,122 1,099,277 ---------- ---------- 1,491,383 1,437,823 INVESTMENT IN EQUITY INVESTEES (Note 2) 517,266 492,686 OTHER ASSETS 139,948 9,469 ---------- ---------- $ 4,380,544 $ 3,530,823 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 517,284 $ 582,862 Income taxes payable 117,111 17,436 ---------- ---------- Total current liabilities 634,395 600,298 DEFERRED INCOME TAX (Notes 1 & 4) 30,803 33,754 LONG TERM DEBT (Note 3) - - STOCKHOLDER'S EQUITY (Note 6) Common stock, $1.00 par, 3,000 shares authorized, 500 issued and outstanding in 1996 and 1995 500 500 Retained earnings 3,714,846 2,896,271 ---------- ---------- 3,715,346 2,896,771 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 5) $ 4,380,544 $ 3,530,823 ========== ==========
-17- 22 BISON ENERGY CORPORATION Consolidated Statements of Operations (Unaudited) Nine Months Ended December 31
1996 1995 --------- --------- REVENUE Oil, gas and plant income $ 1,660,753 $ 1,302,434 Gain on sale of assets 38,241 - Management income 116,000 108,000 Overhead income 418,872 446,804 Other 72,277 245,779 ---------- ---------- 2,306,143 2,103,017 ---------- ---------- COST AND EXPENSES Operating expenses, including plant, and production taxes 650,737 636,820 Abandonment and dry hole costs 7,671 56,563 Depreciation, depletion and amortization 108,492 153,250 General and administrative 762,939 953,698 ---------- ---------- 1,529,839 1,800,331 ---------- ---------- INCOME BEFORE INCOME TAXES AND INVESTEE EARNINGS 776,304 302,686 INCOME TAX EXPENSE (BENEFIT) (Note 4) Current 117,505 20,000 Deferred (1,410) 8,600 ---------- ---------- 116,095 28,600 EQUITY IN NET EARNINGS OF EQUITY INVESTEES (Note 2) 154,481 257,939 ---------- ---------- NET INCOME $ 814,690 $ 532,025 ========== ========== NET INCOME PER SHARE $ 1,629 $ 1,064 ========== ==========
-18- 23 BISON ENERGY CORPORATION Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended December 31
1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 814,690 $ 532,025 Depreciation, depletion & amortization 108,492 153,250 (Gain) on sale of assets (38,241) - (Income) of equity investees (154,481) (257,939) (Decrease) Increase in deferred taxes (1,410) 8,600 (Increase) in receivables (160,166) (74,331) (Decrease) Increase in payables and accruals (5,416) 124,597 (Increase) in inventory (13,456) (23,637) Other (148,738) (151,409) ---------- ---------- Net cash provided by operating activities 401,274 311,156 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (220,275) (275,953) Investment in affiliates and equity investees (41,532) - Advances to affiliates-net (188,465) 4,057 Other (109,556) 15,580 ---------- ---------- Net cash (used in) investing activities (559,828) (256,316) CASH FLOWS FROM FINANCING ACTIVITIES Principal payment on loans - (15,917) ---------- ---------- NET (DECREASE) IN CASH FOR THE PERIOD (158,554) 38,923 CASH AND CASH EQUIVALENTS - APRIL 1, 1996 974,462 567,844 ---------- ---------- CASH AND CASH EQUIVALENTS - DECEMBER 31, 1996 $ 815,908 $ 606,767 ========== ==========
-19- 24 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements December 31, 1996 and 1995 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Bison Energy Corporation (the Company) was incorporated under the laws of the State of Kansas on October 21, 1981. The Company is engaged in the acquisition, development and production of oil and natural gas in the contiguous United States. Basis of Presentation In management's opinion, the accompanying financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position of the Company as of December 31, 1996 and the results of operations and cash flows for the nine months ended December 31, 1996. The accompanying financial statements have not been audited by an independent accountant. Certain information and disclosures normally included in annual audited financial statements prepared in accordance with generally accepted accounting principles have been omitted, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Significant Accounting Policies The Company's accounting policies reflect industry standards and conform to generally accepted accounting principles. The more significant of such policies are described below. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Bison Production Company. Intercompany balances and transactions have been eliminated in consolidation. Investments in other equity investments are accounted for by the equity method. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company classifies all cash investments with original maturities of three months or less as cash. -20- 25 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements December 31, 1996 and 1995 (continued) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Oil and Gas Property The Company follows the successful efforts method of accounting for oil and gas properties and accordingly, capitalizes all direct costs incurred in connection with the acquisition, drilling and development of productive oil and gas properties. Costs associated with unsuccessful exploration and development are charged to expense currently. Geological and geophysical costs and costs of carrying and retaining unevaluated properties are charged to expense. Depletion, depreciation and amortization of capitalized costs are computed separately for each property. Leasehold and intangible drilling costs are depleted using the unit-of-production method using only proved oil and gas reserves. Lease equipment was depreciated using an accelerated method which approximates the units-of-production method. The Company reviews its undeveloped properties continually and charges then to expense on a property by property basis when it is determined that they have been condemned by dry holes, or will not be retained, sold or drilled upon. Site Restoration, Dismantlement & Abandonment Costs Site restoration, dismantlement and abandonment costs (P & A costs) are common in the oil and gas industry in which the Company conducts operations. P & A costs are costs associated with removing the facilities and equipment required to operate a well and restoring the well site to specified conditions. P & A procedures are governed by federal and state regulations and contractual obligations. P & A costs are incurred when the oil and gas reserves of a well or wells are depleted or when production drops to the point that it is no longer economically feasible to produce. The Company continually reviews its working interests with respect to potential P & A costs. When conditions require that a well be abandoned, the appropriate accounting procedures are followed. When a well or the last well of a group of proved properties ceases to produce or is no longer economically feasible to produce, the entire cost related to the well or group of wells, which includes estimated future dismantlement and abandonment cost, is written off and gain or loss is recognized. Any additional liabilities arising for P & A costs, net of salvage value of the -21- 26 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements December 31, 1996 and 1995 (continued) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) equipment, are accrued in the financial statements and charged to expense in the current period. At December 31, 1996 there were no P & A costs accrued. Impairment of Long-Lived Assets Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS #121) was issued in March 1995. This statement requires that long-lived assets be reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. This review consists of a comparison of the carrying value of the asset with the asset's expected future undiscounted cash flows without interest costs. Estimates of expected future cash flows are to represent management's best estimate based on reasonable and supportable assumptions and projections. If the expected future cash flows exceed the carrying value of the asset, no impairment is recognized. If the carrying value of the asset exceeds the expected future cash flows, an impairment exists and is measured by the excess of the carrying value over the estimated fair value of the asset. Any impairment provisions recognized in accordance with SFAS #121 are permanent and may not be restored in the future. There were no impairment provisions required at December 31, 1996 or 1995. Prior to the adoption of SFAS #121, the Company assessed its proved oil and gas properties on an individual field basis using management's best estimate of the expected future cash flows from the producing properties. Other Property and Equipment Property and equipment are stated at cost and depreciation is computed on the accelerated method over the appropriate life for the property. Additions and betterment's which provide benefits to several periods are capitalized. -22- 27 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements December 31, 1996 and 1995 (continued) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded) Income Taxes The Company uses the asset and liability method of accounting for income taxes required by Statement of Financial Accounting Standards No. 109. Under the asset and liability method deferred tax assets and liabilities are determined by applying enacted statutory tax rates applicable to future years to the difference between the financial statement and tax bases of assets and liabilities. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to prepare the financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments which subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company places its cash investments with high credit qualified financial institutions. Risk with respect to receivables is concentrated primarily in current production revenue receivable from multiple oil and gas producers, both major and independent, and is typical in the Industry. (2) RELATED PARTY TRANSACTIONS On August 5, 1994, NPC Energy Corp. (NPC) was incorporated in the State of Oklahoma for the purpose of exchanging its stock for all the assets and liabilities of ten limited partnerships and certain oil and gas assets and liabilities of the Company. Effective August 1, 1994, the Company received 449,600 shares (56.2%) of NPC common stock for the exchange of certain of its oil and gas properties, the assumption of $800,000 long term debt and its ownership interest in the ten limited partnerships. NPC subsequently merged with Middle Bay Oil Company, Inc. on December 31, 1996 (See Note 6). -23- 28 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements December 31, 1996 and 1995 (continued) The Company performs the accounting and administrative functions for NPC. Total cost paid to the Company for these services was $94,500 for the nine months ended December 31, 1996 and 1995. In addition, a substantial number of the oil and gas properties owned by NPC are operated by Bison Production Company (BPC) for which BPC receives an overhead fee ranging from $150 to $570 per month per well. BPC collects all the oil and gas revenue, pays all of the lease operating expenses for all the leases it operates and all nonoperated leases owned by NPC, and remits a net check each month to the NPC. BPC does not charge an overhead fee for the nonoperated leases. The Company owns 57% of the outstanding common stock of Bison NGL, Inc. (NGL). NGL is Delaware corporation engaged in retail propane sales in the state of Colorado. The investment was subsequently sold to the Company's stockholder as part of the Merger Agreement with Middle Bay Oil Company on February 28, 1997 (See Note 6). At December 31, 1996 and 1995, the Company had advanced $546,163 and $213,069, respectively, to related affiliates. The advances were subsequently repaid, with interest, prior to or as part of the Merger Agreement with Middle Bay Oil Company, Inc. on February 28, 1997 (Note 6). (3) LONG-TERM DEBT The Company has a revolving bank note payable for working capital purposes with a maximum balance of $1,000,000, due August 31, 1997. The note is collateralized by certain oil and gas properties and is guaranteed by the stockholder of the Company. The loan did not have a balance December 31, 1996. -24- 29 BISON ENERGY CORPORATION Notes to Consolidated Financial Statements December 31, 1996 and 1995 (concluded) (4) INCOME TAXES Income tax expense (benefit) for the nine months ended December 31, 1996 and 1995 consisted of the following:
1996 1995 -------- -------- Current $ 117,505 $ 20,000 Deferred (1,410) 8,600 -------- -------- Total $ 116,095 $ 28,600 ======== ========
The Company's net deferred tax liability at December 31, 1996 and 1995 is as follows: Deferred tax liability Oil and gas properties $ 30,803 $ 33,754 ======== ========
(5) COMMITMENTS AND CONTINGENCIES The Company is a defendant in various other legal proceedings which are considered routine litigation incidental to the Company's business, the disposition or which management believes will not have a material effect on the financial position or result of operations of the Company. (6) SUBSEQUENT EVENTS On December 31, 1996, the Company exchanged all of its NPC Energy Corp. common stock for 562,000 shares of Middle Bay Oil Company, Inc. (Middle Bay) common stock. Middle Bay's common stock is traded in the Over-The-Counter Market on the NASDAQ National Market System under the symbol "MBOC". On February 10, 1997, the Company executed a definitive merger agreement with Middle Bay Oil Company, Inc., whereby Bison would be acquired as a wholly owned subsidiary of Middle Bay. Pursuant to the terms of the agreement, Middle Bay issued 1,167,556 shares of its common stock to the Bison stockholder and cancelled the 562,000 shares of Middle Bay common stock owned by Bison. The balance of the purchase price consisted of cash of $5,900,000. The transaction closed on February 28, 1997. -25- 30 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The accompanying pro forma combined condensed financial statements (the "pro forma financial statements")assume the merger between Middle Bay Oil Company, Inc. and Bison Energy Corp. and subsidiary (BEC), (the "Merger") is accounted for using the purchase method of accounting. The pro forma financial statements are based on the historical financial statements of MBOC and BEC. The pro forma financial statements are also based, in part, on the historical financial statements of NPC Energy Corp.(NPC), which merged into MBOC effective December 31, 1996 and was accounted for as a purchase (the "NPC Merger"). Such historical financial statements for the NPC Merger are included in the 8-K/A Amendment No. 1 filed by MBOC on January 14, 1997. The Pro Forma Combined Condensed Balance Sheet as of December 31, 1996 assumes the Merger had been consummated on that date. The Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 1996 has been prepared assuming the Merger and the NPC Merger had been consummated on January 1, 1996. The pro forma adjustments are based upon available financial information and assumptions that management of MBOC believes are reasonable. The pro forma financial statements do not purport to represent the financial position or results of operations which would have occurred had such transactions been consummated on the dates indicated or MBOC's financial position or results of operations for any future date or period. These pro forma financial statements and notes thereto should be read in conjunction with the historical financial statements and notes thereto described above. -26- 31 MIDDLE BAY OIL COMPANY, INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET DECEMBER 31, 1996 (UNAUDITED)
ASSETS Pro Forma Adjustments MBOC BEC for the Historical Historical Asset Sale --------------------------------------------------- Current assets: Cash $ 556,026 $ 815,908 $1,445,890 (14) - Notes and accounts receivable trade 1,129,417 512,632 Other current assets 58,137 356,830 - --------------------------------------------------- Total current assets 1,743,580 1,685,370 1,445,890 Non-current assets 159,215 546,577 - Investment in Bison Energy Corp. (1,445,890)(14) Property and equipment (at cost): Oil and gas properties 16,252,576 1,196,834 Other properties 354,603 1,456,671 - Accumulated depletion and deprec. (5,332,517) (1,162,122) - --------------------------------------------------- Property and equipment, net 11,274,662 1,491,383 - Investment in Equity Investees 517,266 Other assets 7,523 139,948 - Total assets $13,184,980 $4,380,544 $ - ==================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 554,601 $ - Accounts payable and accrued expenses 402,796 634,395 --------------------------------------------------- Total current liabilities 957,397 634,395 Long-term debt 5,158,477 - Deferred income taxes 610,785 30,803 Redeemable common stock 421,179 - Stockholders' Equity Preferred stock 1,000,000 - Common stock 37,618 500 Paid-in capital 5,628,263 - Treasury stock (68,040) - Retained earnings (deficit) (560,699) 3,714,846 - --------------------------------------------------- Total stockholders' equity 6,037,142 3,715,346 - Total liabilities and stockholders' equity $13,184,980 $4,380,544 $ - =================================================== Shares of common stock outstanding 1,859,144 500 =================================================== ASSETS Pro Forma Adjustments Pro Forma for the Merger Combined ----------------------------------------------------- Current assets: Cash (654,114)(11)(12) $ 717,820 (815,908)(13) 815,908 (1,445,890)(14) Notes and accounts receivable trade (512,632)(13) 1,642,049 512,632 Other current assets (356,830)(14) 58,137 ----------------------------------------------------- Total current assets (2,456,834) 2,418,006 Non-current assets (546,577)(14) 159,215 Investment in Bison Energy Corp. 10,019,672 (12) - (10,019,672)(13) 1,445,890 (14) Property and equipment (at cost): Oil and gas properties (1,196,834)(13) 27,206,684 10,954,108 Other properties (1,456,671)(13)(14) 879,920 525,317 (13) Accumulated depletion and deprec. 1,162,122 (5,332,517) ----------------------------------------------------- Property and equipment, net 9,988,042 22,754,087 Investment in Equity Investees (517,266)(13) - Other assets (139,948)(14) 7,523 Total assets $ 7,773,307 $25,338,831 ===================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt - $ 554,601 Accounts payable and accrued expenses (634,395)(13) 634,395 35,000 (12) 1,072,191 ----------------------------------------------------- Total current liabilities 35,000 1,626,792 Long-term debt - 5,158,477 Deferred income taxes (30,803)(13) 2,764,355 2,153,570 Redeemable common stock 421,179 Stockholders' Equity Preferred stock 6,000,000 (11)(12) 7,000,000 Common stock (500)(11) 49,729 12,111 (11)(12) Paid-in capital 3,318,775 (11)(12) 8,947,038 Treasury stock (68,040) Retained earnings (deficit) (3,714,846)(13) (560,699) ----------------------------------------------------- Total stockholders' equity 5,615,540 15,368,028 Total liabilities and stockholders' equity $ 7,773,307 $25,338,831 ===================================================== 605,556 (11) Shares of common stock outstanding (500)(11) 2,464,700 =====================================================
See accompanying notes to pro forma combined condensed financial statements. -27- 32 MIDDLE BAY OIL COMPANY, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS Twelve months ended December 31, 1996 (Unaudited)
Pro Forma MBOC NPC Adjustments MBOC Historical Historical for NPC Merger Pro Forma -------------------------------------------------------------------- Revenues: Oil and gas sales $4,474,786 $1,456,121 $5,930,907 Gain on sale of properties 37,815 103,995 141,810 Overhead income Management income Other income 373,820 29,603 403,423 -------------------------------------------------------------------- 4,886,421 1,589,719 0 6,476,140 Costs and expenses: Lease operating and production taxes 1,516,011 868,879 2,384,890 Depletion, depreciation and amortization 1,462,196 161,000 212,925 (1) 1,836,121 Abandonment expense 428,598 0 428,598 Interest expense 504,945 54,488 559,433 General and administrative 694,300 172,132 866,432 -------------------------------------------------------------------- 4,606,050 1,256,499 212,925 6,075,474 Income (loss) before income taxes and investee earnings 280,371 333,220 (212,925) 400,666 Provision for income taxes (benefit) 74,871 71,000 (68,300)(3) 77,571 Equity in net earnings of equity investees 0 0 0 -------------------------------------------------------------------- Net income (loss) 205,500 262,220 (144,624) 323,096 Preferred stock dividend 0 0 80,000 (2) 80,000 -------------------------------------------------------------------- Net income (loss) applicable to common stock $ 205,500 $ 262,220 ($224,624) $243,096 ==================================================================== Income (loss) per share-Primary $ 0.15 $ 0.33 $0.13 ==================================================================== Income (loss) per share-Fully diluted $ 0.15 $ 0.33 $0.13 ==================================================================== Weighted average common shares outstanding 562,000 Primary 1,332,141 800,000 (800,000)(4) 1,894,141 ==================================================================== Fully diluted 1,358,662 800,000 (800,000)(4) 1,920,662 ==================================================================== Pro Forma BISON Adjustments Pro Forma Historical for the Merger Combined ------------------------------------------------------------------- Revenues: Oil and gas sales $2,128,573 $8,059,480 Gain on sale of properties (95,507) 46,303 Overhead income 545,124 545,124 Management income 176,000 (176,000) (10) 0 Other income 149,253 552,676 -------------------------------------------------------------------- 2,903,443 (176,000) 9,203,583 Costs and expenses: Lease operating and production taxes 866,291 3,251,181 Depletion, depreciation and amortization 159,733 848,600 (5) 2,844,454 Abandonment expense 100,862 529,460 Interest expense 242 559,675 General and administrative 1,025,775 (126,000) (10) 1,766,207 -------------------------------------------------------------------- 2,152,903 722,600 8,950,977 Income (loss) before income taxes and investee earnings 750,540 (898,600) 252,606 Provision for income taxes (benefit) 145,009 (331,328) (7) (108,748) Equity in net earnings of equity investees 213,044 (213,044) (9) 0 -------------------------------------------------------------------- Net income (loss) 818,575 (567,272) 361,355 Preferred stock dividend 0 480,000 (6) 560,000 -------------------------------------------------------------------- Net income (loss) applicable to common stock $ 818,575 $(1,047,272) $ (198,645) ==================================================================== Income (loss) per share-Primary $ 1,637.15 $ (0.08) ==================================================================== Income (loss) per share-Fully diluted $ 1,637.15 $ (0.08) ==================================================================== Weighted average common shares outstanding (500) Primary 500 605,556 (8) 2,499,697 ==================================================================== (500) Fully diluted 500 605,556 (8) 2,526,218 ====================================================================
See accompanying notes to pro forma combined condensed financial statements. -28- 33 MIDDLE BAY OIL COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note A- Pro Forma Adjustments for the NPC Merger On December 18, 1996, MBOC and NPC entered into the Merger Agreement whereby NPC was merged into MBOC effective December 31, 1996. The merger was accounted for using the purchase method of accounting. In completing the merger, MBOC issued 562,000 shares of MBOC common stock and paid $1,226,400 in cash in exchange for all of the issued and outstanding NPC common stock. The merger was accounted for as a purchase of NPC by MBOC and as a result of the purchase method of accounting, MBOC's cost of acquiring NPC was allocated to the assets and liabilities acquired based on estimated fair values. MBOC incurred approximately $35,000 in legal and accounting expenses related to the merger. The direct costs of the merger was accrued and included as a cost of the merger. The accompanying Pro Forma Combined Condensed Statements of Operations for the year ended December 31, 1996 has been prepared as if the NPC Merger had occurred on January 1, 1996 and it reflects the following adjustments: (1) To adjust depletion, depreciation and amortization to reflect MBOC's purchase price allocated to the property and equipment using the unit of production method utilized by MBOC. (2) To record the preferred stock dividends paid on the preferred stock issued for the cash portion of the purchase price. (3) To adjust the provision for income taxes for the change in financial taxable income as a result of the entries (1) and (2). (4) To reflect the issuance of 166,667 shares of Series A Preferred Stock and 562,000 shares of MBOC Common Stock. Pro forma net income (loss) per common share information is computed by dividing net income (loss), adjusted for the preferred stock dividend requirement of $80,000 for the year ended December 31, 1996 by the pro forma weighted average common and common equivalent shares outstanding. Shares issuable upon exercise of options and upon the conversion of preferred stock are included in the computations of the pro forma income per common and common equivalent share if the effect is dilutive. -29- 34 MIDDLE BAY OIL COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note B- Pro Forma Adjustments for the Merger On February 10, 1997, MBOC and BEC entered into the Merger Agreement whereby BEC will merge into and continue to exist as a wholly-owned subsidiary of MBOC. The merger will be accounted for using the purchase method of accounting. In completing the merger, MBOC will issue 605,556 shares of MBOC common stock and pay $6,654,114 in cash in exchange for all of the issued and outstanding BEC common stock. The merger will be accounted for as a purchase of BEC by MBOC and as a result of the purchase method of accounting, MBOC's cost of acquiring BEC will be allocated to the assets and liabilities acquired based on estimated fair values. MBOC has incurred approximately $35,000 in legal and accounting expenses related to the merger. The direct costs of the merger will be accrued and included as a cost of the merger. The accompanying Pro Forma Combined Condensed Statements of Operations reflect the following adjustments for the merger: (5) To adjust depletion, depreciation and amortization to reflect MBOC's purchase price allocated to the property and equipment using the unit of production method utilized by MBOC. (6) To record the preferred stock dividends paid on the preferred stock issued for the cash portion of the purchase price. (7) To adjust the provision for income taxes for the change in financial taxable income as a result of the entries (1) and (2). (8) To reflect the issuance of 1,000,000 shares of Series A Preferred Stock and 605,556 shares of MBOC Common Stock. Pro forma net income (loss) per common share information is computed by dividing net income (loss), adjusted for the preferred stock dividend requirement of $480,000 for the year ended December 31, 1996 by the pro forma weighted average common and common equivalent shares outstanding. Shares issuable upon exercise of options and upon the conversion of preferred stock are included in the computations of the pro forma income per common and common equivalent share if the effect is dilutive. (9) To remove equity in net earnings of equity investees that were not purchased and to remove BEC's share of NPC's net earnings. (10) To remove management income for accounting and administrative functions performed by BEC for other entities and for NPC. Management income for services performed for NPC amounted to $10,500 per month or $126,000 annually and is recorded on NPC's financial statements as general and administrative expenses. Subsequent to the Merger, BEC will no longer perform such accounting and administrative functions. -30- 35 MIDDLE BAY OIL COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) The accompanying Pro Forma Combined Condensed Balance Sheet as of December 31, 1996 has been prepared as if the merger had occurred on that date and includes the following adjustments: (11) To record the issuance of the 1,000,000 shares of Series A Preferred Stock at $6.00 per share, 605,556 shares of MBOC Common Stock and $654,114 in cash for an aggregate consideration of $9,984,672. On a pro forma basis, there would be 2,464,700 shares of MBOC Common Stock and 1,166,667 shares of Series A Preferred Stock outstanding as of December 31, 1996. (12) To record MBOC's cost of acquiring NPC (in thousands): Estimated fair value of 605,556 shares of MBOC Common Stock issued ...............$3,330 Estimated fair value of 1,000,000 shares of MBOC Series A Preferred Stock ..........6,000 Cash on hand 654 Other legal and accounting expenses 35 ------ 10,019 ====== The fair value of the securities to be issued in connection with the merger has been calculated assuming the price of MBOC common stock is $5.50 per share. (13) To adjusts the assets and liabilities under the purchase method of accounting based on MBOC's purchase price. MBOC's purchase price has been allocated to the assets and liabilities of BEC based on the preliminary estimates of fair values with the remaining purchase price allocated to the proved oil and gas properties. No goodwill has been recorded in this transaction. The information presented herein may differ from the actual purchase price allocation. The preliminary allocation of the purchase price included in the pro forma balance sheet is summarized as follows: (in thousands) Working capital ............................$ 694 Oil and gas properties: Proved .....................................10,954 Yard Inventory and equipment................... 525 Deferred income taxes .........................(2,154) ------- $10,019 ======= (14) To record the sale of certain assets to an affiliated entity immediately after the closing of the merger. The sold assets consisted solely of non-oil and gas assets. MBOC purchased the assets in the Merger and sold the assets for the same price as it paid. Therefore, no gain or loss was recorded for financial statement purposes. -31- 36 Note C- Pro Forma Combined Supplemental Oil and Gas Reserve and Standardized Measure Information No summary of the pro forma combined quantities of proved reserves, prepared by combining the historical oil and gas reserve information of MBOC and BEC, is available because the reserve data for BEC was not available. -32- 37 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MIDDLE BAY OIL COMPANY, INC. (Registrant) Date: April 25, 1997 By:/s/ Frank C. Turner, II -------------------------------------- Frank C. Turner, II Vice President and Chief Financial Officer -33- -----END PRIVACY-ENHANCED MESSAGE-----