-----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, N8K7zoXfOLjKRpN5tCIDKh4YUwwZ+U882dXKcoSI1m8euFxcyocS1oAxs0jquVnB YUkA0/7G7Z4HzFiQSmGmpg== 0001021088-96-000005.txt : 19961118 0001021088-96-000005.hdr.sgml : 19961118 ACCESSION NUMBER: 0001021088-96-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21702 FILM NUMBER: 96666665 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 10QSB 1 MIDDLE BAY OIL COMPANY, INC., FORM 10-QSB, 9/30/96 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______ to _______ Commission File No. 0-21702 MIDDLE BAY OIL COMPANY, INC. (Exact name of small business issuer as specified in its charter) Alabama 63-1081013 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 115 SOUTH DEARBORN STREET MOBILE, ALABAMA 36602 (Address of principal executive offices) (334) 432-7540 (Issuer's telephone number) N/A (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of Exchange Act 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 [ ] Number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Common stock, $.02 par value 1,289,805 shares as of October 31, 1996 Transitional Small Business Disclosure Format (check one) Yes [ ] No [X] 2 MIDDLE BAY OIL COMPANY, INC. INDEX Part I. Financial Information Item 1. Financial Statements Balance Sheets- September 30, 1996 and December 31, 1995 .......... Statements of Operations- Nine months ended September 30, 1996 .............. Statements of Cash Flows- Nine months ended September 30, 1996 and 1995 ..... Notes to Financial Statements ........................ Item 2. Management's Discussion and Analysis or Plan of Operation ...................... 3 PART I- FINANCIAL INFORMATION Item 1. Financial Statements MIDDLE BAY OIL COMPANY, INC. BALANCE SHEETS
(UNAUDITED) (AUDITED) September 30 December 31, 1996 1995 -------- -------- ASSETS CURRENT ASSETS CASH $327,007 $80,791 NOTES AND ACCOUNTS RECEIVABLE-TRADE 829,723 880,715 OTHER CURRENT ASSETS 8,100 52,785 --------- --------- TOTAL CURRENT ASSETS 1,282,932 1,014,291 NON-CURRENT ASSETS NOTES RECEIVABLE- STOCKHOLDER (NOTE 2) 137,518 132,547 --------- --------- 137,518 132,547 PROPERTY (AT COST) (NOTE 1) OIL AND GAS (SUCCESSFUL EFFORTS METHOD) 12,399,339 11,400,288 REAL ESTATE-UNDEVELOPED 0 54,414 FURNITURE, FIXTURES AND OTHER (NOTE 2) 361,461 350,676 ACCUMULATED DEPRECIATION AND DEPLETION (4,773,665) (3,976,923) --------- --------- 7,987,135 7,828,455 OTHER ASSETS 2,956 9,459 --------- --------- TOTAL ASSETS $9,292,438 $8,984,752 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES CURRENT MATURITY OF LONG-TERM DEBT (NOTE 3) $435,600 $810,861 ACCOUNTS PAYABLE AND ACCRUED EXPENSES 278,552 624,144 -------- -------- TOTAL CURRENT LIABILITIES 714,152 1,435,005 LONG-TERM DEBT 4,848,310 4,195,391 DEFERRED INCOME TAXES (NOTE 5) 495 495 REDEEMABLE COMMON STOCK (NOTE 4) 528,183 852,642 COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY (NOTE 4) COMMON STOCK, $.02 PAR VALUE, 5,000,000 AUTHORIZED, 1,318,917 ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 26,378 26,378 PAID-IN-CAPITAL 3,565,499 3,241,040 RETAINED EARNINGS (DEFICIT) (322,539) (766,199) LESS COST OF TREASURY STOCK; 21,773 SHARES AT SEPTEMBER 30, 1996 (68,040) - --------- --------- TOTAL STOCKHOLDERS' EQUITY 3,201,298 2,501,219 TOTAL LIABILITIES AND EQUITY $9,292,438 $8,984,752 ========= =========
See accompanying notes. 4 MIDDLE BAY OIL COMPANY, INC. STATEMENTS OF OPERATIONS UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------ ---------------------- Sept 30 Sept 30 Sept 30 Sept 30 1996 1995 1996 1995 -------- -------- -------- -------- REVENUE OIL AND GAS PRODUCTION $1,103,117 $755,741 $3,186,255 $2,404,363 INTEREST 4,145 3,829 10,335 9,706 OTHER 19,617 53,695 351,734 119,597 GAIN ON SALE OF PROPERTY 0 1,197 37,814 75,449 --------- --------- --------- --------- TOTAL REVENUE 1,126,878 814,462 3,586,137 2,609,115 --------- --------- --------- --------- COSTS AND EXPENSES WELL OPERATING $332,496 $374,275 $1,104,066 $1,056,511 DEPRECIATION, DEPLETION AND AMORTIZATION 362,365 313,151 901,995 878,110 ABANDONMENT 158,033 - 249,568 - INTEREST 128,809 137,344 375,799 388,842 GENERAL AND ADMINISTRATIVE 170,161 142,591 511,048 505,951 --------- --------- --------- --------- TOTAL EXPENSES 1,151,864 967,361 3,142,476 2,829,414 INCOME (LOSS) BEFORE INCOME TAXES (24,986) (152,899) 443,661 (220,299) INCOME TAXES - - - - --------- --------- --------- --------- NET INCOME (LOSS) $(24,986) ($152,899) $443,661 ($220,299) ========= ========= ========= ========= AVERAGE COMMON SHARES OUTSTANDING 1,310,638 1,318,917 1,308,768 1,318,917 NET INCOME (LOSS) PER COMMON SHARE ($0.02) ($0.12) $0.34 ($0.17)
See accompanying notes. 5 MIDDLE BAY OIL COMPANY, INC. STATEMENTS OF CASH FLOWS NINE MONTHS ENDED UNAUDITED
SEPT 30, SEPT 30, 1996 1995 -------- -------- OPERATING ACTIVITIES NET INCOME (LOSS) $443,661 ($220,299) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES DEPLETION, DEPRECIATION AND AMORTIZATION 901,995 878,110 CHANGES IN CURRENT ASSETS AND LIABILITIES: ACCOUNTS RECEIVABLE 335,456 (209,659) ACCOUNTS PAYABLE AND ACCRUED EXPENSES (585,819) (90,643) GAIN ON SALE OF PROPERTIES (37,814) (74,252) OTHER CHARGES (CREDITS) (2,288) 7,921 ------- ------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,055,192 291,178 INVESTING ACTIVITIES PROCEEDS FROM SALES OF PROPERTIES 40,000 485,728 ADDITIONS TO OIL AND GAS PROPERTIES (1,116,566) (3,132,045) PURCHASE OF EQUIPMENT (1,827) (4,802) FURNITURE, FIXTURES AND OTHER ASSETS (10,229) (13,072) PROCEEDS FROM SALE OF REAL ESTATE 75,000 - RECEIPTS FROM (ADVANCES TO) STOCKHOLDER (4,971) (17,816) ------- --------- NET CASH USED BY INVESTING ACTIVITIES (1,018,593) (2,675,216) FINANCING ACTIVITIES PROCEEDS FROM DEBT ISSUED 483,766 5,628,000 PRINCIPAL PAYMENTS ON DEBT (206,109) (3,144,593) PURCHASE OF STOCK FOR TREASURY (68,040) - ------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 209,617 2,483,407 NET INCREASE IN CASH 246,216 99,369 CASH - BEGINNING 80,791 183,516 ------- --------- CASH - ENDING $327,007 $282,885 SUPPLEMENTAL CASH FLOW INFORMATION: INTEREST PAID IN CASH $375,799 $388,842 ======== ========
See accompanying notes. 6 MIDDLE BAY OIL COMPANY, INC. Notes to Financial Statements June 30, 1996 and 1995 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Middle Bay Oil Company, Inc. (the Company), an Alabama corporation, was formed in connection with a transaction (the Transaction) approved by the unitholders on December 22, 1992 to reorganize the business of Bay City Consolidated Partners, Ltd. (the Partnership) into the Company. The Partnership was formed in 1988 to succeed to the business of 10 affiliated oil and gas limited partnerships. The partnership was owned 95% by the limited partners and 5% by the general partner. Pursuant to the Transaction, the Partnership transferred substantially all its assets and liabilities to the Company on December 31, 1992 in exchange for subscribing to all the outstanding shares of the Company's common stock. The Partnership allocated 7.0 shares of the Company's common stock for each common unit. Concurrently, the Partnership distributed to its former unitholders, including the general partner, 7.0 shares of common stock for each common unit. 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 June 30, 1996 and the results of operations and cash flows for the nine months ended September 30, 1996 and 1995. 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. These financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. Principles of Consolidation The Transaction has been reflected in the accounts of the Company as a reorganization of entities under common control whereby the historical bases of the assets and liabilities of the Partnership are carried forward as the recorded bases for the Company. Statements of Cash Flows For purposes of the statements of cash flows, the Company classifies all cash investments with original maturities of three months or less as cash. Marketable Securities Marketable securities held by the Company are categorized as available-for-sale in accordance with the provisions of SFAS No. 115. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Realized gains and losses and declines in value judged to be other-than-temporary are included in investment income. Properties The Company follows the "successful efforts" method of accounting for its oil an gas properties. Under the successful efforts method, costs of acquiring undeveloped oil and gas leasehold acreage, including lease bonuses, brokers' fees and other related costs are capitalized. Provisions for impairment of undeveloped oil and gas leases are based on periodic evaluations. Annual lease rentals and exploration expenses, including geological and geophysical expenses and exploratory dry hole costs, are charged against income as incurred. Costs of drilling and equipping productive wells, including developmental dry holes and related production facilities are capitalized. Depletion, depreciation and amortization of capitalized costs are computed separately for each property based on the unit-of-production method using only proved oil and gas reserves. In arriving at such rates, commercially recoverable reserves have been estimated by an independent petroleum engineering firm. If the capitalized costs of total proved properties exceed the sum of undiscounted estimated future net revenues before income taxes from total proved reserves (determined on a field-by-field basis), such excess is charged to expense in the period in which it occurs and is not reinstated. With respect to normal dispositions, the cost of properties retired or otherwise disposed of, and the applicable accumulated depreciation, depletion and amortization are removed from the accounts, and the resulting profit or loss, if any, is reflected in current operations. Site Restoration, Dismantlement & Abandonment Costs Site restoration, dismantlement and abandonment costs (P&A costs) include costs associated with dismantling and disposing of the facilities and equipment required to operate a well and restoring the well site to specified conditions. The Company develops specific estimates of its P&A costs based on consultations with its engineers and reevaluates such estimates annually. Estimated future P&A costs are accrued on a unit-of-production method based on proved reserves. As of September 30, 1996 and December 31, 1995, the P&A costs accrued were immaterial. 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 and was adopted by the Company in the fourth quarter of 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 Property and Equipment Property and equipment are stated at cost and depreciated on the accelerated method over the appropriate life of the property. Income Taxes The Company provides for income taxes using the asset and liability method under which deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax laws or tax rates is recognized in income in the period that includes the enactment date. Stock-based Compensation In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock-based compensation plans. Effective for fiscal years beginning after December 15, 1995, the statement provides the option to continue under the accounting provisions of APB Opinion 25, while requiring pro forma footnote disclosures of the effects on net income and earnings per share, calculated as if the new method had been implemented. The Company has adopted the financial reporting provisions of SFAS No. 123 for 1996, but will continue under the accounting provisions of APB Opinion 25. (2) RELATED PARTY TRANSACTIONS The Company has a receivable, including accrued interest, from Bay City Energy Group, Inc. (BCEG), a significant stockholder, as of September 30, 1996 and December 31, 1995 in the amount of $135,861 and $132,547, respectively. The note is secured by 75,000 shares of Company common stock with principal and accrued interest at 5% per annum due in full on January 1, 2001. In January, 1993, BCEG contributed computer equipment and software, office furnishings and equipment, maps, logs and other geological and engineering data to the Company in partial payment of the amount owed. In December, 1993, the Company purchased from BCEG land valued at $125,000 and fee minerals valued at $150,000. The land was sold in April, 1995. On December 31, 1995, BCEG contributed proved oil and gas reserves valued at $186,938 to the Company as partial payment on the amount owed. The reserves were evaluated on a basis similar to the evaluation of the Company's reserves as detailed in the Company's 1995 10-KSB Footnote 9. During the nine months ended September 30, 1996 and 1995, BCEG did not make any payments and was not advanced any funds. Interest of $19,269 was accrued on the note at September 30, 1996. (3) LONG-TERM DEBT
September 30, December 31, 1996 1995 -------- ------------ Convertible Loan of $6,000,000 due March 31, 1997, secured by oil and gas properties, monthly payments of interest only at 1.5% over prime, convertible into a 72 month term note on March 31, 1997 $5,140,766 -- Term note of $5,628,000, due February 1, 2002, secured by oil and gas properties, repayable in monthly installments of $67,000 plus interest at 1.5% over prime -- 4,858,000 Note, due 1/1/99, secured by office building, repayable in monthly installments of $1,511 including interest at 7 3/4% 143,144 148,252 --------- --------- Total $5,283,910 $5,006,252 Less current maturities 435,600 810,861 --------- --------- Long-term debt excluding current maturities $4,848,310 $4,195,391 ========= =========
The $6,000,000 convertible loan contains certain restrictive provisions, the most significant of which restricts additional borrowings, either directly or indirectly, and payment of dividends. At September 30, 1996, the Company was in compliance with all covenants specified in the convertible loan agreement. (4) STOCKHOLDERS' EQUITY On September 4, 1996, the Company signed a stock purchase agreement with Kaiser Francis Oil Company ("the Agreement"). Kaiser-Francis has agreed to purchase 1,666,667 shares of Series A Preferred Stock ("Preferred") at $6.00 per share, for a total investment of $10,000,000. The parties have agreed to a five-year purchase period, effective September 4, 1996, with minimum incremental investments of $500,000 each. Each issuance of Preferred is subject to approval by Kaiser-Francis of the use of proceeds. The Preferred is nonvoting and accrues dividends at 8% per annum, payable quarterly in cash. The Preferred is convertible at any time after issuance into shares of common stock at the rate of two shares of common stock for each share of Preferred before January 1, 1998. The conversion rate decreases thereafter at 8% per annum. The Company will pay the costs of registration of the Preferred or the underlying common stock under the Securities Act of 1933 upon request of Kaiser-Francis. The Company may redeem the Preferred in whole or in part, at any time after January 1, 2007 at a price of $6.00 per share. As of September 30, 1996 none of the Preferred had been issued. On May 31, 1996, the Board of Directors granted options to acquire 125,000 shares of Company common stock under the 1995 Stock Option and Stock Appreciation Rights Plan to key employees and non-employee directors. All of the options vested on the grant date of May 31, 1996 with an exercise price of $2.50 per share, which was equal to the fair market value of common stock on the date of grant. The options expire ten years from the date of grant if not exercised. On April 1, 1996, the Board of Directors authorized the repurchase of up to $100,000 of Company common stock at a price per share not to exceed $3.25, exclusive of brokerage costs. As of September 30, 1996 the Company had purchased 21,773 shares of common stock at a cost of $68,040. On March 21, 1995 Middle Bay Oil Company, Inc. effected a one-for-two reverse stock split (share consolidation) of its capital stock, thereby changing the authorized shares of common stock from 10,000,000 shares of $.01 par value to 5,000,000 shares of $.02 par value. The issued and outstanding shares of common stock were reduced from 2,637,257 to 1,318,629 shares. Fractional shares resulting from the reverse split, 288 shares, were rounded up to whole shares and issued. The Company's authorized preferred shares were reduced from 5,000,000 shares of $.01 par value to 2,500,000 shares of $.02 par value. No preferred shares have been issued by the Company. All previous per share data have been restated to account for the reverse stock split. The reverse split was authorized by the shareholders of the Company at a special meeting held March 14, 1995. The Company has a contingent obligation to repurchase 142,107 common shares issued in the Janex Acquisition, upon written notice delivered to the Company, beginning five years after the closing date and continuing for thirty days thereafter, at a price of $6.00 per share. This obligation shall terminate if the Company's stock trades at a share price of $8.00 or greater for twenty consecutive days during the thirty-six month period immediately preceding the first day of the fifth year after the closing date. The closing date of the Janex Acquisition was November 1, 1993. The value of the redeemable common stock at the $6.00 redemption price is shown in the balance sheet as Redeemable Common Stock. As of September 30, 1996, 54,076.25 shares of the original 142,107 shares of Company common stock subject to the repurchase obligation have been sold, of which 21,772.75 shares were purchased by the Company. (5) INCOME TAXES The Company's income tax expense (benefit) for continuing operations consists of the following:
Nine Months Ended Sept 30, Sept 30, 1996 1995 ------- ------- Current $ - $ - Deferred - - ------- ------- Total $ - $ - ======= =======
The Company's net deferred tax liability at September 30, 1996 and December 31, 1995 are as follows:
Sept 30, December 31, 1996 1995 ------- ----------- Deferred tax liability Oil and gas properties $ 495 $ 90,648 Deferred tax asset - - Valuation allowance - - ------- ------- Net deferred tax liability $ 495 $ 90,648 ======= =======
As of September 30, 1996, the Company had approximately $850,000 of operating loss carryforwards, with $432,000 expiring in 2009 and $418,000 expiring in 2010. As of December 31, 1995 the Company had $36,482 of AMT credit carryforwards and $22,000 of Section 29 tax credit carryforwards. (6) COMMITMENTS AND CONTINGENCIES The Company is obligated under the terms of certain operating leases for office equipment through December, 1997. Future minimum rental payments are approximately $9,774 in 1996 and $3,775 in 1997. On April 3, 1996, the Company entered into a Joint Expense and Participation Agreement with Brigham Oil and Gas, L.P. which allows the Company to participate in the drilling of eighty-seven (87) onshore wells in Texas and Oklahoma over the twelve month period beginning April 1, 1996. The Company is committed to fund $1,500,000 in drilling costs over this twelve month period. As of September 30, 1996, the Company had advanced $947,032 in drilling and completion costs to Brigham Oil and Gas, L.P. The amount required to be deposited into the escrow account at October 1, 1996 is $606,053 which covers estimated drilling and completion costs for the period October 1 to December 31, 1996. The Company is a defendant in various legal proceedings which are considered routine litigation incidental to the Company's business, the disposition of which management believes will not have a material effect on the financial position or results of operations of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS Liquidity and Capital Resources Cash flow from operating activities for the nine months ended September 30, 1996 of $1,055,192 increased $764,014 over the comparable 1995 period. The increase was due primarily to higher oil and gas prices, working capital changes and cash from the settlement of a gas contract. Oil and gas prices increased 20% and 44%, respectively, while oil production decreased only 1% and gas production increased 2%. The change in working capital increased cash flow by $49,940 over the comparable 1995 period. The change in working capital was caused principally by timing differences in the payment of expenses and receipt of revenues. In June, the Company received $262,525, which represents the Company's share of a partial distribution from a gas contract settlement with Columbia Gas Transmission Corporation. Cash flow from operations before working capital changes of $1,305,554 increased $714,074 over the comparable 1995 period. Additions to oil and gas properties were lower than the comparable period in 1995 due to only minimal acquisitions and drilling in 1996 compared to the P&P Acquisition which closed in February 1995. The decrease in the proceeds from debt issued was due to only an advance for drilling in 1996 compared to the amendment to the Company's term note which allowed for the P&P Acquisition and the payoff of the remaining principal balance on the $3.8 million term note of $2,545,759, in the comparable period. The decrease in the amount of cash used for debt payments was due principally to only regular principal payments through March 31, 1996 and no principal payments from April 1 to September 30, 1996 compared to the payoff of the remaining principal balance on the $3.8 million term note of $2,545,759 in the comparable period. The Company's operating activities provided net cash of $1,055,192 for the nine month period ended September 30, 1996. Sales of minor oil and gas properties in March and June provided cash of $40,000. The sale in June of real estate located on Bayou Coden provided cash of $75,000. During this period, net cash from operations and cash from property sales were used principally for exploratory and developmental drilling of $970,000 and workovers of $127,000. Approximately $721,000 of the $970,000 spent on exploratory and developmental drilling was for completed wells and wells in progress through the participation agreement with Brigham Oil and Gas, L.P. (the "Brigham Agreement"). The Company incurred an additional $249,000 in dry hole costs attributable to wells in the Brigham Agreement. The majority of the remaining funds were spent on four projects, all of which were completed as of September 30; developmental drilling on one well in the Campbell Field in Major County, Oklahoma, one developmental well in Rocky Mount Field in Louisiana, one developmental well in Lake Trammel Field and a workover on one well in the Lea Field in Lea County, New Mexico. Lake Trammel and Lea Field are major properties of the Company. Of the $127,000 spent on workovers, approximately $45,000 was spent on purchasing and installing downhole pumps on two wells in the Tulk Field in Lea County, New Mexico and approximately $21,000 was spent on maintenance on the Bismarck Field in Presque Isle Michigan. The remaining $61,000 was spent on several different properties. Amounts spent on debt retirement represent three months of principal payments on the $5.6 million term note. The principal payments on the $5.6 million term note were suspended when the Company converted the term note to a revolving line-of-credit on April 3, 1996. The monthly principal payment on the Company's $3.8 million term note was amended on January 1, 1995 to reduce the monthly principal payment to $42,833 from $79,167. On February 23, 1995, the Bank issued $5,628,000 under a new term note to refinance the $3.8 million term note and to finance the P&P Acquisition. The new term note matured in seven years and required monthly principal payments of $67,000 plus interest at prime plus 1.5%. On April 3, 1996, the Bank converted the new term note into a $6.0 million, one-year, revolving line-of-credit (the "Revolver"), effective April 1, 1996. The Revolver requires monthly payments of interest only at prime plus 1.5% and converts into a term note payable in seventy-one consecutive equal monthly principal and interest payments at prime plus 1.5%, with the remaining principal and interest payment due on March 31, 2003. At the time of the conversion, the principal balance of the $5.628 million term note was $4.657 million. The Bank advanced the Company $483,766 on April 3, which resulted in a Revolver principal balance of $5.14 million. The Company can be advanced a maximum of $6.0 million on the Revolver, based on the Bank's engineer's or any other independent engineer's redetermination of the Borrowing Base, using the Bank's pricing and discount factors and the future net revenue expected to be produced from the Company's oil and gas reserves. The Company had current assets of $1,164,830 and current liabilities of $714,152 which resulted in working capital of $450,678 as of September 30, 1996. This was an increase of $871,392 from the working capital deficit of $420,714 as of December 31, 1995. Working capital increased primarily due to cash proceeds from the gas contract settlement, increased cash flow from oil and gas production and suspension of monthly principal payments on the Term Note offset partially by amounts spent on exploratory and developmental drilling. The Company's current ratio of 4.18, calculated under the terms of the Credit Agreement which excludes stockholder receivables and debt due under the Credit Agreement, was in excess of the 0.90 to 1.00 required. At September 30, 1996 thirty-seven wells had been spudded under the Brigham Agreement. Of these thirty-seven wells, eighteen were completed, fourteen were dry holes, three were drilling and two were under analysis. Oil and gas sales less lease operating expenses received on the eighteen completed wells for the nine months ended September 30, 1996 was approxi- mately $25,000. At November 5, 1996, of these thirty-seven wells, twnety-one were completed, fourteen were dry holes, and two were under analysis. The amount to be escrowed for drilling under the Brigham Agreement for the period October 1 to December 31 is $606,053. The advances to Brigham for the actual October and November drilling was $109,221 and $229,324, respectively. In general, because the Company's principal natural gas and oil reserves are depleted by production, its success is dependent upon the results of its development, acquisition and exploration activities. The Company's strategy is to enhance and exploit its existing properties for reserves, to invest in exploratory and developmental drilling prospects and to acquire reserves. The Company expects to incur a total of approximately $700,000 in capital expenditures over the next three months; $100,000 to invest in development projects on certain of its existing wells and $600,000 in exploration projects in the Brigham Agreement. These projects will be funded by internally-generated cash flows, proceeds from property sales and bank debt. In connection with the issuance of 142,107 shares of common stock in the Janex Acquisition, the Company has a contingent obligation to repurchase the shares, upon written notice delivered to the Company, beginning five years after the Closing Date and continuing for thirty days thereafter, at a price of $6.00 per share. This contingent obligation shall terminate if the Company's stock trades at a share price of $8.00 or greater for twenty consecutive days during the thirty-six month period immediately preceding the first day of the fifth year after the Closing Date. The closing date of the Janex Acquisition was November 1, 1993. The redemption value is shown in the Balance sheet as Redeemable Common Stock. If the trading market for the Company's stock does not meet the trading limits stated above over the three year period beginning November 1, 1995 through October 31, 1998, the Company will have to redeem the shares of stock from the original owners upon written request at $6.00 per share beginning November 1, 1998 and ending November 30, 1998. The Company is unable to determine at this time if it will have to redeem any or all of the shares issued. Depending on the number of shares the Company may have to redeem, the redemption will be financed through internal cash flow or by debt financing. The redemption, if any, is not expected to have a material adverse affect on the operations of the Company. If the Company has to redeem the entire amount, the redemption could have an adverse affect on the financial position of the Company. Over the period November 1, 1995 to September 30, 1996, the trading range of the Company's common stock has been $4.125 to $2.50. As of September 30, 1996, the Company had purchased 21,772.75 shares and third parties had purchased 32,303.5 shares of Company common stock subject to the repurchase obligation. The Company may purchase additional shares subject to the repurchase obligation in the future. On September 4, 1996, the Company signed a stock purchase agreement with Kaiser Francis Oil Company ("the Agreement"). Kaiser-Francis has agreed to purchase 1,666,667 shares of Series A Preferred Stock ("Preferred") at $6.00 per share, for a total investment of $10,000,000. The parties have agreed to a five-year purchase period, effective September 4, 1996, with minimum incremental investments of $500,000 each. Each issuance of Preferred is subject to approval by Kaiser-Francis of the use of proceeds. The Preferred is nonvoting and accrues dividends at 8% per annum, payable quarterly in cash. The Preferred is convertible at any time after issuance into shares of common stock at the rate of two shares of common stock for each share of Preferred before January 1, 1998. The conversion rate decreases thereafter at 8% per annum. The Company will pay the costs of registration of the Preferred or the underlying common stock under the Securities Act of 1933 upon request of Kaiser-Francis. The Company may redeem the Preferred in whole or in part, at any time after January 1, 2007 at a price of $6.00 per share. As of September 30, 1996 none of the Preferred had been issued. Management expects to use the preferred stock to acquire direct interests in producing properties with exploitation potential or as financing for mergers with exploration and production companies. The Company's liquidity position and current and anticipated cash flows from operations remain adequate for its general requirements. However, because future cash flows and the availability of financing are subject to a number of variables, such as the level of production and prices received for gas and oil, there can be no assurance that the Company's capital resources will be sufficient to maintain planned levels of capital expenditures. Current Activities As of November 5, 1996, no exploratory wells were drilling under the Brigham Agreement. Results of Operations Three Months Ended September 30, 1996 and 1995 Total revenues for the three months ended September 30, 1996 of $1,126,878 were $312,416 higher than the same period in 1995. The increase in total revenues was due primarily to higher oil and gas revenues of $347,376. The increase in oil and gas revenues consisted primarily of a $120,264 increase in oil revenues and a $208,810 increase in gas revenues. The increase in oil and gas revenues was primarily the result of higher oil and gas prices. Production of oil decreased 8% and production of gas increased 10%, over the comparable 1995 period. The primary reasons for the oil production decrease were the sale of a property effective March 1, 1996 and normal production declines. The primary reasons for the gas production increase were successful workovers and gas balancing makeups. During the three month period ended September 30, 1996, the Company sold 25,735 barrels of oil and 255,078 Mcf of gas, as compared to 28,141 barrels and 231,718 Mcf for the comparable 1995 period. The price received on the gas sold in 1996 of $2.09 per Mcf was higher than the $1.40 per Mcf received in the comparable 1995 period. Oil prices in 1996 of $21.28 per barrel were higher than the $15.42 per barrel received in 1995. Total expenses increased by $184,503 over the comparable 1995 period. Increases in dry hole, DD&A and general and administrative expense were experienced in 1996 as compared to 1995. The increase in dry hole costs of $158,033 was due to dry hole costs associated with the Brigham Agreement in 1996 versus no dry hole costs in the comparable 1995 period. Depletion expense increased by $53,475 while depreciation expense decreased by $4,261. Depletion was higher due to higher depletion on existing properties. Depreciation was lower due to minimal asset additions and lower depreciation on lease and well equipment and corporate office furniture and fixtures which are depreciated on the accelerated method which declines over the useful life of the asset. General and administrative expenses increased by $27,570, due primarily to higher legal expenses of $19,677 and higher travel expenses of $4,625. Interest expense was $8,535 lower due primarily to lower principal balances and lower rates. Lease operating expenses decreased by $41,779 due principally to lower expenses on existing properties and sold properties. A one-time credit on a major property resulted in a $40,000 decrease in lease operating expenses over the comparable period. The Company reported an operating loss of $24,986 for the three months ended September 30, 1996 versus an operating loss of $152,899 for the comparable period. The only non-recurring item in the three months ended September 30, 1996 was the one-time $40,000 credit to lease operating expenses on a major property. The non-recurring charges in the comparable 1995 period were $62,500. The Company reported a net loss of $24,986 for the three months ended September 30, 1996 versus a net loss of $152,899 for the comparable 1995 period. Nine months Ended September 30, 1996 and 1995 Total revenues for the nine months ended September 30, 1996 of $3,586,137 were $977,022 higher than the same period in 1995. The increase in total revenues was due primarily to higher oil and gas revenues of $781,892 and a gas contract settlement of $263,000. The increase in oil and gas revenues consisted primarily of a $238,487 increase in oil revenues and a $496,648 increase in gas revenues. The increase in oil and gas revenues was the result of higher oil and gas prices. Production of oil decreased 1% and production of gas increased 2%, over the comparable 1995 period. The primary reason for the production decrease was the minor property sale which was effective June 1995 and decreases in production on miscellaneous properties; total production on existing major oil and gas properties increased over the comparable 1995 period. During the nine month period ended September 30, 1996, the Company sold 82,961 barrels of oil and 728,038 Mcf of gas, as compared to 84,161 barrels and 712,601 Mcf for the comparable 1995 period. The price received on the gas sold in 1996 of $2.11 per Mcf was higher than the $1.46 per Mcf received in the comparable 1995 period. Oil prices in 1996 of $19.29 per barrel were higher than the $16.12 per barrel received in 1995. Total expenses increased by $313,062 over the comparable 1995 period. Higher lease operating and dry hole expenses accounted for the majority of the increase. Dry hole costs increased by $249,568 due to dry holes associated with the Brigham Agreement versus no dry hole costs in the comparable 1995 period. Lease operating expenses increased by $47,555 due principally to higher expenses on existing properties offset partially by sold properties. Depletion expense increased by $36,925 while depreciation expense decreased by $13,040. Depletion was higher due to higher depletion on existing properties. Depreciation was lower due to minimal asset additions and lower depreciation on lease and well equipment and corporate office furniture and fixtures which are depreciated on the accelerated method which declines over the useful life of the asset. Interest expense was $13,043 lower due primarily to lower principal balances and lower rates. General and administrative expenses increased by $5,097, due primarily to higher legal and travel expenses of $10,373 and $25,521, respectively, offset partially by lower SEP contribution of $25,000 and lower miscellaneous expenses of $22,745. The Company reported operating income of $443,661 for the nine months ended September 30, 1996 versus an operating loss of $220,299 for the comparable period. Non-recurring items in the nine months ended September 30, 1996 were the income from the gas contract settlement of $263,000 and the $40,000 lease operating expense credit. Non-recurring items for the comparable 1995 period totalled $91,900 in net charges. The Company reported net income of $443,661 for the nine months ended September 30, 1996 versus a net loss of $220,299 for the comparable 1995 period. 7 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MIDDLE BAY OIL COMPANY, INC. (Registrant) Date: November 7, 1996 By: /s/ John J. Bassett --------------------------------- John J. Bassett President and Chief Executive Officer Date: November 7, 1996 By: /s/ Frank C. Turner, II -------------------------------- Frank C. Turner II Vice-President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This Schedule contains summary financial information extracted from the Financial Statements - Balance Sheets at June 30, 1996 (unaudited) and the Statements of Operations at June 30, 1996 (unaudited) and is qualified in its entirety by reference to such financial statements. 3-MOS 6-MOS 9-MOS DEC-31-1995 DEC-31-1995 DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996 60,828 493,222 327,007 0 0 0 714,314 783,258 829,723 0 0 0 0 0 0 783,871 1,282,932 1,164,830 11,907,545 12,329,198 12,760,800 4,240,380 4,412,648 4,773,665 8,590,891 9,339,647 9,292,438 1,159,387 520,459 714,152 3,992,578 5,064,226 4,848,310 852,642 677,965 528,183 0 0 0 26,378 26,378 26,378 3,241,040 3,415,717 3,565,499 8,590,891 9,339,647 9,292,438 1,019,307 1,101,645 1,103,117 1,049,629 1,409,629 1,126,878 673,613 637,587 694,861 965,058 1,025,554 1,151,864 171,271 169,616 170,161 0 0 0 120,174 126,816 128,809 84,572 384,075 (24,986) 0 0 0 84,572 384,075 (24,986) 0 0 158,033 0 0 0 0 0 0 84,572 384,075 (24,986) .06 .29 (.02) .06 .29 (.02)
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