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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............. to .............
Commission file number 0-22149
EDGE PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0511037
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Texaco Heritage Plaza
1111 Bagby, Suite 2100
Houston, Texas 77002
(Address of principal executive offices)
(713) 654-8960
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X* No
----- -----
*The registrant became subject to the reporting requirements of Section 13 of
the Securities Exchange Act of 1934 on February 25, 1997.
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at November 12 , 1997
----- ---------------------------------
Common Stock 7,760,867
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
EDGE PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------------------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $12,712,589 $ 1,543,228
Accounts receivable, trade 3,289,225 2,038,889
Accounts receivable, joint interest owners, net 4,662,268 1,378,453
Receivables from related parties 254,669 186,562
Other current assets 379,759 114,456
----------- -----------
Total current assets 21,298,510 5,261,588
PROPERTY AND EQUIPMENT, Net - full cost method of accounting for oil and gas properties 26,889,902 11,989,241
INVESTMENT IN FRONTERA 3,628,264
DEFERRED OFFERING COSTS 1,006,379
OTHER ASSETS 17,232 18,320
----------- -----------
TOTAL ASSETS $51,833,908 $18,275,528
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable, trade $ 4,284,771 $ 1,695,366
Accounts payable to related party 40,000 1,372,450
Accrued interest payable 74,354
Accrued liabilities 501,480 1,128,967
Current portion of notes payable 300,058
----------- -----------
Total current liabilities 4,826,251 4,571,195
----------- -----------
NOTES PAYABLE 11,561,844
DEFERRED INCOME TAXES 24,056 248,673
MINORITY INTEREST 2,267,185
----------- -----------
Total liabilities 4,850,307 18,648,897
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01par value; 5,000,000 shares authorized; none outstanding
Common stock, $.01par value; 25,000,000 shares authorized;
issued and outstanding 7,760,867 shares 82,012
Additional paid-in capital 47,625,419
Retained earnings 3,052,498
Unearned compensation - restricted stock (3,776,328)
Equity (deficit) of predecessor entities (373,369)
----------- -----------
Total stockholders' equity (deficit) 46,983,601 (373,369)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,833,908 $18,275,528
=========== ===========
See notes to consolidated financial statements.
</TABLE>
2
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EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OIL AND NATURAL GAS REVENUES $3,200,768 $2,030,518 $9,657,854 $5,105,079
OPERATING EXPENSES:
Oil and natural gas operating expenses 542,964 371,418 1,842,202 981,914
Depreciation, depletion and amortization 643,663 443,679 1,822,257 1,095,434
General and administrative expenses 1,109,454 644,312 3,166,283 2,039,947
Unearned compensation expense 155,052 358,341
---------- ---------- ---------- ----------
Total operating expenses 2,451,133 1,459,409 7,189,083 4,117,295
---------- ---------- ---------- ----------
OPERATING INCOME 749,635 571,109 2,468,771 987,784
OTHER INCOME AND EXPENSE:
Interest expense (673) (293,734) (182,597) (657,419)
Interest income 266,647 766,324
---------- ---------- ---------- ----------
NET INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 1,015,609 277,375 3,052,498 330,365
INCOME TAX EXPENSE (55,829) (50,550)
MINORITY INTEREST (98,403) (88,599)
---------- ---------- ---------- ----------
NET INCOME $1,015,609 $ 123,143 $3,052,498 $ 191,216
========== ========== ========== ==========
PRO FORMA EARNINGS PER SHARE $ 0.13 $ 0.03 $ 0.43 $ 0.04
========== ========== ========== ==========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,727,774 4,701,361 7,110,752 4,701,361
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY UNEARNED
COMMON STOCK ADDITIONAL (DEFICIT) OF COMPENSATION - TOTAL
--------------------- PAID-IN RETAINED PREDECESSOR RESTRICTED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ENTITIES STOCK EQUITY
--------- -------- ------------ ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997 $(373,369) $ (373,369)
Combination (unaudited) 4,701,361 $47,014 $ 3,179,252 373,369 3,599,635
Public stock offering, net of
offering costs of $2.3
million (unaudited) 2,760,000 27,600 39,994,279 40,021,879
Issuance of restricted
common stock (unaudited) 250,586 2,506 4,132,163 $(4,134,669)
Proceeds from the exercise of
common stock options (unaudited) 48,920 4,892 95,108 100,000
Tax benefit from exercise of
common stock options (unaudited) 224,617 224,617
Unearned compensation expense
(unaudited) 358,341 358,341
Net income (unaudited) $3,052,498 3,052,498
--------- -------- ------------ ----------- ------------ -------------- -----------
BALANCE,
SEPTEMBER 30, 1997 (unaudited) 7,760,867 $82,012 $47,625,419 $3,052,498 $ - $(3,776,328) $46,983,601
========= ======== ============ =========== ============ ============== ===========
</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,052,498 $ 191,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 1,822,257 1,095,434
Deferred income taxes 50,550
Unearned compensation expense 358,341
Minority interest 88,599
Changes in assets and liabilities:
Accounts receivable, trade (1,250,336) (481,637)
Accounts receivable, joint interest owners, net (3,283,815) 282,941
Receivable from related parties (68,107) (37,318)
Other current assets (265,303) (31,389)
Other assets 1,088
Accounts payable, trade 2,571,394 1,315,102
Accrued interest payable (74,354) 16,207
Accrued liabilities (627,487) 331,980
------------ -----------
Net cash provided by operating activities 2,236,176 2,821,685
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas property and equipment purchases (17,196,668) (7,880,777)
Proceeds from the sale of oil and gas properties 473,750 2,229,868
Investment in Frontera (3,628,264)
------------ -----------
Net cash used in investing activities (20,351,182) (5,650,909)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 867,350 4,487,000
Payment on notes payable (11,017,348) (162,026)
Payment on long-term notes payable (393,893)
Payment on related party subordinated loans (1,300,000)
Net proceeds from issuance of common stock 41,028,258
Net proceeds from exercise of common stock options 100,000
Net treasury stock transactions (16,000)
Deferred offering cost (750,000)
------------ -----------
Net cash provided by financing activities 29,284,367 3,558,974
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,169,361 729,750
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,543,228 200,831
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,712,589 $ 930,581
============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES - Cash paid for interest $ 256,951 $ 658,763
NON-CASH TRANSACTIONS:
Combination transactions $ 3,599,635
Deferred offering costs at December 31, 1996 capitalized to equity $ 1,006,379
Tax benefit from exercise of common stock options $ 224,617
</TABLE>
See notes to consolidated financial statements.
5
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EDGE PETROLEUM CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements included herein have been prepared by Edge
Petroleum Corporation, a Delaware corporation (the "Company"), without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments which are, in the opinion of
management, necessary to present a fair statement of the results for the
interim periods on a basis consistent with the annual audited Supplementally
Combined Financial Statements. All such adjustments are of a normal recurring
nature. The results of operations for the interim period are not necessarily
indicative of the results to be expected for an entire year. Certain
information, accounting policies and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading. Certain prior year amounts
have been reclassified to conform to the current year presentation. Such
reclassifications do not affect net income. These Financial Statements should
be read in conjunction with the Company's Supplementally Combined Financial
Statements and notes thereto included in its Registration Statement on Form
S-1, as amended (Registration No. 333-17267) (the "Registration Statement").
2. ORGANIZATION AND PRINCIPLES OF COMBINATION
In March 1997, the Company completed its initial public offering (the
"Offering") of 2,760,000 shares of its common stock at a public offering
price of $16.50 per share. The Offering provided the Company with proceeds of
approximately $40.1 million, net of expenses.
The Company was organized as a Delaware corporation in August 1996 in
connection with the Offering and the related combination of certain entities
that held interests in Edge Joint Venture II (the "Joint Venture") and the
acquisition of direct interests in the Joint Venture and in certain oil and
natural gas properties also owned by the Joint Venture. In a series of
transactions (the "Combination"), the Company acquired directly or indirectly
100% of the interests in the Joint Venture by completing (i) a merger of Edge
Petroleum Corporation, a Texas corporation ("Old Edge"), with and into a
wholly owned subsidiary of the Company in which shareholders of Old Edge
received shares of common stock and Old Edge became a wholly owned subsidiary
of the Company; (ii) an exchange of shares of the Company's common stock for
the general and limited partner interests in Edge Group II Limited
Partnership and the limited partner interests in Gulfedge Limited
Partnership; (iii) an acquisition of interests in certain oil and natural gas
properties held by Mr. James C. Calaway (the "Calaway Interests") in exchange
for shares of the Company's common stock; and (iv) a purchase of Edge Group
Partnership's interest in the Joint Venture in exchange for shares of the
Company's common stock. The Company issued an aggregate of 4,701,361 shares
of common stock in the Combination.
The Combination was accounted for as a reorganization in accordance with
Staff Accounting Bulletin No. 47 because of the high degree of common
ownership among the combining entities. Accordingly, the net assets acquired
in the Combination have been recorded at the historical cost basis of the
affiliated predecessor owners. The consolidated financial statements
presented herein represent the consolidated financial statements of Edge
Petroleum Corporation (a Delaware corporation) as of and for the three and
nine month periods ended September 30, 1997; and, the Supplementally Combined
Financial Statements of Old Edge and the Joint Venture, with Joint Venture
interests not owned by Old
6
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Edge shown as minority interest, as of December 31, 1996 and for the three
and nine month periods ended September 30, 1996. Such statements will herein
collectively be referred to as the consolidated financial statements of the
Company.
3. PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share is based on the weighted average number of
shares of common stock outstanding during the period. The computation assumes
that the Company was incorporated during the periods presented and presents
the shares issued in connection with the Combination as outstanding for all
periods. The effects of common stock equivalent shares (stock options) were
not material for the three and nine month periods ended September 30, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings per
Share." SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. This statement simplifies the standards for
computing EPS previously found in Accounting Principles Board ("APB") Opinion
No. 15, "Earnings per Share," and makes them comparable to international EPS
standards. This statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. This statement requires restatement of all
prior-period EPS data presented. Considering the guidelines as prescribed by
SFAS No. 128, management believes that the adoption of this statement will
not have a material effect on EPS thus pro forma EPS, as suggested for all
interim and annual periods prior to required adoption, has been omitted.
4. INCOME TAXES
Prior to the Combination, the owners of the interests in the Joint Venture
(or, in the case of such owners that were not taxable as entities, the owners
of interests in such entities) were liable for federal income taxes on the
taxable earnings of the Joint Venture. Old Edge was a tax-paying entity and,
accordingly, paid taxes on the earnings of the Joint Venture allocated to it.
Under the liability method specified by SFAS No. 109, deferred taxes are
recognized based on the estimated future tax effect of differences between
the financial statement basis and tax bases of assets and liabilities given
the provisions of enacted tax laws. Each former owner of interests in the
Joint Venture (or, in the case of such owners that were not taxable as
entities, the owners of interests in such entities) and the former owner of
the Calaway Interests will be required under existing federal income tax
rules and regulations to include in its taxable income, for all periods
ending on the date of or prior to the completion of the Combination (March 3,
1997), its allocable portion of the taxable income of the Joint Venture and
the Calaway Interests and will be entitled to all tax benefits related to
such taxable income through the completion of such Combination.
The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional paid-in capital.
No charges are reflected in the consolidated statements of operations as a
result of the grant or exercise of stock options. The Company realizes an
income tax benefit from the exercise of stock options based on the difference
between the grant price and the market price when exercised. This benefit
results in a decrease in current income tax payable and an increase in
additional paid-in capital. The total tax benefit recognized from the
exercise of common stock options for both the three-month and nine-month
periods ended September 30, 1997 was $224,617.
7
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The Company has completed its assessment of its deferred tax asset position
and as of September 30, 1997 any asset that may have existed as of the date
of the Combination (March 3, 1997) has been fully utilized. Should the
Company have taxable income in the future, a provision for tax expense will
be provided.
The differences between the statutory federal income taxes and the
Company's effective taxes are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Statutory federal income tax expense $ 345,307 $ 94,308 $1,037,849 $112,324
Non-deductible items 1,304 7,669
Non-statutory stock options (224,617) (224,617)
Change in valuation allowance (121,994) (38,479) (820,901) (61,774)
--------- -------- ---------- --------
Provision for income taxes $ - $ 55,829 $ - $ 50,550
========= ======== ========== ========
</TABLE>
The pro forma provision for income taxes for the three and nine month periods
ended September 30, 1997 and 1996 has been presented to reflect the Company's
income taxes that would have been reported had the Company owned all of the
interests in the Joint Venture since its inception (April 8, 1991).
Pro forma provision for taxes and earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income before income taxes $1,015,609 $ 277,375 $3,052,498 $ 330,365
Income tax at statutory rate 345,307 94,308 1,037,849 112,324
Non-deductible items 1,304 7,669
Non-statutory stock options (224,617) (224,617)
Change in valuation allowance (121,994) (94,308) (820,901) (112,324)
---------- --------- ---------- ---------
Pro forma net income $1,015,609 $ 277,375 $3,052,498 $ 330,365
========== ========= ========== =========
Pro forma earnings per share $ 0.13 $ 0.06 $ 0.43 $ 0.07
========== ========= ========== =========
Pro forma weighted average number
of common shares outstanding 7,727,774 4,701,361 7,110,752 4,701,361
========== ========= ========== =========
</TABLE>
5. COMMODITY PRICE RISK MANAGEMENT ACTIVITIES
The Company periodically uses derivative financial instruments to manage
price risks related to natural gas sales and not for speculation. Gains and
losses related to qualifying hedges of the Company are recognized as a
component of oil and natural gas sales when the hedged transaction occurs.
Reference is made to the Supplementally Combined Financial Statements of the
Company included in the Registration Statement for a more thorough discussion
of the Company's commodity hedging activities. Total natural gas purchased
and sold under swap arrangements during the nine-month period ended September
30, 1996 was 182 MMcf resulting in a gain of $5,270. The Company had no
hedging
8
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activity and there were no open hedging positions as of and for the three or
nine-month periods ended September 30, 1997.
Effective October 1, 1997, and continuing through January 31, 1998, the
Company entered into a natural gas commodity collar with a financial
institution covering 5,000 MMbtu per day, which is substantially all Natural
Gas production of the Company. Prices received float between a floor price of
$2.50 per MMbtu and a cap price of $3.15 per MMbtu Houston Ship Channel with
settlement for each calendar month occurring five business days following the
publishing of each calendar month's Inside F.E.R.C. Gas Marketing Report.
6. STOCK INCENTIVE PLAN
In January 1997, the Company adopted the Incentive Plan of Edge Petroleum
Corporation (the "Incentive Plan") and reserved for issuance pursuant to such
plan 1,000,000 shares of common stock. During the nine month period ended
September 30, 1997, 660,196 common stock options were granted to participants
in the plan of which 27,753 of non-vested options were forfeited due to
employee turnover. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123 "Accounting for Stock-Based Compensation." SFAS No. 123
establishes a fair value method of accounting for awards granted in fiscal
years that begin after December 15, 1994 under stock compensation plans. SFAS
No. 123 encourages, but does not require, companies to adopt the fair value
method of accounting in place of the intrinsic value method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
elected to continue using the provisions of APB Opinion No. 25, and,
accordingly, stock options granted at fair market value on the date of grant
will have no effect on the Company's results of operations.
On March 3, 1997, the Company also issued 250,586 shares of restricted
stock to employees, without payment to the Company, under the Incentive Plan.
The restrictions on disposition on 125,293 of these shares lapse 20% each
year. The restrictions on disposition of the other 125,293 shares lapse on
the earlier of ten years from the date of grant or the achievement of certain
performance goals. Nonvested shares must be forfeited in the event employment
ceases. The value of the restricted stock on the date of grant, totaling
approximately $4.1 million based on the public offering price in the
Offering, has been recorded as an equity issuance and unearned compensation
(recorded as a reduction of equity). The unearned compensation is charged to
earnings over the vesting period.
On March 3, 1997, in exchange for 4,386 existing common stock options of
Old Edge, originally granted pursuant to the Edge Petroleum Corporation 1994
Stock Option Plan ("Old Edge Plan"), the Company granted 97,844 shares of
exercisable common stock options to certain executive officers of the
Company. As of September 30, 1997, 48,922 of these options were exercised
leaving 48,922 outstanding.
7. INVESTMENT IN FRONTERA
During August 1997 the Company made an investment in Frontera Resources
Corporation ("Frontera") through the purchase of 15,171 shares of Series D
Convertible Preferred Stock convertible initially into approximately 10% of
the currently fully diluted outstanding common stock (excluding employee
stock options) of Frontera for $3.6 million. Frontera began operations in
1996 and is a privately held international energy company that is seeking to
develop upstream and downstream energy projects in emerging international
markets. Frontera is pursuing projects in the Republic of Georgia, Azerbaijan
and Bolivia. Entering into this transaction allows the Company the
opportunity to broaden its exposure to, and knowledge of, international oil
and natural gas projects. There can be no assurance as to the results of any
Frontera projects. This investment is recorded using the cost method of
accounting.
9
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant
factors that have affected aspects of the Company's financial position and
operating results during the periods included in the accompanying unaudited
condensed consolidated financial statements. This discussion should be read in
conjunction with the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the annual Supplementally
Combined Financial Statements included in the Company's Registration Statement
on Form S-1, as amended (Registration No. 333-17267) (the "Registration
Statement"), relating to the Company's initial public offering (the "Offering")
and the accompanying unaudited condensed consolidated financial statements.
Unless otherwise indicated by the context, references herein to the "Company"
mean Edge Petroleum Corporation, a Delaware corporation that is the registrant,
and its corporate and partnership subsidiaries and predecessors.
THE COMBINATION TRANSACTIONS AND INITIAL PUBLIC OFFERING
The Company was organized as a Delaware corporation in August 1996 in
connection with the Offering and the related combination of entities that held
interests in Edge Joint Venture II (the "Joint Venture") and the acquisition of
direct interests in the Joint Venture and in certain oil and natural gas
properties also owned by the Joint Venture. In a series of transactions (the
"Combination"), the Company acquired directly or indirectly 100% of the
interests in the Joint Venture by completing (i) a merger of Edge Petroleum
Corporation, a Texas corporation ("Old Edge"), with and into a wholly owned
subsidiary of the Company in which shareholders of Old Edge received shares of
common stock and Old Edge became a wholly owned subsidiary of the Company; (ii)
an exchange of shares of the Company's common stock for the general and limited
partner interests in Edge Group II Limited Partnership and the limited partner
interests in Gulfedge Limited Partnership; (iii) an acquisition of interests in
certain oil and natural gas properties held by Mr. James C. Calaway (the
"Calaway Interests") in exchange for shares of the Company's common stock; and
(iv) a purchase of Edge Group Partnership's interest in the Joint Venture in
exchange for shares of the Company's common stock. The Company issued an
aggregate of 4,701,361 shares of common stock in the Combination.
From inception through March 2, 1997, except for Old Edge, the owners of
interests in the Joint Venture were not required to pay federal income taxes due
to their status as "pass-through" entities that are not subject to federal
income taxation; instead, taxes relating to the taxable income of the Joint
Venture for such periods were required to be paid by the owners of such
entities. Although the effective date of the Combination is March 3, 1997, each
owner of interests in the Joint Venture (or holders of interests in such owners
that are "pass through" entities) will be required to include in its taxable
income, for all periods ending on the date of or prior to the completion of the
Combination, its allocable portion of the taxable income attributable to the
Joint Venture and will be entitled to all tax benefits attributable to the Joint
Venture through completion of the Combination.
The Company uses the full-cost method of accounting for its oil and natural
gas properties. Under this method, all acquisition, exploration and development
costs that are directly attributable to the Company's acquisition, exploration
and development activities, are capitalized in a "full-cost pool" as incurred.
The Company records depletion of its full-cost pool using the unit of production
method. To the extent that such capitalized costs in the full cost pool (net of
depreciation, depletion and amortization and related deferred taxes) exceed the
present value (using a 10% discount rate) of estimated future net after-tax cash
flows from proved oil and natural gas reserves, such excess costs are charged to
operations. Once incurred, a write-down of oil and natural gas properties is
not reversible at a later date.
The Company periodically uses derivative financial instruments to manage
price risks related to natural gas sales and not for speculative purposes. For
book purposes, gains and losses related to hedging of
10
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anticipated transactions are recognized as a component of oil and natural gas
sales when the hedged transaction occurs. The Company's hedging arrangements
apply to only a portion of its production, provide only partial price protection
against declines in prices, limit potential gains from future increases in
prices and may expose the Company to risk of financial loss in certain
circumstances. Total natural gas purchased and sold under swap arrangements
during the nine-month period ended September 30, 1996 was 182 MMcf resulting in
a gain of $5,270. The Company had no hedging activity and there were no open
hedging positions as of and for the three and nine-month periods ended September
30, 1997.
The Company's revenue, profitability and future rate of growth and ability
to borrow funds or obtain additional capital, and the carrying value of its
properties, are substantially dependent upon prevailing prices for natural gas,
oil and condensate. These prices are dependent upon numerous factors beyond the
Company's control, such as economic, political and regulatory developments and
competition from other sources of energy. The energy markets have historically
been very volatile, and there can be no assurance that oil and natural gas
prices will not be subject to wide fluctuations in the future. A substantial or
extended decline in oil and natural gas prices could have a material adverse
effect on the Company's financial condition, results of operation and access to
capital, as well as the quantities of oil and natural gas reserves that the
Company may economically produce. The Company periodically enters into fixed
price natural gas contracts on a month to month basis for production from
certain fields. Effective October 1, 1997, and continuing through January 31,
1998, the Company entered into a natural gas commodity collar with a financial
institution covering 5,000 MMbtu per day, which is substantially all natural gas
production of the Company. Prices received float between a floor price of $2.50
per MMbtu and a cap price of $3.15 per MMbtu Houston Ship Channel with
settlement for each calendar month occurring five business days following the
publishing of each calendar month's Inside F.E.R.C. Gas Marketing Report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
Oil and natural gas revenues for the three months ended September 30, 1997
increased 58% from $2 million to $3.2 million as compared to the same period in
1996. Production volumes for oil and condensate increased 24 % from 25 MBbls
for the three months ended September 30, 1996 to 31 MBbls during the same period
in 1997. The increase in oil and condensate production increased revenues by
$131,000 (based on prior year prices), and a 10% decrease in average oil sales
price decreased revenue by $76,000 (based on current year production).
Effective August 1, 1997, the Texas Railroad Commission ("TRC") curtailed
production from the Company's Wheeler property resulting in lost production of
approximately 3 MBbls of oil and condensate for the three months ended September
30, 1997 decreasing revenues by approximately $49,000 (assuming continued July
production rates and average prices received for August and September).
Production volumes for natural gas increased 47% from 707 MMcf for the three
months ended September 30, 1996 to 1,041 MMcf during the same period in 1997.
The increase in natural gas production increased revenues by $724,000, and a 17%
increase in average natural gas sales price increased revenues by $391,000.
Effective August 1, 1997, the TRC curtailed production from the Company's
Wheeler property resulting in lost production of approximately 224 MMcf of
natural gas decreasing revenues by approximately $540,000 for the three months
ended September 30, 1997 (assuming continued July production rates and average
prices received for August and September). The overall net increase in oil and
natural gas production was due to 60 gross, (24.533 net) new exploratory and
development wells being successfully drilled and completed since September 30,
1996 partially offset by normal production declines from existing wells. During
the three months ended September 30, 1997 the Company marketed its natural gas
produced from a certain gas field under the terms of a fixed price natural gas
contract. The terms of the contract required no minimum volume commitment and
provided incremental pricing based on certain levels of production. Total
volume sold by the Company under this contract for the three month period ended
September 30, 1997 was approximately 353
11
<PAGE>
MMcf receiving an overall average natural gas price comparable to the average
spot market price. No such contract existed during the three-month period ended
September 30, 1996.
The following table sets forth certain operational data of the Company for
the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1997 PERIOD COMPARED
SEPTEMBER 30, TO 1996 PERIOD
-------------------- ------------------------
INCREASE % INCREASE
1997 1996 (DECREASE) (DECREASE)
-------- -------- ---------- ---------
Production volumes:
<S> <C> <C> <C> <C>
Oil and condensate (MBbls) 31 25 6 24 %
Natural gas (MMcf) 1,041 707 334 47 %
Average sales prices:
Oil and condensate ($ per Bbl) $17.55 $19.56 $(2.01) (10)%
Natural gas ($ per Mcf) 2.55 2.18 0.37 17 %
Operating revenues:
Oil and condensate (in thousands) $ 544 $ 489 $ 55 11 %
Natural gas (in thousands) 2,657 1,542 1,115 72 %
------ ------ ------
Total (in thousands) $3,201 $2,031 $1,170 58%
====== ====== ======
</TABLE>
Oil and natural gas operating expenses for the three months ended September
30, 1997 increased 46% from $371,000 to $543,000 as compared to the same period
in 1996 due to increased production. Oil and natural gas operating expenses on
a unit of production basis were $0.44 per Mcfe and $0.43 Mcfe for the three-
month periods ended September 30, 1997 and 1996, respectively.
Depreciation, depletion and amortization expense ("DD&A") for the three months
ended September 30, 1997 increased 45% from $444,000 to $644,000 as compared to
the same period in 1996. Included within DD&A for the three months ended
September 30, 1997 and 1996 is $544,000 and $395,000, respectively, representing
depletion expense of oil and gas property. This increase in depletion expense
was primarily due to the increase in oil and natural gas production which
increased depletion expense by $163,000, offset by a 4% decrease in the overall
depletion rate that decreased depletion expense by $14,000. The decrease in the
depletion rate was due to an increase in reserves added from new wells drilled
since September 30, 1996 offset by increases in the overall depletion base.
Depletion on a unit of production basis for the three-month periods ended
September 30, 1997 and 1996 was $0.44 per Mcfe and $0.46 per Mcfe, respectively.
The remaining increase in DD&A is due primarily to depreciation of new computer
hardware and software purchased since September 30, 1996.
General and administrative expenses for the three months ended September 30,
1997 increased 72% from $644,000 to $1.1 million compared to the same period in
1996. This increase was attributable to additional administrative staffing and
the hiring of additional employees to support the Company's increased level of
drilling activities, 3-D project generation and other activities. Included as a
reduction in general and administrative expenses for the three months ended
September 30, 1997 and 1996, is approximately $171,000 and $57,000,
respectively, of overhead reimbursements and management fees received from
various management, operating and seismic agreements. General and
administrative expenses are expected to continue to increase as the Company
drills more wells and the number of wells that it operates increases. General
and administrative expenses on a unit of production basis for the three month
periods ended September 30, 1997 and 1996 were $0.90 per Mcfe and $0.75 per
Mcfe, respectively.
12
<PAGE>
Unearned compensation expenses for the three months ended September 30, 1997
was $155,000 due to the amortization of unearned compensation expense recognized
from restricted stock granted to executives at the time of the Combination.
Unearned compensation expense will continue to be recognized in the future,
amortized over the vesting period.
The Company recorded interest expense of $1,000 for the three months ended
September 30, 1997 compared to $294,000 during the same period in 1996. The
decrease was the result of the repayment of $12.7 million of indebtedness on
March 3, 1997 with proceeds of the Offering.
Interest income for the three months ended September 30, 1997 was $267,000 due
to earnings from short-term money market investments purchased with proceeds
from the Offering.
Income tax expense for the three-month period ended September 30, 1996 was
$56,000. Due to the availability of net operating loss carry forwards and net
deferred tax assets there is no provision for current or deferred taxes for the
three-month period ended September 30, 1997.
Minority interest for the three months ended September 30, 1997 was eliminated
as result of the completion of the Combination on March 3, 1997 in which the
Company acquired from the predecessor entities 100% of their ownership interests
in the Joint Venture.
For the three months ended September 30, 1997, the Company had operating
income of $750,000, as compared to operating income of $571,000 for the same
period in 1996. The increase is primarily attributable to increased production
offset by increased operating expenses. Net income was $1.016 million for the
three months ended September 30, 1997, as compared to net income of $123,000 for
the same period in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Oil and natural gas revenues for the nine months ended September 30, 1997
increased 89% from $5.1 million to $9.7 million as compared to the same period
in 1996. Production volumes for oil and condensate increased 20% from 81 MBbls
for the nine months ended September 30, 1996 to 97 MBbls during the same period
in 1997. The increase in oil and condensate production increased revenues by
$300,000 (based on prior year prices), and a 2% increase in average oil sales
price further increased revenue by $34,000 (based on current year production).
Effective August 1, 1997, the TRC curtailed production from the Company's
Wheeler property resulting in lost production of approximately 3 MBbls of oil
and condensate for the nine months ended September 30, 1997 decreasing revenues
by approximately $49,000 (assuming continued July production rates and average
prices received for August and September). Production volumes for natural gas
increased 110% from 1,557 MMcf for the nine months ended September 30, 1996 to
3,276 MMcf during the same period in 1997. The increase in natural gas
production increased revenues by $3.9 million, and a 4% increase in average
natural gas sales price increased revenues by $286,000. Effective August 1,
1997, the TRC curtailed production from the Company's Wheeler property resulting
in lost production of approximately 224 MMcf of natural gas decreasing revenues
by approximately $540,000 for the nine months ended September 30, 1997 (assuming
continued July production rates and average prices received for August and
September). The net overall increase in oil and natural gas production was due
to 60 gross (24.533 net) new exploratory and development wells being
successfully drilled and completed since September 30, 1996 partially offset by
normal production declines from existing wells. During the nine months ended
September 30, 1997 the Company marketed its natural gas produced from a certain
gas field under the terms of various fixed price natural gas contracts. The
terms of the contracts required no minimum volume commitment and provided
incremental pricing based on certain levels of production. Total volume sold by
the Company under these contracts for the nine month period ended September 30,
1997 was approximately 1,028
13
<PAGE>
MMcf receiving an overall average natural gas price comparable to the average
spot market price. No such contract existed during the nine-month period ended
September 30, 1996.
The following table sets forth certain operational data of the Company for the
periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED 1997 PERIOD COMPARED
SEPTEMBER 30, TO 1996 PERIOD
----------------- ---------------------
1997 1996 INCREASE % INCREASE
---- ---- -------- ----------
<S> <C> <C> <C> <C>
Production volumes:
Oil and condensate (MBbls) 97 81 16 20%
Natural gas (MMcf) 3,276 1,557 1,719 110%
Average sales prices:
Oil and condensate ($ per Bbl) $19.31 $19.00 $ 0.31 2%
Natural gas ($ per Mcf) 2.38 2.29 0.09 4%
Operating revenues:
Oil and condensate (in thousands) $1,873 $1,539 $ 334 22%
Natural gas (in thousands) 7,785 3,566 4,219 118%
------ ------ ------
Total (in thousands) $9,658 $5,105 $4,553 89%
====== ====== ======
</TABLE>
Oil and natural gas operating expenses for the nine months ended September 30,
1997 increased 88% from $982,000 to $1.8 million as compared to the same period
in 1996 due to increased production. Oil and natural gas operating expenses on
a unit of production basis for both of the nine-month periods ended September
30, 1997 and 1996 were $0.48 per Mcfe.
Depreciation, depletion and amortization expense ("DD&A") for the nine months
ended September 30, 1997 increased 66% from $1.1 million to $1.8 million as
compared to the same period in 1996. Included within DD&A for the nine months
ended September 30, 1997 and 1996 is $1.6 million and $936,000, respectively,
representing depletion expense of oil and gas property. This increase in
depletion expense was primarily due to the increase in oil and natural gas
production which increased depletion expense by $830,000, offset by a 11%
decrease in the overall depletion rate that decreased depletion expense by
$198,000. Depletion on a unit of production basis for the nine-month periods
ended September 30, 1997 and 1996 was $0.41 per Mcfe and $0.46 per Mcfe,
respectively. The remaining increase in DD&A is due primarily to depreciation
of new computer hardware and software purchased since September 30, 1996.
General and administrative expenses for the nine months ended September 30,
1997 increased 55% to $3.2 million from $2 million during to the same period in
1996. This increase was attributable to additional administrative staffing and
the hiring of additional employees to support the Company's increased level of
drilling activities and 3-D project generation. General and administrative
expenses were further increased during the nine months ended September 30, 1997
by $161,000, resulting from expenses incurred as a result of being a public
company. Included within general and administrative expenses for the nine
months ended September 30, 1997 and 1996, is approximately $566,000 and
$173,000, respectively, of overhead reimbursements and management fees received
from various management, operating and seismic agreements. General and
administrative expenses are expected to continue to increase as the Company
drills more wells and the number of wells that it operates increases. General
and administrative expenses on a unit of production basis for the nine month
periods ended September 30, 1997 and 1996 were $0.82 per Mcfe and $1.00 per
Mcfe, respectively.
Unearned compensation expense during the nine months ended September 30, 1997
was $358,000 due to the amortization of unearned compensation expense recognized
from restricted stock granted to executives at
14
<PAGE>
the time of the Combination. Unearned compensation expense will continue to be
recognized in the future, amortized over the vesting period.
Interest expense for the nine months ended September 30, 1997 decreased 72%
to $183,000 from $657,000 during the same period in 1996. The weighted average
debt was $2.7 million for the nine-month period ended September 30, 1997, as
compared to $8.1 million for the same period in 1996. Total indebtedness of
$12.7 million was repaid on March 3, 1997 with proceeds of the Offering (as
described below).
Interest income for the nine months ended September 30, 1997 was $766,000 due
to earnings from short-term money market investments purchased with proceeds
from the Offering.
Income tax expense for the nine-month period ended September 30, 1996 was
$51,000. Due to the availability of net operating loss carry forwards and net
deferred tax assets there is no provision for current or deferred taxes for the
nine-month period ended September 30, 1997. The Company has completed its
assessment of its deferred tax asset position and as of September 30, 1997 any
asset that may have existed as of the date of the Combination (March 3, 1997)
has been fully utilized. Should the Company have taxable income in the future,
a provision for tax expense will be provided.
Minority interest for the nine months ended September 30, 1997 was eliminated
as result of the completion of the Combination on March 3, 1997 in which the
Company acquired from the predecessor entities 100% of their ownership interests
in the Joint Venture.
For the nine months ended September 30, 1997, the Company had operating income
of $2.5 million, as compared to operating income of $988,000 for the same period
in 1996. The increase is primarily attributable increased production further
increased by an increase in average commodity prices offset by increased
operating expenses. Net income was $3.1 million for the nine-month period ended
September 30, 1997, as compared to net income of $191,000 for the same period in
1996.
LIQUIDITY AND CAPITAL RESOURCES
In March 1997, the Company completed the Offering of 2,760,000 shares of
common stock at a public offering price of $16.50 per share. The Offering
provided the Company with proceeds of approximately $40.1 million, net of
expenses. The Company used approximately $12.7 million to repay its long-term
outstanding indebtedness incurred under its revolving credit facility (the
"Credit Facility"), subordinated loans and equipment loans. The remaining
proceeds from the Offering, together with cash flows from operations, will be
used to fund planned capital expenditures, commitments, other working capital
requirements and for general corporate purposes.
The Company had cash and cash equivalents at September 30, 1997 of $12.7
million, consisting primarily of short-term money market investments, as
compared to $1.5 million at December 31, 1996. Working capital was $16.5
million at September 30, 1997, as compared to $690,000 at December 31, 1996.
Operating cash flow before changes in working capital increased substantially
to approximately $5.2 million for the nine-month period ended September 30, 1997
from $1.4 million for the same period in 1996. The increase was the result of
increases in production from new well additions, reflecting rapidly expanding
operations and higher prices for production. Operating cash flow, a measure of
performance for exploration and production companies, represents cash flows from
operating activities prior to changes in assets and liabilities. Operating cash
flow should not be considered in isolation or as a substitute for net income,
operating income, cash flows from operating activities or any other measure of
financial performance
15
<PAGE>
presented in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity.
During the nine months ended September 30, 1997, the Company continued to
reinvest a substantial portion of its cash flows to increase its 3-D project
portfolio, improve its 3-D seismic data integration and visualization technology
and fund its drilling activities. The Company expects to continue to reinvest a
substantial portion of its cash flows for these purposes, and expects total
capital expenditures in 1997 to be about $24 million. Capital expenditures
during the nine months ended September 30, 1997 were $17.2 million as compared
to $7.9 million during the same period in 1996. The Company expects to drill
approximately 100 gross wells during 1997. The Company's drilling efforts
resulted in the successful completion of 72 gross (28.69 net) wells in the first
nine months of 1997 compared to 35 gross (13.93 net) wells during the same
period in 1996.
During August 1997 the Company made an investment in Frontera Resources
Corporation ("Frontera") through the purchase of 15,171 shares of Series D
Convertible Preferred Stock convertible initially into approximately 10% of the
currently fully diluted outstanding common stock (excluding employee stock
options) of Frontera for $3.6 million. Frontera began operations in 1996 and
is a privately held international energy company that is seeking to develop
upstream and downstream energy projects in emerging international markets (See
Note 7).
The Company intends to fund its planned capital expenditures, commitments and
working capital requirements through cash flows from operations, proceeds of the
Offering and, to the extent necessary, borrowings or other financing
activities. The Company believes it will have sufficient capital resources and
liquidity to fund its capital expenditures and meet its financial obligations as
they come due.
REVOLVING CREDIT FACILITY
In July 1995, the Company entered into the two-year secured Credit Facility
with Compass Bank-Houston ("Compass") which provides a maximum loan amount of
$20 million, subject to borrowing base limitations. The Credit Facility allows
Compass to make, in its sole discretion, the borrowing base determination based
upon the Company's proved oil and natural gas reserves. During early 1997 the
maturity of the Credit Facility was extended to July 1998. The interest rate
for borrowings is either the Base Rate plus 0.5% or LIBOR plus 2.5%. The Base
Rate is the higher of (i) the Federal Funds Rate plus 0.5% or (ii) the prime
rate. The Credit Facility also provides for the payment of certain commitment
and other fees. The Company is subject to certain covenants under the terms of
the Credit Facility, including requirements to maintain specified tangible
capital and a ratio of cash flow to debt service coverage of at least 1.25 to
1.00. The Credit Facility also places restriction on dividends, additional
indebtedness, liens, sales of properties and other matters.
During March 1997, the outstanding balance under the Credit Facility of $11.0
million was repaid with proceeds from the Offering. The Credit Facility remains
available for future borrowings under similar terms, but the borrowing base has
been reduced at the Company's request to $1 million so as to limit expenses.
However, the Company has the ability to restore availability subject to the
provisions of the Credit Facility.
SUBORDINATED LOAN
In December 1994, the Joint Venture entered into an agreement providing for a
subordinated loan. Such agreement provided for a $1 million term loan and a $1
million line of credit. The Company borrowed $1 million under the provisions of
the term loan and $300,000 under the line of credit. During March 1997, the
outstanding balance of $1.3 million was repaid with proceeds from the Offering
and the subordinated loan agreement was canceled.
16
<PAGE>
EQUIPMENT LOANS
Prior to the Offering, the Company was a party to various equipment loans with
lenders to acquire computer and related office equipment. These loans had
various terms and maturities. During March 1997, all but $32,000 of the
outstanding balance of $412,000 was repaid with proceeds from the Offering.
Equipment loans of $18,000 remain unpaid as of September 30, 1997.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings per Share."
SFAS No. 128 establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. This statement simplifies the standards for computing
EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings
per Share," and makes them comparable to international EPS standards. This
statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. Considering the guidelines as prescribed by SFAS No. 128; management
believes that the adoption of this statement will not have a material effect on
EPS; and pro forma EPS, as suggested for all interim and annual periods prior to
required adoption, has been omitted.
FORWARD LOOKING STATEMENTS
The statements contained in all parts of this document, including, but not
limited to, those relating to the Company's drilling plans, its 3-D project
portfolio, capital expenditures, use of Offering proceeds, general and
administrative expenses on a per unit of production basis, expected wells or
production, increases in proved reserves, increases in production, results of
any well had production not been shut-in, increases in wells operated, the
ability of expected sources of liquidity to support working capital and capital
expenditure requirements and any other statements regarding future operations,
financial results, business plans and cash needs and other statements that are
not historical facts are forward looking statements. When used in this
document, the words "anticipate," "estimate," "expect," "may," "project,"
"believe" and similar expressions are intended to be among the statements that
identify forward looking statements. Such statements involve risks and
uncertainties, including, but not limited to, those relating to the Company's
dependence on its exploratory drilling activities, the volatility of oil and
natural gas prices, the need to replace reserves depleted by production,
operating risks of oil and natural gas operations, the Company's dependence on
its key personnel, the Company's reliance on technological development and
possible obsolescence of the technology currently used by the Company,
significant capital requirements of the Company's exploration and development
and technology development programs, the potential impact of government
regulations, litigation and environmental matters, the Company's ability to
manage its growth and achieve its business strategy, competition, the
uncertainty of reserve information and future net revenue estimates, property
acquisition risks, risks of operations in foreign countries (including risk of
war, civil disturbances, political instability, unenforceability of foreign
contracts, local laws and regulations requiring qualifications, use of local
labor, the provision of financial assurances or other restrictions an conditions
on operations, problems in the relationships between such foreign county and
United States, fluctuations in currency exchange rates and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
results in deprivation of contract rights or the taking of property without fair
compensation), and other factors detailed in the Registration Statement and the
Company's other filings with the Securities and Exchange Commission. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................................... None
Item 2 - Changes in Securities and use of proceeds....................... None
The Company's Registration Statements on Form S-1 (Registration No.
333-17267 and 333-22363), as amended, with respect to the initial
public offering of shares of the Company's common stock was declared
effective by the Securities and Exchange Commission of February 25,
1997. The offering commenced on February 26, 1997, and has since
terminated, resulting in (I) the sale by the Company of 2,400,000
shares of common stock on March 3, 1997 and (ii) the sale by the
Company of 360,000 shares of common stock pursuant to the exercise of
the underwriters' over-allotment option on March 17, 1997. The shares
sold constitute all the shares of common stock covered by the
Registration Statement. The managing underwriters for the Offering were
Raymond James & Associates, Inc., Jefferies & Company, Inc. and
Principal Financial Services, Inc.
The aggregate price to the public for the share sold in the
Offering was $45,540,000. The expense incurred by the Company with
respect tot he Offering were as follows:
Underwriter Discounts and Commissions $3,187,800
Other expenses 2,206,218
----------
Total $5,394,018
==========
None of the amount set forth above as other expenses were direct or
indirect payments to directors of officers of the Company or their
associates, to persons owning ten percent ort more of the any class of
equity securities of the Company or affiliates of the Company.
The net proceeds to the Company from the Offering were $40.1
million. As of November 12, 1997, the Company has used such net
proceeds as follows: (i) to repay $12.7 million of indebtedness, (ii)
to make a $3.6 million investment in Frontera and capital expenditures
of $17.2 million in the Company's drilling plans and its 3-D project
portfolios. None of such payments were direct or indirect payments to
directors of officers of the Company or their associates, to persons
owning ten-percent or more of the any class of equity securities of
the Company or affiliates of the Company.
Item 3 - Defaults Upon Senior Securities................................. None
Item 4 - Submission of Matters to a Vote of Security Holders............. None
Item 5 - Other Information............................................... None
Item 6 - Exhibits and Reports on Form 8-K
(A) EXHIBITS. The following exhibits are filed as part of this report:
INDEX TO EXHIBITS
Exhibit No.
- -----------
18
<PAGE>
*2.1 Amended and Restated Combination Agreement by and among (i) Edge
Group II Limited Partnership, (ii) Gulfedge Limited Partnership,
(iii) Edge Group Partnership, (iv) Edge Petroleum Corporation of
Texas, (v) Edge Mergco, Inc. and (vi) the Company, dated as of
January 13, 1997 (Incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-4 (Registration No. 333-17269)
filed by the Company).
*3.1 Restated Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 3.1 to Registration
Statement on Form S-4 (Registration No. 333 -17269) filed by the
Company).
*3.2 Bylaws of the Company (Incorporated by Reference to Exhibit 3.2
to the Registration Statement on Form S-4 (Registration No. 333-
17269) filed by the Company).
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
*Incorporated by reference as indicated
(B) Reports on Form 8-K............................................. None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDGE PETROLEUM CORPORATION,
A DELAWARE CORPORATION
(REGISTRANT)
Date 11/12/97 /s/ JOHN E. CALAWAY
------------------- -----------------------
John E. Calaway,
Chief Executive Officer and
Chairman of the Board
Date 11/12/97 /s/ JAMES D. CALAWAY
------------------- -----------------------
James D. Calaway,
President and Director
Date 11/12/97 /s/ MICHAEL G. LONG
------------------- -----------------------
Michael G. Long,
Chief Financial Officer
Date 11/12/97 /s/ BRIAN C. BAUMLER
------------------- -----------------------
Brian C. Baumler,
Controller and Treasurer
20
<PAGE>
EXHIBIT - 11.1
EDGE PETROLEUM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
Primary Calculation:
<S> <C> <C> <C> <C>
Shares issued in connection with the combination
and assumed outstanding for all periods 4,701,361 4,701,361 4,701,361 4,701,361
Weighted average common shares outstanding:
Issued in connection with the public offering 2,760,000 2,203,956
Exercise of stock options 15,827 5,333
Restricted stock 250,586 200,102
----------- ----------- ----------- -----------
Pro forma Weighted average number of
common shares outstanding 7,727,774 4,701,361 7,110,752 4,701,361
=========== =========== =========== ===========
Net Income $ 1,015,609 $ 123,143 $ 3,052,498 $ 191,216
=========== =========== =========== ===========
Pro forma Primary Earnings Per Share $ 0.13 $ 0.03 $ 0.43 $ 0.04
=========== =========== =========== ===========
</TABLE>
The difference between primary and fully diluted earnings per share is not
significant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> $12,712,589
<SECURITIES> 0
<RECEIVABLES> 7,951,493
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,298,510
<PP&E> 32,670,220
<DEPRECIATION> (5,780,318)
<TOTAL-ASSETS> 51,833,908
<CURRENT-LIABILITIES> 4,826,251
<BONDS> 0
0
0
<COMMON> 82,012
<OTHER-SE> 46,901,589
<TOTAL-LIABILITY-AND-EQUITY> 51,833,908
<SALES> 0
<TOTAL-REVENUES> 9,657,854
<CGS> 0
<TOTAL-COSTS> 7,189,083
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,597
<INCOME-PRETAX> 3,052,498
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,052,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,052,498
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
