<PAGE>
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 JUNE 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 August 12 , 1997
----- -------------------------------
Common Stock 7,711,947
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
EDGE PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,423,572 $ 1,543,228
Accounts receivable, trade 3,146,478 2,038,889
Accounts receivable, joint interest owners, net 5,292,703 1,378,453
Receivables from related parties 235,361 186,562
Other current assets 410,078 114,456
------------ ------------
Total current assets 34,508,192 5,261,588
PROPERTY AND EQUIPMENT, Net - full cost method
of accounting for oil and gas properties 17,105,936 11,989,241
DEFERRED OFFERING COSTS 1,006,379
OTHER ASSETS 7,788 18,320
------------ ------------
TOTAL ASSETS $ 51,621,916 $ 18,275,528
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 4,527,544 $ 1,695,366
Accounts payable to related party 40,000 1,372,450
Accrued interest payable 74,354
Accrued liabilities 1,317,376 1,128,967
Current portion of notes payable 300,058
------------ ------------
Total current liabilities 5,884,920 4,571,195
NOTES PAYABLE 11,561,844
DEFERRED INCOME TAXES 248,673 248,673
MINORITY INTEREST 2,267,185
------------ ------------
Total liabilities 6,133,593 18,648,897
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000
shares authorized; none outstanding
Common stock, $.01 par value; 25,000,000
shares authorized; 7,711,947 shares issued
and outstanding 77,120
Additional paid-in capital 47,305,694
Retained earnings 2,036,889
Unearned compensation - restricted stock (3,931,380)
Equity (deficit) of predecessor entities (373,369)
------------ ------------
Total stockholders' equity 45,488,323 (373,369)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,621,916 $ 18,275,528
============ ============
See notes to consolidated financial statements.
2
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OIL AND NATURAL GAS REVENUES $ 3,016,085 $ 1,797,460 $ 6,457,086 $ 3,074,561
OPERATING EXPENSES:
Oil and natural gas operating expenses 670,825 262,159 1,299,238 610,496
Depreciation, depletion and amortization 562,830 342,533 1,178,594 651,755
General and administrative expenses 1,291,300 515,909 2,260,118 1,395,635
----------- ----------- ----------- -----------
Total operating expenses 2,524,955 1,120,601 4,737,950 2,657,886
----------- ----------- ----------- -----------
OPERATING INCOME 491,130 676,859 1,719,136 416,675
OTHER INCOME AND EXPENSE:
Interest expense (1,617) (209,845) (181,924) (363,685)
Interest income 391,451 499,677
----------- ----------- ----------- -----------
NET INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 880,964 467,014 2,036,889 52,990
INCOME TAX (EXPENSE) BENEFIT 224,574 (107,256) 5,279
MINORITY INTEREST (199,189) 9,804
----------- ----------- ----------- -----------
NET INCOME $ 1,105,538 $ 160,569 $ 2,036,889 $ 68,073
=========== =========== =========== ===========
PRO FORMA EARNINGS PER SHARE $ 0.14 $ 0.03 $ 0.30 $ 0.01
=========== =========== =========== ===========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,711,947 4,701,361 6,797,128 4,701,361
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY UNEARNED
COMMON STOCK ADDITIONAL (DEFICIT) OF COMPENSATION TOTAL
--------------------- PAID-IN RETAINED PREDECESSOR RESTRICTED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS ENTITIES STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 $ (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) -
Compensation expense (unaudited) 203,289 203,289
Net income (unaudited) 2,036,889 2,036,889
--------- -------- ----------- ----------- ---------- ------------ -----------
BALANCE,
June 30, 1997 (unaudited) 7,711,947 $ 77,120 $47,305,694 $ 2,036,889 $ - $ (3,931,380) $45,488,323
========= ======== =========== =========== ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
EDGE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,036,889 $ 68,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 1,178,594 651,755
Deferred income taxes (5,279)
Compensation expense 203,289
Minority interest (9,804)
Changes in assets and liabilities:
Accounts receivable, trade (1,107,589) (1,266,073)
Accounts receivable, joint interest owners, net (3,914,250) 333,552
Receivable from related parties (48,799) (63,292)
Other current assets (295,622) (133,446)
Other assets 10,532 29,360
Accounts payable, trade 2,807,854 1,370,436
Accrued interest payable (74,354) 12,237
Accrued liabilities 188,409 387,365
------------ ------------
Net cash provided by operating activities 984,953 1,374,884
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases (6,545,289) (5,453,565)
Proceeds from the sale of oil and gas properties 250,000 1,444,574
------------ ------------
Net cash used in investing activities (6,295,289) (4,008,991)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 867,350 3,250,000
Payment on notes payable (11,017,348)
Payment on long-term notes payable (387,580) (89,144)
Payment on related party subordinated loans (1,300,000)
Net proceeds from issuance of common stock 41,028,258
------------ ------------
Net cash provided by financing activities 29,190,680 3,160,856
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 23,880,344 526,749
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,543,228 200,831
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,423,572 $ 727,580
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES - Cash paid
for interest $ 256,278 $ 367,492
NON-CASH TRANSACTIONS:
Combination transactions $ 3,599,635
Deferred offering costs at December 31, 1996
charged to equity $ 1,006,379
See notes to consolidated financial statements.
5
<PAGE>
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
six month periods ended June 30, 1997; and, the Supplementally Combined
Financial Statements of Old
6
<PAGE>
Edge and the Joint Venture, with Joint Venture interests not owned by Old
Edge shown as minority interest, as of December 31, 1996 and for the three
and six month periods ended June 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 and not dilutive for the three and six month
periods ended June 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, and pro
forma EPS, as suggested for all interim and annual periods prior to required
adoption, has been omitted due to immateriality.
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 basis of assets and liabilities given
the provisions of enacted tax laws. The related tax basis amounts at
June 30, 1997 have been estimated. Such amounts will be adjusted once the
respective March 3, 1997 income tax returns are finalized. 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 ultimate tax basis and related difference from financial statement
basis will not be determinable with certainty until completion of the final
March 3, 1997 tax returns and may be materially different from the estimated
amounts depending upon the level and nature of operations and the amount of
taxable income and deductions allocated to the individual owners, limited
partners and interests of the affiliated entities. The ultimate difference in
the book and tax basis of assets and liabilities from what has been
previously recorded will result in an adjustment to the Company's tax
provision and will be recorded within the consolidated statement of
operations. Based on the Company's analysis to date, it is now believed that
the Company will have deferred tax assets sufficient to offset taxable income
generated since March 3, 1997.
7
<PAGE>
The differences between the statutory federal income taxes and the Company's
effective taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Statutory federal income tax expense $ 308,337 $ 163,455 $ 712,911 $ 18,547
Utilization of deferred tax asset (532,911) (56,199) (712,911) (23,826)
---------- ---------- ---------- ----------
Provision for income taxes $ (224,574) $ 107,256 $ - $ (5,279)
========== ========== ========== ==========
</TABLE>
The pro forma provision for income taxes for the three and six month periods
ended June 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income before income taxes $ 880,964 $ 467,014 $2,036,889 $ 52,990
Pro forma deferred income tax expense 308,337 163,455 712,911 18,547
Utilization of deferred tax asset (308,337) (163,455) (712,911) (18,547)
---------- ---------- ---------- ----------
Pro forma net income $ 880,964 $ 467,014 $2,036,889 $ 52,990
========== ========== ========== ==========
Pro forma earnings per share $ 0.11 $ 0.10 $ 0.30 $ 0.01
========== ========== ========== ==========
Pro forma weighted average number of
common shares outstanding 7,711,947 4,701,361 6,797,128 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 six month period ended
June 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 or six month periods ended June 30, 1997.
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 six month
period ended June 30, 1997, 641,696 stock options were granted to
participants in the plan. 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."
8
<PAGE>
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.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected certain 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 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.
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.
10
<PAGE>
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 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 six-month period ended
June 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 six month periods ended June 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.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996
Oil and natural gas revenues for the three months ended June 30, 1997
increased 68% from $1.8 million to $ 3.0 million as compared to the same period
in 1996. Production volumes for oil and condensate increased 32 % from 28 MBbls
for the three months ended June 30, 1996 to 37 MBbls during the same period in
1997. The increase in oil and condensate production increased revenues by
$172,000 (based on prior year prices), and a 8% decrease in average oil sales
price decreased revenue by $58,000 (based on current year production).
Production volumes for natural gas increased 151% from 483 MMcfs for the three
months ended June 30, 1996 to 1,213 MMcfs during the same period in 1997. The
increase in natural gas production increased revenues by $1.9 million, and a 25%
decrease in average natural gas sales price decreased revenues by $795,000.
This increase in oil and natural gas production was due to 49 gross, (21.34 net)
new exploratory and development wells being successfully drilled and completed
since June 30, 1996 resulting from the Company's active drilling programs
partially offset by normal production declines from existing wells. During the
three months ended June 30, 1997 the Company marketed its natural gas produced
from a certain gas field under the terms of a fixed price natural gas contract,
which expired June 30, 1997. The terms of the contract required no minimum
volume commitment and provided incremental pricing based on certain levels of
production. Total volume sold by the Company under this contract for the three
month period ended June 30, 1997 was approximately 337 MMcfs receiving an
overall average natural gas price comparable to the average spot market price.
No such contract existed during the three month period ended June 30, 1996. For
the period July 1, 1997 through October 31, 1997 the Company has entered into an
agreement in which it markets its natural gas produced from a certain gas field
under the terms of a fixed volume fixed price natural gas contract.
11
<PAGE>
The following table sets forth certain operational data of the Company for
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended 1997 Period Compared
June 30, to 1996 Period
------------------------- -------------------------
1997 1996 Increase % Increase
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Production volumes:
Oil and condensate (MBbls) 37 28 9 32%
Natural gas (MMcf) 1,213 483 730 151%
Average sales prices:
Oil and condensate ($ per Bbl) $ 18.43 $ 20.03 $ (1.60) (8)%
Natural gas ($ per Mcf) $ 1.93 $ 2.56 $ (0.63) (25)%
Operating revenues:
Oil and condensate (in thousands) $ 673 $ 559 $ 114 20%
Natural gas (in thousands) 2,343 1,238 1,105 89%
------- ------- -------
Total (in thousands) $ 3,016 $ 1,797 $ 1,219 68%
======= ======= =======
</TABLE>
Oil and natural gas operating expenses for the three months ended
June 30, 1997 increased 156% from $262,000 to $671,000 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 $0.47 per Mcfe and $0.40 Mcfe for
the three month periods ended June 30, 1997 and 1996, respectively.
Depreciation, depletion and amortization expense ("DD&A") for the three
months ended June 30, 1997 increased 64% from $343,000 to $563,000 as compared
to the same period in 1996. This increase was primarily due to the increase in
oil and natural gas production which increased DD&A by $355,000, offset by a 27%
decrease in the overall depletion rate that decreased DD&A by $174,000. The
decrease in the depletion rate was due to a significant increase in reserves
added from new wells drilled since June 30, 1996. The remaining increase in DD&A
is due primarily to depreciation of new computer hardware and software purchased
since June 30, 1996. DD&A on a unit of production basis for the three month
periods ended June 30,1997 and 1996 was $0.39 per Mcfe and $0.53 per Mcfe,
respectively.
General and administrative expenses for the three months ended June 30, 1997
increased 151% from $516,000 to $1.3 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. General and
administrative expenses were further increased during the three months ended
June 30, 1997 by $155,000 due to the amortization of unearned compensation
expense recognized from restricted stock options granted to executives. Unearned
compensation expense will continue to be incurred in the future, amortized over
the vesting period. Included within general and administrative expenses for the
three months ended June 30, 1997 and 1996, is approximately $159,000 and
$53,000, 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 June 30, 1997 and 1996 were $0.90 per Mcfe and $0.79 per Mcfe,
respectively. Despite this increase the Company expects general and
administrative expenses on a per unit of production basis to generally decline
over time as expected production increases.
The Company recorded interest expense of $2,000 for the three months ended
June 30, 1997 compared to $210,000 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.
12
<PAGE>
Interest income for the three months ended June 30, 1997 was $391,000 due
to earnings from money market investments purchased with excess proceeds from
the Offering.
Income tax expense (benefit) for the three month period ended June 30, 1997
decreased from a tax expense of $107,000 to a tax benefit of $225,000 as
compared to the same period in 1996. The decrease in tax expense resulted from
a decrease in deferred tax assets and the utilization of net operating loss
carry forwards which completely offset the effects of any current or deferred
tax expense for the three month period ended June 30, 1997.
Minority interest for the three months ended June 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 June 30, 1997, the Company had operating income
of $491,000, as compared to operating income of $677,000 for the same period in
1996. The decrease is primarily attributable to a decline in average commodity
prices offset by increased production and further decreased by an increase in
general and administrative expenses. Net income was $1.1 million for the three
months ended June 30, 1997, as compared to net income of $161,000 for the same
period in 1996.
THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1996
Oil and natural gas revenues for the six months ended June 30, 1997
increased 110% from $3.1 million to $6.5 million as compared to the same period
in 1996. Production volumes for oil and condensate increased 18% from 56 MBbls
in the first six months of 1996 to 66 MBbls in the same period in 1997. The
increase in oil and condensate production increased revenues by $170,000 (based
on prior year prices), and a 10% increase in average oil sales price further
increased revenue by $119,000 (based on current year production). Production
volumes for natural gas increased 163% from 851 MMcfs in the first six months
of 1996 to 2,235 MMcfs in the same period in 1997. The increase in natural gas
production increased revenues by $3.3 million, and a 4% decrease in average
natural gas sales price decreased revenues by $210,000. This increase in oil
and natural gas production was due to 49 gross (21.34 net) new exploratory and
development wells being successfully drilled and completed since June 30, 1996
resulting from the Company's active drilling programs partially offset by normal
production declines from existing wells. During the six months ended
June 30, 1997 the Company marketed its natural gas produced from a certain gas
field under the terms of a fixed price natural gas contract, which expired
June 30, 1997. The terms of the contract required no minimum volume commitment
and provided incremental pricing based on certain levels of production. Total
volume sold by the Company under this contract for the six month period ended
June 30, 1997 was approximately 671 MMcfs receiving an overall average natural
gas price comparable to the average spot market price. No such contract existed
during the six month period ended June 30, 1996. For the period July 1, 1997
through October 31, 1997 the Company has entered into an agreement in which it
markets its natural gas produced from a certain gas field under the terms of a
fixed volume fixed price natural gas contract.
13
<PAGE>
The following table sets forth certain operational data of the Company for
the periods presented:
<TABLE>
<CAPTION>
Six Months Ended 1997 Period Compared
June 30, to 1996 Period
------------------------- -------------------------
1997 1996 Increase % Increase
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Production volumes:
Oil and condensate (MBbls) 66 56 10 18%
Natural gas (MMcf) 2,235 851 1,384 163%
Average sales prices:
Oil and condensate ($ per Bbl) $ 20.32 $ 18.51 $ 1.81 10%
Natural gas ($ per Mcf) 2.29 2.39 (0.10) (4)%
Operating revenues:
Oil and condensate (in thousands) $ 1,333 $ 1,044 $ 289 28%
Natural gas (in thousands) 5,124 2,031 3,093 152%
-------- -------- --------
Total (in thousands) $ 6,457 $ 3,075 $ 3,382 110%
-------- -------- --------
</TABLE>
Oil and natural gas operating expenses for the six months ended
June 30, 1997 increased 113% from $610,000 to $1.3 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 were $0.49 per Mcfe and $0.51 Mcfe for
the six month periods ended June 30, 1997 and 1996, respectively.
Depreciation, depletion and amortization expense ("DD&A") for the six
months ended June 30, 1997 increased 81% from $652,000 to $1.2 million as
compared to the same period in 1996. This increase was primarily due to the
increase in oil and natural gas production which increased DD&A by $655,000,
offset by a 7% decrease in the overall depletion rate that decreased DD&A by
$181,000. The remaining increase in DD&A is due primarily to depreciation of new
computer hardware and software purchased since June 30, 1996. DD&A on a unit of
production basis for the six month periods ended June 30, 1997 and 1996 was
$0.45 per Mcfe and $0.55 per Mcfe, respectively.
General and administrative expenses for the six months ended June 30, 1997
increased 62% from $1.4 million to $2.3 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 and 3-D project generation. General and administrative
expenses were further increased during the six months ended June 30, 1997 by
$161,000, resulting from expenses incurred as a result of being a public
company, and $203,000 due to the amortization of unearned compensation expense
recognized from restricted stock options granted to executives. Included within
general and administrative expenses for the six months ended June 30, 1997 and
1996, is approximately $393,000 and $114,000, 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 six month periods ended June 30, 1997 and 1996 were
$0.86 per Mcfe and $1.17 per Mcfe, respectively. The Company expects general
and administrative expenses on a per unit of production basis to generally
decline over time as expected production increases.
Interest expense for the six months ended June 30, 1997 decreased 50% from
$364,000 to $182,000 as compared to the same period in 1996. The weighted
average debt was $4.1 million for the six month period ended June 30, 1997, as
compared to $7.6 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).
14
<PAGE>
Interest income for the six months ended June 30, 1997 was $500,000 due to
earnings from money market investments purchased with excess proceeds from the
Offering.
Income tax expense (benefit) for the six month period ended June 30, 1997
decrease from a tax benefit of $5,000 to no current or deferred tax expense as
compared to the same period in 1996. The decrease was due to the utilization of
deferred tax assets and a net operating loss carry forward which completely
offset the effects of any current or deferred tax expense for the six month
period ended June 30, 1997.
Minority interest for the six months ended June 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 six months ended June 30, 1997, the Company had operating income of
$1.7 million, as compared to operating income of $417,000 for the same period in
1996, primarily reflecting increased oil and natural gas production. Net income
was $2.0 million for the six months ended June 30, 1997, as compared to net
income of $68,000 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 June 30, 1997 of $25.4
million, consisting primarily of short-term money market investments, as
compared to $1.5 million at December 31, 1996. Working capital was $28.6
million at June 30, 1997, as compared to $690,000 at December 31, 1996.
Operating cash flow before changes in working capital increased
substantially to approximately $3.4 million for the first six months of 1997
from $705,000 for the same period in 1996. The increase was the result of
increases in production from new well additions, reflecting rapidly expanding
operations. 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
presented in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. (add Wheeler comment)
During the six months ended June 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 interpretation technology and fund its
drilling program. 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 at least $18 million. Capital expenditures during
the six months ended June 30, 1997 were $6.5 million as compared to $5.5 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 33 gross (12.89 net) wells in the first six months of
1997 compared to 16 gross (7.37 net) wells during the same period in 1996. The
decreased net wells for the six months ended June 30, 1997 is not an indication
of a trend but is the result of specific risk management decisions by the
Company. The Company intends to fund its planned capital
15
<PAGE>
expenditures, commitments and working capital requirements through cash flows
from operations, proceeds of the Offering and, to the extent necessary,
borrowings under the Credit Facility 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.
Subsequent to the end of the second quarter, a significant event took
place at the Company's Wheeler Property. That property was producing a total of
21.5 MMcf of gas per day and about 250 Bbls per day of condensate from two wells
to the 8/8th interest; Edge's share was about 3.5 MMcfe per day. A new well was
drilled on the Wheeler prospect which was at a low structural position on the
fault block and discovered an oil rim potentially connected to our updip
producing gas column. The Texas Railroad Commission ordered a temporary
curtailment of the gas production, as it is required to do when oil is found
downdip of a gas column, in order to protect the ability to produce the downdip
oil in the reservoir. Fortunately, Edge and its partners in the Wheeler
Property own most of the acreage covering the downdip oil rim. Belco Oil and
Gas, the operator, has already perforated at levels on the logs that had
previously been thought to be water bearing due to the low resistivity of those
zones and those zones produced 100% oil from both perforations. These wells are
expected to be producing oil shortly. Two to three additional wells will be
drilled soon. The Company expects to have four oil wells producing by the end
of the third quarter, which will makeup some of the lost gas production.
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, 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 at any time 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 $24,000 remain unpaid as of June 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 due to immateriality.
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, Wheeler property
wells, expected wells or production, increases in proved reserves, increases in
production, 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 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........................................ None
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.
- -----------
*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
18
<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)
8/12/97 /s/ JOHN E. CALAWAY
Date______________________________ ___________________________________
John E. Calaway,
Chief Executive Officer and
Chairman of the Board
8/12/97 /s/ JAMES D. CALAWAY
Date _____________________________ ___________________________________
James D. Calaway,
President and Director
8/12/97 /s/ MICHAEL G. LONG
Date _____________________________ ___________________________________
Michael G. Long,
Chief Financial Officer
8/12/97 /s/ BRIAN C. BAUMLER
Date _____________________________ ___________________________________
Brian C. Baumler,
Controller, Treasurer
19
<PAGE>
EXHIBIT 11.1
EDGE PETROLEUM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Calculation:
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 shares and equivalent shares outstanding:
Issued in connection with the public offering 2,760,000 1,921,326
Restricted stock 250,586 174,441
---------- ---------- ---------- ----------
Pro forma weighted average common and
common equivalent shares outstanding 7,711,947 4,701,361 6,797,128 4,701,361
========== ========== ========== ==========
Net income $1,105,538 $ 160,569 $2,036,889 $ 68,073
========== ========== ========== ==========
Pro forma primary earnings per share $ 0.14 $ 0.03 $ 0.30 $ 0.01
========== ========== ========== ==========
</TABLE>
The difference between primary and fully diluted earnings per share is not
significant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 25,423,572
<SECURITIES> 0
<RECEIVABLES> 3,146,478
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,508,192
<PP&E> 22,242,590
<DEPRECIATION> (5,136,654)
<TOTAL-ASSETS> 51,621,916
<CURRENT-LIABILITIES> 5,884,920
<BONDS> 0
0
0
<COMMON> 77,120
<OTHER-SE> 45,411,203
<TOTAL-LIABILITY-AND-EQUITY> 51,621,916
<SALES> 0
<TOTAL-REVENUES> 6,457,086
<CGS> 0
<TOTAL-COSTS> 4,737,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,924
<INCOME-PRETAX> 2,036,889
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,036,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,036,889
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
