<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
-------------------
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO __________
Commission File Number: 000-25717
[LOGO]
BETA OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 86-0876964
(State of Incorporation) (I.R.S. Employer Identification No.)
901 DOVE STREET, SUITE 230, NEWPORT BEACH, CA 92660
(Address of principal executive offices) (Zip Code)
(949) 752-5212
(Registrant's telephone number, including area code)
Indicate by check mark 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
--- ---
As of May 5, 2000, the Registrant had 9,694,094 shares of Common Stock, $.001
par value, outstanding.
================================================================================
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
BETA OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,296,899 $ 1,448,655
Accounts receivable -
Oil and gas sales 671,767 745,493
Other 1,178 1,178
Prepaid expenses 95,085 104,241
------------ ------------
Total current assets 3,064,929 2,299,567
------------ ------------
OIL AND GAS PROPERTIES, at cost (full cost method):
Evaluated properties 10,294,405 9,810,198
Unevaluated properties 12,107,762 12,091,627
Less--accumulated depletion and impairments (4,355,106) (3,797,227)
------------ ------------
Net oil and gas properties 18,047,061 18,104,598
------------ ------------
FURNITURE, FIXTURES AND EQUIPMENT, at cost, less
Accumulated depreciation of $29,264 and $26,072 at
March 31, 2000 (unaudited) and December 31, 1999, respectively 9,039 12,231
OTHER ASSETS 697,198 465,079
------------ ------------
$ 21,818,227 $ 20,881,475
============ ============
</TABLE>
(CONTINUED)
2
<PAGE>
BETA OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Premiums payable - current portion $ 26,220 $ 28,224
Accounts payable, trade 180,948 225,174
Payroll and payroll taxes payable -- 10,631
Accrued taxes 9,375 --
Other accrued expenses 1,270 1,270
------------ ------------
Total current liabilities 217,813 265,299
Premiums payable 21,139 27,939
------------ ------------
Total liabilities 238,952 293,238
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
9,624,448 and 9,400,124 shares issued and outstanding
at March 31, 2000 (unaudited) and December 31, 1999, respectively 9,624 9,400
Additional paid-in capital 29,665,553 28,549,313
Accumulated deficit (8,095,902) (7,970,476)
------------ ------------
Total shareholders' equity 21,579,275 20,588,237
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 21,818,227 $ 20,881,475
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
<PAGE>
BETA OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES
Oil and gas sales $ 940,250 $ 29,664
----------- -----------
COSTS AND EXPENSES:
Lease operating expense 33,888 9,035
General and administrative 489,633 258,245
Depreciation and depletion expense 561,072 12,415
----------- -----------
Total costs and expenses 1,084,593 279,695
----------- -----------
LOSS FROM OPERATIONS (144,343) (250,031)
OTHER INCOME AND (EXPENSE):
Interest expense (1,096) (466,348)
Interest income 20,013 2,275
----------- -----------
NET LOSS $ (125,426) $ (714,104)
=========== ===========
BASIC AND DILUTED LOSS
PER COMMON SHARE ($ 0.01) ($ 0.10)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,486,113 7,303,481
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
4
<PAGE>
BETA OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (125,426) $ (714,104)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and depletion 561,072 12,415
Amortization of notes payable discount and
debt issuance costs -- 429,505
Salary contributed to Beta -- 10,000
Changes in operating assets and liabilities:
Accounts receivable 73,726 (19,687)
Prepaid expenses 9,155 8,159
Accounts payable, trade (44,226) 35,167
Accrued interest -- 3,562
Accrued payroll (10,631) 5,680
Other accrued expenses 9,375 (800)
----------- -----------
Net cash provided by (used in)
operating activities 473,045 (230,103)
----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Oil and gas property expenditures (500,343) (2,193,467)
Change in other assets (232,119) 30,820
Acquisition of furniture, fixtures & equipment -- (1,948)
----------- -----------
Net cash used in investing activities (732,462) (2,164,595)
----------- -----------
</TABLE>
(CONTINUED)
5
<PAGE>
BETA OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from exercise of warrants 1,116,465 --
Offering costs of previous private placements -- (27,680)
Repayment of premiums payable (8,804) --
Proceeds from issuance of bridge notes, net -- 2,835,000
Decrease in deferred offering costs -- (41,334)
----------- -----------
Net cash provided by financing activities 1,107,661 2,765,986
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS: 848,244 371,288
CASH AND CASH EQUIVALENTS:
Beginning of period 1,448,655 198,043
----------- -----------
End of period $ 2,296,899 $ 569,331
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 1,096 $ 33,281
=========== ===========
Cash paid for income taxes $ -- $ --
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Fair market value of common stock issued for:
Discount on notes payable $ -- $ 2,574,000
</TABLE>
The accompanying notes are an integral part to these condensed consolidated
financial statements
6
<PAGE>
PART I - ITEM 1 (CONTINUED)
FINANCIAL STATEMENTS
BETA OIL & GAS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1. The accompanying condensed consolidated financial statements of Beta
Oil & Gas, Inc. and subsidiary ("Beta") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and
Article 10 of Regulation S-X. The balance sheet as of March 31, 2000,
the statements of operations for the three months ended March 31, 2000
and 1999, and the statements of cash flows for the three months ended
March 31, 2000 and 1999 are unaudited but include all adjustments
(consisting of normal recurring adjustments) which Beta considers
necessary for a fair presentation of the financial position at such
dates and the operating results and cash flows for those periods.
Although Beta believes that the disclosures in these financial
statements are adequate to make the information presented not
misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission.
The December 31, 1999 condensed consolidated balance sheets were
derived from audited financial statements but do not include all
disclosures required by generally accepted accounting principles. The
accompanying financial statements should be read in conjunction with
the financial statements as contained in Beta's December 31, 1999
Annual Report on Form 10-K.
Note 2. The results of operations for the three months ended March 31, 2000 may
not necessarily be indicative of the results of operations that may be
incurred for the entire fiscal year.
Note 3. Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock, or resulted in the issuance of common stock that then shared in
the earnings of the entity. All such securities or other contracts were
anti-dilutive for all periods presented and, therefore, excluded from
the computation of earnings per share.
7
<PAGE>
PART I (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion is to inform you about the financial position,
liquidity and capital resources of Beta as of March 31, 2000 and December 31,
1999 and the results of operations for the three month periods ended March 31,
2000 and 1999.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Included in this report are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations reflected in such forward-looking
statements will prove to have been correct.
All forward looking statements contained in this section are based on
assumptions believed to be reasonable.
These forward looking statements include statements regarding:
- Beta's financial position
- Proved or possible reserve quantities and net present values of those
reserves
- Business strategy
- Plans and objectives of management of Beta for future operations and
capital expenditures
Beta can give no assurance that such expectations and assumptions will
prove to be correct. Reserve estimates of oil and gas properties are generally
different from the quantities of oil and natural gas that are ultimately
recovered or found. This is particularly true for estimates applied to
exploratory prospects. Additionally, any statements contained in this report
regarding forward-looking statements are subject to various known and unknown
risks, uncertainties and contingencies, many of which are beyond the control of
Beta. Such things may cause actual results, performance, achievements or
expectations to differ materially from the anticipated results, performance,
achievements or expectations.
Factors that may affect such forward-looking statements include, but are
not limited to:
- Beta's ability to generate additional capital to complete its planned
drilling and exploration activities - Risks inherent in oil and gas
acquisitions, exploration, drilling, development and production; price
volatility of oil and gas
- Competition from other oil and gas companies
- Shortages of equipment, services and supplies
- Government regulation
- Environmental matters
- Financial condition and operating performance of the other companies
participating in the exploration, development and production of oil and gas
ventures that Beta is involved in
In addition, since all of Beta's prospects are currently operated by third
parties, Beta may not be in a position to control costs, safety and timeliness
of work as well as other critical factors affecting a producing well or
exploration and development activities.
8
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Beta's working capital was a surplus of $2,847,116 at March 31, 2000
compared to a surplus of $2,034,268 at December 31, 1999. Beta's working capital
increased due primarily to the exercise of common stock warrants and positive
cash flow from operations. In order to fund capital expenditures in the first
three months of 2000, Beta issued a warrant call for its $5 callable warrants
which is further discussed below under "EXERCISE OF WARRANTS."
HISTORICAL CASH USED IN AND PROVIDED BY OPERATING, INVESTING AND FINANCING
ACTIVITIES
During the three months ended March 31, 1999 Beta realized net proceeds of
$2,835,000 from a bridge note financing. During the three months ended March 31,
2000 Beta realized $1,116,465 from the exercise of warrants which is discussed
below.
The net proceeds of the bridge note financing, the initial public offering
and the exercise of warrants have been primarily invested in oil and gas
properties totaling $500,343 and $2,193,467 for the three months ended March 31,
2000 and 1999.
Beta's cash balance at March 31, 2000 was $2,296,899 compared to a cash
balance of $1,448,655 at December 31, 1999. The change in Beta's cash balance is
summarized as follows:
<TABLE>
<S> <C>
Cash balance at December 31, 1999 $ 1,448,655
Sources of cash:
Cash provided by operating activities 473,045
Cash provided by financing activities 1,107,661
----------------
Total sources of cash 1,580,706
Uses of cash:
Oil and gas property expenditures (500,343)
Other assets (increase in advances to industry partners) (232,119)
----------------
(732,462)
----------------
Cash balance at March 31, 2000 2,296,899
================
</TABLE>
BETA ACQUISITION OF RED RIVER ENERGY, INC.
Beta has entered into an agreement to purchase Red River Energy, Inc. of
Tulsa, Oklahoma, a private oil and natural gas company. The purchase price will
be paid by the issuance of approximately 2.25 million shares of Beta common
stock. The purchase is subject to approval by Beta shareholders.
The assets of Red River Energy, Inc. consist of four components: 1) a 97.4%
working interest (80% net revenue interest) in a 30,160 acre unit which is
currently producing approximately 3.65 MMBTU/d and 120 Bopd from 22 active wells
in the Hunton Limestone formation in Central Oklahoma; 2) an 85% working
interest (68% net revenue interest) in 7,500 acres which are currently producing
960 MMBTU/d from 45 wells in the Atoka and Gilcrease formations in Eastern
Oklahoma; 3) a gas gathering system consisting of 40 miles of pipeline which is
currently transporting approximately 1650 MMBTU/d in Eastern Oklahoma; and 4) a
46 well coal bed methane project also located in Eastern Oklahoma which is
currently under development and producing approximately 600 MMBTU/d.
Red River Energy, Inc. is the operator of all its properties.
PLAN OF OPERATION FOR 2000
In the opinion of Beta's management, the existing working capital of Beta,
net cash flow from operations and the exercise of common stock purchase warrants
subsequent to December 31, 1999 will be
9
<PAGE>
sufficient to fund the operations and projected capital requirements of Beta
throughout 2000. Beta is allocating its cash resources from all sources,
including the net proceeds of the warrant exercises, to the following categories
of expenditures:
1) Drilling and completion costs for wells on Beta's prospects which are
estimated to be approximately $4,100,000 for 2000. While it is difficult to
predict the exact timing of when these wells will be proposed for drilling,
Beta's operating agreements generally provide a thirty day period in which
to elect participation in a proposed well. Generally funds must be advanced
within thirty days or less after the thirty day election period;
2) Costs of $750,000 estimated during 2000 to drill new wells, convert certain
producing wells to saltwater disposal wells, reactivate certain wells and
fracture treat certain wells associated with the Red River properties;
3) Leasehold acquisition costs which are estimated to be $665,000;
4) 3-D seismic acquisition costs only if funds are available; and
5) General and administrative overhead.
Other than item 2) above, Beta does not anticipate the Red River merger will
impact its year 2000 capital budget or financing plans. As discussed below under
"Long Term Liquidity and Capital Resources," Beta may have to advance funds to
Red River in future periods to facilitate development of the Red River
properties and this may impact Beta's planned capital expenditures and financing
plans.
Beta's planned capital expenditures and administrative expenses could
exceed those amounts budgeted and could exceed Beta's cash from all sources. If
this happens, it may be necessary for Beta to raise additional funds. It is
anticipated that additional funds will be raised from one or more of the
following sources:
1) Beta has approximately 321,000 callable common stock purchase warrants
outstanding as of March 31, 2000 which are exercisable at a price of $5.00
per share. Beta has issued a call for these warrants since its common stock
has traded on Nasdaq at a market price equal to or exceeding $7.00 per
share for 10 consecutive days. Beta will receive proceeds equal to the
exercise price times the number of shares which are issued from the
exercise of warrants. Beta has already realized net proceeds in excess of
$2,383,000 from the exercise of these warrants to date. Beta could realize
additional net proceeds of approximately $1,600,000 from the exercise of
the remaining warrants.
2) Beta has approximately 388,000 callable common stock purchase warrants
outstanding exercisable at a price of $7.50 per share. Beta is able to call
these warrants at any time after its common stock has traded on Nasdaq at a
market price equal to or exceeding $10.00 per share for 10 consecutive
days. It is Beta's intent to call all of these warrants at such time, if
and when, the $10.00 trading price is achieved and cash is needed to fund
capital requirements. Beta will receive proceeds equal to the exercise
price times the number of shares which are issued from the exercise of
warrants net of commission to the broker of record, if any. Beta could
realize net proceeds of approximately $2,900,000 from the exercise of these
warrants. There is no assurance that Beta will ever realize any proceeds
from the $7.50 warrant calls.
3) Beta may seek bank or other debt financing at such time that cash flow from
operations is established. Beta is not able to predict when, if ever, such
financing will be available. Beta is currently seeking bank financing in
the range of $1,000,000 to $5,000,000. Upon completion of its merger with
Red River, Beta may also be eligible to utilize Red River's line of credit
of $25,000,000 with the Bank of Oklahoma.
10
<PAGE>
4) Beta may realize additional cash flow from oil and gas wells to be drilled,
if found to be productive. Beta owns a working interest in wells that are
currently producing and in additional wells which are presently being
completed and equipped for production. Beta currently estimates that during
2000 it will generate approximately $3,400,000 of net cash flow after
deducting lease operating expenses.
If the above additional sources of cash are insufficient or are unavailable
on terms acceptable to Beta, Beta will be compelled to reduce the scope of its
business activities. If Beta is unable to fund planned expenditures within a
thirty to sixty day period after a well is proposed for drilling, it may be
necessary to:
1) Forfeit its interest in wells that are proposed to be drilled;
2) Farm-out its interest in proposed wells;
3) Sell a portion of its interest in proposed wells and use the sale proceeds
to fund its participation for a lesser interest; and
4) Reduce general and administrative expenses.
As stated above, Beta believes it has sufficient sources of working capital
to fund its capital expenditure requirements throughout 2000. In the event that
Beta's expenditures exceed these sources of working capital and Beta cannot
raise additional capital, it may be necessary for Beta to curtail its business
activities until other financing is available.
These are forward looking statements that are based on assumptions which in
the future may not prove to be accurate. Although Beta's management believes
that the expectations reflected in such forward looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved.
LONG TERM LIQUIDITY AND CAPITAL RESOURCES
The timing of most of Beta's capital expenditures is discretionary. Beta
has no material long-term commitments associated with its capital expenditure
plans or operating agreements. Consequently, Beta has a significant degree of
flexibility to adjust the level of such expenditures as circumstances warrant.
The level of capital expenditures will vary in future periods depending on the
success it experiences on planned exploratory drilling activities in 2000, gas
and oil price conditions and other related economic factors. Accordingly, Beta
has not yet prepared an estimate of capital expenditures for the year 2001 or
future periods.
EFFECT OF MERGER WITH RED RIVER ON LONG TERM LIQUIDITY AND CAPITAL RESOURCES
In the event we complete the proposed merger with Red River, Beta will
guarantee approximately $3,000,000 of Red River's total $7,700,000 indebtedness
at December 31, 1999 with the Bank of Oklahoma. In the opinion of Beta
management, the estimated future net cash flow from the Red River oil and gas
properties will be sufficient to repay the principal and interest associated
with the Bank of Oklahoma debt. This assessment is based on current oil and gas
prices in effect and current reserve estimates, all of which are subject to
change. In the event of substantial reductions in the prices received for oil
and gas and/or downward revisions of oil and gas reserve estimates, the cash
flow from the Red River properties may not be sufficient to service the Bank of
Oklahoma debt. In this event, Beta may be required to dedicate significant
amounts of cash to service debt requirements. The funds will have to come from
one of the sources discussed below under "Plan of Operation 2000." In the event
that such funds are not available, Beta will be compelled to sell oil and gas
properties to repay the debt.
Red River also has $2,165,000 of debt associated with its coal bed methane
properties as of December 31, 1999. The debt is secured by the coal bed methane
11
<PAGE>
properties only. The Red River coal bed methane properties are currently
classified as unevaluated since they are still in the testing phase. The
lender's recourse for repayment of the debt is limited to the coal bed methane
properties and the proceeds of production from those properties. At present,
Beta does not intend to dedicate any of its cash resources to the repayment of
this debt since the lender's recourse is limited.
Red River also has no material long-term commitments associated with its
capital expenditure plans or operating agreements other than its planned
activities in the "WEHLU" unit in Central Oklahoma. The level of Red River's
capital expenditures will vary in future periods depending on the results it
experiences in the "WEHLU" unit. Effective February 18, 2000 Red River entered
into an agreement with Avalon Exploration, Inc. of Tulsa to jointly test and
develop additional production in the Company's 30,000 acre producing WEHLU Unit
in Central Oklahoma.
The terms of the agreement call for Avalon to drill wells and expend an
estimated $4.4 million. Red River has retained an option to purchase a 25% "look
back" working interest in these same wells, whereby Red River can elect to
reimburse Avalon for 25% of the actual costs incurred depending on the success
of these pilot wells. The option to purchase must be exercised within 120 days
of the completion of the drilling activities. It is currently estimated that the
option to purchase will need to be exercised sometime in the first half of 2001
should Red River elect to participate. If Red River exercises its option to
purchase the pilot program interest, it will be required to advance its 25%
share of the estimated $4.4 million capital costs associated with the pilot
program, or $1.1 million. In the event funds are unavailable, Red River will
have to forfeit the 25% look back interest. If Red River is unable to utilize
its existing line of credit with the Bank of Oklahoma, then Beta may be required
to advance funds on Red River's behalf to allow Red River to exercise its
option. In this event, Beta will have to secure funds from one of the sources
discussed below under "Plan of Operation 2000." There is no assurance that these
funds will be available.
If the WEHLU pilot program is successful, the ongoing development of the
field will commence in the year 2001 with approximately 200 to 300 potential
locations to be drilled on the 30,000 acres. Red River will retain a 40% working
interest by paying for 36% of the development costs. It is estimated that this
development could take place over a three to five year period commencing in the
second half of 2001. Preliminary estimates are that Red River's net share of
development cost will range between $36,000,000 and $54,000,000 over the three
to five year period. Red River will seek to fund these capital expenditures
utilizing bank financing. Beta may also seek to provide additional funding
through the issuance of its common stock in a public offering. If funds are
unavailable to Red River, either through a bank line of credit or cash advances
provided by Beta, Red River will be compelled to reduce its interest in the
development of the 200 to 300 potential locations.
Unevaluated Properties
Substantially all of Beta's unevaluated costs at March 31, 2000 relate to
seismic, geological and leasehold costs incurred in Beta's Jackson County
prospects. Beta and its partners have recently reprocessed selected portions of
the approximately 300 square miles of its 3-D data. In addition, recent drilling
activity by other oil and gas companies in the vicinity of Beta's prospects have
yielded oil and gas discoveries in the deeper Lower Yegua and Wilcox formations.
As a result of the seismic reprocessing and drilling activity, Beta and its
partners have now identified in excess of 200 prospects and leads within the
areas that have been evaluated by the 3-D seismic. This is approximately twice
the number of locations previously identified by the 3-D seismic. The large
number of additional prospects and leads recently identified will delay somewhat
the evaluation of the unevaluated costs associated with Beta's unevaluated
costs. Accordingly, Beta has revised its previous estimates of when the
unevaluated costs will be considered evaluated and now believes that much of the
evaluation will be delayed to future periods. This delay in the evaluation of
unevaluated costs is not expected to adversely impact Beta's financial
condition, results of operations and liquidity in future periods.
1999 BRIDGE NOTE
During the three months ended March 31, 1999, Beta completed the private
placement of a $3,000,000 bridge note financing to three institutional investors
referred to as the "1999 bridge financing." Beta issued promissory notes having
a maturity date of one year and bearing an interest rate of 10%. In addition, a
total of 459,000 shares of Beta common stock were issued in connection with the
1999 bridge financing. The $3,000,000 in bridge notes was repaid in full with
accrued interest on July 7, 1999 from the proceeds of Beta's initial public
offering.
Beta received net cash proceeds of $2,835,000 from the bridge notes. The
estimated fair market value of 429,000 shares of common stock issued in
connection with the bridge note of $2,574,000 was treated as a discount and was
amortized over the term of the promissory notes using the interest method.
Accordingly, Beta incurred additional interest expense of $405,354 for the three
months ended March 31, 1999 because of the common stock issued in connection
with the bridge notes. The debt issuance costs of the 1999 bridge financing of
$24,151 were amortized as additional interest expense during the three months
ended March 31, 1999.
12
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND 1999 (UNAUDITED)
During the three months ended March 31, 2000 Beta had oil and gas revenues
of $940,250 as compared to $29,664 for the prior year period. Beta's net
production and average prices received were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------ Increase
2000 1999 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Oil and gas sales $940,250 $29,664 275%
Net gas production (mcf) 331,833 18,455 1,698%
Net Oil production (barrels of oil) 1,125 - N/A
Average gas price $2.74 $1.61 70%
Average oil price $27.89 N/A N/A
</TABLE>
During the three months ended March 31, 2000 Beta incurred lease operating
expenses of $33,888 as compared to $9,035 for the prior year period. Beta's
lease operating costs per equivalent unit of production were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------ Increase
2000 1999 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Lease operating expense $33,888 $9,035 3,070%
Average lifting cost per equivalent mcf $.10 $.49 (80%)
</TABLE>
General and administrative expenses for the three months ended March 31,
2000 were $489,633 compared to $258,245 for the three months ended March 31,
1999. This represents a $231,388 or a 90% increase over the prior year period.
The primary reasons for the increase were due to:
(1) An increase in operational activities in 2000 versus 1999 (approximately
$69,000);
(2) An increase in the number of employees from six in 1999 to seven in 1999
(approximately $16,000);
(3) Costs related to Beta's merger with Red River (approximately $87,000); and
(4) Costs related to being a publicily traded company(approximately $50,000).
Depreciation and depletion expense for the three months ended March 31,
2000 was $561,072 compared to $12,415 for the three months ended March 31, 1999.
This represents a $548,657 increase over the prior year period. The primary
reason for the increase is due to the fact Beta had significantly higher oil and
gas production in the current period verses the prior year that would give rise
to higher depletion expense.
Loss from operations totaled $(144,343) for the three months ended March
31, 2000 compared to $(250,031) for the three months ended March 31, 1999. The
primary reason for the decrease in the loss was due to the significant increase
in revenues in the current period versus the prior year period.
Other income for the three months ended March 31, 2000 consisted of
interest income in the amount of $20,013. Beta realized $2,275 of interest
income for the three month period in 1999. The reason for the increase was
higher average cash and cash equivalents balances for the 2000 period as
compared to the 1999 period.
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<PAGE>
During the three months ended March 31, 2000, Beta incurred interest
expense of $1,096 as compared to $466,348 for the three months ended March 31,
1999. Substantially all of the 1999 interest expense related to the bridge
notes. Interest expense related to the bridge notes for the 1999 period consists
of the following:
<TABLE>
<S> <C>
Cash interest expense $ 36,843
Amortization of note discount and fair market value of 30,000 shares 405,354
Amortization of deferred loan costs 24,151
---------
Bridge note interest expense for the three months ended March 31, 1999 $ 466,348
=========
</TABLE>
Net loss for the three months ended March 31, 2000 was $(125,426) compared
to $(714,104) for the three months ended March 31, 1999. The decrease in net
loss was primarily due to the reduction in interest expense and the significant
increase in revenues.
INCOME TAXES
As of December 31, 1999, Beta had available, to reduce future taxable
income, a tax net operating loss carryforward of approximately $9,500,000 which
expires in the years 2012 through 2019. As of December 31, 1999, Beta has a
deferred tax asset of approximately $3,294,000 which is fully reserved for with
a valuation allowance. Utilization of the tax net operating loss carryforward
may be limited in the event a 50% or more change of ownership occurs within a
three year period. The tax net operating loss carryforward may be limited by
other factors as well.
DRILLING ACTIVITY
During the three months ended March 31, 2000, Beta participated in the
drilling of 2 exploratory wells. Of the 2 wells drilled, 1 was completed as a
dry-hole and 1 has been completed for production.
EXERCISE OF WARRANTS
During 1997 Beta issued 797,245 callable common stock purchase warrants
entitling the holders to purchase 797,245 shares of Beta's common stock at an
exercise price of $5.00 per share. Beta is entitled to call these warrants at
any time on and after the date that its common stock is traded on any exchange,
including the NASD Over-the-Counter Bulletin Board, at a market price equal to
or exceeding $7.00 per share for 10 consecutive trading days.
Because its common stock has now traded at a market price exceeding $7.00
per share for 10 consecutive days, Beta became entitled to call the callable $5
warrants at any time. Beta issued a call for these warrants as of February 23,
2000, the record date. Of the 797,245 callable $5 warrants originally issued,
approximately 381,000 had already been exercised prior to the issuance of the
call. The closing price for Beta common stock on February 23, 2000 on the Nasdaq
Stock Market was $9.00 per share.
IMPACT OF RECENTLY ISSUED STANDARDS
Beta intends to adopt SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," issued in June 1998 effective with its fiscal year
beginning January 1, 2000 as required by the Statement. Due to Beta's current
and anticipated limited use of derivative instruments, management anticipates
that adoption of SFAS 133 will not have any significant impact on Beta's
financial position or results of operations. SFAS 132, "Employees' Disclosures
about Pensions and other Postretirement Benefits," and SFAS 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" were issued in 1998 and are not
expected to impact Beta regarding future financial statement disclosures,
results of operations and financial position.
14
<PAGE>
YEAR 2000 "Y2K" PROBLEM
Beta has experienced no disruption in its operations that management can
attribute to Year 2000 issues. In addition, Beta has seen no Year 2000 related
problems itself or received any reports of such problems from entities with
which Beta transacts business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Beta is exposed to market risk related to adverse changes in oil and gas
prices. Beta's oil and gas revenues can be significantly affected by volatile
oil and gas prices. This volatility can be mitigated through the use of oil and
gas derivative financial hedging instruments. Beta does not currently use
derivative financial instruments to mitigate fluctuations in oil and gas prices
or interest rates and may continue to experience wide fluctuations in oil and
gas revenues as a result.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the best of knowledge of management there are no legal proceedings
pending or threatened against Beta which would have a materially adverse effect
on its financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
(1) Exhibit 27-1, "Financial Data Schedule" - for the quarter ended
March 31, 2000
(b) There was one report filed on Form 8-K during the quarter ended March 31,
2000:
1. Form 8-K dated February 28, 2000 which is incorporated herein by
reference.
16
<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 who is duly authorized.
BETA OIL & GAS, INC.
Date: May 5, 2000 By /s/ J. Chris Steinhauser
------------------------
J. Chris Steinhauser
Chief Financial Officer,
Principal Accounting Officer
and Director
17
