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UNITED STATES
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 September 30, 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
[GRAPHIC OMITTED][GRAPHIC OMITTED]
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.)
6120 S. Yale, Suite 813, Tulsa, OK 74136
(Address of principal executiveoffices) (Zip Code)
(918) 495-1011
(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 November 1, 2000, the Registrant had 12,340,151 shares of Common Stock,
$.001 par value, outstanding.
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<PAGE>
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION NO.
ITEM 1. Financial Statements...............................................3
Consolidated Balance Sheets September 30, 2000 (unaudited)
and December 31, 1999..............................................3
Consolidated Statements of Operations for the three months ending
September 30, 2000 and September 30, 1999 and for the
nine months ending September 30, 2000 and September 30, 1999
(unaudited).........................................................4
Consolidated Statements of Cash Flows for the nine months
ending September 30, 2000 and September 30, 1999 (unaudited).......5
Supplemental Disclosure of Noncash Investing and Financing Activities
for the nine months ending September 30, 2000 and September 30,
1999...............................................................5
Notes to Consolidated Financial Statements.............................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................8
Disclosure Regarding Forward-Looking Statements........................8
Financial Condition, Liquidity and Capital Resources...................9
Long Term Liquidity and Capital Resources..............................11
Effect of Merger with Red River on Long Term Liquidity and Capital
Resources..........................................................11
Unevaluated Properties.................................................12
Comparison of Results of Operations for the three months ended
September 30, 2000 and 1999 (unaudited)............................12
Comparison of Results of Operations for the nine months ended
September 30, 2000 and 1999 (unaudited)............................13
Income Taxes...........................................................15
Drilling Activity......................................................15
Exercise of Warrants...................................................15
Impact of Recently Issued Standards....................................15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........16
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings...............................................17
ITEM 2. Changes in Securities...........................................17
ITEM 3. Defaults Upon Senior Securities.................................17
ITEM 4. Submission of Matters to a Vote of Security Holders ...........17
ITEM 5. Other Information...............................................18
ITEM 6. Exhibits and Reports on Form 8-K................................18
Signatures...................................................................19
-2-
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
BETA OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS ......................................................... September 30, December 31,
2000 1999
----------- -----------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................... $ 1,795,462 $ 1,448,655
Accounts receivable -
Oil and gas sales 2,142,692 745,493
Other 51,700 1,178
Prepaid expenses 149,143 104,241
----------- -----------------
Total current assets 4,138,997 2,299,567
----------- -----------------
Property and equipment:
Oil and gas properties, at cost (full cost method)
Evaluated properties 35,090,438 9,810,198
Unevaluated properties 14,143,821 12,091,627
Gas gathering and support equipment 3,003,591 --
Other 73,645 38,303
----------- -----------------
52,311,495 21,940,128
Less: accumulated depreciation, depletion and amortization (5,120,133) (3,823,299)
----------- -----------------
47,191,362 18,116,829
Other assets 2,678,628 465,079
----------- -----------------
$ 54,008,987 $ 20,881,475
=========== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion - long term debt ........................... $ 71,331 $ --
Accounts payable, trade 615,681 225,174
Premiums payable- current portion 29,249 28,224
Payroll and payroll taxes payable ........................... -- 10,631
Accrued interest ............................................. 98,708 --
Other accrued expenses 136,750 1,270
----------- -----------------
Total current liabilities 951,719 265,299
----------- -----------------
Long term debt and other 13,805,551 27,939
Shareholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $.001 par value; 50,000,000 shares authorized;
12,340,151 and 9,400,124 shares issued and outstanding at
September 30, 2000 (unaudited) and December 31, 1999,
respectively .......................................... 12,341 9,400
Additional paid-in capital 46,545,380 28,549,313
Accumulated deficit ....................................... (7,306,004) (7,970,476)
----------- -----------------
Total shareholders' equity 39,251,717 20,588,237
----------- -----------------
$ 54,008,987 $ 20,881,475
=========== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-3-
<PAGE>
BETA OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
The three The three The nine The nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- ----------------- --------------- -----------------
Revenues
<S> <C> <C> <C> <C>
Oil and gas sales ................. $ 1,967,777 $ 254,332 $ 3,990,280 $ 375,595
Gathering 55,000 -- 55,000 --
------------ ------------ ------------ ------------
Total revenue 2,022,777 254,332 4,045,280 375,595
Costs and expenses:
Lease operating expense 333,323 12,190 489,755 24,141
General and administrative 651,576 401,340 1,576,314 883,727
Impairment expense ............... -- -- -- 1,227
Depreciation, amortization and
depletion expense 138,742 114,819 1,311,271 163,002
------------ ------------ ------------ ------------
Total costs and expenses 1,123,641 528,349 3,377,340 1,072,097
------------ ------------ ------------ ------------
Income (loss) from operations ............. 899,136 (274,017) 667,940 (696,502)
Other income and (expense):
Interest expense .................. (92,478) (1,591,390) (94,537) (2,965,172)
Interest income 33,783 13,868 91,070 17,822
------------ ------------ ------------ ------------
Net income (loss) ......................... $ 840,441 $(1,851,539) $ 664,473 $ (3,643,852)
============ ============ ============ ============
Basic income (loss) per common share $ 0.078 ($ 0.21) $ 0.066 ($ 0.46)
============ ============ ============ ============
Diluted income (loss) per common share .... $ 0.073 ($ 0.21) $ 0.062 ($ 0.46)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic ........................... 10,801,585 8,750,411 10,035,804 7,852,341
============ ============ ============ ============
Diluted ......................... 11,491,613 8,750,411 10,755,887 7,852,341
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-4-
<PAGE>
BETA OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
The nine months ended September 30,
2000 1999
---------------- ---------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income (loss).................................................. $ 664,473 $ (3,643,852)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating
Activities:
Depreciation, amortization and depletion 1,311,271 163,002
Amortization of notes payable discount and debt issuance costs -- 2,843,100
Impairment expense ........................................... -- 1,227
Salary contributed to Beta ................................... -- 10,000
Warrants issued for services ................................. 128,338 --
Changes in operating assets and liabilities:
Accounts receivable .......................................... (548,276) (221,171)
Prepaid expenses 6,363 (67,978)
Accounts payable, trade 63,936 (177,629)
Accrued payroll .............................................. (10,631) 7,942
Other accrued expenses ....................................... (2,179) (800)
----------- -----------
Net cash provided by (used in) operating activities ..... 1,613,295 (1,086,159)
----------- -----------
Cash Flows From Investing Activities:
Cash received in acquisition of RRE ............................... 895,097 --
Oil and gas property expenditures ................................. (2,834,679) (5,815,638)
Gas gathering expenditures ........................................ (2,858) --
Change in other assets ............................................ (2,213,435) (537,714)
Acquisition of furniture, fixtures & equipment .................... (11,917) (1,947)
----------- -----------
Net cash used in investing activities .................. (4,167,792) (6,355,299)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from sale of shares and warrants, net .................... -- 7,746,830
Proceeds from exercise of warrants ................................ 3,203,390 75,000
Proceeds from notes payable ....................................... 256,504 --
Repayments of notes payable ....................................... (536,296) --
Offering costs of previous private placements ..................... -- (42,996)
Proceeds from premiums payable .................................... -- 65,651
Repayment of premiums payable ..................................... (22,294) (5,957)
Proceeds from issuance of bridge notes, net ....................... -- 2,835,000
Repayment of bridge notes ......................................... -- (3,000,000)
Decrease in deferred offering costs ............................... -- 23,524
----------- -----------
Net cash provided by financing activities 2,901,304 7,697,052
----------- -----------
Net Increase In cash & cash Equivalents 346,807 255,594
Cash and cash equivalents - Beginning of period 1,448,655 198,043
----------- -----------
Cash and cash equivalents - End of period ........................... $ 1,795,462 $ 453,637
=========== ===========
Supplemental Disclosure Of Cash Flow Information:
Cash paid for interest ....................................... $ 92,478 $ 120,555
=========== ===========
Cash paid for income taxes ................................... $ 8,000 $ 5,410
=========== ===========
Supplemental Disclosure Of Noncash Investing And Financing:
Fair market value of common stock issued for:
Net assets acquired, net of cash, through acquistion of RRE $ 13,459,903 $ --
Common stock & warrants issued in settlement of debt 312,280 --
Discount on notes payable ................................ $ -- $ 2,574,000
Interest on bridge notes ................................ $ -- $ 180,000
</TABLE>
The accompanying notes are an integral part to these consolidated financial
statements
-5-
<PAGE>
PART I - ITEM 1 (CONTINUED)
FINANCIAL STATEMENTS
BETA OIL & GAS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The accompanying consolidated financial statements of Beta Oil & Gas,
Inc. and subsidiaries "(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 September 30, 2000, the statements of operations
for the three and nine months ended September 30, 2000 and 1999 and the
statements of cash flows for the nine months ended September 30, 2000 and
1999 are unaudited but include all adjustments (consisting of normal
recurring adjustments) which we consider necessary for a fair presentation
of the financial position at such dates and the operating results and cash
flows for those periods. Although we believe 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 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
our 1999 Form 10-K which was filed March 25, 2000.
Note 2. On August 30, 2000, we closed the previously reported Agreement and Plan
of Merger ("Agreement") to acquire 100% interest in Red River Energy, LLC.
("RRE"). The acquisition was consummated through a merger ("Merger")
between Beta Acquisition Company, Inc., a wholly-owned subsidiary of Beta,
and RRE following approval of the Agreement. The effective date of the
Merger was September 1, 2000.
The assets of RRE consist of five components: 1) a 97.4% working interest
(80% net revenue interest) in a 30,160 acre unit which is currently
producing approximately 2,800 net MMBTU/d and 110 net Bopd from 22 active
wells in the Hunton Limestone formation in Central Oklahoma; 2) an 85%
working interest (68% net revenue interest) in 8,100 acres which are
currently producing 690 net MMBTU/d from 45 wells in the Atoka, Gilcrease
and Cromwell formations in Eastern Oklahoma; 3) a gas gathering system
consisting of 40 miles of pipeline which is currently transporting
approximately 2250 MMBTU/d in Eastern Oklahoma; 4) a 46 well coal bed
methane project also located in Eastern Oklahoma which is operated by RRE
and is currently under development and producing approximately 500 MMBTU/d;
and 5) as of June 14, 2000 RRE purchased from ONEOK Resources Company, 124
oil and gas properties and prospects in 26 fields in Kansas, Oklahoma and
Texas and is currently producing approximately 890 net MMBTU/d and 115 net
Bopd.
For financial accounting purposes, the Merger was accounted for using the
purchase method of accounting. Our cost to acquire RRE calculated to be
$14.355 million assuming an average Beta common stock price of $6.38 per
share with 2,250,000 shares issued to the stockholders of RRE which was
allocated to the assets acquired and liabilities assumed according to their
fair values.
Note 3. For the nine months ended September 30, 2000, gross proceeds of
$3,203,390 have been realized from the exercise of stock warrants and
options to purchase our common stock. This included $2,408,250 gross
proceeds from our warrant call of $5.00 callable cokmon stock purchase
warrants which was completed on May 25, 2000.
-6-
<PAGE>
Note 4. At September 1, 2000, TCM, L.L.C. ("TCM"), a wholly-owned subsidiary of
Beta had approximately $2,165,000 of debt associated with its coal bed
methane properties. The debt was secured only by the coal bed methane
properties, which are currently classified as unevaluated properties since
they are still in the testing phase. On September 19, 2000, TCM purchased
the note which had a principal balance due, including interest, of
approximately $2,270,000. The lender agreed to accept a cash payment of
$530,280, 10,000 shares of Beta common stock and 100,000 warrants to
purchase Beta common stock at $10.78 per share which was equal to 125% of
the market price on the date of closing. Beta provided the cash to TCM from
working capital and borrowings. The debt was recorded at fair value or
$842,561 at the time of the Merger.
Note 5. The results of operations for the three and nine months ended September
30, 2000 may not necessarily be indicative of the results of operations
that may be incurred for the entire fiscal year.
Note 6. NET INCOME (LOSS) PER COMMON SHARE
The following represents the calculation of net income (loss) per common
share.
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30 September 30
2000 1999 2000 1999
--------- --------- -------- ----------
BASIC
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common shareholders $ 840,441 $ (1,851,539) $ 664,473 $ (3,643,852)
=========== ============= =========== ==============
Weighted average number of
common shares 10,801,585 8,750,411 10,035,804 7,852,341
=========== ============= =========== ==============
Basic earnings (loss) per share $ .078 $ (.21) $ .066 $ (.46)
=========== ============= =========== ==============
DILUTED
Net income (loss) available to
common shareholders plus assumed
conversion $ 840,441 $ (1,851,539) $ 664,473 $ (3,643,852)
=========== ============= =========== ==============
Weighted average number of
common shares 10,801,585 8,750,411 10,035,804 7,852,341
Common stock equivalent shares
representing shares issuable
upon exercise of stock options 37,646 -- 28,744 --
Common stock equivalent shares
representing shares issuable
upon exercise of warrants 652,382 -- 691,339 --
------------ ------------- ------------ ---------------
Weighted average number of
shares used in calculation of
diluted income (loss) per share 11,491,613 8,750,411 10,755,887 7,852,341
============ ============= ============ ===============
Diluted earnings (loss) per share $ .073 $ (.21) $ .062 $ (.46)
============ ============= ============ ===============
</TABLE>
-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 September 30, 2000 and December
31, 1999 and the results of operations for the three and nine month periods
ended September 30, 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 we believe that the
expectations reflected in such forward-looking statements are reasonable, we 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
We 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 our
control. 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 the majority of our prospects are currently operated by
third parties, we 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
Our working capital was a surplus of $3,187,278 at September 30, 2000
compared to a surplus of $2,034,268 at December 31, 1999. Our working capital
increased primarily due to a positive cash flow from operations for the first
nine months of 2000, funds received from the exercise of common stock purchase
warrants and the merger with Red River Energy. One major factor in our increased
cash flow from operations has been the upward trend in the price received for
crude oil and natural gas in 2000. To date, a significant amount of working
capital has been used in our exploration and development program.
Our cash balance at September 30, 2000 was $1,795,462 compared to a cash
balance of $1,448,655 at December 31, 1999. The change in Beta's cash balance is
summarized as follows:
Cash balance at December 31, 1999 ............................. $ 1,448,655
Sources of cash:
Cash provided by operating activities .................... 1,613,295
Cash provided by financing activities 2,901,304
Cash provided from RRE merger 895,097
-----------
Total sources of cash 5,409,696
Uses of cash:
Oil and gas properties, including gathering, expenditures (2,837,537)
Other assets (increase in advances to industry partners) (2,213,435)
Furniture, fixtures and equipment ....................... (11,917)
-----------
Total uses of cash ........................ (5,062,889)
-----------
Cash balance at September 30, 2000 1,795,462
===========
During the nine months ended September 30, 2000 we realized $3,203,390 from
the exercise of warrants.
For the first nine months of 2000, our existing working capital, net cash
flow from operations and the exercise of common stock purchase warrants has been
sufficient to fund operations and capital requirements. For the remainder of
2000, we fully expect these sources of funds to be sufficient to meet our
operational and capital requirements. We have allocated or will allocate our
cash resources to the following in 2000:
1) With the completion of the RRE merger, we estimate our 2000 revenue will be
approximately $7.5 million and EBITDA will be approximately $4.0 million,
of which revenues of approximately $4.0 million and EBITDA of approximately
$2.0 million are projected for the fourth quarter.
2) For 2000, drilling and completion costs for wells on our prospects are
estimated to be approximately $3.4 million of which approximately $2.2
million is projected for the fourth quarter. While it is difficult to
predict the exact timing of when these wells will be proposed for drilling,
our operating agreements generally provide a 30 day period in which to
elect participation in a proposed well. Generally funds must be advanced
within 30 days or less after the 30 day election period. Additionally, the
increased industry demand for drilling rigs has added to the difficulty in
predicting the timing;
3) Costs of $0.2 million estimated for the remainder of 2000 to drill new
wells, reactivate certain wells and fracture treat certain wells associated
with the Red River properties;
4) Leasehold acquisition costs for 2000 are estimated to be $2.0 million, of
which approximately $0.5 million is projected for the fourth quarter;
5) 3-D seismic acquisition costs only if funds are available; and
6) General and administrative overhead.
-9-
<PAGE>
Other than item 3) above, we do not anticipate the RRE merger will impact
our remaining 2000 capital spending or financing plans. As discussed below under
"Effect of Merger With RRE on Long Term Liquidity and Capital Resources", we may
have to advance additional funds to RRE in future periods to facilitate
development of the Red River properties.
Our planned capital expenditures and administrative expenses could exceed
those amounts budgeted and could exceed our cash from all sources. If this
happens, it may be necessary for us to raise additional funds. It is anticipated
that additional funds will be raised from one or more of the following sources:
1) We have approximately 375,725 callable common stock purchase warrants
outstanding exercisable at a price of $7.50 per share. We are able to call
these warrants at any time after our common stock has traded on Nasdaq at a
market price equal to or exceeding $10.00 per share for 10 consecutive days
which was achieved in July 2000. It is our intent to call all of these
warrants at such time, if and when, the cash is needed to fund capital
requirements. We 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. We could realize net proceeds
of approximately $2,814,500 from the exercise of all of these warrants.
There is no assurance that any warrants will be exercised or that we will
ever realize any proceeds from the $7.50 warrant calls.
2) We may seek bank or other debt financing at such time that cash flow from
operations is established. We are not able to predict when, if ever, such
financing will be available. We are seeking to increase the current
available borrowing base associated with the RRE credit agreement by
$1,000,000, but there is no assurance that this will be achieved.
3) We may seek mezzanine financing, if available, on terms acceptable to us.
Mezzanine financing usually involves debt with a higher cost of capital as
compared to conventional bank financing. We would seek mezzanine financing
in the range of $1,000,000 to $5,000,000. We would seek to use this means
of financing in the event that a particular acquisition did not have
sufficient proved producing reserve collateral to support a conventional
bank loan.
4) We may realize additional cash flow from oil and gas wells to be drilled,
if found to be productive. We own a working interest in wells that are
currently producing and in additional wells which are presently being
completed and equipped for production. We currently estimate that during
2000 the wells will generate approximately $7,000,000 of net cash flow
after deducting lease operating expenses, of which approximately
$2,700,000 will occur in the fourth quarter.
If the above additional sources of cash are insufficient or are unavailable
on terms acceptable to us, we will be compelled to reduce the scope of our
business activities. If we are 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 our interest in wells that are proposed to be drilled;
2) Farm-out our interest in proposed wells;
3) Sell a portion of our interest in proposed wells and use the sale
proceeds to fund our participation for a lesser interest; or
4) Reduce general and administrative expenses.
We believe there is sufficient working capital to fund our remaining
capital expenditure requirements for 2000. Our long term goal is to continue the
pattern of growing the Company by accumulating oil and gas reserves through
acquisition and drilling during the next three to five year period, and then
selling the Company. In the event we cannot raise additional capital, or the
industry market is unfavorable, we may have to slow or alter our long term goal
accordingly.
-10-
<PAGE>
These are forward looking statements that are based on assumptions which in
the future may not prove to be accurate. Although we believe that the
expectations reflected in such forward looking statements are based on
reasonable assumptions, we can give no assurance that our expectations will be
achieved.
Long Term Liquidity and Capital Resources
The timing of most of our capital expenditures is discretionary. We have no
material long-term commitments associated with our capital expenditure plans or
operating agreements. Consequently, we have 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 we
experience on planned exploratory drilling activities in future periods, gas and
oil price conditions and other related economic factors. Accordingly, we have
not yet prepared an estimate of capital expenditures for future periods beyond
2000.
Effect of Merger with RRE on Long Term Liquidity and Capital Resources
As a result of the merger with RRE (now Beta Operating Company, "BOC"), we
now guarantee indebtedness of approximately $13,785,000 at September 30, 2000.
The amount of debt outstanding is related to BOC's revolving credit agreement
with Bank of Oklahoma. The agreement which matures October 1, 2001 currently has
a borrowing base of $13,900,000 and is redetermined on a semi-annual basis. As a
result of the Merger, limited personal guarantees by the former shareholders of
RRE were replaced by corporate guarantees from Beta and BOC. Under the terms,
BOC is required to maintain certain ratios and be in compliance with other
covenants. At September 30, 2000, BOC was in compliance with all covenants.
In the opinion of our management, the estimated future net cash flow from
BOC's oil and gas properties, which include the ONEOK property acquisition, 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, we 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
under "Financial Condition, Liquidity and Capital Resources." In the event that
such funds are not available, we will be compelled to sell oil and gas
properties to repay the debt.
BOC 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 BOC's capital expenditures
will vary in future periods depending on the results it experiences in the
"WEHLU" unit. Effective February 18, 2000, BOC 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 original agreement was amended July 30, 2000 for an extension of
the drilling commencement date. The agreement was then revised August 23, 2000
modifying the number of wells in the pilot project and the ownership terms for
the pilot project.
The terms of the revised agreement call for Avalon to drill wells and
expend between $2.8 and $5.6 million for a pilot project within the "WEHLU"
unit. Avalon will thereby be entitled to an assignment of all of BOC's leasehold
interest in the wells drilled by Avalon and in production from the 160 acres
surrounding each well. BOC has retained an option to repurchase 40% of its
original working interest in these same properties after the pilot project has
been completed, whereby BOC can elect to reimburse Avalon for 40% of the actual
costs incurred for drilling and completing the pilot project wells. The option
to purchase must be exercised within 120 days of the completion of the last
pilot project well. BOC benefits from this option in that it is able to review
the initial success of the pilot project before deciding whether to commit funds
for the project. It is currently estimated that the option to purchase will need
to be exercised sometime in the last half of 2001 should BOC elect to
participate. If BOC exercises its option to purchase the pilot program interest,
it will be required to advance its 40% share of the capital costs associated
with the pilot program, or between $1.2 to 2.2 million. In the event funds are
unavailable, BOC will have to forfeit the 40% look back interest. If BOC is
unable to utilize its existing line of credit with the Bank of Oklahoma, then
Beta may elect to advance funds on BOC's behalf to allow BOC to exercise its
option. In this event, we will have to secure funds from one of the sources
discussed under "Financial Condition, Liquidity and Capital Resources." There is
no assurance that these funds will be available.
-11-
<PAGE>
If the WEHLU pilot program is successful, the ongoing development of the
field will commence in the year 2001 with approximately 150 to 200 potential
locations to be drilled on the 30,000 acres. BOC 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
last half of 2001. Preliminary estimates are that BOC's net share of development
cost will range between $37,800,000 and $50,400,000 over the 3 to 5 year period.
BOC will seek to fund these capital expenditures utilizing bank financing. We
may also seek to provide additional funding through the issuance of its common
stock in a public offering. If funds are unavailable to BOC, either through a
bank line of credit or cash advances provided by us, BOC will be compelled to
reduce its interest in the development of the 150 to 200 potential locations.
Unevaluated Properties
Substantially all of our unevaluated costs at December 31, 1999 and
September 30, 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 our 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 approximately 100
drillable prospects within the areas that have been evaluated by the 3-D
seismic. Numerous other leads will be further evaluated subject to drilling
results and additional geologic information. A multicompany regional study of
the Lower Yegua-Wilcox play has resulted in definition of several large, high
potential prospects on which acreage is presently being acquired. The large
number of additional prospects and leads recently identified will delay somewhat
the evaluation of the costs associated with some of our unevaluated properties.
Accordingly, we have revised our previous estimates of when the unevaluated
costs will be considered evaluated and now believe that much of the evaluation
will be delayed to future periods. This delay in the evaluation of unevaluated
costs is not expected to adversly impact our financial condition, results of
operations and liqudity in future periods. Drilling and completion of Frio and
shallow Yegua wells is ongoing gubject to rig availability.
Comparison of Results of Operations for the Three Months Ended September 30,
2000 and 1999 (unaudited)
Net income for the three months ended September 30, 2000 was $840,441
compared to net loss of $(1,851,539) for the three months ended September 30,
1999. The favorable change was primarily due to the reduction in interest
expense and a significant increase in operating income. The increase in
operating income was due to a 384% increase in gas equivalent production
combined with a 59% increase in the average price for natural gas and a 38%
increase in the average price for crude oil. Additionally, effective September
1, 2000, the operating results from the RRE operations were included in the
consolidated earnings. RRE operating income for the one month was approximately
$402,600. This figure excludes interest expense, depreciation and depletion.
During the three months ended September 30, 2000 we had oil and gas
revenues of $1,967,777 as compared to $254,332 for the prior year period. Our
net production and average prices received were as follows:
Three Months Ended
September 30
2000 1999 Increase
-------------- ------------ --------------
Oil and gas sales ................. $1,967,777 $ 254,332 674%
Net gas production (mcf) .......... 414,229 91,000 355%
Net Oil production (barrels of oil) 7,437 614 1,110%
Average gas price ................. $ 4.22 $ 2.65 59%
Average oil price ................. $ 29.17 $ 21.15 38%
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<PAGE>
During the three months ended September 30, 2000 we incurred lease
operating expenses of $333,323 as compared to $12,190 for the prior year period.
The increase in operating expense is due to increased production volume and the
inclusion of operating expense associated with the properties acquired in the
Merger at 9/1/00. This expense was approximately $244,000, which included
approximately $29,800 operating expense for a gathering system. The lifting cost
for the acquired properties is higher than Beta's due to a substantially higher
volume of saltwater produced by the acquired properties which has to be
disposed. Our lease operating costs per mcf equivalent unit of production,
excluding operating expense of the gathering facilities, were as follows:
Three Months Ended
September 30
2000 1999 Increase
------------ ------------ --------------
Lease operating expense ............... $ 303,523 $12,190 2,394%
Average lifting cost per equivalent mcf $ 0.66 $ 0.13 454%
General and administrative expenses for the three months ended September
30, 2000 were $651,576 compared to $401,340 for the three months ended September
30, 1999 which represents a 62% increase over the prior year period. The primary
reason for the increase was due to the relocation and severance expense related
to the office move during the three months ended September 30, 2000 of
approximately $289,000, which included approximately $128,000 non-cash charge
associated with the vesting rights associated with stock warrants of a former
officer/employee.
Depreciation and depletion expense for the three months ended September 30,
2000 was $138,742 compared to $114,819 for the three months ended September 30,
1999 which represents a 21% increase over the prior year period. Even though
production increased approximately 384% over the same three month period for
1999, the overall amortization rate per mcf equivalent produced decreased
approximately 75% from $1.21 per mcf in the third quarter of 1999 to $0.30 in
the third quarter of 2000. This rate decrease was primarily a result of the
beneficial impact on reserve volumes associated with the Merger.
Other income for the three months ended September 30, 2000 consisted of
interest income in the amount of $33,783. We realized $13,868 of interest income
for the same 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.
Interest expense of $92,478 for the three months ended September 30, 2000
was primarily from the outstanding debt associated with BOC's existing line of
credit. During the three months ended September 30, 1999, we incurred interest
expense of $1,591,390 which was mainly due 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 ......................................................... $ 8,918
Amortization of note discount and fair market value of 30,000 shares .......... 1,526,909
Amortization of deferred loan costs ........................................... 54,046
----------
Bridge note interest expense for the three months ended September 30, 1999 $1,589,873
==========
</TABLE>
Comparison of Results of Operations for the Nine months Ended September 30, 2000
and 1999 (unaudited)
Net income for the nine months ended September 30, 2000 was $664,473
compared to a net loss of $(3,643,852) for the nine months ended September 30,
1999. The favorable change from the 1999 loss to net income was primarily due to
a 614% increase in production on an equivalent mcf basis combined with a 48%
increase in the average price for natural gas and a 37% increase in the average
price for crude oil. These results include only the month of September 2000
results of operations from RRE.
During the nine months ended September 30, 2000 we had oil and gas revenues
of $3,990,280. Our net production was 1,064,421 mcf at an average price of $3.50
per mcf and 9,101 barrels of oil at an average price of $28.92 per barrel.
During the nine months ended September 30, 1999 we had oil and gas revenues of
$375,595. Our net production was 153,000 mcf at an average price of $2.37 per
mcf and 614 barrels of oil at an average price of $21.15 per barrel.
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<PAGE>
Nine Months Ended
September 30
2000 1999 Increase
------------ ------------ --------------
Oil and gas sales $ 3,990,280 $ 375,595 962%
Net gas production (mcf) .......... 1,064,421 153,000 696%
Net Oil production (barrels of oil) 9,101 614 1382%
Average gas price ................. $ 3.50 $ 2.37 48%
Average oil price ................. $ 28.92 $ 21.15 37%
During the nine months ended September 30, 2000 we incurred lease operating
expenses of $489,755 compared to $24,141 for the nine months ended September 30,
1999. The increase in our lifting cost was due to increased production volume
for the nine months ended September 2000 over the same period for 1999 and the
inclusion of the operating expense associated with the properties acquired in
the Merger which included approximately $29,800 operating expense for a
gathering system. The operating expense associated with these properties is
significantly higher on a per mcf equivalent basis due to the higher volume of
saltwater produced by these properties. For the nine months ended September 30,
2000 the lifting cost per mcf equivalent basis for the merger properties is
approximately $1.25 per mcf compared to an average $0.25 per mcf for the
non-merger properties. Our lease operating costs per mcf equivalent unit of
production, excluding operating costs related to the gathering facilities, were
as follows:
Nine Months Ended
September 30
2000 1999 Increase
------------ ------------ -----------
Lease operating expense ............... $ 459,968 $ 24,141 1805%
Average lifting cost per equivalent mcf $ 0.41 $ 0.15 173%
General and administrative expenses for the nine months ended September 30,
2000 were $1,576,314 compared to $883,727 for the nine months ended September
30, 1999 which represents a 78% increase over the prior year period. The primary
reasons for the increase were due to:
(1) Relocation and severance expense related to the office moves of
approximately $289,000;
(2) Costs related to being a publicly traded company $173,100; and
(3) Overall increase in activities, including number of employees from 6 to
13, in 2000 versus 1999, of approximately $232,900.
Depreciation and depletion expense for the nine months ended September 30,
2000 was $1,311,271 compared to $163,002 for the nine months ended September 30,
1999 which represents a 704% increase over the prior year period. The reason for
the increase is due to increased oil and gas production for the nine months
ended September 2000 over the same period for 1999.
Other income for the nine months ended September 30, 2000 consisted of
interest income in the amount of $91,070 compared to $17,822 of interest income
for the same nine month period in 1999. The increase is due to a higher average
cash on hand balance in 2000.
During the nine months ended September 30, 2000, Beta incurred interest
expense of $94,537 for one month's interest which is primarily related to the
RRE outstanding debt. For the nine months ended September 30, 1999, we incurred
$2,965,172 of interest expense which was mostly related to the bridge notes.
Interest expense related to the bridge notes for the 1999 period consisted of
the following:
<TABLE>
<S> <C>
Cash interest expense $ 120,555
Amortization of note discount and fair market value of 30,000 shares 2,754,000
Amortization of deferred loan costs 89,100
----------------
Bridge note interest expense for the nine months ended September 30, 1999 $ 2,963,655
================
</TABLE>
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<PAGE>
Income Taxes
As of December 31, 1999, we 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 2018. As of December 31, 1999, Beta had a deferred tax
asset of approximately $3,294,000 which is fully reserved for with a valuation
allowance. The deferred tax asset consists almost entirely of the net operating
loss carryforward. 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. No tax provision was recognized for the nine months ended
September 30, 2000.
Drilling Activity
To date for the year 2000, we have participated in the drilling of 16
exploratory wells and 2 development wells. Of the 18 wells drilled, 4 wells were
dry holes, 9 wells were completed for production and 5 wells are drilling.
Currently there are 7 additional exploratory wells and 2 additional development
wells scheduled to be drilled in the fourth quarter of 2000. The decrease in
drilling rig availability has caused us to delay the drilling of certain
prospects which were scheduled for the fourth quarter of 2000.
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. We were entitled to call these warrants at
any time on and after the date that our 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, which was achieved
in November 1999.
We issued a call for these warrants as of February 23, 2000, the record
date. 100% of the warrants associated with the call were exercised realizing
gross proceeds of $2,408,250 in 2000 and a total gross proceeds realized of
$4,031,710 from the $5.00 warrants.
We also have 375,275 callable common stock purchase warrants outstanding
exercisable at a price of $7.50 per share. We are able to call these warrants at
any time after our common stock has traded on Nasdaq at a market price equal to
or exceeding $10.00 per share for 10 consecutive days, which was achieved in
July 2000. It is our intent to call all of these warrants at such time, if and
when, the cash is needed to fund capital requirements. We may 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. We could
realize net proceeds of approximately $2,814,500 from the exercise of these
warrants. There is no assurance that any warrants will be exercised or that we
will ever realize any proceeds from the $7.50 warrant calls.
Impact of Recently Issued Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FASB133), "Accounting for Derivative
Instruments and Hedging Activities". The FASB has subsequently issued Statement
No. 137 and Statement No. 138 which are amendments to FASB133. FASB 133, as
amended, requires that an entity recognize all derivatives as assets or
liabilities in the statement of financial position and measure those instruments
at fair value. FASB133, as amended, is effective for fiscal years beginning
after June 15, 2000. FASB133, as amended, cannot be applied retroactively and
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts. We anticipate adopting SFAS133, as
amended, beginning January 1, 2001. We do not believe the adoption of FASB133
will have a material impact on assets, liabilities or equity. We have not yet
determined the impact of FASB133 on the income statement or the impact on
comprehensive income.
FASB132, "Employers' Disclosure About Pensions and Other Postretirement
Benefits" and FASB134, "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 our future
financial statement disclosures, results of operations and financial position.
-15-
<PAGE>
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. Currently, Beta has derivative
financial instruments in place to mitigate the fluctuations in gas price. The
hedged volume represents approximately 21% of our gas equivalent production and
is hedged until July 2001. Another 10% of our gas equivalent production is
committed to a twelve-month fixed price contract which is in effect until July
2001. The remaining 69% of our production is not hedged and we may continue to
experience wide fluctuations in oil and gas revenues as a result. Beta is also
exposed to market risk related to adverse changes in interest rates. This
volatility could be mitigated through the use of financial derivative
instruments. Currently, we do not have any derivative financial instruments in
place to mitigate the potential risk.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of our knowledge there are no legal proceedings pending or
threatened against us which would have a materially adverse effect on our
financial condition or results of operations.
Item 2. Changes in Securities
On September 19, 2000, 10,000 shares of our common stock and 100,000
callable common stock purchase warrants were issued to Duke Field Services,
L.L.C. ("Duke") as partial consideration paid to Duke for the purchase of a note
payable with a principal balance, including interest, of $2,270,000 and Duke's
interest in the TCM coal bed properties. In addition to the common stock, Duke
received approximately $530,000 cash. The callable common stock purchase
warrants will expire on September 19, 2004 and have an exercise price of
$10.78. Duke has piggyback registration rights, which gives Duke the option to
register its common stock or any common stock issued upon exercise of their
warrants when Beta registers any shares of its common stock under the Securities
Act of 1933, as amended on a form which would permit the inclusion of Duke's
common stock. Beta may call and redeem the outstanding warrants at any time by
paying Duke the amount of $49.22 per warrant. No underwriter was used in the
issuance of the common stock or stock warrants. In connection with the issuance
of these securities, we relied upon Section 4(2) of the Securities Act in
claiming exemption for the registration requirements of the Securities Act. All
of the persons to whom the securities were issued had full information
concerning the business and affairs of the Company and acquired the shares for
investment purposes. Certificates representing the securities issued bear a
restrictive legend and stop transfer instructions have been entered prohibiting
transfer of the securities except in compliance with applicable securities law.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On August 11, 2000 we mailed a Proxy Statement to our shareholders
requesting consent to action in lieu of a special meeting of the shareholders.
There were two matters that the shareholders were asked to vote on: 1.) That the
Agreement and Plan of Merger, dated November 19, 1999 as amended, by and between
the Company and Beta Acquisition Company, Inc. and Red River Energy, Inc. and
the shareholders of Red River Energy, LLC. and the merger of Beta Acquisition
Company, Inc. with and into Red River Energy, Inc., as described in the
Agreement and Plan of Merger, be ratified and approved by the shareholders of
the Company; and 2.) That the Shareholders of the Company ratify and approve the
adoption of the Company's Amended and Restated 1999 Incentive and Nonstatutory
Stock Option Plan previously approved by the Board of Directors. The results of
the votes cast are as follows:
Matters voted upon by holders of common Stock:
Consent No. 1: Approval of Agreement and Plan of Merger with Red River
Energy, L.L.C. A summary of the votes cast is as follows:
Number For Number Against Number Abstain
8,060,535 10,950 23,740
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<PAGE>
Consent No. 2: Approval of 1999 Incentive and Nonstatutory Employee
Stock Option Plan. A summary of the votes cast is as follows:
Number For Number Against Number Abstain
6,393,877 192,125 76,265
Item 5. Other Information
The newest member to be elected to our Board of Directors is Mr. Robert C.
Stone, Jr. Mr. Stone fills the seat left vacant by Mr. Lawrence Horwitz, a
California resident, who resigned when the Company relocated its headquarters to
Tulsa, Oklahoma. Mr. Stone's last five years of employment were as Manager of
Technical Services, Energy Division, First National Bank of Commerce from 1994
to 1998 (he started with First National as an engineer in 1983) and Manager of
Energy Technical Services, Energy/Maritime Division, Hibernia National Bank from
1998 to this year which included technical evaluation responsibilities at
Hibernia National Bank for all syndicated and direct lending E&P segment
clients. Specifically, Mr. Stone concluded or approved all oil and gas
collateral evaluations, and developed industry client relationships as well a
pricing lending policies. Currently Mr. Stone is the Senior Vice
President/Manager of the Energy Group at Whitney National Bank in New Orleans,
Louisiana. Mr. Stone began his career as an engineer for approximately eight
years with Exxon Company, U.S.A. Mr. Stone holds both a B.S. and M.S. in
Engineering from the University of Houston. He was also a Founding Governor of
the City Energy Club of New Orleans and is involved with many civic
organizations in New Orleans where he still resides.
On October 16, 2000 Mr. Rolf N. Hufnagel tendered his resignation to the
Board of Directors. It was accepted by the Board on October 27, 2000 by
Unanimous Consent. The position remains unfilled.
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
September 30, 2000
(2) Exhibit. 10.29, Revised Joint Development Agreement dated
August 8, 2000 between Red River Energy, L.L.C. and Avalon
Exploration, Inc.
(3) Exhibit 10.30, Purchase Agreement dated September 19, 2000
between Red River Energy, L.L.C. and Duke Energy Financial
Services, L.L.C.
(b) The following reports were filed on Form 8-K during the quarter ended
September 30, 2000:
(1) Form 8-K dated and filed September 5, 2000 reported under Item 2
the consummation of the merger between Beta Oil & Gas, Inc., Red
River Energy, Inc. and Beta Acquisition Company. Under Item 7 the
following financial statements were filed:
Financial Statements of Business Acquired:
(i) Red River Energy, LLC and Subsidiaries Consolidated Balance
Sheets as of December 31, 1999 and 1998 for the six months
ended June 30, 2000 and the Related Consolidated Statements
of Income and Retained Earnings and of Consolidated Cash
Flows and Independent Auditors' Report.
(ii) ONEOK Resources Company Statement of Revenues and Direct
Operating Expenses of Certain Properties sold to Red River
Energy, LLC.
Pro Forma Financial Information:
(i) Beta Oil & Gas, Inc. Pro Forma Combined
Consolidated Balance Sheet as of December 31, 1999.
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<PAGE>
(ii) Beta Oil & Gas, Inc. Unaudited Pro Forma Combined
Consolidated Statements of Operations for the Year Ended
December 31, 1999 and the six months ended June 30, 2000.
(iii)Notes to Pro Forma Consolidated Financial Statements.
Additionally, our press release dated August 31, 2000 was
reported under Item 7.
(2) Form 8-K/A dated and filed on September 13, 2000 reported under Item 5
the addition of the legal opinion and consent of Conner & Winters, a
Professional Corporation, to the Exhibits to the September 12, 2000
Registration Statement which was filed on Form S-3 (File No.
333-45586). Also attached as exhibits under Item 7 were the legal
opinion and consent of Conner & Winters as discussed in Item 5.
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: November 14, 2000 By /s/ Joseph L. Burnett
Joseph L. Burnett
Chief Financial Officer and
Principal Accounting Officer
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<PAGE>
