As filed with the Securities And Exchange Commission on September 27, 2000
SEC Registration No. 333-14011
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
(POST-EFFECTIVE AMENDMENT NO. 1)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DOUBLE EAGLE PETROLEUM AND MINING CO.
-------------------------------------
(Name Of Small Business Issuer In Its Charter)
<TABLE>
<S> <C> <C>
Wyoming 1330 83-0214692
(State Or Jurisdiction Of (Primary Standard Industrial (IRS Employer Identification
Incorporation) Classification Code Number) Number)
777 Overland Trail (P.O. Box 766)
Casper, Wyoming 82602
(307) 237-9330
(Address And Telephone Number Of Principal Executive Offices)
</TABLE>
777 Overland Trail (P.O. Box 766)
Casper, Wyoming 82602
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(Address Of Principal Place Of Business Or Intended Principal Place Of Business)
Stephen H. Hollis
777 Overland Trail (P.O. Box 766)
Casper, Wyoming 82602
(307) 237-9330
(Name, Address And Telephone Number Of Agent For Service)
Copies to:
Alan L. Talesnick, Esquire
Francis B. Barron, Esquire
Patton Boggs LLP
1660 Lincoln Street, Suite 1900
Denver, Colorado 80264
(303) 830-1776
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration
Statement.
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<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [] ___________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [] ___________________________
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box []
<PAGE>
CALCULATION OF REGISTRATION FEE
Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PRELIMINARY PROSPECTUS DATED SEPTEMBER 27, 2000
SUBJECT TO COMPLETION
DOUBLE EAGLE PETROLEUM AND MINING CO.
1,318,250 Shares of Common Stock
This prospectus relates to an offering by Double Eagle Petroleum And Mining
Co. of 1,318,250 shares of common stock. These shares consist of the
following:
o Up to 1,118,250 shares that may be issued for $3.00 per share upon the
exercise of redeemable common stock purchase warrants.
o Up to 100,000 shares that may be issued upon the exercise of underwriter's
warrants to purchase units for $1.50 per unit of common stock and common
stock purchase warrants.
o Up to 100,000 shares for $3.00 per share that may be issued upon the exercise
of the warrants underlying the underwriter's warrants.
The warrants and underwriter's warrants were sold by us in a public
offering of units in December 1996 through Rocky Mountain Investments &
Securities, Inc. (the "Underwriter"). The warrants are subject to redemption by
us as described in this prospectus. See "Description Of Securities_ Warrants".
The common stock and warrants are traded on The NASDAQ SmallCap Market
("NASDAQ") under the symbol "DBLE" and "DBLEW", respectively. On September 15,
2000, the closing sales price of the as reported by NASDAQ was $6.5938 per share
of common stock and $3.50 per warrant.
Investing in the common stock involves certain risks. See the "Risk
Factors" section beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _________________, 2000.
1
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information contained in this prospectus.
It may not be complete and may not contain all the information that you should
consider before investing in the common stock. You should read this entire
prospectus carefully, including the "RISK FACTORS" section.
<TABLE>
<S> <C> <C>
The Company We explore for, develop, produce and sell crude oil and natural
gas. We concentrate our activities in areas in which we
believe we have accumulated detailed geologic knowledge and
developed significant management experience. Our current areas
of exploration and development are focused in the Moxa Arch in
southwestern Wyoming, the Power River Basin in northeastern
Wyoming, the Washakie Basin in south central Wyoming, the Wind
River Basin in central Wyoming, and the Christmas Meadows area
in northeastern Utah. As of August 31, 1999, we owned
interests in a total of approximately 283 gross, 10.54 net,
producing wells. See below, "Business And Properties".
Securities Offered Up to 1,318,250 shares common stock. These shares consists of
the following:
o Up to 1,118,250 shares for $3.00 per share that may be issued
upon the exercise of redeemable common stock purchase
warrants.
o Up to 100,000 shares that may be issued upon the exercise of
underwriter's warrants to purchase units for $1.50 per unit
of common stock and common stock purchase warrants.
o Up to 100,000 shares for $3.00 per share that may be issued
upon the exercise of the warrants underlying the
underwriter's warrants.
The warrants are exercisable for $3.00 per share until December
17, 2001. The underwriter's warrants are exercisable at $1.50
per unit until December 17, 2001. See "Description Of
Securities".
Common Stock
outstanding(1):
Prior to the Offering: 4,817,401
After Offering(1): 6,135,651
(1) Includes (a) up to 1,118,250 shares of common stock
issuable upon exercise of the warrants, and (b) up to
200,000 shares of common stock issuable upon exercise of
the underwriter's warrants and the warrants included in
those units. See "Underwriting". Also does not include
403,000 shares of common stock issuable upon exercise of
outstanding stock options held by our employees and
directors and 374,750 shares of common stock issuable upon
exercise of other outstanding options and warrants.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Redemption Of The We may redeem the warrants at a price of $.02 per warrant at
Warrants any time prior to their exercise or expiration upon 30 days'
prior written or published notice if the closing bid quotation
for the common stock for at least 20 of the 30 consecutive
business days ending on the day of our giving notice of
redemption has been at least $4.00 per share. The exercise of
the warrants is subject to a current registration statement
being effective. The warrants remain exercisable during the
30-day notice period. Any warrantholder who does not exercise
that holder's warrants prior to their expiration or redemption,
as the case may be, forfeits that holder's right to purchase
the shares of common stock underlying the warrants. We may not
redeem warrants included in the underwriter's units issuable
upon the exercise of the underwriter's warrants. See
"Description Of Securities_ Warrants_ Redemption".
Use Of Proceeds Net proceeds from the exercise of warrants will be used for our
oil and gas activities and to increase working capital. See
"Use Of Proceeds" and "Business And Properties".
Risk Factors The securities offered by this prospectus involve a high degree
of risk. See "Risk Factors".
NASDAQ Common Stock: "DBLE"
Symbols Warrants: "DBLEW"
</TABLE>
Summary Oil And Gas Reserve Information
The following table sets forth summary information with respect to our
estimates of net proved developed oil and gas reserves and discounted present
value of the estimated future net revenues from the production and sale of these
reserves as of each of August 31, 1998 and August 31, 1999, respectively. For
additional information relating to reserves, see "Business And Properties_
Production", "_ Reserves", Note 11, Oil And Gas Producing Activities, included
after the Financial Statements of the Company included elsewhere in this
prospectus, and "Risk Factors_ Estimates Of Reserves And Future Net Revenues".
<TABLE>
<CAPTION>
Estimated Proved Reserves As Of
-------------------------------
August 31, 1998 (1) August 31, 1999(1)
------------------- ------------------
Developed Undeveloped Total Developed Undeveloped Total
---------- ----------- =------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Crude Oil (Bbls).......... 90,911 -- 90,911 152,169 -- 152,169
Natural Gas (Mcf)......... 3,507,986 -- 3,507,986 4,090,010 -- 4,090,010
Present Value Of Estimated Future
Net Revenues Before Income Taxes
(In Thousands), Discounted At
10%(2).................... $3,976,153 -- $3,976,153 $4,791,302 -- $4,791,302
________________________
<FN>
(1) Our annual reserve reports are prepared as of August 31, which is the last
day of our fiscal year.
(2) The present value of estimated future net revenues as of each date was
calculated using oil and gas prices as of that date.
</TABLE>
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<PAGE>
RISK FACTORS
The purchase of shares of common stock involves a high degree of risk.
Before purchasing common stock, you should read this entire prospectus and
consider the following factors concerning the company in addition to the other
information in this prospectus.
We have had operating losses in the past.
We have reported net losses for four of our past six fiscal years,
including losses of $420,278 in 1998, $21,143 in 1996, $341,616 in 1994, and
$76,421 in 1993. In addition, without considering net proceeds from sales of
properties, we had net losses before taxes of $514,297 in 1998, $19,820 in 1997,
$139,638 in 1996, $387,583 in 1995, $350,088 in 1994, and $213,500 in 1993.
There is no assurance that our current or future operations will be profitable.
We depend on a key employee.
We are highly dependent on the services of Stephen H. Hollis, our Chairman
of the Board and Chief Executive Officer. The loss of Mr. Hollis could have a
material adverse effect on us. We do not carry "key man" life insurance on Mr.
Hollis.
We cannot predict the future price of oil and natural gas.
Our revenues, profitability and liquidity are substantially dependent upon
prevailing prices for oil and natural gas, which can be extremely volatile and
in recent years have been depressed by excess total domestic and imported
supplies. Prices also are affected by actions of state and local agencies, the
United States and foreign governments, and international cartels. In addition,
sales of oil and natural gas are seasonal in nature, leading to substantial
differences in cash flow at various times throughout the year. These external
factors and the volatile nature of the energy markets make it difficult to
estimate future prices of oil and natural gas. Any substantial or extended
decline in the price of oil and/or natural gas would have a material adverse
effect on our financial condition and results of operations, including reduced
cash flow and borrowing capacity. All of these factors are beyond our control.
We could be adversely impacted by changes in the oil and gas market.
The marketability of our oil and gas production depends in part upon the
availability, proximity and capacity of gas gathering systems, pipelines and
processing facilities. Federal and state regulation of oil and gas production
and transportation, general economic conditions, changes in supply and changes
in demand all could adversely affect our ability to produce and market its oil
and natural gas. If market factors were to change dramatically, the financial
impact could be substantial because we would incur expenses without receiving
revenues from the sale of production. The availability of markets is beyond our
control.
We may be unable to find additional reserves.
Our revenues depend on whether we acquire or find additional reserves.
Unless we acquire properties containing proved reserves or conduct successful
exploration and development activities, or both, our proved reserves will
decline as reserves are produced. Our planned exploration and development
projects may not result in significant additional reserves. We may be unable to
drill productive wells at low reserve replacement costs.
4
<PAGE>
Our stock price may be adversely impacted by our choice of accounting method.
We use the "successful efforts" method for capitalizing costs of completed
oil and gas wells. Under the successful efforts method, only the costs
attributable to successful exploratory wells and the costs of development wells
within a producing field are reflected in property and equipment. Producing and
non-producing properties are evaluated periodically and, if conditions warrant,
an impairment allowance is provided. The impairment allowance is a one-time
charge to earnings which does not impact cash flow from operating activities,
but may result in a negative impression in the investment community and lower
stock prices.
Oil and gas operations are inherently risky.
The nature of the oil and gas business involves a variety of risks,
including the risks of operating hazards such as fires, explosions, cratering,
blow-outs, and encountering formations with abnormal pressures. The occurrence
of any of these risks could result in losses. We maintain insurance against
some, but not all, of these risks. Management believes that the level of
insurance against these risks is reasonable and is in accordance with customary
industry practices. The occurrence of a significant event, however, that is not
fully insured could have a material adverse effect on our financial position and
results of operations.
New government regulation and environmental risks could increase our costs.
The production and sale of oil and gas are subject to a variety of federal,
state and local government regulations. These include:
o the prevention of waste
o the discharge of materials into the environment
o the conservation of oil and natural gas, pollution, permits for drilling
operations, drilling bonds, reports concerning operations
o the spacing of wells
o the unitization and pooling of properties
Many jurisdictions have at various times imposed limitations on the
production of oil and gas by restricting the rate of flow for oil and gas wells
below their actual capacity to produce. Because current regulations covering
our operations are subject to change at any time, and despite our belief that we
are in substantial compliance with applicable environmental and other government
laws and regulations, we may incur significant costs for compliance in the
future.
Our prices may be impacted adversely by new taxes.
The federal, state and local governments in which we operate impose taxes
on the oil and gas products we sell. In the past, there has been a significant
amount of discussion by legislators and presidential administrations concerning
a variety of energy tax proposals. In addition, many states have raised state
taxes on energy sources and additional increases may occur. We cannot predict
whether any of these measures would have an adverse impact on oil and natural
gas prices.
5
<PAGE>
Our reserves and future net revenues may differ significantly from our
estimates.
The information included in or incorporated by reference into this
prospectus contain estimates of our reserves and future net revenues. We
prepared these estimates and they have not been reviewed by an independent
petroleum engineer. The estimates of reserves and future net earnings are not
exact and are based on many variable and uncertain factors; therefore, the
estimates may vary substantially depending, in part, on the assumptions made and
may be subject to adjustment either up or down in the future. The actual
amounts of production, revenues, taxes, development expenditures, operating
expenses, and quantities of recoverable oil and gas reserves to be encountered
may vary substantially from the estimated amounts. In addition, estimates of
reserves also are extremely sensitive to the market prices for oil and gas.
There is limited liquidity in our shares.
There is a limited market for our shares and an investor cannot expect to
liquidate his investment regardless of the necessity of doing so. The prices of
our shares are highly volatile. Due to the low price of the securities, many
brokerage firms may not effect transactions and may not deal with them as it may
not be economical for them to do so. This could have an adverse effect on
developing and sustaining the market for our shares securities. In addition,
there is no assurance that an investor will be in a position to borrow funds
using our shares as collateral.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATIONS DATA
The summary consolidated financial and operations data set forth below
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto and "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations" included elsewhere in this
prospectus.
6
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<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Year Ended August 31, May 31,
--------------------- -------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Production revenues $247,461 $417,114 $633,797 $680,734 $854,405 $468,952 $1,162,294
Property sales and
other revenues $686,025 $232,537 $289,153 $58,459 $283,623 $179,148 $25,358
Depreciation,
depletion and
amortization $78,586 $106,900 $135,542 $167,825 $306,002 148,365 $332,784
Income before
income taxes and
cumulative effect
of accounting
change $18,404 $(24,077) $190,982 ($465,572) ($139,794) ($162,419) $45,463
Net income $15,291 $(21,143) $162,827 ($420,278) ($139,794) ($162,419) $45,463
Net income per share(2) $.01 $(.01) $0.05 ($0.11) ($0.03) ($0.04) $0.01
Selected Operations
Data (Unaudited):
Proved Developed
Reserves
Oil (Bbls) 95,383 188,580 180,526 90,911 152,169 158,264 150,604
Gas (Mcf) 1,935,164 2,082,591 2,757,188 3,507,986 4,090,010 4,175,878 4,789,992
Production
Oil (Bbls) 9,528 17,352 17,331 10,591 21,530 15,435 15,933
Gas (Mcf) 68,862 140,179 222,628 284,648 379,306 293,438 342,601
Reserves to Production
Ratio (years)
Oil 10.0 10.9 10.42 8.58 7.07 10.25 9.45
Gas 28.1 14.9 12.38 12.32 10.78 14.23 13.98
Average sales price
Oil ($/Bbl) $16.52 $21.42 $21.23 $14.47 $12.95 $10.54 $24.75
Gas ($/Mcf) $1.40 $1.16 $1.19 $1.85 $1.75 $1.58 $2.24
Reserve replacement
costs ($/BOE) $24.37 $5.04 $4.39 $5.52 $4.45 $4.47 $4.68
Net wells completed
during the period .8 .154 .6875 1.6065 .5126 .5126 .6840
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
At August 31, 1998 At August 31, 1999
------------------ ------------------
Actual As Adjusted (4)
----------------------------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital. $ 153.008 $ (49,538) $3,740,212
Total assets.... $3,263,212 $4,358,172 $8,147,922
Long-term debt.. $ -0- $ 41,728 $158,773
Stockholders' equity $3,162,617 $3,606,752 $7,396,502
____________________
<FN>
(1) Includes cumulative effect of change in method of accounting for income
taxes. See Note 1 to the Financial Statements included in this prospectus.
(2) We have not paid cash dividends with respect to our common stock in the
past and have no plans to pay cash dividends in the future.
(3) No reserves acquired.
(4) As adjusted to give effect to the estimated net proceeds of this offering
to be received by us after deducting estimated offering expenses, and
assuming the sale by us of 1,318,250 shares upon the exercise of the
warrants and the underwriter's warrants and the warrants included in the
underwriter's warrants. See "USE OF PROCEEDS".
</TABLE>
THE COMPANY
We explore for, develop, produce and sell crude oil and natural gas. We
concentrate our activities in areas in which we believe we have accumulated
detailed geologic knowledge and developed significant management experience.
Our current areas of exploration and development are focused in:
o the Moxa Arch in southwestern Wyoming
o the Powder River Basin in northeastern Wyoming
o the Washakie Basin in south central Wyoming
o the Wind River Basin in central Wyoming, and
o the Christmas Meadows area in northeastern Utah
As of August 31, 1999, we owned interests in a total of approximately 283
gross, 10.54 net, producing wells.
Our common stock is traded on the NASDAQ SmallCap Market under the ticker
symbol "DBLE" and our warrants are traded under the symbol "DBLEW". On
September 15, 2000, the last sale prices were $6.5938 per share of common stock
and $3.50 per warrant. Our corporate office is located at 777 Overland Trail
(P.O. Box 766), Casper, Wyoming 82602. Our telephone number is (307) 237-9330
and our fax number is (307) 266-1823.
USE OF PROCEEDS
If all the outstanding warrants are exercised, we will receive gross
proceeds of $3,804,750. There is no assurance all the warrants will be
exercised. We estimate that the expenses of this offering will be approximately
$15,000. We intend to use the proceeds of this offering, together with its
operating cash
8
<PAGE>
flow, for our oil and gas activities during fiscal 2000, which initially will
focus on identifying prospect areas, acquiring oil and gas leases, marketing
prospects to industry partners, and funding our Company's share of drilling and
completion costs. See "Business_ Plan Of Operation" and "_ Principal Areas Of
Oil And Gas Activity" for a description of our oil and gas activities and
planned expenditures. In addition, subject to management's determination that
there are appropriate opportunities, our oil and gas activities may include one
or more of the following in its principal areas of activity (not listed in order
of priority):
o additional development drilling,
o acquisition of undeveloped acreage,
o acquisition of producing properties, and
o exploratory drilling.
See "Management's Discussion And Analysis Of Financial Condition And
Results Of Operations_ Liquidity And Capital Resources", and "Business And
Properties_ Principal Areas Of Oil And Gas Activity".
The estimated amounts and uses set forth above indicate our intentions for
use of the net proceeds from the offering. We may reallocate the proceeds or
utilize the proceeds for other oil and gas opportunities we deem to be in our
best interests. Reallocation may result from an unforeseen change in
circumstances concerning matters such as the results of exploratory drilling and
seismic analysis, changes in oil and/or gas prices and other economic conditions
that affect whether a project is economical, availability of debt financing or
the existence of a property acquisition or development opportunity.
The net proceeds of this offering will be placed temporarily in
certificates of deposit, short-term obligations of the United States government,
or other money-market instruments that are rated investment grade or its
equivalent until used for the purposes described above.
CAPITALIZATION
The following table sets forth our capitalization as of August 31, 1999,
and as adjusted to reflect the issuance and sale of 1,318,250 shares upon
exercise of the warrants, the underwriter's warrants and the warrants underlying
the underwriter's warrants.
<TABLE>
<CAPTION>
August 31, 1999
----------------------------
Actual (1) As Adjusted (2)
---------- ---------------
<S> <C> <C>
Long-term debt ............................... $158,773 $158,773
Stockholders' equity:
Common stock, $.10 par value: 10,000,000 shares
authorized, 4,365,401 outstanding (5,683,651 436,540 568,365
as adjusted)(1)(2)
Additional paid-in capital . . . . . . . . . . . . . 2,667,276 6,325,201
Retained earnings . . . . . . . . . . . . . . . . . . 502,936 502,936
Total stockholders' equity . . . . . . . . 3,606,752 7,396,502
Total capitalization. . . . . . . . . . . . 3,765,525 7,555,275
____________________
</TABLE>
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(1) Does not include 977,750 shares issuable upon exercise of outstanding
options and warrants other than those warrants subject to this prospectus.
(2) Assumes the issuance of 1,318,250 shares upon exercise of the warrants, the
underwriter's warrants and the warrants underlying the underwriter's
warrants and proceeds net of underwriting discounts and estimated offering
expenses. See "Underwriting".
PRICE RANGE OF COMMON STOCK
Market Information. The common stock is listed on the Nasdaq Small Cap
------------------
Market under the symbol "DBLE" and the warrants are listed on Nasdaq Small Cap
Market under the symbol "DBLEW".
Our units, each consisting of one share of common stock and one warrant,
traded from December 1996 until October 1997, when the units were separated and
the warrants commenced trading. The range of high and low sales prices for each
quarterly period during the two most recent fiscal years ended August 31, 1998
and 1999, and the nine months ended May 31, 2000, as reported by Nasdaq, is as
follows:
<TABLE>
<CAPTION>
Common Stock
Warrants ("DBLEW") ("DBLE")
Fiscal 1998 High Low High Low
<S> <C> <C> <C> <C>
First Quarter 1.00 .53 2.75 1.00
Second Quarter 1.00 .37 2.62 1.25
Third Quarter 1.44 .75 3.47 1.87
Fourth Quarter 1.12 .37 2.87 1.25
Fiscal 1999
First Quarter .75 .37 1.87 1.12
Second Quarter .56 .25 1.62 1.12
Third Quarter .56 .31 1.75 1.06
Fourth Quarter .75 .37 2.75 1.25
Fiscal 2000
First Quarter 1.75 .56 4.68 2.25
Second Quarter 1.28 .75 4.13 2.68
Third Quarter 1.37 .63 3.87 3.28
Units ("DBLEU")
Fiscal 1998 High Low
First Quarter 2.82 1.25
Second Quarter --- ---
Third Quarter --- ---
Fourth Quarter --- ---
</TABLE>
On September 15, 2000, the closing sales price for the common stock as
reported by NASDAQ was $6.5938 per share. Also on September 15, 2000, the
closing sales price for the warrants was $3.50 per warrant.
Holders. On September 15, 2000, the number of holders of record of common
-------
stock was 1,866 and the number of holders of warrants was 12.
Dividends. We have not paid any cash dividends since our inception. We
---------
anticipate that all earnings will be retained for the development of our
business and that no cash dividends on the common stock will be paid in the
foreseeable future.
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Transfer Agent
The transfer agent for the common stock and warrants is Computershare Trust
Company Incorporated, formerly known as American Securities Transfer & Trust
Co., Inc., Lakewood, Colorado. The transfer agent also serves as warrant agent
for the warrants.
SELECTED FINANCIAL DATA
Our selected financial data presented below for each of the years in the
five-year period ended August 31, 1999 are derived from our financial
statements. These financial statements have been audited by our independent
auditors. Production data for all periods are unaudited. The selected
financial data for the nine months ended May 31, 1999 and 2000 is derived from
our unaudited quarterly financial statements and has not been audited by our
independent auditors. This information should be read in conjunction with the
financial statements and notes to the financial statements and "Management's
Discussion And Analysis Of Financial Condition And Results Of Operations"
included elsewhere in this prospectus. The selected data provided below are not
necessarily indicative of our future results of operations or financial
performance.
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Year Ended August 31, May 31,
--------------------- -------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues:
Oil and gas production $247,461 $417,114 $633,797 $680,734 854,405 $468,952 $1,162,294
Sales of nonproducing
properties 634,979 130,000 242,744 53,200 224,119 178,619 9,821
Sale of wells --- --- --- --- --- --- ---
Interest income 18,122 4,474 29,765 20,147 8,595 6,544 15,719
Other, primarily zeolite
royalties 32,924 98,063 16,644 5,259 59,504 529 15,537
Gain on sale of investments --- --- --- --- --- --- 11,856
Total revenues $933,486 $649,651 $922,950 $759,340 $1,146,623 $654,644 $1,215,227
Expenses:
Production costs $45,009 $79,532 $76,875 $104,429 $183,451 $122,382 $207,327
Production taxes 29,679 41,750 57,634 78,113 99,731 61,446 133,899
Cost of nonproducing
properties sold 228,992 14,439 31,942 4,475 31,150 11,325 2,262
Cost of wells sold --- --- --- --- --- --- ---
Exploration 91,705 84,685 139,776 183,279 192,948 158,243 94,919
Write-offs and abandonments 213,090 92,793 10,635 220,388 54,931 14,155 4,856
Depreciation, depletion and
amortization 78,586 106,900 135,542 167,825 306,002 148,365 332,784
Interest and other expenses -- 10,594 14,558 2,534 8,607 1,661 16,013
General and
administrative 228,021 243,035 265,006 463,869 409,597 299,486 377,704
------- --------- --------- ---------- ---------- ------- -------
Total expenses $915,082 $673,728 $731,968 $1,224,912 $1,286,417 $817,063 $1,169,764
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes and Cumulative effect
of change in method of
accounting $18,404 ($24,077) $190,982 ($465,572) ($139,794) ($162,419) $45,463
Provision for (benefit from)
income taxes 3,113 (2,934) 28,155 45,294 --- --- ---
----- ------- ------ ------
Income (loss) before cumulative
effect of change in method of
accounting 15,291 (21,143) 162,827 (420,278) (139,794) (162,419) 45,463
Cumulative effect of change in
method of accounting for
income taxes --- --- --- --- --- --- ---
--- --- --- --- --- --- ---
Net Incomme (loss) $15,291 $(21,143) $162,827 $(420,278) $(139,794) $(162,419) $45,463
====== ======== ======== ========== ========== ========== =======
Income (loss) per common and
common equivalent share:(1) $.01 $(.01) $.05 $(.11) $(.03) $(.03) $.02
Before cumulative effect of
Accounting change .01 (.01) .05 (.11) (.03) (.03) .02
Cumulative effect of
accounting Change (.07) --- --- --- --- --- ---
----- -------- -------- ---------- ---------- ---------- ---------
After cumulative effect of
accounting Change $(.15) $.01 $(.05) $(.11) $(.03) $(.03) $.02
Common Stock and Common Stock
Equivalent shares outstanding 2,450,590 2,712,371 3,527,546 3,901,024 4,309,070 4,184,201 4,724,909
At August 31, At May 31,
------------- ----------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
Selected Balance Sheet Data
Working capital..... $173,390 $(263,679) $869,047 $153,088 $(49,538) $55,667 $(163,856)
Total assets........ $2,235,220 $2,540,918 $3,795,511 $3,263,212 $4,358,172 $3,799,006 $5,400,114
Long-term debt ..... $--- $--- -0- -0- $158,773 --- ---
Stockholders' equity $1,943,155 $1,922,012 $3,573,520 $3,162,617 $3,606,752 $3,577,387 $4,775,651
____________________
<FN>
(1) We have not paid cash dividends with respect to our common stock in the
past and have no plans to pay cash dividends in the future.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting our operating
results, financial condition, and cash flows for the fiscal years ended August
31, 1999 and 1998 and the nine months ended May 31, 2000 and 1999. This
discussion should be read in conjunction with the financial statements and notes
to financial statements included in this prospectus.
12
<PAGE>
Overview
During fiscal 1999, we experienced an increase in production of
approximately 43% as measured by barrel of oil equivalents. The increase in
production contributed to a substantial reduction in our net loss as compared to
the net loss of the prior year.
Operating Results
Nine Months Ended May 31, 2000 Compared To Nine Months Ended May 31, 1999
Oil and gas revenues for the nine months ended May 31, 2000 increased 250
percent over the corresponding period of one year earlier. This resulted in net
income of $45,000 for the nine months ended May 31, 2000 compared to a net loss
of $(162,000) for the corresponding period of 1999. The primary factors that
led to the substantial increase in revenues were the drilling of producing wells
at Madden Field and Mesa Field and the more than doubling of the prices that we
received for our oil and natural gas.
Also for the nine months ended May 31, 2000, sales of non-producing
properties decreased by $169,000 from $179,000 to $10,000, and revenues from
interest and other income and gain on sale of investments increased from $7,000
to $43,000. With respect to expenses, increases in production costs, production
taxes and depreciation, depletion and amortization increased commensurate with
the increase in production; general and administrative expenses increased by 26
percent to $378,000.
Year Ended August 31, 1999 Compared To Year Ended August 31, 1998
Revenues from oil and gas sales increased from 1998 to 1999, and from 1997
to 1998. The increase in oil and gas sales from 1998 to 1999 measured 26%, the
increase from 1997 to 1998 measured 7%. In each of fiscal 1999 and fiscal 1998,
we increased production of oil and gas, as measured by barrel of oil equivalents
(BOE's), over the prior year. Contributing to the increase in BOE's in 1999
were the producing property acquisitions of the Government Bridge, Wolf Draw and
Cow Creek fields, and acquisitions of increased interests in the Four Mile
Gulch, Whiskey Buttes, Swan South and Mesa Unit fields. However, the increase
in production was offset by a decline in oil and gas pricing.
Sales of nonproducing leases were $224,119 in 1999 as compared to $53,200
in 1998. Our strategy is to develop and market oil and gas prospects, and to
participate in the drilling of wells. We will continue to sell nonproducing
leases as a means to generate cash flow.
Costs and expenses increased by 5% in 1999 over 1998. If the cost of
impairment of producing properties that we experienced in 1998 is not included,
costs and expenses increased by 26% in 1999 over 1998. Production costs
increased 55%, due in part to the increase in production and extensive workovers
performed on the Government Bridge field. Depreciation and depletion increased
82% as a result of the increase in production and as a result of the costs of
producing property acquisitions in fiscal 1999. General and administrative
expenses decreased by 12% as a result of management's efforts to reduce or
eliminate non-essential expenditures.
Costs and expenses increased by 70% in 1998 over 1997. Contributing to
this increase was the non-cash impairment of producing properties of $208,000,
which occurred as we wrote down the carrying amount of the State 1-36 and the
Graham #2 wells. Future revenues anticipated from these wells were not expected
to recover the carrying value of the wells. Also contributing to the increase
in
13
<PAGE>
costs and expenses were increases in production costs and production taxes as a
result of the increase in production. General and administrative expenses
increased by $199,000, primarily due to increases in expenditures for
shareholder relations, legal and accounting fees, and for increased personnel
costs.
Overall, we experienced pre-tax losses of $(139,794) and $(465,572) for the
fiscal years 1999 and 1998, respectively, and pre-tax income of $190,982 for
fiscal 1997.
Financial Condition and Liquidity
For the nine month period ended May 31, 2000, operating activities
generated $138,000 in cash. This compares to the consumption of cash of
$(156,000) for the corresponding period of the prior year. $1,100,000 was
generated by the issuance of 400,000 additional shares of our stock, while we
purchased $1,500,000 of producing and non-producing properties. In addition, we
drew $500,000 on our $1,400,000 line of credit arrangement during the nine
months ended May 31, 2000.
During the fiscal year ended August 31, 1999, we utilized approximately
$584,000 of the proceeds we received from the issuance of common stock, together
with approximately $500,000 in short-term and long-term borrowings, toward the
purchase and development of producing properties. In addition, we expended
$189,000 towards the purchase of nonproducing leases. The acquisitions
decreased working capital by $202,000 at the end of fiscal year 1999 compared to
the end of fiscal 1998.
Operating activities generated cash of $96,000 during fiscal 1999, as
compared to the consumption of cash of $180,000 during 1998, and $37,000 of cash
generated in 1997. We are engaged in an on-going strategy of eliminating those
expenditures it feels are non-essential.
We continued our strategy of increasing our holdings of oil and gas
properties, increasing our capitalized position in those assets by $1,500,000
during the nine months ended May 31, 2000, $1,160,000 in 1999, $597,000 in 1998,
and $498,000 in 1997. The increase in capitalized expenditures was primarily in
support of our goal to increase reserves, production and revenues through low
risk developmental drilling, workovers, and acquisitions.
We use a $1,400,000 line of credit arrangement in meeting our short-term
operating needs, an increase in availability over our previous limit of
$500,000. We owed $308,000 and $-0- on this line of credit at the end of fiscal
years 1999 and 1998, respectively, and we owed $500,000 as of May 31, 2000. In
addition, we owed $201,000 on long term borrowing at the end of 1999.
Subsequent to year end, we paid off the balance of the long-term debt.
Our primary financing objective is to maintain a conservative balance
sheet, defined as using appropriate levels of equity and long-term debt to
finance noncurrent assets and permanent working capital needs.
Year 2000 Compliance
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs traditionally
have used two digits rather than four digits to define an applicable year. As a
consequence, any of our computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing interruption of
operations, including temporary inability to perform accounting functions and to
send joint invoices and delays in the receipt of payments
14
<PAGE>
from purchases of oil and gas production. During 1999, we spent approximately
$7,200 to purchase three new computers and software. One of these computers was
to replace a computer with potential year 2000 problems. We have not
experienced any year 2000 problems with our systems or with outside vendors.
However, as part of our continuing contingency plan, we perform periodic backups
of our computer files and retain paper copies of important data. Additionally,
other purchasers for our production and vendors have been identified in the
event that a significant purchaser or vendor is disrupted by a year 2000
failure.
BUSINESS AND PROPERTIES
Overview
Double Eagle Petroleum and Mining Co., which was formed on January 13,
1972, explores for, develops, produces and sells crude oil and natural gas. We
concentrate our activities in areas in which we believe we have accumulated
detailed geologic knowledge and developed significant management experience.
Current areas of exploration and development focus include the Moxa Arch in
southwestern Wyoming, the Powder River Basin in northeastern Wyoming, the
Washakie Basin in south central Wyoming, the Wind River Basin in central
Wyoming, and the Christmas Meadows area in northeastern Utah. As of August 31,
1999, we owned interests in a total of 283 producing wells, with oil
constituting approximately 26 percent and natural gas constituting approximately
74% of our production for the year ended August 31, 1999 (calculated assuming
six thousand cubic feet of gas production equals one barrel of oil production).
We also have undeveloped acreage in other basins and are evaluating the
possibility of additional activity in other areas. See "_ Principal Areas Of
Oil And Gas Activity".
Business Strategy
Our strategy is to increase our cash flow and oil and gas reserves by
developing and marketing oil and gas prospects. Upon marketing a prospect to
another entity, we will attempt to receive a promoted or carried interest in the
initial well for the prospect. We will then participate proportionately in the
drilling of any development wells on the prospect. In prior years, we had
undertaken to assemble a large acreage position and sell it to others while
retaining a royalty position. By attempting to direct our focus to generation
of geologic prospects with a promoted interest at the exploratory phase and a
participating interest at the development stage, we are now utilizing more
resources for drilling rather than for lease acquisition. In this manner, we
believe that in a shorter time period we will be exposed to a greater number of
opportunities to increase reserves and cash flow.
During fiscal 1999 and 2000, we evaluated a number of oil and gas producing
properties for acquisition. These acquisitions can provide a way for us to grow
and these efforts are intended to continue during fiscal 2001. Our staff will
continue to attempt to balance these efforts together with our exploration and
development plans.
We own varying interests in our oil and gas prospects. These interests and
prospects are described below under "_ Principal Areas Of Oil And Gas Activity".
During fiscal 2001, we intend to develop our prospects utilizing our cash
balances together with cash flow from operations and sales of a portion of our
interests to industry partners. If our available cash from operations or from
sales of interests to industry partners are lower than anticipated, our
activities may be limited to a lower level than planned. We anticipate that any
limitations on our activities would include expending smaller amounts in our
principal areas of activity, attempting to sell a larger portion of our
interests in our prospects, and retaining a royalty interest or a smaller
working interest in those prospects that we believe we would be able to retain
if we were not limited by our available cash.
15
<PAGE>
We focus our efforts on exploration for and development of natural gas
reserves, which constitute 80% of our total existing reserves at August 31, 1999
(and approximately 74% of our production for the year ended August 31, 1999).
During the past few years, this resource has proven to be more stable in price
than its crude oil counterpart and, with greater industry popularity, it gives
us more flexibility in marketing our prospects. Furthermore, our acreage
holdings are located in those Rocky Mountain Basins which, according to the
United States Geological Survey, hold a large percentage of the known
undeveloped natural gas resources in the Continental United States.
We have worked to assemble an array of exploration and development projects
that range from offset locations of existing fields to high risk "wildcat"
ventures with enormous potential. We intend to use our available investment
dollars on projects having lower risk and to seek to find industry partners to
pay for the development of the higher risk plays. This strategy is intended to
provide us and our stockholders with exposure to virtually all types of plays in
the oil and gas business.
Acreage By Wyoming Geologic Basin (At August 31, 1999):
Gross Acres
-----------
Wind River Basin 20,083
Powder River Basin 22,074
Washakie Basin 67,510
Green River Basin 10,796
Principal Areas Of Oil And Gas Activity
Wind River Basin
Located in central Wyoming, the Wind River Basin is home to Wyoming's first
oil production, which began in 1884. Since that time, numerous fields have been
discovered in the Basin, including two world class natural gas accumulations in
the last five years, the Madden Anticline and the Cave Gulch Fields. We have
interests in 20,083 gross acres of leases in this Basin.
Madden Anticline
------ ---------
The Madden Anticline encompasses two producing oil and gas fields, the
Madden and Long Butte Fields, 100 miles west of Casper in Central Wyoming.
The Madden Field: In July 2000, the Madden Field produced over 224 million
cubic feet of gas per day from seven different formations at depths of 3,000 to
25,000 feet. At this rate, the field will produce over 80 billion cubic feet of
gas per year, which at the current sales price of approximately $4 per thousand
cubic feet, equates to 320 million dollars in annual gas sales. The unit's
primary operator, Burlington Resources, plans to increase the capacity of the
Lost Cabin gas plant to process deep, sour gas from 130 million to 310 million
cubic feet per day for start-up in 2002. In August 2000, a new pipeline capable
of moving at least 250 million cubic feet of gas per day was completed by
Burlington and Enron.
Our drilling plans are to develop the sweet gas in the shallow Lower Fort
Union pay sands at approximately 6,000 feet and the sour gas from the deep
Madison pay interval at approximately 25,000 feet. In 1997, the Big Horn #4-36
well, in which we have no interest, was completed in the Madden Field with a
capable open flow of over 200 million cubic feet of gas per day from the Madison
Formation at a depth of over 24,000 feet. As a result, estimates of proved
reserves for the Madison reservoir exceeded one trillion cubic feet. In 1999,
Burlington drilled the Big Horn #5-6 well, in which we have no interest. This
well was completed for a calculated open flow of 162 million cubic feet per day
from the
16
<PAGE>
Madison at a depth of over 24,000 feet. Reserve estimates were increased to two
trillion cubic feet. Burlington currently is drilling the Big Horn #6-27 to
test the Madison adjacent to our leasehold and estimates that, if this well is
successful, reserves could be as high as seven trillion cubic feet. The Big
Horn #6-27 was at a depth of 21,300 feet as of September 1, 2000 and should
reach the Madison prior to the end of October 2000. Some of our leasehold
interest appears to be structurally even with the Big Horn #6-27 well and will
be proved productive in the Madison, if this well is successful. That event
would significantly affect our proved reserves. Burlington has stated that
results of the Big Horn #6-27 may prompt Burlington to add a second rig to
further accelerate development of the field. Each of these deep wells is
expected to cost approximately $30 million to drill and complete.
The less expensive development program for the much shallower sands is
proceeding rapidly on and around our leasehold. We have drilled two wells and
recompleted a third in the shallower pay sands. These wells appear to have
multiple pays from 3,000 to 14,000 feet in depth. The Allen #1 well currently
is producing 800 mcf per day from 11,700 feet. The Leonard #1-24 has tested in
excess of 2,000 mcf per day from 13,300 feet and should begin gas sales in
September 2000. The Lloyd #1-26 well has been drilled and is awaiting
completion in a pay sand at 6,300 feet during September 2000. An additional 10
to 35 development locations are available on our leasehold to develop the pay at
6,300 feet. We plan to operate these wells and have 20 to 40 percent working
interest in each of these locations. These shallow wells are expected to cost
less than $750,000, $250,000 net to our interest, to drill and complete. We and
Burlington are experimenting with drilling and completion techniques to more
effectively exploit this shallow pay. Some of the older wells have recovered in
excess of 40 billion cubic feet from this shallow reservoir and represent an
extremely economic target.
Long Butte Field: Long Butte Field produced over 5 million cubic feet of
gas per day in July 2000 from two producing formations. The field is located on
the west end of Madden Anticline and appears capable of production in several
formations in addition to those being developed in Madden Field. The deep
Madison and shallow Lower Fort Union pays have not been developed yet at Long
Butte Field. A 3-D seismic survey has been acquired and additional development
is anticipated within the next couple of years. We own between 2 and 8.3325
percent working interest in 1,474.28 gross acres at Long Butte.
Cave Gulch Field
---- ----- -----
Cave Gulch Field is located 45 miles west of Casper in Natrona County,
Wyoming. The Field, which is only three square miles in aerial extent, was
discovered by Barrett Resources Corporation in 1994 as Barrett drilled to new
formations in the Waltman Field. Today, the Cave Gulch and Waltman Fields have
produced over 220 billion cubic feet of natural gas. Barrett's most prolific
well, the #1-29 well, blew out after producing more than 6 billion cubic feet of
natural gas in only seven months on line. We have acquired the rights to a
farmout and will drill and earn 2% working interest before payout and 1% working
interest after payout in the Barrett Resources #4-19 well, which is a direct
offset to the #1-29. The #4-19 wellbore was used to kill the blow out. Barrett
currently is attempting a completion in the Muddy Formation at the #4-19 well.
If Barrett is unsuccessful in the Muddy, it is anticipated that it will attempt
a completion in the shallower Frontier Formation.
Waltman Field
------- -----
The Waltman Field is a producing gas field in central Wyoming,
approximately 45 miles west of Casper in Natrona County. The Field is adjacent
to and south of the Cave Gulch Field. We own a 40% working interest in 1,200
gross acres. To date, we have participated in three wells on these leases. The
best success was the Marathon operated Waltman #21-19 Well, which was drilled in
January 1997 and has produced over 1.3 billion cubic feet of gas. We own a 20%
working interest in the well. We also
17
<PAGE>
participated in two other wells on the leases, but encountered depleted gas
sands at both sites. Chevron currently is developing deeper pay sands and
additional drilling may occur in the next twelve months on our leasehold.
South Sand Draw
----- ---- ----
The South Sand Draw Field is located in the southern portion of the Wind
River Basin approximately 36 miles south of Shoshone, Wyoming. We have been
acquiring leases near the Field for five years and currently have 1,500 acres
under lease, in which our working interest is 75%. In October 1999, we and our
partner acquired the final lease and plan to drill a 6,500 foot test in October
2000. If successful, we plan to drill several wells to evaluate as many as
seven potential zones in the Field which have been identified by a nine square
mile 3-D seismic survey. In the new well, we will have a 75% working interest
before payout and 63.75% working interest after payout.
Government Bridge/Tipps/Schrader Flats Fields
---------- --------------------- ----- ------
These three producing oil fields are located approximately 15 miles west of
Casper in Natrona County, Wyoming. On November 24, 1998, we and our partners
purchased interests in the fields. We now own a 25% working interest in the
three fields' 24 wells (130 gross barrels of oil per day) and 11,500 acres of
surrounding leases. We believe this production (32.5 barrels of oil per day net
to our interest) has complemented our production base. Over the past year, two
wells have been recompleted with one previously shut-in well now producing 14
barrels per day. A secondary recovery plan is still being considered to raise
reservoir pressures and enhance production. We and our partners are evaluating
more geological data and interpreting a four square mile 3-D seismic survey
before initiating any new drilling projects.
WASHAKIE BASIN
Eastern Washakie Basin Coal Bed Methane Project
------- -------- ----- ---- --- ------- -------
This area is a 40 mile trend located north of the town of Baggs in Carbon
County, Wyoming. In the past 30 years, this area has seen a good deal of
exploration evaluating zones from 5,000 -10,000 feet in depth. Recently, though,
this area has been the scene of the newest coalbed methane play in Wyoming. The
coal seams in this area differ from those found in the Powder River Basin in
that they are thinner zones, but with excessive gas content much like the coal
zones found in the Raton Basin of Southeastern Colorado. We have acquired
working interests ranging from 25% to 100% in 39,000 acres in this play. A total
of 116 coalbed methane wells have been staked by other operators in the area.
Some of these wells are direct offsets to our acreage. We have established
production from the coals in two re-completions at Cow Creek Field as described
in the following section.
Cow Creek Field
--- ----- -----
We acquired the Cow Creek Field from KCS Mountain Resources in April 1999.
The Field has three producing gas wells. We operate the wells and own a 100%
working interest. The Cow Creek #1-12 is producing 140,000 cubic feet of gas per
day from the Dakota and Frontier Formations at 8,000 feet. Two wells have been
re-completed in the Mesaverde coals and are producing at a combined rate of
140,000 cubic feet per day. These are the only producing coal bed methane wells
known to us in southwestern Wyoming where the United States Geological Survey
has calculated a resource of 314 trillion cubic feet of natural gas in the
Mesaverde coals. Four additional locations have been staked and are awaiting
approval from the Bureau of Land Management. If approval is granted in time,
these four
18
<PAGE>
coalbed wells will be drilled in October 2000. The plan is to core the coal
section in at least one well to obtain desorption data and will allow us to
calculate reserves for these wells.
Wild Cow Field
---- --- -----
We purchased a 22.5% working interest in two sections (1,280 acres) in the
Wild Cow Field in September 1999 from private interests. This acreage has one
producing gas well, which produces 100,000 cubic feet per day from the Niobrara
Formation, and one shut-in well. The Field's operator, Merit Energy, is
developing proposals to enhance the production. In addition, we have entered
into discussions with Merit to initiate a coalbed methane project centering on
the two sections which, like Cow Creek Field, sit atop a closed geological
structure.
GREEN RIVER BASIN
Located in southwestern Wyoming, the Greater Green River Basin has been a
prolific gas producing basin for decades. We own an interest in over 30,000
acres of leases in this Basin.
Pinedale Anticline - Mesa Unit
-------- --------- ---- ----
This area is in southwestern Wyoming, 10 miles south of the town of
Pinedale. In the late 1960s, a subsidiary of Questar Corporation, Wexpro,
drilled three wells in the Mesa Unit. The wells encountered gas but the tight
formations would not yield gas at a commercial rate. The area sat idle until
late 1997 when a new operator, Ultra Petroleum, drilled three wells and used new
fracture/stimulation techniques developed 20 miles southeast in the prolific
Jonah Field. The production rates were substantially greater than prior efforts.
Wexpro's sister company, Questar Exploration, recently took over operations from
Ultra on the former Mesa Unit lands and began an aggressive development project.
Two of the first three wells in this project are being drilled on our leasehold.
The first well drilled by Questar, the Mesa #3, reached a total depth of 13,055
feet on October 4, 1999. The Mesa #3 and the subsequent Mesa #6 well were both
completed with initial production rates in excess of 11 million cubic feet per
day. In this area, we have between a 6.25% and 12.5% working interest, in these
wells, depending on the depths from which the gas is produced, and a 1.56%
overriding royalty. On August 16, 2000, Questar began drilling the Stewart
Point 5-20 well on acreage on which we have a 10% carried working interest. On
September 5, 2000, the well was drilling at a depth of 10,243 feet, carrying a
gas flare and headed for a proposed total depth of 12,971 feet. Questar has
five rigs working in the area and plans to drill 8 to 10 wells in the year 2000.
We entered this area in 1991, acquiring working and overriding royalty
interests from Arco. We also acquired undeveloped leasehold which we sold to
Ultra in 1997, retaining an override. In September 1998, we acquired additional
working interests from KCS Mountain Resources. Today, we have working interests
or overriding royalty interests in 5,073 acres.
POWDER RIVER BASIN
The Powder River Basin is located in the northeastern part of Wyoming.
Today, the Basin is one of the most prolific basins in the Rocky Mountain Region
for the production of oil. The Basin is also the largest producer of coal in
the United States. In the last year, the Basin has hosted the largest oil and
gas play in North America, the Coal Bed Methane play. Some 30,000 wells are
planned over the next ten years, with most wells proposed to drill to depths of
500 to 2,500 feet. Current recovery predictions are as high as 500 million
cubic feet per well and spacing is as tight as one well per 40 acres. We own an
interest in 22,074 acres of leases and 8,080 acres of minerals in the Powder
River Basin.
19
<PAGE>
Buffalo Prospect (Coal Bed Methane)
------- -------- ----- --- --------
We acquired a 66% working interest in leases covering 9,028 acres in the
coal bed methane play near Buffalo, Wyoming. This play is based on drilling by
Texaco, which planned to mine the coal in 1990. Michiwest Energy, J.M. Huber
and Redstone Energy have drilled over 50 coal bed gas wells near our leasehold
and are awaiting pipeline capacity. We will attempt to either sell the leases
or bring in another company on a promoted basis to drill the initial test wells
and acquire additional acreage.
ROCKY MOUNTAIN OVERTHRUST
The Rocky Mountain Overthrust runs from Canada to Mexico and consists of
many traps created as the Pacific Continental plate was thrust on the
Continental Plate. Traps creating oil and gas fields have been located
primarily in Canada and Wyoming, where billion barrel oil equivalent fields have
been discovered since the 1970s. The region is still relatively unexplored
because, despite gigantic reserve potential, exploration in this area is very
expensive and risky, and seismic data has not been very reliable.
Christmas Meadows Prospect
--------- ------- --------
This prospect is on the north slope of the Uinta Mountains in northeastern
Utah, 30 miles south of Evanston, Wyoming. While shooting a regional seismic
grid in the 1970s, Gulf noted a large dome on one of the seismic lines.
Subsequent seismic by Gulf, American Quasar, Amoco, Chevron and others has
defined the dome. Amoco staked a well location to test the structure in 1980
but they gave up trying to get a drilling permit in 1982. Chevron then staked a
well and fought to get the necessary permits until 1994 when they gave up and
turned the project over to Amerac, who designated us as its agent. We received
a drilling permit in the summer of 1995 and began building the road to the
location with our partners, Prima Oil & Gas and John Lockridge. Amerac, Chevron
and Judy Yates farmed out their interests to us, Prima and Lockridge. One key
to getting this well drilled is the resolution by the United States Forest
Service of an unleased 400 acre tract of land next to the drillsite. On April
1, 1999, the Interior Board of Land Appeals (IBLA) decided in favor of us and
our partners, "that the close proximity of the unleased tract to the drillsite
prevented them from developing the project". As a result of the IBLA decision,
we asked for the unleased tract to be offered for lease. We also asked the
Forest Service to designate a time in the year 2000 when we could begin final
construction of the road and location. The Executive Order by President Clinton
affecting Roadless Areas near the National Forests could actually have a
positive impact on the project as it could precipitate a final decision
concerning the unleased tract. We have advocated this position for many years.
We hold a 3.82% working interest as well as a 25% interest in the farmout from
Chevron, Amerac and Yates on the lands in this 23,000 acre Table Top Unit. A
decision on the roadless area acres has been promised in December 2000. We
intend to persevere on this project until it is completed.
Production
The table below sets forth oil and gas production from our net interests in
producing properties for each of our last three fiscal years.
20
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<TABLE>
<CAPTION>
Oil and Gas Production
Year ended, August 31,
1999 1998 1997
<S> <C> <C> <C>
Quantities
Oil (Bbls) 21,530 10,591 17,331
Gas (Mcf) 379,306 284,648 222,628
Average Sales Price
Oil ($/Bbl) $12.95 $14.47 $21.23
Gas ($/Mcf) $1.75 $1.85 $1.19
Average Production Cost $3.34 $3.15 $2.47
($/BOE)
</TABLE>
Our oil and gas production is sold on the spot market and we do not have
any production that is subject to firm commitment contracts. During the year
ended August 31, 1999, purchases by each of six customers, Equiva Trading &
Transportation, Inc., Summit Energy, Credo Petroleum Corporation, Marathon Oil
Company, Continental Industries and BP Amoco represented more than 10 percent of
our total revenues. We do not have firm sales agreements with any of these six
customers, or any other customer. We believe that we would be able to locate
alternate customers in the event of the loss of one or more of these customers.
Productive Wells
The following table categorizes certain information concerning the
productive wells in which we owned an interest as of August 31, 1999.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
OIL GAS
Gross Net Gross Net
<S> <C> <C> <C> <C>
COLORADO ----- ----- 2 .059
MISSISSIPPI 2 .0009 ----- -----
MONTANA 2 .096 ----- -----
NORTH DAKOTA 14 .0974 ----- -----
OKLAHOMA ----- ----- 1 -----
UTAH ----- ----- 1 .02
WYOMING 79 5.728 182 4.54
-- ----- --- ----
TOTAL 97 5.9223 186 4.619
</TABLE>
Drilling, Acquisitions And Reserve Replacement Costs
During the three years ended August 31, 1999, we added proved reserves from
acquisitions, extensions, discoveries and reserve revisions of approximately
495,305 BOE. Capital expenditures during this period were approximately
$2,254,005, resulting in an average annual reserve replacement cost of
approximately $4.45 per BOE over that three year period.
We drilled or participated in the drilling of wells as set forth in the
following table for the periods indicated. In certain of the wells in which we
participate, we have an overriding royalty interest and no working interest.
21
<PAGE>
<TABLE>
<CAPTION>
WELLS DRILLED
Year Ended August 31,
1999 1998 1997
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Oil 0 0 0 0 0 0
Gas 0 0 0 0 0 0
Dry Holes 1 .25 1 .2215 3 .4725
Subtotal 1 .25 1 .2215 3 .4725
Development
Oil 1 .025 0 0 8 .005
Gas 3 .2376 8 .348 4 .21
Dry Holes 0 0 3 1.037 0 0
Subtotal 4 .2626 11 1.385 12 .215
TOTALS 5 .5126 12 1.6065 15 .6875
</TABLE>
All our drilling activities are conducted on a contract basis with
independent drilling contractors.
Reserves
The following reserve related information for the years ended August 31,
1999, 1998, and 1997 is based on estimates we prepared. Our reserve estimates
are developed using geological and engineering data and interests and burdens
information we developed. Reserve estimates are inherently imprecise and are
continually subject to revisions based on production history, results of
additional exploration and development, prices of oil and gas, and other
factors. The notes following the table should be read in connection with the
reserve estimates.
<TABLE>
<CAPTION>
Estimated Proved Reserves (1)(2)
At August 31,
1999 1998 1997
<S> <C> <C> <C>
Proved Developed Oil Reserves (Bbls) 152,169 90,911 180,526
Proved Undeveloped Oil Reserves (Bbls) --------- --------- ---------
Total Proved Oil Reserves (Bbls) 152,169 90,911 180,526
Proved Developed Gas Reserves (Mcf) 4,090,010 3,507,986 2,757,188
Proved Undeveloped Gas Reserves (Mcf) --------- --------- ---------
Total Proved Gas Reserves (Mcf) 4,090,010 3,507,986 2,757,188
Total Proved Crude Oil Equivalents (BOE) (3) 833,837 675,575 640,057
Present Value Of Estimated Future Net Revenues
before income taxes discounted at 10% $4,791,302 $3,976,153 $3,872,440
---------------
<FN>
(1) Our annual reserve reports are prepared as of August 31, which is the last
day of our fiscal year.
22
<PAGE>
(2) The present value of estimated future net revenues as of each date shown
was calculated using oil and gas prices as of that date.
(3) Gas is converted to barrel of oil equivalent at the rate of 6,000 cubic
feet of gas for one barrel of oil.
</TABLE>
Reference should be made to the supplemental oil and gas information
included in the notes to the financial statements in this prospectus for
additional information pertaining to our proved oil and gas reserves as of the
end of each of the last three fiscal years.
Acreage
The following tables set forth the gross and net acres of developed and
undeveloped oil and gas leases in which we had working interests and royalty
interests as of August 31, 1999. The category of "Undeveloped Acreage" in the
tables includes leasehold interests that already may have been classified as
containing proved undeveloped reserves.
<TABLE>
<CAPTION>
WORKING INTERESTS
Developed Undeveloped
Acreage (1) Acreage (2) Total
STATE GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C>
MONTANA 29 1 8,020 4,812 8,049 4,813
NORTH DAKOTA 3,176 79 3,176 79
UTAH 637 16 69,693 6,084 70,330 6,100
WYOMING 81,672 7,535 108,430 68,456 190,102 75,991
TOTAL 85,514 7,631 186,143 79,352 271,657 86,983
</TABLE>
<TABLE>
<CAPTION>
ROYALTY INTERESTS
Developed Undeveloped
Acreage (1) Acreage (2) Total
STATE GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C>
COLORADO 155 5 6,448 177 6,603 182
MISSISSIPPI 2 0 0 0 2 0
MONTANA 291 15 0 0 291 15
NORTH DAKOTA 1,380 67 0 0 1,380 67
OKLAHOMA 0 0 0 11 0
UTAH 0 0 2,240 90 2,240 90
WYOMING 15,185 386 25,540 979 40,725 1,365
TOTAL 17,024 473 34,228 1,246 51,252 1,719
---------------
<FN>
(1) Developed acreage is acreage assigned to producing wells for the spacing
unit of the producing formation. Developed acreage in certain of our
properties that include multiple formations with different well spacing
requirements may be considered undeveloped for certain formations, but have
only been included as developed acreage in the presentation above.
23
<PAGE>
(2) Undeveloped acreage is lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains
proved reserves.
</TABLE>
Substantially all of the leases summarized in the preceding table will
expire at the end of their respective primary terms unless the existing leases
are renewed or production has been obtained from the acreage subject to the
lease prior to that date, in which event the lease will remain in effect until
the cessation of production. The following table sets forth the gross and net
acres subject to leases summarized in the preceding table that will expire
during the periods indicated:
<TABLE>
<CAPTION>
Acres Expiring
Gross Net
<S> <C> <C>
Twelve Months Ending:
December 31, 1999 8,036 5,755
December 31, 2000 7,424 5,626
December 31, 2001 3,640 2,256
December 31, 2002 and later 167,043 65,715
</TABLE>
MINING ACTIVITIES
Zeolite
-------
Since 1972, we have owned mining claims covering 320 acres of land in
Lander County, Nevada and 640 acres of land in Owyhee County, Idaho, which
because of natural outcrops, other sampling and analysis are believed to overlie
significant deposits of clinoptilolite, which is one of 34 naturally occurring
zeolites. Although the existence of these deposits has been indicated for some
time, no commercially significant mining operations have been conducted on our
claims because significant markets for zeolites have not yet been developed.
Zeolites currently are utilized commercially for small consumption items such as
cat litter, deodorant and aquarium filter material, but the amount of
consumption from these markets has not justified large scale production to date.
In 1999, we held several discussions with possible markets for zeolite,
including the clean up effort at the Hanford Nuclear Site as a water filtration
component, a Potash mine in Idaho as a bedding for tailing piles, and a swine
farm as a feed amendment to enhance animals' health and digestion system and to
reduce odors. We intend to continue our efforts to find a large industrial use
for our zeolites.
24
<PAGE>
MANAGEMENT
Directors And Executive Officers
Directors And Executive Officers
<TABLE>
<CAPTION>
Our directors and executive officers are as follows:
Name Age Positions
---- --- ---------
<S> <C> <C>
Stephen H. Hollis 50 Chairman Of The Board; President, Treasurer
and Director
D. Steven Degenfelder 43 Vice President
Carol A. Osborne 48 Secretary
Thomas J. Vessels 50 Director
Ken M. Daraie 41 Director
</TABLE>
(1) We agreed to cause Thomas J. Vessels to be elected to the Board of
Directors. See "Certain Relationships And Related Transactions."
Stephen H. Hollis has served as our President and Chief Executive Officer
since January 1994 and previously served as a Vice-President from December 1989
through January 1994. Mr. Hollis has served as a Director since December 1989.
Mr. Hollis has served as the Vice-President of Hollis Oil & Gas Co., a small oil
and gas company, since January 1994 and served as the President of Hollis Oil &
Gas Co. from June 1986 through January 1994. Mr. Hollis was a geologist for an
affiliate of United Nuclear Corporation from 1974 to 1977 and a consulting
geologist from 1977 to 1979. In 1979, Mr. Hollis joined Marathon Oil Company
and held various positions until 1986, when he founded Hollis Oil & Gas Co. Mr.
Hollis is a past President of the Wyoming Geological Association. Mr. Hollis
received a B.A. Degree in Geology from the University of Pennsylvania in 1972
and a Masters Degree in Geology from Bryn Mawr College in 1974.
Mr. Degenfelder has served as our Vice-President since February 1998. Mr.
Degenfelder began his career in the oil and gas business as a roustabout in the
oil fields of southeast New Mexico. After graduating from college, he held
various land positions with Marathon Oil Company from 1979 to 1981, Paintbrush
Petroleum Corporation from 1981 to 1985, Tyrex Oil Company from 1985 to 1995 and
the Wyoming Office of State Lands and Investments from 1995 to 1997. Mr.
Degenfelder is a Certified Professional Landman and received his degree in
Business Administration from Texas Tech University in 1979. He is a member of
the American Association of Professional Landmen and is past president of the
Wyoming Association of Professional Landmen.
Carol A. Osborne has served as our Secretary since January 1996 and
previously served as our Assistant Secretary from December 1989 until January
1996. In addition, Ms. Osborne has served as the Company's Office Manager since
1981.
Thomas J. Vessels has served as a Director of the Company since January
1999. He has served since October 1997 as the Managing Partner of Tundra
Resources, LLC, a Denver, Colorado investment company that invests and
facilitates investments in the Rocky Mountain region. Mr. Vessels served as
25
<PAGE>
Chairman of the Board of Vessels Energy, Inc., formerly Vessels Oil & Gas Co.,
from 1995 until the sale of that company in March 1998. Mr. Vessels also served
as President and Chief Executive Officer of Vessels Energy, Inc. from 1984 until
1995. Vessels Energy Inc. was involved in natural gas and oil production and
exploration as well as gas processing and marketing. Mr. Vessels is on the
Board of the Colorado Oil & Gas Association, a current member of Colorado
Minerals, Energy, Geology Policy Advisory Board, past President of the
Independent Petroleum Association of Mountain States and past President of the
Colorado Petroleum Association. Mr. Vessels received his B.A. degree from
Gonzaga University in Spokane, Washington in 1972.
Ken M. Daraie has served as a Director of the Company since February 1997.
Mr. Daraie began his career with Sun Exploration and Production Co. as a
Petroleum Engineer from 1982 to 1990. In 1990, he joined Conoco, Inc., in
Casper, where he held engineering positions until 1994. From 1994 to 1995, Mr.
Daraie worked for the Fluor Daniel Corporation and Barlow & Haun, Inc. as
Project Manager and General Manager, respectively. In 1995, Mr. Daraie founded
Continental Industries, LC, an independent oil and gas production/service
company, where he currently serves as President. Mr. Daraie is a past Chairman
of the Board of Energy West Federal Credit Union and currently serves on the
Casper Planning and Zoning Commission. Mr. Daraie received a Bachelor's Degree
in Physics from Baylor University in 1979 and a Bachelor of Science Degree in
Petroleum Engineering from the University of Texas in 1982.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our directors, executive officers, and holders of more
than 10% of our common stock to file with the Securities And Exchange Commission
initial reports of ownership and reports of changes in ownership of our common
stock and other equity securities. We believe that during the fiscal year ended
August 31, 1999, our officers, directors and holders of more than 10% of our
outstanding common stock complied with all Section 16(a) filing requirements.
In making these statements, we have relied upon the written representations of
its directors and officers.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth in summary form the compensation received
during each of our last three completed fiscal years by each of our Chief
Executive Officer and President. No employee of our received total salary and
bonus exceeding $100,000 during any of the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
Fiscal Long-Term Other Annual
Year Salary Bonus Compensation- Compen-
Principal Position Ended ($)(1) ($) Options (#) sation ($)
-------------------- ----- ---------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen H. Hollis, 1999 $65,000 -0- 36,500 -0-
Chief Executive
Officer and President 1998 $72,000 $20,100 50,000 -0-
1997 $72,700 -0- 50,000 -0-
<FN>
(1) The dollar value of base salary (cash and non-cash) received.
</TABLE>
26
<PAGE>
Option Grants Table
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended August 31, 1999 to our Chief
Executive Officer and President. See "_ Stock Option Plans".
<TABLE>
<CAPTION>
Option Grants For Fiscal Year Ended August 31, 1999
---------------------------------------------------
% of Total
Options Granted
Options to Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Stephen H. Hollis, 36,500 37.8% $1.328125 1/20/2002
Chief Executive Officer
and President
</TABLE>
Aggregated Option Exercises And Fiscal Year-End Option Value Table.
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended August 31, 1999 by our Chief
Executive Officer and President, and the fiscal year-end value of unexercised
options held by the Chief Executive Officer and President.
<TABLE>
<CAPTION>
Aggregated Option Exercises
For Fiscal Year Ended August 31, 1999
And Year-End Option Values
Value of
Unexercised
Number of In-The-Money
Unexercised Options at
Options at Fiscal Fiscal Year-End
Year-End (#)(3) ($)(4)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) (1) Realized ($)(2) Unexercisable Unexercisable
----- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Stephen H. Hollis, 0 0 136,500/0 $136,523/$0
Chief Executive Officer
and President
____________________
<FN>
(1) The number of shares received upon exercise of options during the fiscal
year ended August 31, 1999.
(2) With respect to options exercised during our fiscal year ended August 31,
1999, the dollar value of the difference between the option exercise price
and the market value of the option shares purchased on the date of the
exercise of the options.
27
<PAGE>
(3) The total number of unexercised options held as of August 31, 1999
separated between those options that were exercisable and those options
that were not exercisable.
(4) For all unexercised options held as of August 31, 1999, the aggregate
dollar value of the excess of the market value of the stock underlying
those options over the exercise price of those unexercised options, based
on the bid price of common stock on August 31, 1999. The closing bid price
for the common stock on August 31, 1999 was $2.50 per share.
</TABLE>
Stock Option Plans
The 1993 Stock Option Plan. In November 1992, our Board Of Directors
--------------------------
approved our Stock Option Plan (1993) (the "1993 Plan"), which subsequently was
approved by our stockholders. Pursuant to the 1993 Plan, we may grant options
to purchase an aggregate of 200,000 shares of common stock to key employees,
including officers and directors who are salaried employees who have contributed
in the past or who may be expected to contribute materially in the future to our
successful performance. The options granted pursuant to the 1993 Plan are
intended to be incentive options qualifying for beneficial tax treatment for the
recipient. The 1993 Plan is administered by an option committee that determines
the terms of the options subject to the requirements of the 1993 Plan. At
September 15, 2000, options to purchase 200,000 shares were outstanding under
the 1993 Plan. As a result, no options to purchase additional shares may be
granted under the 1993 Plan.
The 1996 Stock Option Plan. In May 1996, the Board of Directors approved
--------------------------
our 1996 Stock Option Plan (the "1996 Plan"), which subsequently was approved by
the Company's stockholders. Pursuant to the 1996 Plan, we may grant options to
purchase an aggregate of 200,000 shares of common stock to key employees,
directors, and other persons who have or are contributing to our success. The
options granted pursuant to the 1996 Plan may be either incentive options
qualifying for beneficial tax treatment for the recipient or non-qualified
options. The 1996 Plan is administered by an option committee that determines
the terms of the options subject to the requirements of the 1996 Plan. At
September 15, 2000, options to purchase 200,000 shares of common stock were
outstanding under the 1996 Plan so that no additional options may be granted
under the 1996 Plan.
The 2000 Stock Option Plan. In December 1999, the Board of Directors
--------------------------
approved our 2000 Stock Option Plan (the "2000 Plan"), which subsequently was
approved by the Company's stockholders. Pursuant to the 2000 Plan, we may grant
options to purchase an aggregate of 200,000 shares of common stock to key
employees, directors, and other persons who have or are contributing to our
success. The options granted pursuant to the 2000 Plan may be either incentive
options qualifying for beneficial tax treatment for the recipient or non-
qualified options. The 2000 Plan is administered by an option committee that
determines the terms of the options subject to the requirements of the 2000
Plan. At September 15, 2000, options to purchase 80,000 shares of common stock
were outstanding under the 2000 Plan and options to purchase an additional
120,000 shares were available to be granted pursuant to the 2000 Plan.
Compensation Of Outside Directors
Directors of who are not also employees ("Outside Directors") are paid
$400 for each meeting of the Board Of Directors that they attend. In addition,
each Outside Director receives 2,000 shares of common stock each year.
Directors also are reimbursed for expenses incurred in attending meetings and
for other expenses incurred on our behalf. In January 1999, each Outside
Director was granted options to purchase 10,000 shares of common stock for
$1.328125 per share. These options expire January 20, 2002.
28
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We and certain of our directors, officers and stockholders are joint
holders in proved and unproved oil and gas properties. During the normal course
of business, we pay or receive monies and in turn bills or pays the interest
holders for their respective shares. These transactions are immaterial in
amount when compared to our total receipts and expenditures. They are accounted
for as part of the normal joint interest billing function. See also,
"Description Of Business And Properties_ Principal Areas Of Oil And Gas
Activity_ "Moxa Arch", "_ Washakie Basin_ State 1-36 Well", "_ Wind River
Basin_ Madden Anticline", "_ Wind River Basin_ Waltman Field".
In November 1998, we completed a private placement offering of 374,750
units of common stock and common stock purchase warrants for $1.375 per unit.
Each unit consists of one share of common stock and a warrant to purchase one
share of common stock for $1.375 per share until October 16, 2003. We may
redeem the warrants at a price of $.001 per warrant commencing April 2001 if the
common stock trades at a price of at least $3.00 per share for 20 of the 30
trading days preceding the date on which we give notice of redemption. Thomas
J. Vessels and his wife purchased 153,500 of the units and a trust for the
benefit of Mr. Vessels' minor children purchased 1,000 units. In addition, we
entered into a consulting agreement with Mr. Vessels pursuant to which Mr.
Vessels will assist us in locating possible oil and gas transactions in which we
may participate. This agreement was in effect until January 30, 2000. We
agreed to issue to Mr. Vessels options to purchase 36,500 shares of common stock
for $1.375 per share until October 16, 2001 and to reimburse Mr. Vessels for up
to $1,000 per month in expenses incurred in performing services on our behalf.
We also agreed to cause Mr. Vessels to be elected to the Board of Directors and
to nominate Mr. Vessels to serve as a director. Pursuant to this agreement Mr.
Vessels was elected as a director at the annual meeting of shareholders held in
January 1999. Mr. Vessels continues to serve as a director.
Conflicts Of Interest Policies
Our Board of Directors and officers are subject to certain provisions of
Wyoming law which are designed to eliminate or minimize the effects of certain
potential conflicts of interest. In addition, the Board of Directors has
adopted a policy that provides that any transaction between us and an interested
party must be fully disclosed to the Board Of Directors, and that a majority of
the directors not otherwise interested in the transaction (including a majority
of disinterested directors) must make a determination that such transaction is
fair, competitive and commercially reasonable and on terms and conditions not
less favorable to us than those available from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table summarizes certain information as of September 15,
2000 with respect to the beneficial ownership of our common stock (i) by our
directors, (ii) by stockholders known by us to own 5% or more of the common
stock, and (iii) by all officers and directors as a group.
The following table assumes that the persons named do not purchase
additional shares in this offering although this may occur.
29
<PAGE>
<TABLE>
<CAPTION>
As Of September 15, 2000
------------------------
Percentage Of
Class
Name And Address Of Number Of Beneficially
Beneficial Owner Shares Owned
-------------------- ------ -----
<S> <C> <C>
Stephen H. Hollis (5) 621,000(1) 13.1%
2037 S. Poplar
Casper, Wyoming 82601
Ken M. Daraie 26,000(2) *
Thomas J. Vessels 366,500(3) 7.5%
Directors and Officers as a group 1,193,700(1)(2) (3) (4) 22.6%
(Five Persons)
Hollis Oil & Gas Co. (5) 350,000 7.7%
_______________
<FN>
* Less than one percent.
(1) Includes options held by Mr. Hollis to purchase 50,000 shares for $1.75
per share that expire January 23, 2001, options to purchase 36,500 shares
for $1.328125 per share that expire January 20, 2002, options to purchase
50,000 shares for $3.009375 per share that expire January 26, 2003 and
warrants to purchase 21,000 shares for $3.00 per share that expire on
December 17, 2001. In addition to 113,500 shares owned directly by Mr.
Hollis, the table above includes 350,000 shares of common stock owned by
Hollis Oil & Gas Co. Mr. Hollis is an officer, director and 51 percent
owner of Hollis Oil & Gas Co.
(2) Includes options to purchase 10,000 shares for $1.321825 per share that
expire January 20, 2002 and options to purchase 10,000 shares for $3.09375
per share that expire January 26, 2003.
(3) Consists of 78,750 shares held by Mr. Vessels, 76,750 shares held by his
wife, 1,000 shares held by a trust for the benefit of Mr. Vessels' minor
children, warrants to purchase 76,750 shares for $1.375 per share until
October 16, 2003 held by Mr. Vessels, warrants to purchase 76,750 shares on
the same terms held by Mr. Vessels' wife, warrants to purchase 1,000 shares
on the same terms held by the trust for Mr. Vessels' children, options to
purchase 36,500 shares for $1.375 per share until October 16, 2001 held by
Mr. Vessels, options to purchase 10,000 shares for $1.328125 per share
until January 20, 2002 held by Mr. Vessels, and options to purchase 10,000
shares for $3.09375 per share until January 26, 2003 held by Mr. Vessels.
(4) In addition to the shares described in footnotes (1), (2) and (3) above,
the shares owned by Directors and Officers as a Group includes 200 shares
and options to purchase 20,000 shares for $1.75 per share until January
23, 2001, options to purchase 20,000 shares for $1.328125 per share until
January 20, 2002, and options to purchase 20,000 shares for $3.09375 per
share until January 26, 2003 held by Carol Osborne, our Secretary, and
options to purchase 40,000 shares for $1.4375 per share until February 2,
2001, options to purchase 40,000 shares for $1.328125 per share until
January 20, 2002, and options to purchase 40,000 shares for $3.09375 per
share until January 26, 2003 held by D. Steven Degenfelder, Vice President.
(5) The shares owned by Hollis Oil & Gas Company are shown or included as
beneficially owned three times in the table: once as beneficially owned by
Hollis Oil & Gas Company, again under the beneficial ownership of Mr.
Hollis, and also as a part of the shares beneficially owned by Directors
and Officers as a group.
</TABLE>
DESCRIPTION OF SECURITIES
Our authorized capital consists of 10,000,000 shares of $.10 par value
common stock. Our issued and outstanding capital as of September 15, 2000
consisted of 4,817,401 shares of common stock which were held by approximately
1,866 stockholders of record. Also at September 15, 2000, there were warrants
to purchase 1,118,250 shares of common stock outstanding and the underwriter's
warrants to purchase 100,000 shares of common stock and 100,000 warrants
outstanding. The exercise of these warrants is
30
<PAGE>
covered by this prospectus. Warrants to purchase an additional 374,750 shares
that were issued in a private placement in November 1998 also are outstanding.
The following is a description of our common stock and warrants.
Common Stock
Each share of the common stock is entitled to share equally with each other
share of common stock in dividends from sources legally available for the
payment of dividends, when, as, and if declared by the Board of Directors and,
upon our liquidation or dissolution, whether voluntary or involuntary, to share
equally in our assets that are available for distribution to the holders of the
common stock after satisfaction of all liabilities. The holders of common stock
have no preemptive rights, redemption rights or rights of conversion with
respect to the common stock. All outstanding shares of common stock and all
shares to be sold and issued upon exercise of the warrants will be fully paid
and nonassessable by us. The Board of Directors is authorized to issue
additional shares of common stock within the limits authorized by the Articles
Of Incorporation and without stockholder action.
All shares of common stock have equal voting rights of one vote per share
and are not assessable. Cumulative voting in the election of directors is
permitted so that each shareholder has the right to vote the number of shares
owned by that shareholder for as many persons as there are director nominees or
to cumulate that shareholder's shares to give one candidate as many votes as the
director nominees multiplied by the number of shares shall equal, or to
distribute votes on the same principle among as many candidates as the
shareholders shall determine.
The shares of common stock presently outstanding are fully paid and
nonassessable.
We have not paid any cash dividends since our inception.
We have reserved a sufficient number of shares of common stock for issuance
in the event that all the warrants are exercised. In addition, we have reserved
a sufficient number of shares of common stock for issuance upon the exercise of
options under our stock option plans. See "Executive Compensation_ Stock Option
Plans".
Warrants
General. The outstanding public warrants issued in 1996 are in registered
form and are now trading separately from the common stock. Each warrant is
exercisable for one share of common stock at $3.00 per warrant until December
26, 2001. Although there currently is no plan or other intention to do so, the
Board of Directors, in its sole discretion, may extend the exercise period of
the warrants and/or reduce the exercise price of the warrants. It is
anticipated that the Board would make such a modification only if it deemed it
to be in the Company's best interests. Possible circumstances that may lead to
modification of the terms of the warrants, of which there is no assurance, would
include circumstances in which the market price of the common stock is less than
the exercise price of the warrants and the Board would reduce the exercise price
of the warrants in order to encourage their being exercised. This would be based
on the Board's belief that it would be in the Company's best interests to
receive additional capital funds from that source.
The exercise price of the warrants was arbitrarily established and there is
no assurance that the price of the common stock will ever rise to a level where
exercise of the warrants would be of any economic value to a holder of the
warrants.
The warrants included in the underwriter's units issuable upon the exercise
of the underwriter's warrants are identical to the warrants described in this
section, except that the warrants included in the underwriter's units may not be
redeemed. See below, "_ Redemption".
31
<PAGE>
Current Registration Statement Required For Exercise. In order for a
holder to exercise that holder's warrants, there must be a current registration
statement on file with the SEC and various state securities commissions to
continue registration of the issuance of the shares of common stock underlying
the warrants. We intend to maintain a current registration statement during the
period that the warrants are exercisable unless the market price of the common
stock underlying the warrants would create no economic incentive for exercise of
the warrants. If those circumstances were to exist during the entire exercise
period of the warrants, the warrants could expire without the holders having had
an opportunity to exercise their warrants.
The maintenance of a currently effective registration statement could
result in substantial expense, and there is no assurance that we will be able to
maintain a current registration statement covering the shares of common stock
issuable upon exercise of the warrants. Although there can be no assurance, we
believe that we will be able to qualify the shares of common stock underlying
the warrants for sale in those states where the common stock and warrants were
originally offered. The warrants may be deprived of any value if a current
prospectus covering the shares of common stock issuable upon exercise of the
warrants is not kept effective or if the underlying shares are not qualified in
the states in which the warrantholders reside.
Exercise Of Warrants. The warrants may be exercised upon the surrender to
the warrant agent (Computershare Trust Company Incorporated, formerly known as
American Securities Transfer Trust, Inc., in Lakewood, Colorado) of the warrant
certificate on or prior to the expiration of the exercise period, with the form
of "Election To Purchase" on the reverse side of the certificate executed as
indicated, and accompanied by payment of the full exercise price for the number
of warrants being exercised. No rights of a stockholder inure to a holder of
warrants until such time as a holder has exercised warrants and has been issued
shares of common stock. The address for delivering the warrants and exercise
price is as follows: Computershare Trust Company Incorporated, 12039 W.
Alameda Parkway, Suite Z-2, Lakewood, Colorado 80228.
Redemption. Except for the warrants included in the underwriter's units
issuable upon the exercise of the underwriter's warrants, we may redeem the
warrants at any time prior to their exercise or expiration upon 30 days prior
written or published notice, provided however, that the closing bid quotation
for the common stock for at least 20 of the 30 business days ending on the date
of our giving notice of redemption has been at least $4.00 per share. The
redemption price for the warrants will be $.02 per warrant. Any warrant holder
that does not exercise prior to the date set forth in the notice of redemption
will forfeit the right to exercise the warrants and purchase the shares of
common stock underlying those warrants. Any warrants outstanding after the
redemption date will be deprived of any value except the right to receive the
redemption price of $.02 per warrant.
Tax Consequences Of Warrants. For federal income tax purposes, no gain or
loss will be realized upon exercise of a warrant. The holder's basis in the
common stock received will be equal to the holder's cost basis in the warrant
exercised, plus the amount of the exercise price. Any loss realized by a holder
of a warrant due to a failure to exercise a warrant prior to the expiration of
the exercise period will be treated for federal income tax purposes as a loss
from the sale or exchange of property that has the same character as any shares
of common stock acquired from the exercise of the warrants.
Warrant exercise price adjustments, or the omission of such adjustments,
may under certain circumstances be deemed to be distributions that could be
taxable as dividends for federal income tax purposes to holders of the warrants
or the holders of the common stock.
The Internal Revenue Code provides that a corporation does not recognize
gain or loss upon the issuance, lapse or repurchase of a warrant to acquire its
own stock. Therefore, we will not recognize income upon the expiration of any
unexercised warrants.
32
<PAGE>
CERTAIN PROVISIONS OF WYOMING LAW AND OF THE COMPANY'S
ARTICLES OF INCORPORATION
The following paragraphs summarize certain provisions of Wyoming law and of
our Articles Of Incorporation. The summary does not purport to be complete and
is subject to and qualified in its entirety by reference to Wyoming law and the
Articles Of Incorporation for complete information.
Limitations On Changes In Control
The provisions of Sections 17-18-101, et seq., of the Wyoming Business
Corporation Act, which sections are referred to as the "Wyoming Management
Stability Act", could have the effect of delaying, deferring or preventing a
change in control of the Company or the removal of existing management, and as a
result could prevent our stockholders from being paid a premium for their shares
of common stock.
Indemnification Of Directors
Our Articles Of Incorporation provide that we will indemnify each of our
officers and directors against liabilities and expenses incurred in connection
with any action, suit or proceeding to which the officer or director may be made
a party by reason of his or her being an officer or director. Indemnification
is not provided if the officer or director is liable for fraud or misconduct in
any such matter. Although no determination has been made to date, in the future
we may attempt to obtain directors' and officers' liability insurance.
PLAN OF DISTRIBUTION
In order to induce the exercise of the warrants and the underwriter's
warrants covered by this prospectus, we intend to send each holder of warrants
and underwriter's warrants a copy of this prospectus. In addition, we may
attempt to redeem the warrants, other than the warrants included in the
underwriter's units issuable upon exercising the underwriter's warrants, after
our common stock is traded for at least $4.00 per share for 20 of 30 business
days. Because the redemption price is $.02 per share, we believe that by giving
notice of redemption, warrant holders will exercise their warrants rather than
lose their warrants at a nominal price. In addition to sending copies of the
prospectus and/or notice of redemption to the warrant holders, our officers and
directors may contact warrant holders in an effort to persuade them to exercise
their warrants.
SECURITIES AND EXCHANGE COMMISSION POSITION ON CERTAIN
INDEMNIFICATION
The Wyoming Business Corporation Act (the "WBCA") provides for mandatory
indemnification of directors and officers of a corporation in connection with an
action, suit or proceeding brought by reason of their position as a director or
officer if they are wholly successful, on the merits or otherwise, in defense of
the proceeding. The WBCA also allows a corporation to indemnify directors or
officers in such proceedings if the director or officer acted in good faith, in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, in the case of a criminal proceeding, he had no reasonable
cause to believe that his conduct was unlawful.
Our articles of incorporation provide that directors and officers shall be
indemnified for reasonable expenses or liability incurred in connection with any
proceeding to which they are made a party by reason of their status as a
director or officer except if they are adjudged to be liable for fraud or
misconduct.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us under the
foregoing provisions, we have been informed that, in the opinion of the
Securities And Exchange Commission, that indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
33
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
AND CAUTIONARY STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act Of 1933 and Section 21E of the Securities
Exchange Act Of 1934. All statements other than statements of historical fact
included in this prospectus are forward-looking statements. These forward-
looking statements include, without limitation, statements located under
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations_ Financial Condition, Liquidity And Capital Resources", "Business And
Properties_ Business Strategy", "_ Principal Areas Of Oil And Gas Activity", "_
Zeolite Mining Activities", and "_ Reserves", and Note 3 to the financial
statements concerning our financial position and liquidity, the amount of and
our ability to make debt service payments, our strategies, financial
instruments, and other matters. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from our expectations are
disclosed in this prospectus, including without limitation the "Risk Factors"
section and in conjunction with the forward-looking statements included in this
prospectus.
Our intentions and expectations described in this prospectus with respect
to possible exploration and other testing activities concerning properties in
which we hold interests may be deemed to be forward-looking statements. These
statements are made based on management's current assessment of the exploratory
merits of the particular property in light of the geological information
available at the time and based on our relative interest in the property and our
estimate of our share of the exploration costs. Subsequently obtained
information concerning the merits of any property as well as changes in
estimated exploration cost and ownership interest may result in revisions to
management's expectations and intentions and thus we may delete one or more of
these intended exploration activities. Further, circumstances beyond our
control may cause these prospects to be eliminated from further consideration as
exploration prospects.
LEGAL MATTERS
Patton Boggs LLP, Denver, Colorado, has acted as our counsel in connection
with the issuance of common stock upon the exercise of the warrants. Attorneys
with this firm own a total of 31,000 shares of common stock and 31,000 warrants.
EXPERTS
Our audited financial statements appearing in this prospectus have been
examined by Lovelett, Skogen & Associates, P.C. (formerly Lovelett, Hargens &
Skogen, P.C.), independent certified public accountants, as set forth in their
report appearing in this prospectus, and are included in reliance upon that
report and upon the authority of that firm as experts in accounting and
auditing.
CERTAIN DEFINITIONS
Unless otherwise indicated in this prospectus, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located at 60. Fahrenheit. Oil equivalents are determined using the ratio of 10
Mcf of natural gas to one barrel of crude oil, condensate or natural gas liquids
so that 10 Mcf of natural gas are referred to as one barrel of oil equivalent or
"BOE".
As used in this prospectus, the following terms have the following specific
meanings: "Mcf" means thousand cubic feet, "MMcf" means million cubic feet,
"Bbl" means barrel, "MBbl" means thousand barrels, "Mcfe" means thousand cubic
feet equivalent, "MMcfe" means million cubic feet equivalent, and "MMBtu" means
million British thermal units.
34
<PAGE>
With respect to information concerning the Company's working interests in
wells or drilling locations, "gross" gas and oil wells or "gross" acres is the
number of wells or acres in which the Company has an interest, and "net" gas and
oil wells or "net" acres are determined by multiplying "gross" wells or acres by
the Company's working interest in those wells or acres. A working interest in
an oil and gas lease is an interest that gives the owner the right to drill,
produce, and conduct operating activities on the property and to receive a share
of production of any hydrocarbons covered by the lease. A working interest in
an oil and gas lease also entitles its owner to a proportionate interest in any
well located on the lands covered by the lease, subject to all royalties,
overriding royalties and other burdens, to all costs and expenses of
exploration, development and operation of any well located on the lease, and to
all risks in connection therewith.
A "development well" is a well drilled as an additional well to the same
horizon or horizons as other producing wells on a prospect, or a well drilled on
a spacing unit adjacent to a spacing unit with an existing well capable of
commercial production and which is intended to extend the proven limits of a
prospect. An "exploratory well" is a well drilled to find commercially
productive hydrocarbons in an unproved area, or to extend significantly a known
prospect.
"Reserves" means natural gas and crude oil, condensate and natural gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"Proved developed reserves" includes proved developed producing reserves and
proved developed behind-pipe reserves. "Proved developed producing reserves"
includes only those reserves expected to be recovered from existing completion
intervals in existing wells. "Proved developed behind-pipe reserves" includes
those reserves that exist behind the casing of existing wells when the cost of
making such reserves available for production is relatively small compared to
the cost of a new well. "Proved undeveloped reserves" includes those reserves
expected to be recovered from new wells on proved undrilled acreage or from
existing wells where a relatively major expenditure is required for
recompletion.
* * * * *
35
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
Index
Page
Numbers
-------
(1) Report of Independent Certified Public Accountants F-1
Financial Statements:
Balance Sheets as of August 31, 1999 and 1998 F-2
Statements of Operations for the years ended
August 31, 1999, 1998, and 1997 F-3
Statements of Stockholders' Equity for the years
ended August 31, 1999, 1998, and 1997 F-4
Statements of Cash Flows for the years ended
August 31, 1999, 1998, and 1997 F-5
Notes to Financial Statements F-6 - F-11
(2) Supplemental Oil and Gas Information (Unaudited) F-12 - F-14
F-1(a)
<PAGE>
------------------------------
LOVELETT, HARGENS & SKOGEN, P.C.
------- --------- ------- ------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors
Double Eagle Petroleum and Mining Company
We have audited the balance sheets of Double Eagle Petroleum and Mining Company
as of August 31, 1999 and 1998, and the related statements of income, changes in
stockholders' equity, and cash flows for the years ended August 31, 1999, 1998
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Double Eagle Petroleum and
Mining Company as of August 31, 1999 and 1998, and the results of its operations
and its cash flows for the years ended August 31, 1999, 1998 and 1997, in
conformity with generally accepted accounting principles.
/S/ Lovelett, Hargens & Skogen, P.C.
<PAGE>
Casper, Wyoming
October 29, 1999
F-1
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
BALANCE SHEETS
August 31, 1999 and 1998 1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 237,755 $ 97,429
Accounts receivable 295,985 156,174
Prepaid expenses 9,369 -
Total Current Assets 543,109 253,603
PROPERTIES AND EQUIPMENT
Undeveloped properties 721,109 602,359
Developed properties 5,091,135 4,051,469
Corporate and other 254,295 253,238
6,066,539 4,907,066
Less accumulated depreciation, depletion and amortization (2,322,360) (2,016,359)
Net Properties and Equipment 3,744,179 2,890,707
INVESTMENTS AND OTHER ASSETS 70,884 118,902
TOTAL ASSETS $ 4,358,172 $ 3,263,212
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 225,732 $ 70,852
Accrued production taxes 17,289 29,743
Line of credit 307,898 -
Long-term debt _ current portion 41,728 -
Total Current Liabilities 592,647 100,595
LONG-TERM DEBT 158,773 -
Total Liabilities 751,420 100,595
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; 10,000,000 shares authorized; issued
and outstanding 4,365,401 shares in 1999 and 3,932,651 in 1998 436,540 393,262
Capital in excess of par value 2,667,276 2,126,625
Retained earnings 502,936 642,730
Total Stockholders' Equity 3,606,752 3,162,617
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,358,172 $ 3,263,212
<FN>
See accompanying notes to financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF OPERATIONS
For the years ended August 31, 1999, 1998 and 1997 1999 1998 1997
<S> <C> <C> <C>
Revenues
Oil and gas sales $ 854,405 $ 680,734 $ 633,797
Sales of nonproducing leases 224,119 53,200 242,744
Other income 59,504 5,259 16,644
Total Revenues 1,138,028 739,193 893,185
Costs and Expenses
Production costs 183,451 104,429 76,875
Production taxes 99,731 78,113 57,634
Exploration expenses 192,948 183,279 139,776
Write offs and abandonments 54,931 12,115 10,635
General and administrative 409,597 463,869 265,006
Depreciation and depletion 306,002 167,825 135,542
Impairment of producing properties - 208,273 -
Cost of nonproducing leases sold 31,150 4,475 31,942
Total Costs and Expenses 1,277,810 1,222,378 717,410
(Loss) Income from Operations (139,782 ) (483,185 ) 175,775
Other Income (Expenses)
Interest income 8,595 20,147 29,765
Interest expense (8,607 ) (2,534 ) (11,575 )
Other expense - - (2,983 )
( 12 ) 17,613 15,207
(Loss) Income before Income Taxes (139,794 ) (465,572 ) 190,982
Income Tax Expense (Credit) - (45,294 ) 28,155
Net (Loss) Income $ (139,794 )$ (420,278 )$ 162,827
(Loss) Income per Common Share _ Basic & Diluted $ (.03 )$ (.11 )$ .05
Average Shares Outstanding _ Basic 4,229,874 3,901,024 3,527,546
Average Shares Outstanding _ Diluted 4,309,070 3,901,024 3,527,546
<FN>
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended August 31, 1999, 1998, and 1997
Additional Total
Outstanding Common Paid In Retained Stockholders'
Shares Stock Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at,
August 31, 1996 2,712,401 $ 271,237 $ 886,254 $ 900,181 $ 2,057,672
Net Income - - - 162,827 162,827
Common Stock
Issued 1,168,250 116,825 1,236,196 - 1,353,021
Balance,
August 31, 1997 3,880,651 $ 388,062 $ 2,122,450 $ 1,063,008 $ 3,573,520
Net Loss - - - (420,278) (420,278)
Repurchase of
Common Stock (30,000) (3,000) (49,500) - (52,500)
Common Stock
Issued 82,000 8,200 53,675 - 61,875
Balance at
August 31, 1998 3,932,651 $ 393,262 $ 2,126,625 $ 642,730 $ 3,162,617
Net Loss - - - (139,794) (139,794)
Common Stock
Issued 432,750 43,278 540,651 - 583,929
Balance at
August 31, 1999 4,365,401 $ 436,540 $ 2,667,276 $ 502,936 $ 3,606,752
<FN>
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF CASH FLOWS
For the Years ended August 31, 1999, 1998 and 1997 1999 1998 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) income $ (139,794 )$ (420,278 )$ 162,827
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation, depletion and impairments 306,002 376,099 135,542
Abandonments and loss on investments 56,044 13,310 19,058
Gain on sale of nonproducing leases (192,969 ) (48,725 ) (210,802 )
Deferred taxes - (45,294 ) 28,155
Changes in operating assets and liabilities:
Accounts receivable (66,793 ) 21,257 (57,966 )
Prepaid expenses (9,369 ) - -
Accounts payable 154,880 (76,544 ) (38,078 )
Accrued production taxes (12,454 ) 442 (1,332 )
Net cash provided by (used in) operating activities 95,547 (179,733 ) 37,404
Cash Flows from Investing Activities
Proceeds from sales of properties 194,119 53,200 242,744
Purchase of investments 5,000 (25,000 ) (34,110 )
Acquisitions of nonproducing properties (205,944 ) (87,188 ) (147,576 )
Acquisitions of producing properties and equipment (665,724 ) (541,538 ) (416,133 )
Net cash (used in) investing activities (672,549 ) (600,526 ) (355,075 )
Cash Flows from Financing Activities
Issuance of common stock 583,929 9,375 1,408,251
Long-term Borrowing 205,000 - -
Repayment of Long-term debt (4,499 ) - -
Purchase of employee stock options - - (13,499 )
Net borrowings (repayments) under line of
credit arrangement (67,102 ) - (250,000 )
Net cash provided by financing activities 717,328 9,375 1,144,752
Increase (Decrease) in Cash and Cash Equivalents 140,326 (770,884 ) 827,081
Cash and cash equivalents at beginning of year 97,429 868,313 41,232
Cash and cash equivalents at end of year $ 237,755 $ 97,429 $ 868,313
Supplemental Disclosures of Cash and Non-Cash
Transactions
Cash paid during the year for Interest $ 8,607 $ 2,534 $ 11,575
Producing properties acquired through debt $ 375,000 $ - $ -
Repurchase and Issuance of Common Stock $ - $ 52,500 $ -
<FN>
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Nature of Business
Double Eagle was incorporated under Wyoming law in 1972 for the purpose of
exploration, development, and production of oil, gas and other minerals in
the Rocky Mountain region of the United States. Its oil and gas production
is sold to major companies of the petroleum industry under terms requiring
payment within sixty days. The prices received for its oil and gas are very
volatile due to economic conditions within the industry. Income from mineral
production is nominal and received in the form of minimum annual royalties.
Accounting for Oil and Gas Activities
Double Eagle uses the successful efforts method of accounting for oil and gas
producing activities. Under this method, acquisition costs for proved and
unproved properties are capitalized when incurred. Exploration costs,
including geological and geophysical costs, the costs of carrying and
retaining unproved properties and exploratory dry hole drilling costs, are
expensed. Development costs, including the costs to drill and equip
development wells, and successful exploratory drilling costs that locate
proved reserves, are capitalized. In addition, the Company limits the total
amount of unamortized capitalized costs to the value of future net revenues,
based on current prices and costs.
Depreciation, depletion and amortization
Depreciation and depletion of the capitalized costs for producing oil and
gas properties are provided by the unit-of-production method based on proved
oil and gas reserves. Uncompleted wells and equipment are reflected at the
Company's incurred cost and represent costs of drilling and equipping oil and
gas wells that are not completed as of the balance sheet date. The costs of
unproved leases which become productive are reclassified to proved properties
when proved reserves are discovered in the property. Unproved oil and gas
interests are carried at original acquisition costs including filing and
title fees.
Zeolite properties include the original costs to acquire and stake the claims
and the preliminary evaluation and development costs which are necessary
prior to commencement of the mining operations. Subsequent to the time that
zeolite mines reach operational status, all operational expenditures are
charged to expense in the period incurred.
Office facilities and equipment are recorded at cost. Depreciation of office
facilities and equipment is recorded using straight-line and accelerated
methods over the estimated useful lives of 7 to 40 years for office
facilities and 5 to 7 years for office equipment.
Maintenance, repairs and renewals which neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred.
Cash and Cash Equivalents
For purposes of preparing the statement of cash flows, currency on hand,
demand deposits, money market accounts, treasury bills and certificates of
deposits with short-term maturities are considered to be cash and cash
equivalents.
F-6
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
1.Summary of Significant Accounting Policies (continued)
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income taxes
Income taxes are determined under an asset and liability approach. The
income statement effect is derived from changes in deferred income taxes on
the balance sheet. This approach gives consideration to the future tax
consequences associated with differences between financial accounting and tax
bases of assets and liabilities. These differences relate to items such as
depreciable and depletable properties, exploratory and intangible drilling
costs, and non-producing leases.
Gas Balancing Arrangement
In accordance with EITF 90-22, the gas-balancing arrangement is accounted for
by the entitlements method. The Company has reflected sales revenue and a
corresponding receivable for its proportionate share of the gas sold by
Amoco. The receivable is valued at the lower of the price in effect at the
time of production or the current market value.
Net (Loss) Income per Share
Basic net income per share of common stock is based on the weighted average
number of shares outstanding during the year. Diluted net (loss) income per
share reflects the potential dilution from the exercise of stock options.
Stock-Based Compensation
The Company accounts for stock options using Accounting Principles Board
Opinion No 25 (APB 25).
Reclassifications
Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current year financial statements. These reclassifications have no effect on
net income or stockholders' equity.
F-7
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
2.Financial Instruments
The following disclosures on the estimated fair value of financial
instruments are presented in accordance with SFAS 107 "Disclosure about Fair
Value of Financial Instruments". Fair value, as defined in SFAS 107, is the
amount at which the instrument could be exchanged currently between willing
parties. The carrying amounts for trade receivables and payables are
considered to be their fair values. The difference between the carrying
amounts and the estimated fair market values of the Company's other financial
instruments at August 31, 1999 and 1998 were immaterial.
3.Income Taxes
The income tax expense (credit) amounts reported on the income statement are
composed entirely of deferred income taxes. The tax effects of temporary
differences that gave rise to significant portions of the deferred tax
liabilities and deferred tax assets as of August 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Asset impairments $ 31,241 $ 31,241
Net operating loss carryforwards 140,182 122,005
171,423 153,246
Deferred tax liabilities:
Intangible drilling costs $ 134,922 $ 136,702
1st year federal lease rentals 1,161 1,481
136,083 138,183
Net deferred tax assets (liabilities) 35,340 15,063
Valuation allowance: (35,340 ) (15,063)
Net deferred tax assets (liabilities) $ - $ -
</TABLE>
At August 31, 1999, the Company has a net operating loss carryforward for
regular income tax reporting purposes of $1,050,000, which will begin
expiring in 2007.
F-8
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
4.Impairment of Long-Lived Assets
In accordance with the provisions of SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Live Assets to be Disposed Of, the Company
reviews the carrying values of its long-lived assets whenever events or
changes in circumstances indicate that such carrying values may not be
recoverable. SFAS 121 requires that an impairment loss be recognized when
the carrying amount of an asset exceeds the sum of the undiscounted
estimated future cash flows of the asset. As a result of the provisions of
SFAS 121, the Company recognized a non-cash charge on producing properties
during the fourth quarter of fiscal 1998 of $208,273.
5.Common Stock and Stock Options
Stock option plans approved by the stockholders provide for granting of
options to employees for purchase of common stock generally at prices between
the "bid" and "ask" prices at the time of grant. Generally, options granted
expire three years after the date of grant. The changes in the outstanding
stock options during the three years ended August 31, 1999, 1998, and 1997
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Wt. Avg. Wt. Avg. Wt. Avg.
Shares Ex. Pr. Shares Ex. Pr. Shares Ex. Pr.
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 360,000$ 1.424 285,000$ 1.590 200,000$ .917
Granted 273,000 1.570 240,000 1.540 165,000 2.080
Exercised (50,000) 1.250 (70,000) .750 (50,000) .875
Purchased - - - - (30,000) .935
Expired (140,000) 1.310 (95,000) 2.590 - -
End of year 443,000$ 1.580 360,000$ 1.424 285,000$ 1.590
</TABLE>
There were two issues of warrants outstanding as of August 31, 1999. One
issue covering 1,118,250 warrants allows for the purchase of one share of
common stock at a price of $3.00 with each warrant. These warrants expire
December 17, 2001. The second issue covering 474,750 warrants allows for the
purchase of one share of common stock at a price of $1.375 with each warrant.
These warrants expire October 16, 2003.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". As permitted by FAS 123, the Company continues to apply the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Had compensation expense
been determined for stock options granted in 1999, 1998 and 1997, based on
the fair values at grant dates consistent with SFAS No. 123, the Company's
pro forma 1999 net loss and loss per share - basic and diluted would have
been $(272,514) and $(.06) respectively, and 1998 net loss and loss per share
- basic and diluted would have been $(546,871), and $(.14), respectively, and
1997 net income and earnings per share - basic and diluted would have been
$68,871, and $.02, respectively.
F-9
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted average expected life (years) 3.0 3.0 1.9
Expected volatility 53 % 92 % 80 %
Risk free interest rate 5.75 % 5.50 % 5.55 %
Weighted average fair value of options granted $ .95 $ 1.15 $ .48
</TABLE>
6. Short-Term Debt
The company maintains a $500,000 unsecured short-term line of credit with a
bank which the Company utilizes as part of its cash management program. The
interest rate on the line of credit is at .25% over the Wall Street Journal
Prime Rate. There were no amounts outstanding under this line of credit at
August 31, 1998 and 1997. The line of credit is collateralized by producing
properties. The line of credit was paid off in October, 1999.
7.Long-Term Debt
The Company currently owes $200,501 on a loan collateralized by producing
properties. Payments are currently $5,400 per month, including interest at
.25% over the Wall Street Journal Prime Rate. The loan was paid in full in
October, 1999.
8. Net (Loss) Income per Share
During fiscal year 1998, the Company adopted SFAS No. 128, "Earnings Per
Share," which requires the reporting of both basic and diluted earnings per
share. Earnings per share - basic is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Earnings per share - diluted reflects the
potential dilution that could occur if options or other contracts to issue
common stock were exercised or converted into common stock. Prior periods
have been restated to reflect the new standard.
The following is a reconciliation of net income to net income per share -
basic and diluted for the three years ended August 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
(shares in thousands) 1999 1998 1997
<S> <C> <C> <C>
Net (loss) income in thousands $ (140 ) $ (421 ) $ 163
Average shares outstanding - basic 4,230 3,901 3,500
Dilutive effect of stock options 79 - 28
Diluted shares outstanding 4,309 3,901 3,528
Net (loss) income per share - basic and diluted $ (.03 ) $ (.11 ) $ .05
</TABLE>
F-10
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
9.Concentration of Credit Risk and Major Customers
The Company invests its cash primarily in deposits with major banks. Certain
deposits may, at times, be in excess of federally insured limits ($179,274
and $ 30,406 at August 31, 1999 and 1998, respectively). The Company has not
incurred losses related to such cash balances.
Sales to major unaffiliated customers (customers accounting for 10 percent of
more of gross revenue), all representing purchasers of oil and gas, for each
of the years ended August 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Customer A $ 91,211 $ 120,492 $ 227,299
Customer B - - 84,419
Customer C 107,873 131,394 -
Customer D 93,829 133,663 -
Customer E 98,960 146,904 -
Customer F 131,164 - -
Customer G 146,679 - -
</TABLE>
10.Contingencies
The Company is subject to extensive federal, state, and local environmental
laws and regulations. These requirements, which change frequently, regulate
the discharge of materials into the environment. The Company believes it is
in compliance with existing laws and regulations.
11.Commitments
During the year ended August 31, 1999, the Company purchased certain divided
interests in producing properties. The Company has committed to buy the
remaining interests in those properties if the seller is able to provide
proof of the seller's ownership of those remaining interests. The total
purchase price of the additional interests is $187,375. The commitments to
purchase the remaining interests expire December 14, 1999.
12.Employee Benefit Plan
The Company maintains a Simple Employee Pension Plan covering substantially
all employees meeting minimum eligibility requirements. Employer
contributions are determined solely at management's discretion. Employer
contributions for the years ended August 31, 1999, 1998 and 1997 were
$16,437, $11,035, and $-0-, respectively.
F-11
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Oil and Gas Reserves
The information presented below regarding the Company's oil and gas reserves was
prepared by an outside consulting petroleum engineer. All reserves are located
within the continental United States.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
oil and gas reserves are those expected to be recovered through existing wells
with existing equipment and operating methods. The determination of oil and gas
reserves is highly complex and interpretive. The estimates are subject to
continuing changes as additional information becomes available.
Estimated net quantities of proved developed reserves of oil and gas for the
years ended August 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Natural Gas (Thousands of cubic feet) 1999 1998 1997
<S> <C> <C> <C>
Beginning of year 3,507,986 2,757,188 2,082,591
Revisions of prior estimates (199,102) 9,135 (45,610)
Discoveries 157,632 1,026,311 507,710
Purchases of reserves in place 1,002,800 - 435,125
Production (379,306) (284,648) (222,628)
End of year 4,090,010 3,507,986 2,757,188
</TABLE>
<TABLE>
<CAPTION>
Oil (Barrels) 1999 1998 1997
<S> <C> <C> <C>
Beginning of year 90,911 180,526 188,580
Revisions of prior estimates 17,796 (79,024) 3,000
Discoveries - - 20
Purchases of reserves in place 64,992 - 6,257
Production (21,530) (10,591) (17,331)
End of year 152,169 90,911 180,526
</TABLE>
Capitalized Costs Relating to Oil and Gas Producing Activities
The aggregate amount of capitalized costs relating to crude oil and natural gas
producing activities and the aggregate amount of related accumulated
depreciation, depletion and amortization at August 31, 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Proved properties 5,091,135 4,051,469 3,528,257
Unproved properties 721,109 602,359 528,481
5,812,244 4,653,828 4,056,738
Accumulated depreciation and depletion 2,176,755 1,884,862 1,521,590
Net capitalized costs 3,635,489 2,768,966 2,535,148
</TABLE>
F-12
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Costs incurred in Oil and Gas Property Acquisitions, Exploration and Development
Activities
Costs incurred in property acquisitions, exploration, and development activities
for the years ended August 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Property acquisitions - proved 885,680 10,593 132,703
Property acquisitions - unproved 205,944 87,188 147,576
Exploration 247,879 195,394 150,411
Development 153,985 512,619 265,796
Total 1,493,488 805,794 696,486
</TABLE>
Results of Operations from Oil and Gas Producing Activities
The results of operations for the Company's oil and gas producing activities for
the years ended August 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating revenues 854,405 680,734 633,797
Costs and expenses
Production 283,182 182,542 134,509
Exploration 247,879 195,394 150,411
Depreciation, depletion and impairment 291,894 359,702 119,846
822,955 737,638 404,766
Income (loss) before Income Taxes 31,450 (56,904) 229,031
Income Tax Expense (Benefit) (4,730) (8,536) 28,155
Results of operations 26,720 (48,368) 200,876
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The following information has been developed utilizing procedures prescribed by
SFAS 69 "Disclosures About Oil and Gas Producing Activities" and based on
natural gas and crude oil reserves and production volumes estimated by the
Company. It may be useful for certain comparison purposes, but should not be
solely relied upon in evaluating the Company or its performance. Further,
information contained in the following table should not be considered as
representative or realistic assessments of future cash flows, nor should the
Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Company.
The Company believes that the following factors should be taken into account in
reviewing the following information: (1) future costs and selling prices will
probably differ from those required to be used in these calculations; (2) due to
future market conditions and governmental regulations, actual rates of
production achieved in future years may vary significantly from the rate of
production assumed in these calculations; (3) selection of a 10% discount rate
is arbitrary and may not be reasonable as a measure of
F-13
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (continued)
the relative risk inherent in realizing future net oil and gas revenues; and (4)
future net revenues may be subject to different rates of income taxation.
Under the Standardized Measure, future cash inflows were estimated by applying
year-end oil and gas prices to the estimated future production of year-end
proved reserves. Futures cash inflows were reduced by estimated future
development and production costs based upon year-end costs in order to arrive at
net cash flow before tax. Future income tax expense has been computed by
applying year-end statutory rates to future pretax net cash flows and the
utilization of net operating loss carryforwards. Use of a 10% discount rate is
required by SFAS 69.
Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves, and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.
Standardized Measure is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Future cash inflows 9,128,106 7,805,256 7,113,621
Futures production and development costs (2,786,245) (2,125,037) (1,581,564)
Future income taxes (1,799,233) (1,580,386) (1,680,979)
Future net cash flows 4,542,628 4,099,833 3,851,078
10% annual discount rate (1,362,788) (1,229,950) (1,155,323)
Discounted future net cash flows 3,179,840 2,869,883 2,695,755
</TABLE>
The following is an analysis of the changes in the Standardized Measure:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, beginning of the year 2,869,883 2,695,755 2,449,299
Sales, net of production costs (571,223) (498,192) (499,288)
Net changes in prices and production costs (1,194,246) 437,531 177,501
Discoveries and purchase of reserves in place 2,008,975 1,360,628 851,438
Development costs incurred (153,985) (512,619) (548,910)
Revisions of previous quantity estimates (51,182) (882,795) 20,785
Accretion of discount 286,989 269,575 244,930
Balance, end of the year 3,179,840 2,869,883 2,695,755
</TABLE>
F-14
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
<TABLE>
<CAPTION>
INDEX
Page
<S> <C> <C>
Financial Statements
Balance Sheets as of May 31, 2000 (Unaudited)
and August 31, 1999 F-15
Statements of Operations for the three and nine months
ended May 31, 2000 and 1999 (Unaudited) F-16
Statements of Cash Flows for the nine months
ended May 31, 2000 and 1999 (Unaudited) F-17
Notes to Financial Statements (Unaudited) F-18
</TABLE>
F-15(a)
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
BALANCE SHEETS
MAY 31, 2000 AND AUGUST 31, 1999
May 31, August 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 52,380 $ 237,755
Accounts receivable 405,885 295,985
Prepaid expenses and deposits 2,342 9,369
Total Current Assets 460,607 543,109
PROPERTIES AND EQUIPMENT
Undeveloped properties 829,641 721,109
Developed properties 6,464,947 5,091,135
Corporate and other 212,430 254,295
7,507,018 6,066,539
Less accumulated depreciation, depletion, and amortization (2,642,633 ) (2,322,360)
Net Properties and Equipment 4,864,385 3,744,179
INVESTMENTS AND OTHER ASSETS 75,122 70,884
TOTAL ASSETS $ 5,400,114 $ 4,358,172
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 103,034 $ 225,732
Accrued production taxes 21,429 17,289
Line of credit 500,000 307,898
Long-term debt - current portion - 41,728
Total Current Liabilities 624,463 592,647
LONG-TERM DEBT - 158,773
Total Liabilities 624,463 751,420
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; - 10,000,000 shares,
authorized; issued and outstanding 4,797,641 shares
as of May 31, 2000 and 4,365,401 shares as of
August 31, 1999 479,764 436,540
Capital in excess of par value 3,747,488 2,667,276
Retained earnings 548,399 502,936
Total Stockholders' Equity 4,775,651 3,606,752
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,400,114 $ 4,358,172
<FN>
See accompanying notes to financial statements.
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
May 31, May 31, May 31, May 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES
Sales of oil and gas $ 454,780 $ 150,085 $ 1,162,294 $ 468,952
Sales of nonproducing leases 5,696 81,000 9,821 178,619
Other 2,327 106 15,537 529
Total 462,803 231,191 1,187,652 648,100
COSTS AND EXPENSES
Production costs 83,842 46,032 207,327 122,382
Production taxes 42,188 18,072 133,899 61,446
Cost of nonproducing leases sold 1,202 11,325 2,262 11,325
Exploration 33,620 40,846 94,919 158,243
Write offs and abandonments 3,416 3,107 4,856 14,155
General and administrative 102,983 93,609 377,704 299,486
Depreciation and depletion 127,698 49,455 332,784 148,365
Total 394,949 262,446 1,153,751 815,402
INCOME (LOSS) FROM OPERATIONS 67,854 (31,255) 33,901 (167,302)
OTHER INCOME (EXPENSE)
Gain on sale of assets 11,856 - 11,856 -
Interest income 3,645 1,903 15,719 6,544
Interest expense (11,083) - (16,013) (1,661)
Total 4,418 1,903 11,562 4,883
INCOME (LOSS) BEFORE INCOME TAXES 72,272 (29,352) 45,463 (162,419)
INCOME TAX EXPENSE (BENEFIT)
Current - - - -
Deferred - - - -
Total - - - -
NET INCOME (LOSS) $ 72,272 $ (29,352) $ 45,463 $ (162,419)
BASIC/DILUTED INCOME
(LOSS) PER SHARE $ .02 $ (.01) $ .01 $ (.04)
AVERAGE SHARES OUTSTANDING 4,797,641 4,365,401 4,724,909 4,184,201
DIVIDENDS PER SHARE OF COMMON STOCK $ .00 $ .00 $ .00 $ .00
<FN>
See accompanying notes to financial statements.
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 45,463 $ (162,419)
Charges to income not requiring cash:
Depreciation and depletion 332,784 148,365
Gain on sale of properties and assets (19,415) (167,294)
Abandoned properties 4,856 14,155
Decrease (increase) in operating assets:
Accounts receivable (109,900) (30,024)
Prepaid expenses and deposits 2,789 20,000
Increase (decrease) in operating liabilities:
Accounts payable (122,698) 23,551
Accrued production taxes 4,140 (2,527)
Net cash provided by (used in) by operating activities 138,019 (156,193)
INVESTING ACTIVITIES:
Proceeds from sale of properties and assets 61,821 178,619
Purchase of properties (1,500,252) (705,955)
Net cash (used in) investing activities (1,438,431) (527,336)
FINANCING ACTIVITIES:
Proceeds from private placement 1,115,248 514,688
Issuance of common stock 8,188 62,500
Borrowing on line of credit arrangement 192,102 100,000
Payments on long-term debt (200,501) -
Net cash provided by financing activities 1,115,037 677,188
(DECREASE) IN CASH (185,375) (6,341)
CASH AND CASH EQUIVALENTS
Beginning of period 237,755 97,429
End of period $ 52,380 $ 91,088
SUPPLEMENTAL DISCLOSURES OF CASH AND
NON-CASH TRANSACTIONS
Cash paid during the period for interest $ 16,013 $ 1,661
<FN>
See accompanying notes to financial statements.
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1.Summary of Significant Accounting Policies
Refer to the Company's annual financial statements for the year ended August
31, 1999, for a description of the accounting policies which have been
continued without change. Also, refer to the footnotes with those annual
statements for additional details of the Company's financial condition,
results of operations, and cash flows. The details in those notes have not
changed except as a result of normal transactions in the interim.
2.Management Representation
In management's opinion, all adjustments necessary for a fair presentation are
reflected in the interim financial statements. Such adjustments are of a
normal recurring nature.
3.Interim Results of Operations
The results of operations for the period ended May 31, 2000, are not
necessarily indicative of the operating results for the full year.
4.Common Stock and Warrants
During the nine months ended May 31, 2000, the Company sold through private
placement 400,000 shares of its common stock for $2.75 per share.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers.
The Wyoming Business Corporation Act provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation.
The Board of Directors is empowered to make other indemnification as
authorized by the Articles Of Incorporation or by corporate resolution so long
as the indemnification is consistent with the Wyoming Business Corporation Act.
Item 25. Other Expenses Of Issuance And Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered assuming the sale
of the maximum Offering amount.
Registration and filing fee..................................$1,942
Transfer agent's fee*.........................................1,500
Printing and engraving*......................................15,000
Accounting fees and expenses*.................................4,000
Legal fees and expenses*.....................................55,000
Blue sky fees and expenses*..................................16,000
NASD filing fee...............................................1,063
NASDAQ listing fee............................................7,500
Underwriter's non-accountable expense allowance*.............50,321
Miscellaneous*................................................6,245
-----
Total**.................................................$162,571
-------
____________________
* Estimated
** The Total includes additional estimated expenses in connection with Post
Effective Amendment No. 1 of $750 for transfer agent's fee, $500 for accounting
fees and expenses, $10,000 for legal fees and expenses, and $2,000 for blue sky
fees and expenses, as well as $5,321.25 of additional underwriter's non-
accountable expense allowance paid in connection with the exercise of the
underwriter's over-allotment option on January 31, 1997.
36
<PAGE>
Item 26. Recent Sales Of Unregistered Securities.
In September 1997, the Company issued options to purchase 100,000 of common
shares stock to one entity in a transaction exempt from registration pursuant to
Section 4(2) of the Securities Act.
In October 1998, the Company issued options to purchase 36,500 shares of
common stock to one individual pursuant to an exemption pursuant to Section 4(2)
of the Securities Act.
In December 1998, the Company issued 374,750 shares of common stock
together with warrants to purchase 374,750 shares of common stock in a private
placement to a limited number of accredited investors in accordance with
exemptions from registration pursuant to Rules 505 and/or 506 and/or Sections
3(b) and 4(2) of the Securities Act.
In July 1999, the Company issued options to purchase 100,000 shares of
common stock to one entity in a transaction exempt from registration pursuant to
Section 4(2) of the Securities Act.
In October 1999, the Company issued 400,000 shares of common stock to a
limited number of purchasers pursuant to exemption from registration in
accordance with the Rules 505 and/or 506 and/or Sections 3(b) and 4(2) of the
Securities Act.
Item 27. Exhibits.
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
------ -----------
1.1 Form of Underwriting Agreement between Double Eagle Petroleum and
Mining Co. ("Registrant") and Rocky Mountain Investments & Securities,
Inc. (the "Underwriter").*
3.1(a) Articles Of Incorporation filed with the Wyoming Secretary Of State on
January 13, 1972.*
3.1(b) Articles Of Amendment of Registrant filed with the Wyoming Secretary
Of State on February 27, 1984.*
3.1(c) Articles Of Amendment of Registrant filed with the Wyoming Secretary
Of State on July 9, 1996.*
3.2 Bylaws.*
4.1(a) Specimen Common Stock Certificate.*
4.1(b) Specimen Common Stock Purchase Warrant.*
4.1(c) Specimen Unit Certificate.*
4.2 Form of Underwriter's Warrant.*
4.3 Form of Warrant Agreement concerning Common Stock Purchase Warrants.*
5.1 Opinion of Patton Boggs LLP concerning legality of issuance of Units
of Common Stock, Warrants, and underlying securities.
37
<PAGE>
10.1 Agreement dated May 26, 1995 between the Registrant and Hollis Oil &
Gas Co.*
23.1 Consent Of Patton Boggs LLP (included in Exhibit 5.1).
23.2 Consent Of Lovelett, Skogen & Associates, P.C., formerly Lovelett,
Hargens & Skogen, P.C.
24.1 Power of Attorney (included on signature page)
______________________
*Previously filed.
Item 28. Undertakings.
1. The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement, including (but not limited to) any
addition or deletion of a managing underwriter;
(b) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
3. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Registrant's Articles Of Incorporation, or
otherwise, the Registrant has been advised that in the opinion of the
Securities And Exchange Commission such indemnifications is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
38
<PAGE>
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
39
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, in the
City of Casper, State of Wyoming on September 25, 2000.
DOUBLE EAGLE PETROLEUM AND MINING CO.
By: /s/ Stephen H. Hollis
------------------------------------
Stephen H. Hollis, President and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors
of the Registrant, by virtue of their signatures to this to the Registration
Statement appearing below, hereby constitute and appoint Stephen H. Hollis, with
full power of substitution, as attorney-in-fact in their names, place and stead
to execute any and all amendments to this Registration Statement in the
capacities set forth opposite their name and hereby ratify all that said
attorney-in-fact or his substitutes may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Stephen H. Hollis President and Treasurer; (Principal September 25, 2000
-------------------------
Stephen H. Hollis Executive Officer and Principal
Accounting and Financial Officer);
Director
/s/ Ken M. Daraie
----------------------
Ken M. Daraie Director September 25, 2000
/s/ Thomas J. Vessels September 25, 2000
-------------------------
Thomas J. Vessels Director
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
--------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY INFOR- UNTIL 90 DAYS AFTER THE EFFECTIVE DATE
MATION OR TO MAKE ANY REPRESENTATION OF THE REGISTRATION STATEMENT OF WHICH
OTHER THAN THOSE CONTAINED IN THIS THIS PROSPECTUS IS A PART, ALL DEALERS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH EFFECTING TRANSACTIONS IN THE REGIS-
INFORMATION OR REPRESENTATION MUST NOT TERED SECURITIES, WHETHER OR NOT PAR-
BE RELIED UPON AS HAVING BEEN AU- TICIPATING IN THIS DISTRIBUTION, MAY
THORIZED BY THE COMPANY. THIS PRO- BE REQUIRED TO DELIVER A PROSPECTUS.
SPECTUS SHALL NOT CONSTITUTE AN OFFER THIS IS IN ADDITION TO THE OBLIGATION
TO SELL OR THE SOLICITATION OF AN OF- OF DEALERS TO DELIVER A PROSPECTUS
FER TO BUY NOR SHALL THERE BE ANY SALE WHEN ACTING AS UNDERWRITERS AND WITH
OF THESE SECURITIES IN ANY STATE IN RESPECT TO THEIR UNSOLD ALLOTMENTS OR
WHICH SUCH OFFER, SOLICITATION OR SALE SUBSCRIPTIONS.
WOULD BE UNLAWFUL PRIOR TO REGISTRA-
TION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
--------------------------------------
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY................2
RISK FACTORS......................4 DOUBLE EAGLE PETROLEUM
SUMMARY CONSOLIDATED FINANCIAL AND MINING CO.
AND OPERATIONS DATA............6
THE COMPANY.......................8
USE OF PROCEEDS...................8 1,318,250
CAPITALIZATION....................9 Shares
PRICE RANGE OF COMMON STOCK......10 Of Common Stock
SELECTED FINANCIAL DATA..........11
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.....13
BUSINESS AND PROPERTIES..........15
MANAGEMENT.......................25
EXECUTIVE COMPENSATION...........27
CERTAIN RELATIONSHIPS AND RELATED --------------------------------------
TRANSACTIONS..................29 PROSPECTUS
PRINCIPAL STOCKHOLDERS...........30 --------------------------------------
DESCRIPTION OF SECURITIES........31
CERTAIN PROVISIONS OF WYOMING LAW
AND OF THE COMPANY'S ARTICLES OF
INCORPORATION.................33
PLAN OF DISTRIBUTION.............34
SECURITIES AND EXCHANGE COMMISSION
POSITION ON CERTAIN INDEMNIFI- __________________, 2000
CATION........................34
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS AND CAUTIONARY
STATEMENTS....................34
LEGAL MATTERS....................35
EXPERTS..........................35
CERTAIN DEFINITIONS..............35
FINANCIAL STATEMENTS.............37
-------------------------------------- --------------------------------------
<PAGE>
EXHIBIT 5.1
-----------
September 25, 2000
Securities And Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen and Ladies;
We have acted as counsel for Double Eagle Petroleum And Mining Co., a
Wyoming corporation (the "Company"), in connection with the registration on Form
SB-2 under the Securities Act of 1933, as amended, of up to 1,118,250 Redeemable
Common Stock Purchase Warrants (the "Redeemable Warrants") to purchase up to
1,118,250 shares of the Company's $.10 par value common stock and underwriter's
warrants to purchase up to 100,000 units, each unit consisting of one share of
common stock and one warrant to purchase one share of common stock.
We have examined the Articles Of Incorporation and the Bylaws of the
Company and the record of the Company's corporate proceedings concerning the
registration described above. In addition, we have examined such other
certificates, agreements, documents and papers, and we have made such other
inquiries and investigations of law as we have deemed appropriate and necessary
in order to express the opinion set forth in this letter. In our examinations,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, photostatic, or conformed copies and the
authenticity of the originals of all such latter documents. In addition, as to
certain matters we have relied upon certificates and advice from various state
authorities and public officials, and we have assumed the accuracy of the
material and the factual matters contained herein.
Subject to the foregoing and on the basis of the aforementioned
examinations and investigations, it is our opinion that the shares of common
stock issuable upon the exercise of the Redeemable Warrants, and the shares of
common stock included in the units issuable upon the exercise of the
underwriter's warrants and upon the exercise of the warrants included in the
units issuable upon the exercise of the underwriter's warrants, if and when sold
and delivered as described in the Company's Registration Statement on Form SB-2,
as amended (the "Registration Statement"), will have been duly authorized and
legally issued and will constitute fully paid and nonassessable shares of the
Company's common stock. Further, the Warrants represent the right to purchase
shares of the Company's common stock, all as set forth in the Registration
Statement.
We hereby consent (a) to be named in the Registration Statement and in the
prospectus that constitutes a part of the Registration Statement as the
attorneys passing, on behalf of the Company, upon the validity of the issuance
of the common stock and warrants, and (b) to the filing of this opinion as an
exhibit to the Registration Statement.
This opinion is to be used solely for the purpose of the registration of
the common stock and warrants and may not be used for any other purpose.
Very truly yours,
/s/ Patton Boggs LLP
PATTON BOGGS LLP
Enclosures
<PAGE>
EXHIBIT 23.2
-------------
LOVELETT, SKOGEN & ASSOCIATES, P.C.
formerly known as Lovelett, Hargens, & Skogen, P.C.
Certified Public Accountants
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 1 to Registration
Statement on Form SB-2 of Double Eagle Petroleum and Mining Co. of our report
dated October 29, 1999 relating to the financial statements of Double Eagle
Petroleum and Mining Co. appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Lovelett, Skogen & Associates, P.C.
Casper, Wyoming
September 25, 2000
<PAGE>
</TABLE>
