SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X ] Quarterly Report Under Section 13 OR 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File No. 1-1705
HUNTER RESOURCES, INC.
(Exact name of small business issuer as specified in its Charter)
Pennsylvania 87-0205057
(State of Incorporation) (I.R.S. Employer Identification No.)
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
(214) 401-0752
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of May 1, 1996, the Registrant had issued and outstanding 18,454,261
shares of Common Stock, Par Value $.10 Per Share.
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements of Hunter Resources Inc. ("Hunter") required by
Item 310(b) of Regulation S-B follow Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Hunter's consolidated financial statements and the notes associated with them
contained in its Form 10-KSB for the year ended December 31, 1995. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment by management of Magnum.
On July 21, 1995, Magnum Petroleum, Inc. ("Magnum") closed a definitive
agreement to combine (the "Business Combination") with Hunter subject to Hunter
shareholder approval. Pursuant to the definitive agreement, Magnum issued to
Hunter 2,750,000 shares of newly issued Magnum restricted common stock in
exchange for substantially all of the assets of Hunter subject to its associated
liabilities. Hunter's assets primarily consisted of stock in wholly-owned
subsidiaries and stock ownership interests in limited liability companies
("Hunter Subsidiaries").
On December 19, 1995 to be effective December 22, 1995, Magnum and Hunter
entered into an Agreement and Plan of Reorganization and Plan of Liquidation, as
amended. The amendment was executed on December 19, 1995 by Hunter shareholders
holding in excess of fifty percent (50%) of the outstanding common stock of
Hunter and one hundred percent (100%) of the outstanding preferred stock of
Hunter. The amended agreement provided for the issuance to Hunter of an
additional 2,335,077 shares of newly issued Magnum restricted common stock and
111,825 shares of Magnum Series C preferred stock. In summary, the total
consideration paid by Magnum for the Hunter Subsidiaries was 5,085,077 shares of
Magnum restricted common stock and 111,825 shares of Magnum Series C preferred
stock.
As stated, the amended agreement was executed by Hunter shareholders owning
in excess of fifty percent (50%) of the outstanding common stock of Hunter and
one hundred percent (100%) of the outstanding preferred stock of Hunter.
According to Pennsylvania law, Hunter shareholders have no dissenter rights.
However, Hunter is required to distribute an Information Statement and hold a
special meeting of its shareholders to formally approve the agreement.
Subsequent to the Business Combination, Magnum has conducted its oil and gas
operations and energy related acquisitions in conjunction with the Hunter
Subsidiaries. Existing management of Hunter has taken over all day to day
operations of Magnum. Acquisitions completed by Magnum and Hunter after the
initial agreement were completed by Magnum Hunter Production, Inc. ("Magnum
Hunter"), a Hunter Subsidiary. Hunter and its subsidiaries were consolidated
into Magnum's financial statements beginning December 31, 1995, so no operating
assets and liabilities are included in Hunter's balance sheet as of March 31,
1996. Hunter's balance sheet at that date is presented as a "statement of net
assets in liquidation" because the only asset is the investment in Magnum
shares, which will ultimately be distributed to Hunter shareholders.
Results of Operations.
- ----------------------
A vital part of the definitive agreement for the Business Combination with
Magnum is a provision for the liquidation of Hunter upon formal shareholder
approval of the definitive agreement and the exchange of Magnum shares for
outstanding Hunter shares. As a result, Hunter has changed its basis of
accounting at and for periods
2
<PAGE>
subsequent to December 31, 1995 to the liquidation basis of accounting, assets
are to be restated to estimated net realizable value and liabilities are to be
stated at their estimated settlement value. As Hunter's only remaining asset is
its investment in Magnum shares which are ultimately to be distributed to
Hunter's shareholders in exchange for existing shares of Hunter, no liquidation
basis adjustments to Hunter's assets and liabilities were necessary at March 31,
1996.
Since all of Hunter's operating assets and liabilities were disposed of
effective December 31, 1995, Hunter's revenues and expenses for the first
quarter of 1995 have been netted and presented as discontinued operations. As
stated above, Hunter transferred all of its assets to Magnum in the Business
Combination. Further, the terms of the Business Combination provided for
Magnum's assumption of any expenses of Hunter incurred through Hunter's
liquidation date. Accordingly, Hunter's statement of operations for the first
quarter of 1996 included no revenues or expenses. It is anticipated Hunter will
not report any revenues or expenses for any subsequent periods until
liquidation.
Liquidity and Capital Resources
- -------------------------------
As discussed above, Hunter's capital stock ownership in subsidiaries and
limited liability companies were acquired by Magnum effective December 22, 1995.
Therefore, the Business Combination with Magnum left Hunter with no income
producing assets. Hunter's planned liquidation should occur in 1996. Any
required sources of funds to that date will be provided by Magnum as a part of
the Business Combination.
3
<PAGE>
HUNTER RESOURCES, INC.
STATEMENT OF NET ASSETS IN LIQUIDATION
MARCH 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Investment in securities, at estimated market value $ 12,495,000
Less deferred gain (10,333,000)
-----------
Net investments in securities 2,162,000
---------
Total Assets $ 2,162,000
===============
STOCKHOLDERS' EQUITY
--------------------
Stockholders' Equity:
Preferred stock, no par value: 1,000,000 shares authorized
for each Class A,B,C; 90,000 shares $ 90,000
(Class A, Series 1) issued and outstanding
Common Stock, $.10 par value; 100,000,000 shares authorized;
18,454,000 shares issued and outstanding 1,845,000
Additional paid-in capital 1,834,000
Accumulated (deficit) (1,397,000)
----------
2,372,000
Treasury stock and put option (210,000)
--------
Total Stockholders' Equity $ 2,162,000
===============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
DISCONTINUED OPERATIONS
Income (loss) from operations $ - $ 6,000
----------- -----------
NET INCOME (LOSS) - 6,000
PREFERRED DIVIDENDS - -
----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ - $ 6,000
=========== ===========
NET INCOME (LOSS) PER SHARE $ - $ *
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 18,454,261 17,450,000
=========== ===========
</TABLE>
* Less than $.01 per share.
The accompanying notes are an integral part of these statements
5
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ - $ 6,000
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain)/loss on sale of assets - (27,000)
Depreciation, depletion, amortization, and impairment - 68,000
Reversal of allowances and payables - (24,000)
Change in assets and liabilities
(Increase) decrease in notes and accounts
receivables, trade and affiliates - (96,000)
(Increase) decrease in other current assets - (7,000)
Increase (decrease) in accounts payable,
accrued liabilities and suspended revenue - 88,000
-------------- ---------------
Total adjustments - 2,000
-------------- ---------------
CASH PROVIDED BY OPERATING ACTIVITIES - 8,000
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment - 28,000
Additions to property and equipment - (1,240,000)
Increase (decrease) in long-term accounts receivable,
trade and affiliate - 6,000
-------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES - (1,206,000)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 2,560,000
Increase (decrease) in other liabilities - 45,000
Payments on long-term debt - (1,382,000)
-------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 1,223,000
-------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - 25,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 25,000
-------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 50,000
============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
(1) MANAGEMENT'S REPRESENTATION
The statement of net assets in liquidation as of March 31, 1996, the
consolidated statements of operations for the three month periods ended March
31, 1996 and 1995, and the consolidated statements of cash flows for the three
month periods then ended are unaudited. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary have
been made to present fairly the financial position, results of operations and
changes in cash flows for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the December 31, 1995 annual report on Form 10-KSB for Hunter Resources, Inc.
( "Hunter").
The accompanying 1995 consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries at the time. All significant
intercompany transactions and balances have been eliminated in consolidation.
Certain items have been reclassified to conform with the current presentation.
7
<PAGE>
P A R T II
OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities.
NONE
Item 3. Defaults Upon Senior Securities.
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K
<TABLE>
<CAPTION>
Item No. Items Reported F/S Included Date of Event Date Filed
-------- -------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
2 Acquisition of Assets October 25, 1995 November 6, 1995, amended
January 8, 1996
7 Financial Statements Schedule of Financial
Statements Attached
- -------
2 Acquisition of Assets November 9, 1995 November 21, 1995, amended
January 14, 1996
7 Financial Statements Schedule of Financial
Statements Attached
- -------
2 Closing of agreement to combine N/A July 21, 1995 August 5, 1995, amended
and liquidate March 21, 1996
</TABLE>
8
<PAGE>
SCHEDULE OF FINANCIAL STATEMENTS
I. FORM 8-K/A FILED JANUARY 8, 1996
(a) Financial Statements of the Properties Acquired:
Independent Auditor's Report
Historical Summary of Revenue and Direct Operating Expenses for
the Year Ending December 31, 1994 and the Nine Months Ending
September 30, 1995
Notes to Historical Summary of Revenues and Direct Operating
Expenses for the Year Ending December 31, 1994 and the Nine
Months Ending September 30, 1995
(b) Pro Forma Financial Information:
Pro Forma Consolidated Financial Information (unaudited)
Pro Forma Consolidated Balance Sheet (unaudited) as of September
30, 1995
Pro Forma Consolidated Statement of Oeprations (unaudited) for
the Twelve Months Ended December 31, 1994
Pro Forma Consolidated Statement of Operations (unaudited) for
the Nine Months Ended September 30, 1995
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits:
Agreement to Acquire Assets
II. FORM 8-K/A FILED JANUARY 24, 1996
(a) Financial Statements of the Properties Acquired:
Independent Auditor's Report
Historical Summary of Revenue and Direct Operating Expenses for
the Year Ending December 31, 1994 and the Nine Months Ending
September 30, 1995
Notes to Historical Summary of Revenues and Direct Operating
Expenses for the Year Ending December 31, 1994 and the Nine
Months Ending September 30, 1995
(b) Pro Forma Financial Information:
Pro Forma Consolidated Financial Information (unaudited)
Pro Forma Consolidated Balance Sheet (unaudited) as of September
30, 1995
Pro Forma Consolidated Statement of Operations (unaudited) for
the Twelve Months Ended December 31, 1994
Pro Forma Consolidated Statement of Operations (unaudited) for
the Nine Months Ended September 30, 1995
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits:
Agreement to Acquire Assets
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HUNTER RESOURCES, INC.
(Registrant)
By: /s/ Gary C. Evans
Gary C. Evans, President
Date: June 5, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Name and Signature Title Date
Chairman, President
/s/ Gary C. Evans Chief Executive Officer,
Gary C. Evans and Director June 5, 1996
Senior Vice President and
/s/ Steven P. Smart Chief Financial Officer June 5, 1996
- -------------------
Steven P. Smart
Vice President and
/s/ David M. Keglovits Principal Accounting Officer June 5, 1996
- ----------------------
David M. Keglovits
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,162,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
90,000
<COMMON> 1,845,000
<OTHER-SE> 227,000
<TOTAL-LIABILITY-AND-EQUITY> 2,162,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
