<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)...............May 21, 1997
Venus Exploration, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-14334 13-3299127
-------- ----------
(Commission File Number) (I.R.S. Employer
Identification Number)
700 North St. Mary's Street, San Antonio, Texas 78205
- ----------------------------------------------- ------
(Address of Principal Executive Offices) (Zip Code)
(210) 222-9481
------------------------------
(Registrant's telephone number
including area code)
Xplor Corporation 16800 Greenspoint Park Dr., Suite 300 South,
Houston, Texas 77060
--------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
An index of historical financial statements of the businesses
acquired included in this current report is presented on Page 4. Such
financial statements include the historical financial position, results of
operations and cash flows of The New Venus Exploration, Inc. and
statements of assets and liabilities and of revenues and direct operating
expenses of interests acquired from Lomak Petroleum, Inc.
(b) Pro forma financial information.
An index of pro forma financial information included in this report
is presented on Page 4.
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VENUS EXPLORATION, INC.
Date: August 4, 1997 By: /s/ Patrick A. Garcia
Patrick A. Garcia
Chief Financial Officer
(principal accounting officer)
3
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VENUS EXPLORATION, INC.
CURRENT REPORT ON FORM 8-K/A
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
I. PREDECESSOR OPERATIONS OF PROPERTIES ACQUIRED FROM THE NEW VENUS
EXPLORATION, INC. AND ITS PREDECESSOR ENTITIES:
Report of Independent Public Accountants.............................. 7
Balance Sheets as of December 31, 1996 and
December 31, 1995 (audited) and
as of March 31, 1997 (unaudited).................................... 8
Statements of Operations for each of the
Three Years in the Period Ended
December 31, 1996 (audited) and for
the Three Months Ended March 31, 1997
and 1996 (unaudited)................................................ 9
Statements of Shareholders' Equity for each
of the Three Years in the Period Ended
December 31, 1996 (audited) and for the
Three Months Ended March 31, 1997 (unaudited)....................... 10
Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1996
(audited) and for the Three Months
Ended March 31, 1997 and 1996 (unaudited)........................... 11
Notes to Financial Statements......................................... 12
II. PREDECESSOR OPERATIONS OF PROPERTIES ACQUIRED FROM
LOMAK PETROLEUM, INC.:
Report of Independent Public Accountants ............................. 30
Statements of Assets and Liabilities as of
December 31, 1996 and December
31, 1995 (audited) and as of March 31,
1997 (unaudited).................................................... 31
Consolidated Statements of Revenues
and Direct Operating Expenses for each
of the Two Years in the Period Ended
December 31, 1996 (audited) and for
the Three Months Ended March 31, 1997
and 1996 (unaudited) ............................................... 32
Notes................................................................. 33
</TABLE>
4
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VENUS EXPLORATION, INC.
CURRENT REPORT ON FORM 8-K/A
INDEX TO FINANCIAL INFORMATION (Continued)
<TABLE>
<S> <C>
UNAUDITED VENUS EXPLORATION, INC. F/K/A XPLOR CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Introduction.......................................................... 36
Unaudited Pro Forma Consolidated Statement
of Operations for the Year Ended
December 31, 1996 .................................................. 38
Unaudited Pro Forma Consolidated
Statement of Operations for the Three
Months Ended March 31, 1997 ........................................ 39
Unaudited Pro Forma Consolidated
Balance Sheet as of March 31, 1997.................................. 40
Notes to Unaudited Pro Forma
Consolidated Financial Statements .................................. 42
</TABLE>
5
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THE NEW VENUS EXPLORATION, INC.
AND
PREDECESSOR ENTITIES
Financial Statements
Years ended December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
6
<PAGE> 7
Independent Auditors' Report
The Board of Directors and Stockholders of
The New Venus Exploration, Inc:
We have audited the accompanying consolidated balance sheets of The New Venus
Exploration, Inc. and predecessor entities, as described in note 2(a) to the
financial statements, as of December 31, 1996 and 1995, and the related
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. 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 amounts 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 The New Venus Exploration,
Inc. and predecessor entities, as described in note 2(a) to the financial
statements, as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
San Antonio, Texas
April 16, 1997, except
to notes 1 and 12 which are as of
May 21, 1997
7
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THE NEW VENUS EXPLORATION, INC.
AND PREDECESSOR ENTITIES
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 607,374 1,303,917 573,093
Accounts receivable 912,785 790,269 457,578
Prepaid expenses and other 17,355 24,902 56,469
------------ ------------ ------------
Total current assets 1,537,514 2,119,088 1,087,140
Oil and gas properties and equipment, at cost under
the successful efforts method (notes 3,5, and 13) 2,786,688 2,574,940 2,617,353
Less accumulated depreciation, depletion
and amortization (924,689) (895,243) (1,487,486)
------------ ------------ ------------
Net oil and gas properties and equipment 1,861,999 1,679,697 1,129,867
Other property and equipment, at cost less accumulated
depreciation and amortization (note 4) 102,473 102,733 97,816
Notes receivable from shareholders (note 9) -- -- 480,685
Deferred financing costs, at cost less accumulated
amortization 409,196 371,767 --
Cash surrender value of officers' life insurance -- -- 129,144
Other assets, at cost less accumulated amortization 65,820 69,770 106,341
------------ ------------ ------------
Total assets $ 3,977,002 4,343,055 3,030,993
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,173,914 1,073,912 557,204
Advances from interest owners 90,646 344,901 157,408
Notes payable (note 5) -- -- 75,308
------------ ------------ ------------
Total current liabilities 1,264,560 1,418,813 789,920
Long-term debt (note 5) 757,643 -- --
Convertible redeemable preference shares, 247,750 shares
issued and outstanding; nominal value of $0.077 (note 7) 4,955,000 4,955,000 --
Shareholders' equity (deficit) (notes 5 and 8):
Ordinary shares; nominal value of $0.077, none issued
and outstanding -- -- --
Convertible shares; nominal value of $0.077; 403,126
shares issued and outstanding in 1996 and 1997 30,526 30,526 --
Common shares of Venus Oil Company; par value
of $1.00; 10,000 shares authorized and 3,215 shares
outstanding in 1995 -- -- 3,215
Additional paid-in capital 1,455,844 1,304,644 --
Retained earnings (deficit) (4,486,571) (3,365,928) 2,237,858
------------ ------------ ------------
Total shareholders' equity (deficit) (3,000,201) (2,030,758) 2,241,073
Commitments and contingencies (notes 5,6,10,11, and 12)
------------ ------------ ------------
Total liabilities and shareholders' equity (deficit) $ 3,977,002 4,343,055 3,030,993
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
8
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THE NEW VENUS EXPLORATION, INC.
AND PREDECESSOR ENTITIES
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Exploration and production $ 135,389 158,803 510,748 757,589 789,147
Management and service 183,982 150,979 629,588 887,774 737,214
------------ ------------ ------------ ------------ ------------
319,371 309,782 1,140,336 1,645,363 1,526,361
------------ ------------ ------------ ------------ ------------
Costs of operations:
Operations and maintenance 43,881 74,101 253,545 439,306 567,948
Exploration expenses, including
dry holes 499,191 4,876 92,287 575,512 75,030
Impairment of oil and gas properties -- -- 981,178 -- --
Depreciation, depletion and
amortization 29,446 11,700 76,286 122,659 141,278
General and administrative 838,837 446,331 2,028,747 1,590,327 1,586,650
------------ ------------ ------------ ------------ ------------
1,411,355 537,008 3,432,043 2,727,804 2,370,906
------------ ------------ ------------ ------------ ------------
Operating profit (loss) (1,091,984) (227,226) (2,291,707) (1,082,441) (844,545)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest expense (34,226) (889) (10,331) (27,041) (18,869)
Gain (loss) on sale of investments 1,500 (18,939) 239,792 340,170 1,146,618
Interest and dividend income and
other 4,067 9,335 55,428 72,938 53,605
------------ ------------ ------------ ------------ ------------
(28,659) (10,493) 284,889 386,067 1,181,354
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ (1,120,643) (237,719) (2,006,818) (696,374) 336,809
============ ============ ============ ============ ============
EARNINGS (LOSS) PER SHARE:
Net earnings (loss) per
convertible share $ (2.78) (4.98)
============ ============
Weighted average number
of convertible shares outstanding 403,126 403,126
============ ============
</TABLE>
See accompanying notes to financial statements.
9
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THE NEW VENUS EXPLORATION, INC.
AND PREDECESSOR ENTITIES
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
Venus Energy PLC
Venus and The New Venus
Oil Exploration, Inc.
Company ------------------------ Additional Retained Total
Common Ordinary Convertible Paid-In Earnings Shareholders'
Stock Shares Shares Capital (Deficit) Equity
---------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 $ 3,215 -- -- -- 2,689,423 2,692,638
Net earnings -- -- -- -- 336,809 336,809
Cash distributions -- -- -- -- (20,000) (20,000)
---------- ---------- ---------- ---------- ---------- ----------
Balances, December 31, 1994 3,215 -- -- -- 3,006,232 3,009,447
Net loss -- -- -- -- (696,374) (696,374)
Cash distributions -- -- -- -- (72,000) (72,000)
---------- ---------- ---------- ---------- ---------- ----------
Balances, December 31, 1995 3,215 -- -- -- 2,237,858 2,241,073
Cash distributions
by Venus Oil Company -- -- -- -- (35,220) (35,220)
Distributions of assets not
transferred to Venus Energy PLC
and purchase price of properties
transferred (note 8) (3,215) -- -- -- (3,561,748) (3,564,963)
Stock issued by Venus
Energy PLC (note 1) -- -- 30,526 996,214 -- 1,026,740
Compensation costs for stock
options granted (note 8) -- -- -- 283,430 -- 283,430
Warrants to acquire
Ordinary Shares
issued under financing
arrangements (note 5) -- -- -- 25,000 -- 25,000
Net loss -- -- -- -- (2,006,818) (2,006,818)
---------- ---------- ---------- ---------- ---------- ----------
Balances, December 31, 1996 -- -- 30,526 1,304,644 (3,365,928) (2,030,758)
Net loss (unaudited) -- -- -- -- (1,120,643) (1,120,643)
Compensation costs for stock options
(note 8) (unaudited) -- -- -- 151,200 -- 151,200
---------- ---------- ---------- ---------- ---------- ----------
Balances, March 31, 1997 (unaudited) $ -- -- 30,526 1,455,844 (4,486,571) (3,000,201)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
10
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THE NEW VENUS EXPLORATION, INC.
AND PREDECESSOR ENTITIES
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
1997 1996 1996 1995 1994
----------- ------- --------- ------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $(1,120,643) (237,719) (2,006,818) (696,374) 336,809
Adjustments to reconcile net
earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation, depletion and
amortization 78,992 26,073 135,921 177,519 194,189
Impairments, abandoned
leases, and dry-hole costs 469,582 -- 981,178 243,811 37,489
Loss (gain) on sales of property, plant
and equipment (1,500) 18,939 (124,369) (340,170) (1,196,618)
Loss (gain) on investment transactions -- -- (115,423) -- 50,000
Compensation expense for stock options 151,200 -- 283,430 -- --
Decrease (increase) in accounts receivable (122,516) 144,485 (332,691) 648,131 (249,007)
Decrease (increase) in prepaid
expenses and other 7,547 (5,318) 68,138 (337,090) (23,167)
Increase (decrease) in accounts
payable 155,836 (1,133) 516,708 (2,174,407) 1,899,468
Increase (decrease) in cash advances
from interest owners (254,255) (157,408) 187,493 (277,435) 482,919
----------- ------- --------- ------- ---------
Net cash provided by (used in)
operating activities (635,757) (212,081) (406,433) (2,756,015) 1,532,082
----------- ------- --------- ------- ---------
INVESTING ACTIVITIES:
Capital expenditures (805,735) (142,845) (2,401,351) (403,772) (781,727)
Net proceeds on sale of investment
securities -- -- 165,423 6,850 --
Proceeds from sales of property,
plant and equipment 36,500 5,050 331,620 471,739 2,391,391
----------- ------- --------- ------- ---------
Net cash provided by (used in)
investing activities (769,235) (137,795) (1,904,308) 74,817 1,609,664
----------- ------- --------- ------- ---------
FINANCING ACTIVITIES:
Net proceeds from issuance of
long-term debt 739,943 -- 150,000 -- --
Repayments of long-term debt (31,494) (26,619) (150,000) (122,331) (748,475)
Distributions -- -- (2,650,908) (72,000) (20,000)
Deferred financing costs -- -- (289,267) -- --
Proceeds from issuance of stock -- -- 5,981,740 -- --
----------- ------- --------- ------- ---------
Net cash provided by (used in)
financing activities 708,449 (26,619) 3,041,565 (194,331) (768,475)
----------- ------- --------- ------- ---------
Increase (decrease) in cash and cash
equivalents (696,543) (376,495) 730,824 (2,875,529) 2,373,271
Cash and cash equivalents, beginning of period 1,303,917 573,093 573,093 3,448,622 1,075,351
----------- ------- --------- ------- ---------
Cash and cash equivalents, end of period $ 607,374 196,598 1,303,917 573,093 3,448,622
=========== ======= ========= ======= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 6,787 889 10,331 27,041 18,869
=========== ======= ========= ======= =========
</TABLE>
See accompanying notes to financial statements.
11
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THE NEW VENUS EXPLORATION, INC.
AND PREDECESSOR ENTITIES
Notes to Financial Statements
Years Ended December 31, 1996, 1995 and 1994 and
Three Months Ended March 31, 1997 and 1996
(Insofar as these notes relate to March 31, 1997 and 1996,
they are unaudited)
(1) ORGANIZATION
------------
The New Venus Exploration, Inc. (the "Company") is the successor
entity to certain oil and gas exploration, development, and production
operations of Venus Energy PLC and Venus Oil Company as described below.
Venus Energy PLC and subsidiaries were organized in 1996 to acquire
certain oil and gas exploration, development, and production operations of
Venus Oil Company. Venus Energy PLC and subsidiaries commenced operations
effective July 1, 1996 upon the transfer of certain oil and gas properties
from Venus Oil Company.
Venus Energy PLC was incorporated on May 15, 1996 as a public limited
company in the United Kingdom. Upon formation, the shareholders of Venus
Oil Company contributed $26,740 to Venus Energy PLC in exchange for
353,126 Convertible Shares. Venus Exploration, Inc. ("Old Venus") was
incorporated in the State of Texas on May 16, 1996 as a wholly-owned
subsidiary of Venus Energy PLC. Upon formation, Old Venus paid $22,500 to
Venus Oil Company for an option that would allow Old Venus to acquire
certain oil and gas properties from Venus Oil Company for $2 million.
Venus Energy PLC raised $4,955,000 from the sale of 247,750
Convertible Redeemable Preference Shares through a private offering to new
investors. Venus Energy PLC contributed substantially all of the proceeds
of the private offering to Old Venus. Effective July 1, 1996, Old Venus
exercised its option to acquire certain oil and gas properties from Venus
Oil Company for $2 million. Venus Oil Company then paid $1 million to
acquire 50,000 Convertible Shares of Venus Energy PLC. Venus Energy PLC
subsequently contributed substantially all of the proceeds from the sale
of the Convertible Shares to Old Venus. The employees of Venus Oil Company
became employees of Old Venus at the time of the transfer of the oil and
gas properties.
In September 1996, Venus Development, Inc. was incorporated in the
State of Texas as a wholly-owned subsidiary of Old Venus. Certain oil and
gas properties were transferred from Old Venus to Venus Development, Inc.
The oil and gas properties and the stock of Venus Development, Inc. have
been pledged as security for borrowings under the debt agreement described
in note 5 to the financial statements.
12
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(1) ORGANIZATION, CONTINUED
-----------------------
In a series of related transactions subsequent to December 31, 1996,
the shareholders of Venus Energy PLC became the shareholders of the
Company, and the Company succeeded to the assets of Old Venus. The
shareholders of Venus Energy PLC exchanged their shares for the
outstanding shares of the Company, and the assets and liabilities of Old
Venus were transferred to the Company. As discussed in note 12 to the
financial statements, on May 21, 1997 the Company transferred
substantially all of its assets and liabilities to Xplor Corporation in
exchange for Xplor Common Stock and warrants. As a result of the May 21,
1997 transactions, it is anticipated that Venus Energy PLC and Old Venus
will be liquidated.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) Financial Statement Presentation
The shareholders of Venus Oil Company controlled approximately 60
percent of the voting shares of Venus Energy PLC at the time of the
transfer of the oil and gas properties to Old Venus. For financial
statement purposes, Venus Oil Company has been treated as a predecessor
entity to Venus Energy PLC. The transfer of the oil and gas properties
from Venus Oil Company to Old Venus has been accounted for as a
transaction between entities under common control for financial statement
purposes because the shareholders of Venus Oil Company also have voting
control over Venus Energy PLC. Accordingly, the oil and gas properties
transferred from Venus Oil Company have been recorded by Old Venus at the
net carrying amount of such properties in the financial statements of
Venus Oil Company at the time of transfer as required by generally
accepted accounting principles. The purchase price of the properties and
the net assets of Venus Oil Company which were not transferred to Venus
Energy PLC or its subsidiaries have been treated as a distribution to the
shareholders of Venus Oil Company for financial statement purposes. In
addition, the formation of the Company and the related exchange of shares
with Venus Energy PLC and the transfer of assets and liabilities have been
accounted for as transactions between entities under common control.
Accordingly, those transactions did not result in any changes in the
financial statement carrying amounts of the Company's assets and
liabilities.
The accompanying financial statements, referred to as the financial
statements of The New Venus Exploration, Inc., include the accounts and
operations of the predecessor entities of the Company. Accordingly, the
consolidated balance sheet as of December 31, 1996 includes the accounts
of Venus Energy PLC and its wholly-owned subsidiaries, Venus Exploration,
Inc. ("Old Venus") and Venus Development, Inc. The results of operations
for the year ended December 31, 1996 comprise those of Venus Oil Company
from January 1, 1996 through June 30, 1996 and those of Venus Energy PLC
and subsidiaries from July 1, 1996 (the effective date of the transfer of
properties)
13
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(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
to December 31, 1996. Financial information of Venus Oil Company for 1995
and 1994 has also been presented to provide as comparative information. The
accompanying unaudited financial statements as of and for the three months
ended March 31, 1997 include the accounts and operations of Venus Energy
PLC and The New Venus Exploration, Inc. and their subsidiaries. As used
herein, the Company refers to The New Venus Exploration, Inc. and its
predecessor entities, Venus Energy PLC, Venus Oil Company, and their
subsidiaries as described above. All significant intercompany balances and
transactions have been eliminated in consolidation. The accompanying
financial statements do not reflect financial information related to the
May 21, 1997 business combination with Xplor Corporation discussed in note
12 to the financial statements.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased and money market accounts
to be cash equivalents.
(c) Oil and Gas Properties
The Company uses the successful efforts method of accounting for its
oil and gas operations. Under this method, the costs of unproved leases
are initially capitalized pending the results of exploration efforts. The
costs of unproved properties are assessed periodically for impairment, on
a field-by-field basis, and a loss is recognized to the extent, if any,
that the cost of a property has been impaired.
Exploration expenses, including geological and geophysical costs and
delay rentals, are charged to expense as incurred. Exploratory drilling
costs are initially capitalized, but are charged to expense if and when
the well is determined to be unsuccessful.
As unproved properties are determined to be productive, the property
acquisition costs and related exploratory drilling costs of successful
wells are transferred to proved properties. Development costs of proved
properties, including producing wells and related facilities and any
development dry holes, are capitalized. Depreciation, depletion, and
amortization of the costs of proved properties is provided by the
unit-of-production method based upon estimates of proved oil and gas
reserves on a field-by-field basis.
Capitalized costs of proved properties are periodically reviewed for
impairment on a field-by-field basis, and, if necessary, an impairment
provision is recognized to reduce the net carrying amount of such
properties to their estimated fair values.
14
<PAGE> 15
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) Other Property and Equipment
Depreciation and amortization of transportation equipment and office
furniture, fixtures, equipment, and leasehold improvements are computed
using the straight-line method over the respective estimated useful lives.
Maintenance, repairs and renewals are charged to operations, except that
renewals which extend the life of the property are capitalized.
(e) Income Taxes
The Company follows the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax effects of temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax laws or rates is recognized in income in the period that includes the
enactment date.
Venus Oil Company has elected Subchapter S Corporation status for
U.S. federal income tax purposes. Under the Subchapter S provisions, the
stockholders of Venus Oil Company are liable for any U.S. federal income
taxes related to taxable income of Venus Oil Company. Accordingly, no U.S.
federal income taxes related to the operations of Venus Oil Company are
reflected in the accompanying financial statements.
A valuation allowance is recognized to reduce deferred tax assets if,
based upon the weight of available evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
(f) Revenue Recognition
The Company records revenue following the entitlement method of
accounting for gas imbalances. As of December 31, 1996 and 1995, there
were no significant imbalances. In 1996, one customer accounted for
approximately 13% of total revenues. In 1995 and 1994, one customer
accounted for approximately 10% and 11% of total revenues, respectively.
(g) Other Assets
Deferred financing costs at December 31, 1996 consist of costs
associated with obtaining the Company's debt agreement (see note 5 to the
financial statements) which are amortized over the expected term of the
related borrowings.
15
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(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
Other assets include organizational costs which are amortized over
five years. Other assets at December 31, 1995 also include $50,000
related to an investment in equity securities of a non-public company,
which were carried at cost. Such securities were sold in 1996 subsequent
to the investee's initial public offering.
(h) Hedging Transactions
The Company enters into commodity derivative contracts for
non-trading purposes as a hedging strategy to manage commodity prices
associated with certain oil and gas sales and to reduce the impact of
price fluctuations. The counterparties to the contracts are major
financial institutions. The Company primarily uses price swaps for
production on properties pledged under the loan agreement discussed in
note 5 to the financial statements.
The Company utilizes the hedge or deferral method of accounting for
commodity derivative financial instruments whereby gains and losses on
these hedging instruments are recognized and recorded as revenues on
the statement of operations when the related natural gas or oil has
been produced, purchased or delivered. As a result, gains and losses on
commodity financial instruments are generally offset by similar changes in
the realized prices of natural gas and crude oil. To qualify as hedging
instruments, these instruments must be highly correlated to anticipated
future sales such that the Company's exposure to the risks of commodity
price changes is reduced. While commodity financial instruments are
intended to reduce the Company's exposure to declines in the market price
of natural gas and crude oil, the commodity financial instruments may also
limit the Company's gain from increases in the market price of natural gas
and crude oil.
On December 2, 1996, the Company entered into a financial swap, as
required under the loan agreement discussed in note 5 to the financial
statements, whereby the counterparty agrees to pay the Company the
difference between the floating price and the fixed price for certain
volumes of production in future months (commencing with January 1997
production) should the floating price fall below the negotiated fixed
price of $2.0497 per mmbtu for natural gas or $19.045 per barrel for oil,
respectively. Should the floating price exceed the fixed price for natural
gas or oil, the Company is required to remit the difference to the
counterparty. Quantities hedged are 109,773 mmbtu's of natural gas and
39,253 barrels of oil. This financial swap agreement expires December 31,
2001. Additionally, in December 1996, the Company purchased for
approximately $11,000 an option to enter into a similar swap agreement.
The option expired May 31, 1997. As of December 31, 1996, the estimated
fair value of the Company's swap positions was a net receivable of
approximately $37,000 based upon an estimate of what the Company would
receive if the contracts were liquidated.
16
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(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
The Company had no such hedging transactions in 1995 or 1994.
(i) Stock-Based Compensation
FASB Statement No. 123, "Accounting for Stock-Based
Compensation," allows companies to adopt a fair value based method of
accounting for stock-based employee compensation plans or to continue
to use the intrinsic-value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company has elected to account for
stock-based compensation under the intrinsic-value method under the
provisions of APB Opinion 25 and related Interpretations. Under this
method, compensation expense is recognized for stock options when the
exercise price of the options is less than the value attributed to
the stock on the date of grant.
(j) 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.
(k) Commitments and Contingencies
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines, and penalties, are recorded when it
is probable that a liability has been incurred and the related amount
can be reasonably estimated.
(l) Fair Values of Financial Instruments
The Company's financial instruments consist primarily of
short-term trade receivables or payables or recently issued debt
instruments for which management believes fair value approximates
carrying value. Also see note 2(h).
(m) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash
investments and trade receivables. The Company places its temporary
cash investments in U.S. Government securities and in other high
quality financial instruments. The Company's customer base consists
primarily of independent oil and natural gas producers and purchasers
of oil and gas products.
17
<PAGE> 18
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(n) Unaudited Interim Periods
In the opinion of management, all adjustments have been made
which are necessary to fairly state the financial position as of
March 31, 1997 and results of operations and cash flows for the
three-month periods ended March 31, 1997 and 1996.
(o) Earnings (loss) per share
Earnings (loss) per share for the three months ended March 31,
1997 and fiscal year ended December 31, 1996, are calculated based on
403,126 Convertible Shares outstanding. There were no Ordinary
(Common) Shares outstanding.
(3) OIL AND GAS PROPERTIES
The Company's oil and gas properties consist of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Proved properties $ 2,575,298 2,274,830 2,574,771
Unproved properties 211,390 300,110 42,582
------------ ------------ ------------
2,786,688 2,574,940 2,617,353
Less accumulated depreciation,
depletion, and amortization (924,689) (895,243) (1,487,486)
------------ ------------ ------------
$ 1,861,999 1,679,697 1,129,867
============ ============ ============
</TABLE>
The oil and gas properties transferred to Old Venus from Venus Oil
Company in 1996 were recorded at $532,820 (net of accumulated
depreciation, depletion, and amortization of $854,557), which was the net
carrying amount of such properties on the financial statements of Venus
Oil Company as of the effective date of transfer. Those costs included
$418,571 related to proved properties and $114,249 related to unproved
properties. Venus Oil Company's financial statement carrying amount of the
properties was determined using the successful efforts method of
accounting for oil and gas operations.
The impairment of oil and gas properties recognized in 1996 includes
a write-down of unproved properties of approximately $254,000 and a
write-down of proved properties of approximately $727,000.
18
<PAGE> 19
(4) OTHER PROPERTY AND EQUIPMENT
The Company's other property and equipment consists of the following
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Transportation equipment $ 91,422 109,243
Furniture, fixtures and
office equipment 343,378 286,982
Office leasehold improvements 36,225 36,225
---------- ----------
471,025 432,450
Less accumulated depreciation and
amortization (368,292) (334,634)
---------- ----------
$ 102,733 97,816
========== ==========
</TABLE>
Substantially all of the above other property and equipment was
transferred from Venus Oil Company at the net book value of the property
and equipment at the date of transfer as discussed in note 8 to the
financial statements.
(5) LONG-TERM DEBT
In October 1996, the Company entered into a Term Loan and Security
Agreement with a lender to finance the acquisition and development of oil
and gas properties. Under the agreement, the Company may borrow up to
approximately $2.6 million to finance the development of specified oil and
gas properties. Such borrowings are subject to limitations based on the
value of the proved reserves of the properties and must be drawn within
eight months of the closing of the agreement. The borrowings for the
specified properties are to be repaid over a period not to exceed five
years from the date of closing of the agreement.
In addition, the Company may borrow up to approximately $17.4 million
to finance the acquisition and development of new properties, subject to
limitations based on the value of the Company's proved reserves
attributable to properties the Company has agreed to include as security
for such loan. Borrowings for the acquisition and development of new
properties must be drawn within two years from the date of closing of the
agreement and must be repaid within seven years from the date of the first
drawdown. The Company is required to pay a drawdown fee to the lender of 1
percent of each drawdown under the agreement. Borrowings under the
agreement bear interest at the prime rate plus 1 percent.
Payments on borrowings under the agreement are based on 85 or 90
percent of the net revenue, as defined in the agreement, from the secured
properties, depending on the value of the proved reserves of the secured
properties relative to the outstanding loan balance. In addition, the
lender shall have the right to purchase at competitive market prices all
crude oil or natural gas produced from or allocable to the secured
properties including, without limitation, all of the production
attributable to the Company's net revenue interest in the secured
properties subject to the rights of other working interest and royalty
interest owners.
19
<PAGE> 20
(5) LONG-TERM DEBT, CONTINUED
-------------------------
The term of the purchase and sale agreement extends seven years with three
additional one-year options.
Borrowings under the agreement are to be secured by a first priority
security interest and mortgage in all of the Company's royalty, working,
and net revenue interests in the secured properties. In addition, all of
the secured properties are to be transferred to Venus Development, Inc.,
all of the outstanding capital stock of which is pledged as additional
security for the borrowings.
Under the agreement, the Company is required to assign an overriding
royalty interest equal to five percent of the Company's net revenue
interest in the secured properties. The lender has the right to convert the
value of its overriding royalty interests into equity interests of the
Company, subject to certain limitations. The Company also granted warrants
to the lender to purchase equity interests in the Company, subject to
certain limitations. The estimated fair value of the royalty interests
assigned as of December 31, 1996 of $57,500 and warrants of $25,000 have
been recorded as deferred financing costs and are amortized as additional
interest over the term of the related borrowings. Additional overriding
royalty interests of $58,113 were recorded as deferred financing costs
during the three months ended March 31, 1997 (unaudited). In connection
with the transaction discussed in note 12 to the financial statements, the
lender has agreed that any shares to be issued pursuant to such instruments
will no longer be an obligation of the entity which survived such
transaction but will be satisfied from an escrow of a percentage of the
shares issued in that transaction by Xplor Corporation to the Company.
As of December 31, 1996, no amounts had been borrowed under the
agreement. Based on the value of the proved reserves of the specified
secured properties, approximately $1.1 million was available under the
agreement at December 31, 1996 to finance the development of the specified
secured properties. As of March 31, 1997, the Company had $757,643
outstanding under this agreement (unaudited).
During 1996, the Company entered into a line of credit agreement with
a bank under which the Company could borrow up to $325,000. Interest on
amounts borrowed under the line of credit agreement was based on the
bank's prime rate. During 1996, the Company borrowed and repaid $150,000
under the line of credit agreement. The line of credit agreement was
terminated in October 1996.
Notes payable at December 31, 1995 relate to the remaining maturities
on certain unsecured notes due to individuals, including certain former
employees. The notes bear interest at 7 percent. The notes were not
transferred to Venus Energy PLC or its subsidiaries and are reflected in
the 1996 statement of shareholders' equity as part of the distribution of
the net assets of Venus Oil Company which were not transferred to Venus
Energy PLC or its subsidiaries.
20
<PAGE> 21
(6) INCOME TAXES
- ----------------
As of December 31, 1996, Old Venus and Venus Development, Inc. have
an estimated operating loss carryforward for U.S. federal income tax
purposes of approximately $700,000 which is available to offset future
taxable income, if any, through 2011. In addition, the tax basis of the
oil and gas properties exceed the related financial statement carrying
amount of the properties by approximately $2.7 million and compensation
costs of $283,430 have been recognized for financial statement purposes
which are not yet deductible for tax purposes. Other than the basis
differences in the oil and gas properties and compensation costs, there
are no other significant temporary differences. At December 31, 1996, the
deferred tax asset of approximately $1.2 million related to the operating
loss carryforward and temporary differences has been offset entirely by a
valuation allowance due to the uncertainty of the ultimate realization of
such tax benefits. The utilization of the Company's net operating loss
carryforwards may be limited as a result of the transactions referred to
in note 12 to the financial statements.
As discussed in note 12 to the financial statements, the Company
intends to liquidate Venus Energy PLC. Management of the Company believes
that there will be no significant tax obligations in the United Kingdom as
a result of such liquidation.
(7) CONVERTIBLE REDEEMABLE PREFERENCE SHARES
- --------------------------------------------
The Convertible Redeemable Preference Shares outstanding as of
December 31, 1996 (the "Preference Shares") are to be converted to
Ordinary Shares of Venus Energy PLC on a one-for-one basis if, on or
before March 31, 2000, the Ordinary Shares are listed or traded on a stock
exchange in the United States or a designated offshore securities market.
If Venus Energy PLC has not obtained a listing on a stock exchange by
March 31, 2000, the holders of the Preference Shares are entitled to
require Venus Energy PLC, at its option, to either:
(a) Liquidate the assets of Venus Energy PLC in which case the holders of
the Preference Shares will be entitled to receive, per share owned,
the higher of (i) the net amount realized in the liquidation divided
by the total number of shares in all classes of shares at the date of
liquidation or (ii) 75 percent of the aggregate nominal value and any
share premium paid on each Preference Share ($15 per share), but
limited to 75 percent of the net amount realized in the liquidation
divided by the total number of shares in all classes at the date of
liquidation; or
(b) Redeem the Preference Shares at a redemption price that is the higher
of (i) the value of the assets of Venus Energy PLC based upon
appraisals divided by the total number of shares in all classes of
shares at the date of redemption or (ii) 75 percent of the aggregate
of the nominal value and any share premium paid on each Preference
Share ($15 per share), but limited to 75 percent of the appraised
value of the assets divided by the total number of shares in all
classes at the date of redemption.
21
<PAGE> 22
(7) CONVERTIBLE REDEEMABLE PREFERENCE SHARES, CONTINUED
- -------------------------------------------------------
Due to the redemption features discussed above, the Preference Shares
have been treated as mandatorily redeemable preferred stock and have been
excluded from shareholders' equity. The Preference Shares have no
preferred dividend rights.
As discussed in note 1 to the financial statements, subsequent to
December 31, 1996 the shares of Venus Energy PLC were exchanged for shares
of the Company with substantially equivalent rights, preferences and
terms. As indicated in note 12 to the financial statements, it is
anticipated that the Company will be liquidated and that the shares of
Common Stock and warrants of Xplor Corporation received by the Company in
the transactions described in note 12 will be distributed to the
shareholders of the Company.
(8) SHAREHOLDERS' EQUITY
- ------------------------
The authorized shares of Venus Energy PLC at December 31, 1996
consist of 200 million shares of Convertible Redeemable Preference Shares
(see note 7 to the financial statements), 200 million Convertible Shares,
and 200 million Ordinary Shares. As of December 31, 1996, shares issued
and outstanding included 247,750 Convertible Redeemable Preference Shares
and 403,126 Convertible Shares. There were no Ordinary Shares outstanding
at December 31, 1996. The Convertible Shares are to be converted to
Ordinary Shares on a one-for-one basis if on or before March 31, 2000, the
Ordinary Shares are listed or traded on a stock exchange in the United
States or a designated offshore securities market.
The holders of all three classes of shares are entitled to one vote
for each share held on all matters to be voted on by shareholders.
However, the holders of the Preference Shares may vote as a class to force
the liquidation or redemption election as described in note 7 to the
financial statements.
As discussed in note 1 to the financial statements, subsequent to
December 31, 1996, the shares of Venus Energy PLC were exchanged for
shares of the Company with substantially equivalent rights, preferences
and terms. As of March 31, 1997, the authorized shares of the Company
consist of 200 million shares of Convertible Redeemable Preference Shares
(see note 7 to the financial statements), 200 million Convertible Shares,
and 400 million shares of Common Stock. As of March 31, 1997, shares
issued and outstanding include 237,750 Convertible Redeemable Preference
Shares and 403,126 Convertible Shares. There were no shares of Common
Stock outstanding at March 31, 1997. As indicated in note 12 to the
financial statements, it is anticipated that the Company will be
liquidated and that the shares of Common Stock and warrants of Xplor
Corporation received by the Company in the transactions described in note
12 will be distributed to the shareholders of the Company.
As discussed in notes 2 and 3 to the financial statements, Old Venus
acquired oil and gas properties with a net financial statement carrying
amount of $532,820 from Venus Oil Company for $2,022,500 in 1996. In
addition, Old Venus paid Venus Oil Company $111,908 for certain other
assets with a net financial statement carrying amount of $67,704. The
properties and other assets transferred from Venus Oil Company have been
recorded by Old
22
<PAGE> 23
(8) SHAREHOLDERS' EQUITY, CONTINUED
- -----------------------------------
Venus at the net carrying amounts of such properties and other assets in
the financial statements of Venus Oil Company at the time of transfer. The
amounts paid to Venus Oil Company for the properties and other assets and
the remaining net assets of Venus Oil Company which were not transferred
to Venus Energy PLC or its subsidiaries of $1,430,555, including cash of
$481,280, have been recorded as distributions in the 1996 statement of
shareholders' equity.
The Company has granted options to certain directors of Venus Energy
PLC to acquire 11,250 Convertible Shares at an exercise price equal to the
nominal value of the shares ($0.077 per share). In addition, Venus Energy
PLC has granted additional options to a director to acquire 15,625
Convertible Shares at an exercise price equal to the nominal value of the
shares if Venus Energy PLC obtains a stock exchange listing prior to June
1, 1998. The Company has recognized compensation expense and a
corresponding increase in additional paid-in capital of $283,430 in 1996
and $151,200 during the three months ended March 31, 1997 (unaudited)
related to these options based on the excess of the $20 per share price
received in the private offering over the exercise price of the options
and the related service periods. The Company has also granted options to
special counsel to acquire 5,000 Convertible Shares at an exercise price
equal to the $20 per share received in the private offering. The
difference between the compensation cost as recognized in the financial
statements and compensation cost based on the estimated fair value of the
options under the provisions of FASB Statement No. 123 is not significant.
(9) RELATED PARTY TRANSACTIONS
- ------------------------------
The shareholders of Venus Oil Company own certain interests in the
Company's oil and gas properties. The Company receives $2,500 per month
from Venus Oil Company for overhead reimbursement.
At December 31, 1996, accounts receivable includes $6,848 due from
Venus Oil Company.
Notes receivable from shareholders at December 31, 1995 bore interest
at rates ranging from 5.73 to 9.5 percent. Such notes were not transferred
to Venus Energy PLC or its subsidiaries and are reflected in the 1996
statement of shareholders' equity as part of the distribution of the net
assets of Venus Oil Company which were not transferred to Venus Energy PLC
or its subsidiaries.
(10) EMPLOYEE BENEFIT PLAN
- --------------------------
The Company has a Profit Sharing 401(k) Plan (the Plan). Benefits
under the Plan are based on the participants' vested interests in the
value of their respective accounts at the time the benefits become payable
as a result of retirement, separation from service, or other events.
Eligible participants include all Company employees who have reached age
21 and have completed three months of service with the Company. Employees
may elect to contribute a
23
<PAGE> 24
(10) EMPLOYEE BENEFIT PLAN, CONTINUED
- -------------------------------------
portion of their base compensation to the Plan. The Company may make
matching contributions on behalf of the participants based on actual
participant contributions. Employer contributions are discretionary. The
Company made contributions to the plan of $4,643, $5,010, and $5,633 for
1996, 1995, and 1994, respectively.
(11) COMMITMENTS
- ----------------
The Company leases office space and certain automobiles under
noncancelable operating leases. Following is a schedule of future minimum
lease payments under noncancelable operating leases with initial or
remaining lease terms in excess of one year as of December 31, 1996:
<TABLE>
<CAPTION>
Year ending December 31:
------------------------
<S> <C>
1997 $ 55,791
1998 26,856
1999 19,700
2000 14,019
----------
Total future minimum lease payments $ 116,366
==========
</TABLE>
Rental expense under operating leases was $101,524, $102,120 and
$96,823 for 1996, 1995, and 1994, respectively.
(12) SUBSEQUENT EVENTS
- -----------------------
As discussed in note 1, in a series of related transactions
subsequent to December 31, 1996, the shareholders of Venus Energy PLC
exchanged their shares of Venus Energy PLC for shares of the Company, and
the assets and liabilities of Old Venus were transferred to the Company.
The rights, preferences and terms of the shares issued by the Company to
the former shareholders of Venus Energy PLC are substantially the same as
those previously held by them. Upon the dissolution of the Company
referred to in the following paragraph, the shareholders will receive
common stock of the surviving entity to the transaction therein described.
Pursuant to a Property Acquisition Agreement dated as of April 29,
1997 among the Company, two affiliates of Lomak Petroleum, Inc. (the
"Lomak Entities") and Xplor Corporation ("Xplor"), on May 21, 1997 the
Company transferred substantially all of its assets and liabilities to
Xplor in exchange for common stock and warrants of Xplor. At the same
time, the Lomak Entities transferred certain assets to Xplor in exchange
for common stock and warrants of Xplor. It is expected that the Company
will be dissolved, and the Xplor shares and warrants distributed to the
Company's shareholders, subject to the escrow referred to in note 5 to the
financial statements. Such shares represent approximately 58% of the
outstanding shares
24
<PAGE> 25
(12) SUBSEQUENT EVENTS, CONTINUED
- ---------------------------------
of Xplor, and, as a result, for financial reporting purposes the
transactions described above will be accounted for as a reverse
acquisition by the Company of Xplor and the Lomak Entities. Accordingly,
the historical financial statements of the Company will be presented as
the historical financial statements of the combined entity and the assets
and liabilities of Xplor and the Lomak Entities will be recorded at fair
value as of the date of the combination. Following the transactions, Xplor
changed its name to Venus Exploration, Inc.
In May 1997, the Company entered into a $20 million revolving line of
credit agreement with a bank. Interest on amounts borrowed under the line
of credit will be based on the bank's prime rate plus one percent.
(13) SUPPLEMENTAL OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(a) Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Acquisition of unproved properties $ 569,906 144,118 212,305
========== ========== ==========
Exploration costs $ 92,287 311,072 37,541
========== ========== ==========
Development costs $1,200,438 132,215 384,390
========== ========== ==========
Tangible drilling and equipment
costs $ 414,443 109,624 114,824
========== ========== ==========
</TABLE>
(b) Results of Operations for Oil and Gas Producing Properties
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 510,748 757,589 789,147
Management and service 629,588 887,774 737,214
------------ ------------ ------------
Total 1,140,336 1,645,363 1,526,361
Lease operating expenses (253,545) (439,306) (567,948)
Geological and geophysical (92,287) (311,073) (37,541)
Abandoned leases -- (264,439) (37,489)
Impairments (981,178) -- --
Depreciation, depletion
and amortization (76,286) (122,659) (141,278)
------------ ------------ ------------
Operating profit (loss) (262,960) 507,886 742,105
Income tax expense (benefit) (*) -- -- --
------------ ------------ ------------
Results of operations from
producing activities $ (262,960) 507,886 742,105
============ ============ ============
</TABLE>
25
<PAGE> 26
(13) SUPPLEMENTAL OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED), CONTINUED
- -------------------------------------------------------------------------
(*) No income tax expense (benefit) has been reflected as the operations
were conducted by Venus Oil Company, which is an S Corporation, through
June 30, 1996 and the Company has incurred losses from oil and gas
operations subsequent to June 30, 1996.
(c) Reserve Quantity Information
The following table presents the Company's estimate of its proved oil
and gas reserves, all of which are located in the United States. The
Company emphasizes that reserve estimates are inherently imprecise and
that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available. The
estimates have been prepared by independent petroleum reservoir
engineers, in conjunction with the Company's internal petroleum
reservoir engineers.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
<S> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES:
Beginning of the year 446 2,326 259 3,874 209 4,765
Revision of previous estimates (209) (837) 221 (1,332) 85 (683)
Production (12) (29) (34) (216) (35) (208)
-------- -------- -------- -------- -------- --------
End of year 225 1,460 446 2,326 259 3,874
======== ======== ======== ======== ======== ========
PROVED DEVELOPED RESERVES:
Beginning of the year 125 365 73 500 209 1,099
======== ======== ======== ======== ======== ========
End of the year 107 523 125 365 73 500
======== ======== ======== ======== ======== ========
</TABLE>
(d) Standardized Measure of Discounted Future Net Cash Flows
The Company's standardized measures of discounted future net cash
flows and changes therein as of December 31, 1996, 1995 and 1994 are
provided based on present values of future net revenues from proved
oil and gas reserves estimated by independent petroleum engineers in
conjunction with the Company's internal petroleum reservoir engineers
in accordance with guidelines established by the Securities and
Exchange Commission. These estimates were computed by applying
appropriate current oil and natural gas prices to estimated future
production of proved oil and gas reserves over the economic lives of
the reserves and assuming continuation of existing economic
conditions. Year ended 1996 calculations were made utilizing average
prices for oil and natural gas that existed at December 31, 1996 of
$18.80 per barrel and $2.55 per Mcf, respectively. Income taxes are
computed by applying the statutory federal income
26
<PAGE> 27
(13) SUPPLEMENTAL OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED), CONTINUED
- -------------------------------------------------------------------------
tax rate to the net cash inflows relating to proved oil and gas reserves
less the tax bases of the properties involved and giving effect to net
operating loss carryforwards, tax credits and allowances relating to such
properties. The reserve volumes provided by the independent petroleum
engineers are estimates only and should not be construed as exact
quantities. These reserves may or may not be recovered and may increase or
decrease as result of future operations of the Company and change in
market conditions.
<TABLE>
<CAPTION>
Years Ended December 31,
($ 000's)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Future cash inflows 7,955 12,535 11,828
Future development costs (889) (1,764) (745)
Future production costs (2,481) (3,537) (3,495)
-------- -------- --------
Future net cash flows before income taxes 4,585 7,234 7,588
10% annual discount (1,633) (2,898) (2,483)
Discounted income taxes(*) -- -- --
-------- -------- --------
Standardized measure of discounted
future net cash flows 2,952 4,336 5,105
======== ======== ========
</TABLE>
(*) No income tax expense (benefit) has been reflected as the operations were
conducted by Venus Oil Company, which is an S Corporation, through June
30, 1996 and the Company has operating loss carryforwards from oil and gas
operations and sufficient tax basis in oil and gas properties to offset
the future net cash flows before income taxes as of December 31, 1996.
27
<PAGE> 28
(13) SUPPLEMENTAL OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED), CONTINUED
- -------------------------------------------------------------------------
Principal Sources of Changes in the Standardized Measure of
Discounted Future Net Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
($ 000's)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Standardized measure of discounted future
net cash flows, beginning of year $ 4,336 5,105 3,350
Revisions of previous quantity estimates (3,937) (1) (334)
Net changes in prices and production costs 589 181 495
Changes in estimated future development costs 208 691 (397)
Development costs incurred during period that
reduced future development costs 1,200 132 384
Sales of oil and gas produced during period, net
of production costs (257) (318) (221)
Accretion of discount 434 511 335
Other (changes in production rates, timing
and other) 379 (1,965) 1,493
-------- -------- --------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS, END OF YEAR $ 2,952 4,336 5,105
======== ======== ========
</TABLE>
28
<PAGE> 29
LOMAK PETROLEUM, INC.
FINANCIAL STATEMENTS OF THE LOMAK INTERESTS ACQUIRED BY VENUS EXPLORATION, INC.
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995,
AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997, AND
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996
29
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Venus Exploration, Inc.:
We have audited the accompanying statements of assets (other than productive
oil and gas properties) and liabilities of the Lomak Petroleum, Inc. Interests
(the "Lomak Interests") as of December 31, 1996 and 1995, acquired pursuant to
the purchase by Venus Exploration, Inc. as described in Note 1, and the related
statements of revenues and direct operating expenses for the years ended
December 31, 1996 and 1995. The statements of assets (other than productive oil
and gas properties) and liabilities and statements of revenues and direct
operating expenses are the responsibility of Venus Exploration, Inc.'s
management. Our responsibility is to express an opinion on the statements of
assets (other than productive oil and gas properties) and liabilities and
statements of revenues and direct operating expenses 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 statements of assets (other than
productive oil and gas properties) and liabilities and statements of revenues
and direct operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of assets (other than productive oil and gas
properties) and liabilities and statements of revenues and direct operating
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statements of assets (other than productive oil and gas
properties) and liabilities and statements of revenues and direct operating
expenses. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of assets (other than productive oil and gas
properties) and liabilities and statements of revenues and direct operating
expenses referred to above present fairly, in all material respects, the assets
(other than productive oil and gas properties) and liabilities of the Lomak
Interests as of December 31, 1996 and 1995, acquired pursuant to the purchase
by Venus Exploration, Inc. as described in Note 1, and the related revenues and
direct operating expenses for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cleveland, Ohio,
August 4, 1997.
30
<PAGE> 31
THE LOMAK INTERESTS
STATEMENTS OF ASSETS (OTHER THAN PRODUCTIVE
OIL AND GAS PROPERTIES) AND LIABILITIES (NOTE 1)
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Assets (other than productive oil and gas properties)
Accounts receivable $ 312 $ 342 $ 289
Liabilities
Accounts payable and accrued liabilities (77) (83) (118)
-------- -------- --------
Excess of assets (other than productive oil and gas
properties) acquired over liabilities assumed $ 235 $ 259 $ 171
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 32
THE LOMAK INTERESTS
STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES (NOTE 1)
<TABLE>
<CAPTION>
Unaudited
Three months ended Year ended
March 31, December 31,
1997 1996 1996 1995
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues $ 393 $ 400 $ 1,607 $ 1,505
Direct operating expenses (155) (187) (666) (796)
---------- ---------- ---------- ----------
Excess of revenues over direct
operating expenses $ 238 $ 213 $ 941 $ 709
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 33
THE LOMAK INTERESTS
NOTES TO STATEMENTS OF ASSETS
(OTHER THAN PRODUCTIVE OIL AND GAS PROPERTIES)
AND LIABILITIES AND STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
(1) GENERAL:
Organization
The accompanying statements present the assets (other than productive oil
and gas properties) and liabilities and revenues and direct operating
expenses of certain working and other interests in oil and gas properties
of Lomak Petroleum, Inc. (the "Lomak Interests") acquired by Venus
Exploration, Inc. ("Venus"), effective January 1, 1997. Such financial
statements were derived from the historical records of Lomak Petroleum,
Inc. ("Lomak") and represent the net interests acquired by Venus.
Basis of Presentation
Full historical financial statements reflecting financial position,
results of operations and cash flows as required by generally accepted
accounting principles are not presented as such information is neither
readily available on an individual property basis nor meaningful for the
Lomak Interests. During the periods presented, the Lomak Interests were
not accounted for as a separate entity. These statements do not include
depreciation, depletion and amortization, general and administrative
expenses, interest expense or federal income tax expense. Accordingly, the
accompanying financial statements are not intended to be a complete
presentation of the financial position, results of operations and cash
flows of the Lomak Interests in conformity with generally accepted
accounting principles.
The Lomak Interests are not taxpaying entities. Accordingly, no provision
for income taxes has been provided.
Revenue Recognition
Revenues are recognized when oil and gas production is sold. Direct
operating expenses are recorded when services are provided.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets, liabilities, revenues and direct operating expenses
to prepare these statements in accordance with the basis of presentation
described above. Actual results could differ from those estimates.
33
<PAGE> 34
(2) SALES TO SIGNIFICANT CUSTOMERS:
Due to the fact that the Lomak Interests are primarily in properties
not operated by Lomak, information as to purchasers of greater than 10% of
revenues is not readily available. However, Lomak has no knowledge of any
customer with regards to significant purchases from the Lomak Interests.
(3) OIL AND GAS RESERVES INFORMATION (UNAUDITED):
The estimates of proved oil and gas reserves attributable to the
Lomak Interests, which are located entirely in the United States, are
based on evaluations by independent petroleum engineers. Reserves at
December 31, 1996 were estimated in accordance with guidelines established
by the Securities and Exchange Commission which require that reserve
reports be prepared under existing economic and operating conditions with
no provision for price escalations except by contractual arrangements.
Reserves at December 31, 1995 and 1994 were derived by adjusting the
December 31, 1996 reserve estimates for historical production quantities.
Lomak's management emphasizes that reserve estimates are inherently
imprecise. Accordingly, the estimates are expected to change as additional
information becomes available.
The following unaudited table sets forth the estimated proved oil and
gas reserve quantities of the Lomak Interests at December 31, 1994, 1995
and 1996:
<TABLE>
<CAPTION>
Oil & NGL's Natural Gas
(Mbbls) (Mmcfs)
---------- ----------
<S> <C> <C>
PROVED RESERVES
Balance, December 31, 1994 840 1,546
Production (73) (206)
---------- ----------
Balance, December 31, 1995 767 1,340
Production (70) (136)
---------- ----------
Balance, December 31, 1996 697 1,204
========== ==========
PROVED DEVELOPED RESERVES
Balance, December 31, 1996 470 981
========== ==========
</TABLE>
The "Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves" (the "Standardized Measure") is a
disclosure requirement under Statement of Financial Accounting Standards
No. 69. The Standardized Measure does not purport to present the fair
market value of proved oil and gas reserves. An estimate of
34
<PAGE> 35
fair market value would require consideration of expected future economic
and operating conditions, which are not taken into account in calculating
the Standardized Measure.
Future net cash flows were estimated by applying year end prices,
adjusted for fixed and determinable escalations, to the estimated future
production less estimated future production costs based on year end costs
and future development costs. Future net cash flows were discounted using
a 10% annual discount rate to arrive at the Standardized Measure.
The Standardized Measure of discounted future net cash flows relating
to proved oil and gas reserves is as follows:
<TABLE>
<CAPTION>
December 31,
1996
----------
(In thousands)
<S> <C>
Future cash inflows $ 23,471
Future costs:
Production (8,659)
Development (1,508)
----------
Future net cash flows 13,304
Income taxes --
Undiscounted future net cash flows 13,304
10% discount factor (4,940)
----------
Standardized Measure $ 8,364
==========
</TABLE>
The changes in the Standardized Measure of discounted future net cash
flows from proved oil and gas reserves is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996
-----------------------
(In thousands)
<S> <C>
Standardized Measure, beginning of year $ 9,305
Sales, net of production costs (941)
-------
Standardized Measure, end of year $ 8,364
=======
</TABLE>
35
<PAGE> 36
VENUS EXPLORATION, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
On May 21, 1997, Registrant, then known as Xplor Corporation ("Xplor"),
acquired substantially all of the assets and liabilities of The New Venus
Exploration, Inc. ("New Venus"), a Texas corporation, in exchange for 5,626,473
shares of Registrant's previously authorized and unissued shares of Common
Stock and warrants to purchase 272,353 additional shares of Common Stock.
Simultaneously, Registrant acquired certain oil and gas properties of two
wholly-owned affiliates of Lomak Petroleum, Inc., Lomak Production I L.P., a
Texas limited partnership, and Lomak Resources LLC, an Oklahoma limited
liability company (together, "Lomak Properties") in exchange for 2,037,171
shares of Registrant's previously authorized and unissued shares of Common
Stock and warrants to purchase 272,353 additional shares of Common Stock.
For financial reporting purposes, the transactions are accounted for as a
reverse acquisition whereby New Venus is deemed to be the acquirer.
Accordingly, the historical financial statements of New Venus and predecessor
entities will be presented as the historical financial statements of the
combined entity and the assets acquired and liabilities assumed from Xplor and
Lomak will be recorded at fair value as of the date of the combination as
required under purchase accounting. For purposes of determining the costs of
the acquisitions, management has valued the shares and warrants issued to Lomak
and the shares, options and warrants held by Xplor shareholders based on the
estimated fair values of the assets acquired and liabilities assumed, rather
than the current market price of Xplor shares. Management believes that using
the estimated fair values of the assets acquired and liabilities assumed to
determine the costs of the acquisitions rather than the market price of the
Xplor shares is appropriate because (1) there is limited trading activity in
the shares, (2) the stock issued to effect the combination contains
restrictions that limit its marketability, and (3) the number of shares issued
to effect the combination substantially exceeds the current trading volume of
the shares in the marketplace and substantially exceeds the number of Xplor
shares outstanding prior to the combination.
The following unaudited pro forma consolidated statements of operations
for the year ended December 31, 1996 and the three-month period ended March 31,
1997 and the unaudited pro forma consolidated balance sheet as of March 31,
1997 (the "Unaudited Pro Forma Consolidated Financial Statements") give
effect to the deemed acquisition of Xplor and the Lomak Properties by
New Venus under the purchase method of accounting and the related assumptions
and adjustments described in the Notes to Unaudited Pro Forma Consolidated
Financial Statements.
The Unaudited Pro Forma Consolidated Financial Statements are based upon
the historical audited and unaudited financial statements of Xplor, New Venus
and the Lomak Properties, and should be read in conjunction with the audited
financial statements and notes thereto included in Xplor's Annual Report on
Form 10-K for the year ended December 31, 1996, the unaudited Quarterly Report
of Xplor on Form 10-Q for the three-month period ended March 31, 1997, and the
audited and unaudited financial statements and notes thereto of New Venus and
Lomak included herein. See "Index of Financial Statements." The results of the
periods presented are not necessarily indicative of the results that would have
been achieved had the acquisitions been consummated at the
36
<PAGE> 37
respective dates assumed in the Unaudited Pro Forma Consolidated Financial
Statements and should not be construed as indicative of future results.
The Unaudited Pro Forma Consolidated Statements of operations for the year
ended December 31, 1996 and the three-month period ended March 31, 1997 have
been prepared assuming that the transactions described above were consummated
on January 1, 1996. The unaudited pro forma consolidated balance sheet as of
March 31, 1997 was prepared assuming that the transactions described above were
consummated as of March 31, 1997. The Unaudited Pro Forma Consolidated
Financial Statements have been prepared based upon assumptions deemed
appropriate and may not be indicative of actual results.
37
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS XPLOR AND LOMAK PROPERTIES
ACQUISITION
VENUS EXPLORATION, INC.
F/K/A XLPOR CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
----------------------------------
Acquired Operations
New Lomak Pro Forma
Venus Xplor Properties Adjustments Pro Forma
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales ................. $ 511 $ 476 $1,607 $ -- $ 2,594
Gain on sale of investments ....... 240 -- -- -- 240
Interest and other income ......... 55 150 -- -- 205
Management and overhead fees ...... 629 129 -- -- 758
------- ------- ------ ----- -------
Total revenues .................. 1,435 755 1,607 -- 3,797
------- ------- ------ ----- -------
Costs and expenses:
Lease operating expense ........... 254 201 666 -- 1,121
Depreciation, depletion and
amortization ..................... 76 191 -- 504 771
Exploration, asset impairment
and dry hole ..................... 1,073 4 -- -- 1,077
General and administrative ........ 2,029 555 -- -- 2,584
Interest and other ................ 10 -- -- -- 10
------- ------- ------ ----- -------
Total costs and expenses ............ 3,442 951 666 504 5,563
------- ------- ------ ----- -------
Income (loss) before income taxes (2,007) (196) 941 (504) (1,766)
------- ------- ------ ----- -------
Income taxes:
Current ..................... -- (30) -- -- (30)
Deferred .................... -- -- -- -- --
------- ------- ------ ----- -------
Total ........................... -- (30) -- -- (30)
------- ------- ------ ----- -------
Net earnings (loss) available
to common stock ................. $(2,007) $ (166) $ 941 $(504) $(1,736)
======= ======= ====== ===== =======
Average shares outstanding ........... 9,701
Earnings per share ................... $ (0.18)
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
38
<PAGE> 39
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
XPLOR AND LOMAK PROPERTIES ACQUISITION
VENUS EXPLORATION, INC.
F/K/A XPLOR CORPORATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
--------------------------------------------
Acquired Operations
New Lomak Pro Forma
Venus Xplor Properties Adjustments Pro Forma
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales ......................... $ 135 $ 121 $ 393 $ -- $ 649
Gain (loss) on sale of investments ........ 2 (9) -- -- (7)
Interest and other income ................. 4 40 -- -- 44
Management and overhead fees .............. 184 30 -- -- 214
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues .......................... 325 182 393 -- 900
- ----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Lease operating expense ................... 44 34 155 -- 233
Depreciation, depletion and
amortization ............................ 29 36 -- 129 194
Exploration, asset impairment
and dry hole ............................ 499 -- -- -- 499
General and administrative ................ 839 107 -- -- 946
Interest and other ........................ 34 -- -- -- 34
- ----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses .................... 1,445 177 155 129 1,906
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes ..... (1,120) 5 238 (129) (1,006)
- ----------------------------------------------------------------------------------------------------------------------------
Income taxes:
Current ............................. -- -- -- -- --
Deferred ............................ -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total ................................... -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) available
to common stock ......................... $ (1,120) $ 5 $ 238 $ (129) $ (1,006)
============================================================================================================================
Average shares outstanding ................... 9,701
Earnings per share ........................... $ (0.10)
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
39
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
XPLOR AND LOMAK PROPERTIES ACQUISITION
VENUS EXPLORATION, INC.
F/K/A XPLOR CORPORATION
AS OF MARCH 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
--------------------------------
Acquired Operations
New Lomak Pro Forma
Venus Xplor Properties Adjustments Pro Forma
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 607 $ 2,824 $ -- $ -- $ 3,431
Accounts receivable ....................... 913 149 312 -- 1,374
Prepaids and other current assets.. 17 -- -- -- 17
- ---------------------------------------------------------------------------------------------------------
Total current assets................... 1,537 2,973 312 -- 4,822
- ---------------------------------------------------------------------------------------------------------
Oil and gas property,
successful efforts
Developed and undeveloped.................... 2,787 18,776 -- (13,096) 8,467
Less: Accumulated depreciation
and amortization............................... ( 925) (16,571) -- 16,571 (925)
- ---------------------------------------------------------------------------------------------------------
Net oil and gas property............... 1,862 2,205 -- 3,475 7,542
- ---------------------------------------------------------------------------------------------------------
Other property and equipment.................... 463 311 -- (164) 610
Less: Accumulated depreciation
and amortization............................... (360) (139) -- 139 (360)
- ---------------------------------------------------------------------------------------------------------
Net other property and
equipment........................... 103 172 -- (25) 250
- ---------------------------------------------------------------------------------------------------------
Investments..................................... -- 83 -- -- 83
Other assets, net of amortization............... 475 -- -- -- 475
- ---------------------------------------------------------------------------------------------------------
Total.................................. $ 3,977 $ 5,433 $ 312 $ 3,450 $13,172
=========================================================================================================
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
40
<PAGE> 41
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
XPLOR AND LOMAK PROPERTIES ACQUISITION
VENUS EXPLORATION, INC.
F/K/A XPLOR CORPORATION
AS OF MARCH 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
--------------------------------
Acquired Operations
New Lomak Pro Forma
Venus Xplor Properties Adjustments Pro Forma
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities........................ $ 1,265 $ 423 $ 77 $ -- $ 1,765
Current maturities of long-term
obligations............................. -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Total current liabilities............. 1,265 423 77 -- 1,765
- ---------------------------------------------------------------------------------------------------------
Deferred income taxes.......................... -- 287 -- (286) 1
Long term debt................................. 758 -- -- -- 758
Preference shares.............................. 4,955 -- -- (4,955) --
Stockholders' equity:
Common stock ............................. 30 26 -- 46 102
Additional paid-in capital................ 1,456 20,678 235 (6,219) 16,150
Retained earnings (losses)................ (4,487) (13,248) -- 13,248 (4,487)
Unrealized gain on equity
securities................................ -- 28 -- (28) --
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity
before treasury stock................. (3,001) 7,484 235 7,047 11,765
Less treasury stock - 558,502 shares........... -- (2,761) -- 1,644 (1,117)
- ---------------------------------------------------------------------------------------------------------
Total stockholder's equity............ (3,001) 4,723 235 8,691 10,648
- ---------------------------------------------------------------------------------------------------------
Total ................................ $ 3,977 $ 5,433 $312 $ 3,450 $13,172
=========================================================================================================
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
41
<PAGE> 42
VENUS EXPLORATION, INC.
F/K/A XPLOR CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1996 and the
Three Months Ended March 31, 1997
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Consolidated Balance Sheet is presented assuming
the combination occurred on March 31, 1997. The Unaudited Pro Forma Consolidated
Statements of Operations for the year ended December 31, 1996 and the
three-month period ended March 31, 1997 are presented as if the combination
occurred on January 1, 1996. The Unaudited Pro Forma Consolidated Financial
Statements may not necessarily be indicative of the results which would actually
have occurred if the combination had been in effect on the date or for the
periods indicated or which may result in the future.
2. PRO FORMA ADJUSTMENTS - STATEMENTS OF OPERATIONS
The pro forma adjustments to the Unaudited Pro Forma Consolidated
Statements of Operations reflect the following:
(a) DEPRECIATION, DEPLETION AND AMORTIZATION - The adjustment reflects the
pro forma depreciation, depletion and amortization expense based on the use of
adjusted capitalized costs and proved reserves.
(b) INCOME TAXES - No adjustment to income tax expense or benefit has been
reflected in the unaudited pro forma statements of operations due to the net
operating losses and the uncertainty of realizing deferred tax benefits.
(c) EARNINGS (LOSS) PER SHARE - The weighted average number of shares of
Common Stock outstanding is based on the number of shares outstanding
subsequent to the combination. Options and warrants outstanding are not
reflected in the pro forma earnings (loss) per share calculations because they
would be anti-dilutive.
3. PRO FORMA ADJUSTMENTS - BALANCE SHEET
The pro forma adjustments to the Unaudited Pro Forma Consolidated Balance
Sheet reflect the following:
(a) NET OIL AND GAS PROPERTIES - The adjustment to Net Oil and Gas
Properties reflects the allocation of the purchase price to proved and
undeveloped properties and includes costs and adjustments to the purchase price
of the properties acquired.
42
<PAGE> 43
3. PRO FORMA ADJUSTMENTS - BALANCE SHEET, continued
(b) PREFERENCE SHARES - The Preference Shares conversion is presented as
an elimination of the Preference Shares balance and an increase to Common Stock
and Additional Paid-In Capital.
(c) ALLOCATION OF PURCHASE PRICE - Xplor acquired substantially all of the
assets of New Venus in exchange for 5,626,473 shares of its common stock and
warrants to purchase an additional 272,353 shares of common stock. In addition,
certain properties were acquired from Lomak in exchange for 2,037,171 shares of
common stock and warrants to purchase an additional 272,353 shares of common
stock. For financial reporting purposes, the transactions are accounted for as
a reverse acquisition whereby New Venus is deemed to be the acquirer. The
adjustments reflect the recording of the acquisition using the purchase method
of accounting and the allocation of the purchase price based on the fair value
of the assets and liabilities acquired.
For purposes of determining the costs of the acquisitions, management has
valued the shares and warrants issued to Lomak and the shares, options and
warrants of Xplor based on the estimated fair values of the assets acquired and
liabilities assumed. Management believes that using the estimated fair values
of the assets acquired and liabilities assumed to determine the costs of the
acquisitions rather than the market price of the Xplor shares is appropriate
because (1) there is limited trading activity in the shares, (2) the stock
issued to effect the combination contains restrictions that limit its
marketability, and (3) the number of shares issued to effect the combination
substantially exceeds the current trading volume of the shares in the
marketplace and substantially exceeds the number of Xplor shares outstanding
prior to the combination. In determining the costs of the acquisitions for
purposes of the unaudited pro forma consolidated financial statements, the net
assets of Xplor were valued at $4,763,000 (including oil and gas properties of
$1,983,000) and the net assets acquired from Lomak were valued at $3,931,000
(including oil and gas properties of $3,697,000).
The estimated fair values of certain oil and gas properties which are
expected to be sold are based on management's current estimates of the sales
prices of those properties. Adjustments to the values assigned to those
properties may be necessary as management obtains additional information
concerning potential sales of the properties.
The allocation of the purchase price is preliminary and may be adjusted to
reflect revisions in the estimated proceeds from properties to be sold and upon
completion of management's evaluation of the properties acquired.
43
<PAGE> 44
4. OIL AND GAS RESERVE INFORMATION
The following pro forma reserve information includes the reserves of New Venus,
XPLOR and the Lomak Properties and has been prepared in accordance with
guidelines established by the Securities and Exchange Commission and all
reserves are located within the United States.
Reserve Quantity Information
The following table presents the Company's estimate of its proved oil and
gas reserves, all of which are located in the United States. The Company
emphasizes that reserve estimates are inherently imprecise and that estimates
of new discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, the estimates are expected to change as future
information becomes available.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
Oil Gas
(mbbl) (mmcf)
<S> <C> <C>
Proved developed and undeveloped reserves:
Beginning of the year 1,256 6,320
Revision of previous estimates (191) (960)
Production (87) (334)
-------- --------
End of year 978 5,026
======== ========
Proved developed reserves:
End of the year 633 3,866
======== ========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows
The Company's standardized measures of discounted future net cash flows
and changes therein as of December 31, 1996, are provided based on present
values of future net revenues from proved oil and gas reserves in accordance
with guidelines established by the Securities and Exchange Commission. These
estimates were computed by applying appropriate current oil and gas prices to
estimated future production of proved oil and gas reserves over the economic
lives of the reserves and assuming continuation of existing economic conditions.
Year ended 1996 calculations were made utilizing average prices for oil and
natural that existed at December 31, 1996. Income taxes are computed by applying
the statutory federal income tax rate to the net cash inflows relating to proved
oil and gas reserves less the tax bases of the properties involved and giving
effect to net operating loss carryforwards, tax credits and allowances relating
to such properties. The reserve volumes provided by the independent petroleum
engineers are estimates only and should not be construed as exact
44
<PAGE> 45
4. OIL AND GAS RESERVE INFORMATION, continued
quantities. These reserves may or may not be recovered and may increase or
decrease as result of future operations of the Company and change in market
conditions.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
($ 000's)
<S> <C>
Future cash inflows $ 43,122
Future development costs (5,572)
Future production costs (11,140)
Future income taxes (2,042)
------------
Future net cash flows 24,368
10% annual discount (9,919)
------------
Standardized measure of discounted
future net cash flows $ 14,449
============
</TABLE>
Principal Sources of Changes in the Standardized Measure of Discounted Future
Net Cash Flows
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
-----------------
($ 000's)
<S> <C>
Standardized measure of discounted future
net cash flows, beginning of year $ 15,646
Revisions of previous quantity estimates (3,959)
Net changes in prices and production costs 2,446
Changes in estimated future development costs 208
Development costs incurred during period that
reduced future development costs 1,200
Sales of oil and gas produced during period, net
of production costs (1,474)
Net change in income taxes (415)
Accretion discount 665
Other (changes in production rates, timing
and other) 132
------------
Standardized measure of discounted
future net cash flows, end of year $ 14,449
============
</TABLE>
45
