<PAGE> 1
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995.
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .......... to ..........
Commission file number 0-9300
HARCOR ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0234380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 POST OAK PARKWAY, SUITE 2220
HOUSTON, TX 77027-3413
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (713) 961-1804
. . . . . . . . . . . . . . . .
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
The number of shares of Registrant's Common Stock outstanding at May
12, 1995 was 7,522,776.
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<PAGE> 2
HARCOR ENERGY, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
------------------------------------
<TABLE>
<CAPTION>
Part I - Financial Information Page
------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31,
1995 (unaudited) and December 31, 1994 1
Consolidated Statements of Operations for the Three
Months Ended March 31, 1995 and 1994 (unaudited) 3
Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 1995 (unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
<PAGE> 3
HARCOR ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 (UNAUDITED) AND DECEMBER 31, 1994
------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash investments . . . . . . . . . . . . . . . . . . $ 1,653,297 $ 899,198
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 2,257,180 3,707,433
Prepaids and other . . . . . . . . . . . . . . . . . . . . . 408,610 307,241
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . 4,319,087 4,913,872
----------- -----------
PROPERTY AND EQUIPMENT, at cost,
successful efforts method:
Unproved oil and gas properties . . . . . . . . . . . . . . . 7,414,113 7,414,113
Proved oil and gas properties:
Leasehold costs . . . . . . . . . . . . . . . . . . . . . . 52,178,252 52,158,281
Lease and well equipment . . . . . . . . . . . . . . . . . 13,012,872 12,900,913
Intangible development costs . . . . . . . . . . . . . . . 4,987,220 4,745,579
Furniture and equipment . . . . . . . . . . . . . . . . . . . 241,346 231,354
----------- -----------
77,833,803 77,450,240
Less - accumulated depletion,
depreciation and amortization . . . . . . . . . . . . . . . (18,020,798) (16,674,540)
----------- -----------
Net property, plant and equipment . . . . . . . . . . . . . . 59,813,005 60,775,700
----------- -----------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 3,017,545 2,883,277
----------- -----------
$67,149,637 $68,572,849
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE> 4
HARCOR ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 (UNAUDITED) AND DECEMBER 31, 1994
------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term
bank debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,265,600 $ 2,511,200
Subordinated Bridge Loan . . . . . . . . . . . . . . . . . . 5,000,000 5,000,000
Accounts payable and
accrued liabilities . . . . . . . . . . . . . . . . . . . . 4,265,186 5,345,967
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 13,530,786 12,857,167
----------- -----------
LONG-TERM BANK DEBT, net of current
portion . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,134,400 31,888,800
----------- -----------
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 62,889 71,055
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SERIES D PREFERRED STOCK . . . . . . . . . . . . . . 8,673,198 8,402,430
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
1,500,000 shares authorized;
67,500 shares outstanding . . . . . . . . . . . . . . . . 675 675
Common stock, $.10 par value -
25,000,000 shares authorized;
7,251,176 and 7,192,837
shares outstanding at March 31,
1995 and December 31, 1994,
respectively . . . . . . . . . . . . . . . . . . . . . . . 725,118 719,284
Additional paid-in capital . . . . . . . . . . . . . . . . . 29,637,636 29,827,989
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (15,615,065) (15,194,551)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 14,748,364 15,353,397
----------- -----------
$67,149,637 $68,572,849
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE> 5
HARCOR ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUES:
Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . . $3,683,309 $1,636,054
Gas plant revenues . . . . . . . . . . . . . . . . . . . . . . . 1,785,306 -
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 6,833 2,593
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,282 6,348
---------- ----------
5,483,730 1,644,995
---------- ----------
COSTS AND EXPENSES:
Production costs . . . . . . . . . . . . . . . . . . . . . . . . 1,263,087 542,037
Gas plant costs . . . . . . . . . . . . . . . . . . . . . . . . . 1,410,349 -
Engineering and geological costs . . . . . . . . . . . . . . . . 88,665 84,163
Depletion, depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . 1,346,247 632,939
General and administrative expenses . . . . . . . . . . . . . . . 665,900 536,885
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 1,129,996 139,805
Loss on partnership dissolution . . . . . . . . . . . . . . . . - 203,000
---------- ----------
5,904,244 2,138,829
---------- ----------
Loss before provision for income
tax and extraordinary item . . . . . . . . . . . . . . . . . . (420,514) (493,834)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . - -
---------- ----------
Loss before extraordinary item . . . . . . . . . . . . . . . . . . (420,514) (493,834)
EXTRAORDINARY ITEM:
Loss on early extinguishment of
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (122,193)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (420,514) (616,027)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . (335,242) (70,000)
Accretion on redeemable preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,986) -
---------- ----------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . $ (836,742) $ (686,027)
========== ==========
NET LOSS PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM . . . . . . . . . . . . . . . . . . . . $ (0.12) $ (0.10)
========== ==========
NET LOSS PER COMMON SHARE
AFTER EXTRAORDINARY ITEM . . . . . . . . . . . . . . . . . . . . $ (0.12) $ (0.12)
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE> 6
HARCOR ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------------- --------------- Additional
Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
--------- -------- ------ ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994. . . . 7,192,837 $719,284 67,500 $675 $29,827,989 $(15,194,551)
Issuance of common stock. . . . . 50,000 5,000 - - 151,250 -
Issuance of common stock and
warrants pursuant to
Preferred Stock dividends . . . 8,339 834 - - 74,625 -
Preferred stock dividends . . . . - - - - (335,242) -
Accretion on Redeemable
Series D Preferred Stock. . . . - - - - (80,986) -
Net loss for the three
months ended March 31, 1995 . . - - - - - (420,514)
--------- ------- ------ --- ---------- -----------
Balance, March 31, 1995 . . . . . 7,251,176 $725,118 67,500 $675 $29,637,636 $(15,615,065)
========= ======== ====== ==== =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE> 7
HARCOR ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (420,514) $ (616,027)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depletion, depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . 1,346,247 632,939
Amortization of deferred charges . . . . . . . . . . . . . . . . 117,441 -
Gain on sale of property and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . - (6,348)
Engineering and geological costs . . . . . . . . . . . . . . . . . . 88,665 84,163
Loss on partnership dissolution . . . . . . . . . . . . . . . . . . . - 203,000
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . - 122,193
---------- -----------
1,131,839 419,920
Changes in working capital, net
of effects of non-cash transactions . . . . . . . . . . . . . . . . (187,421) (764,956)
---------- -----------
Net cash provided by (used in)
operating activities . . . . . . . . . . . . . . . . . . . . . . . 944,418 (345,036)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Engineering and geological costs . . . . . . . . . . . . . . . . . . (88,665) (84,163)
Proceeds from sale of property and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6,348
Additions to property and equipment . . . . . . . . . . . . . . . . . (18,341) (1,103,119)
---------- -----------
Net cash (used in)
investing activities . . . . . . . . . . . . . . . . . . . . . . . (107,006) (1,180,934)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . - 3,883,681
Repayment of production note . . . . . . . . . . . . . . . . . . . . - (3,577,873)
Decrease in other liabilities . . . . . . . . . . . . . . . . . . . . (8,166) (276,957)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . (70,000) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,147) (79,273)
---------- -----------
Net cash used in financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,313) (50,422)
---------- -----------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . 754,099 (1,576,392)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . 899,198 2,161,512
---------- -----------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . $1,653,297 $ 585,120
========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
<PAGE> 8
HARCOR ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (ALL DOLLAR AMOUNTS HAVE BEEN
ROUNDED TO THE NEAREST THOUSAND) -
HarCor Energy, Inc. (the "Company") made interest payments of $969,000 and
$146,000 during the three months ended March 31, 1995 and 1994, respectively.
The Company made state income, franchise and miscellaneous tax payments of
$42,000 and $12,000, which are included in general and administrative costs and
expenses, during the three months ended March 31, 1995 and 1994, respectively.
SUPPLEMENTAL INFORMATION REGARDING NON-CASH INVESTING AND FINANCING
ACTIVITIES - THREE MONTHS ENDED MARCH 31, 1995
During the three months ended March 31, 1995, the Company paid
"in-kind" dividends on its Series D Redeemable Preferred Stock consisting of
$235,000 in newly-issued Series D Preferred Stock and issued detachable
warrants to purchase shares of common stock which were valued at $45,000. The
Company also paid dividends on its Convertible Series E Preferred Stock
consisting of $30,000 in newly-issued unregistered shares of the Company's
common stock. In addition, the Company incurred an accretion charge of $81,000
on its Series D Preferred Stock during the period.
Pursuant to the terms of its bridge loan facility, the Company issued
to its secured lender 50,000 shares of its common stock which was valued at
$156,000 and recorded to deferred financing costs.
At March 31, 1995, the Company had accrued capital costs of $365,000
and deferred financing costs and prepaid expenses aggregating $251,000.
SUPPLEMENTAL INFORMATION REGARDING NON-CASH INVESTING AND FINANCING ACTIVITIES
- - - THREE MONTHS ENDED MARCH 31, 1994
In connection with the dissolution of the South Texas Limited
Partnership in March 1994 and related property conveyance, the Company
wrote-off $203,000 of its costs basis of the partnership, and expensed $122,000
reflecting a write-off of deferred financing costs resulting from the early
extinguishment of debt.
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<PAGE> 9
During the three months ended March 31, 1994, the Company declared
dividends totaling $70,000 on its Series A, B and C Convertible Preferred
Stock, which were accrued and unpaid.
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
<PAGE> 10
HARCOR ENERGY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(1) Summary of Significant Accounting Policies
Principles of Consolidation -
The accompanying consolidated financial statements for the three
months ended March 31, 1994 include the accounts and results of HarCor Energy,
Inc. ("HarCor"), its wholly-owned subsidiaries, Warrior, Inc. ("Warrior") and
HTAC Investments, Inc. ("HTACI"); HarCor's 37.875% general partner share of the
assets, liabilities, revenues and costs and expenses of South Texas Limited
Partnership ("STLP"); and HarCor's share of assets, revenues and costs and
expenses of oil and gas interests acquired from the TCW Commingled Debt and
Royalty Fund I ("Royalty Interests") for March 1994.
The accompanying consolidated financial statements for the three
months ended March 31, 1995 include the accounts and results of HarCor, Warrior
and HTACI; HarCor's 37.875% share of the assets, liabilities, revenues and
costs and expenses of STLP or, after STLP's dissolution in March 1994, HarCor's
direct working interests in the STLP properties ("South Texas Properties");
HarCor's share of the Royalty Interests; and HarCor's interest in certain oil
and gas assets located in Kern County, California acquired on June 30, 1994
(the "Bakersfield Properties"); (collectively, the "Company" or "HarCor" unless
the context specifies otherwise).
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however, that it
has made adequate disclosures so that the information presented herein is not
misleading.
A summary of the Company's significant accounting policies is included
in the consolidated financial statements and notes thereto, contained in its
Annual Report on Form 10-K for the year ended December 31, 1994 (the "10-K").
The unaudited consolidated financial data presented herein should be read in
conjunction with the 10-K.
In the opinion of the Company, the unaudited consolidated financial
statements contained herein include all adjustments (consisting of normal
recurring accruals and the elimination of intercompany transactions) necessary
to present fairly the Company's consolidated results of operations, cash flows
and
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<PAGE> 11
changes in stockholders' equity for the three-month periods ended March 31,
1995 and 1994.
The results of operations for an interim period are not necessarily
indicative of the results to be expected for a full year.
New accounting standard -
The Company intends to adopt during 1995 Statement of Financial
Accounting Standards No. 121 (Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("SFAS 121")). SFAS 121 will
require the Company to review its oil and gas properties whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. If the carrying amount of any of the Company's oil and gas
properties (determined on a field by field basis) is greater than its projected
undiscounted future cash flow, an impairment loss is recognized. The Company
is currently evaluating what impact, if any, SFAS 121 may have.
Net loss per common share -
Net loss per common share was calculated by dividing the appropriate
net loss, after considering preferred stock dividends, by the weighted average
number of common shares outstanding during each period. Outstanding stock
options, warrants and convertible preferred shares were not included in the
calculations, since their effect was antidilutive. The weighted average number
of outstanding common shares utilized in the calculations was 7,226,000 and
5,737,000 for the three-month periods ended March 31, 1995 and 1994,
respectively.
Prior year reclassification -
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(2) Acquisition of Bakersfield Properties
On June 30, 1994, the Company acquired a 75% interest in substantially
all of the oil and gas properties, a natural gas processing plant and gathering
lines owned by Bakersfield Energy Resources, Inc. and its affiliates ("BER").
Also acquired was a 75% interest in a 23 MMcf per day gas processing plant and
associated gathering lines. BER has remained the operator of the properties
and plant acquired by the Company.
The purchase price for such interests was approximately $46,000,000,
consisting of $42,000,000 in cash plus equity securities of the Company. The
assets acquired in this transaction were accounted for by the purchase method
of accounting.
-9-
<PAGE> 12
The following table presents the unaudited pro forma condensed
consolidated statements of operations for the three months ended March 31,
1994, assuming the acquisition of the Bakersfield Properties and the related
financings had occurred at January 1, 1994 (amounts are in thousands except per
share data):
<TABLE>
<S> <C>
Total revenues . . . . . . . . . . . . . . . . . . $4,920
======
Net loss attributable to common stockholders . . . $ (222)
======
Net loss per common share . . . . . . . . . . . . (0.04)
======
</TABLE>
(3) Subordinated Bridge Loan
In connection with the acquisition of the Bakersfield Properties, the
Company obtained from ING Capital Corporation ("ING Capital") a $5,000,000
bridge loan facility (the "Bridge Loan"). The Bridge Loan matures on July 1,
1995. Outstanding advances under the Bridge Loan bear interest at a floating
rate, at the Company's option, of prime plus 3.5% or LIBOR plus 5.5% per annum
effective January 31, 1995.
The Company is currently in discussions with ING Capital to refinance
the Bridge Loan. In the event the Company is unable to refinance or extend the
Bridge Loan with ING Capital, it will pursue other financing alternatives in
order to meet this obligation. Based on current projected cash flows and
absent any financing alternatives, the Company would have a shortfall of
approximately $1,300,000 to $1,600,000 with respect to its ability to repay the
Bridge Loan on July 1, 1995. However, the Company has arranged for the sale,
if needed, of a portion of the Bakersfield Properties for $3,000,000 to provide
the needed cash for this obligation. (See Note 4, and "Liquidity and Capital
Resources" and "Current Outlook - Financing Contingencies" included in Item 2
herein.)
(4) Commitments and Contingencies
Crude oil and natural gas hedge arrangements -
The Company has a contract with an affiliate of ING Capital to hedge
8,000 barrels of oil per month from February 1994 to August 1996 which provides
for a "ceiling" price of $18.75 per barrel and a "floor" price of $15.80 per
barrel. Pursuant to such contract, if the NYMEX price of light, sweet crude
oil is lower than $15.80, then the Company is paid the difference between the
NYMEX price and $15.80 for each barrel hedged; and, if the NYMEX price is
higher than $18.75, then the Company pays the difference between the NYMEX
price and $18.75 for each barrel hedged.
The Company has entered into another contract with the referenced ING
affiliate to hedge (i) 300 barrels of oil per day from May 1995 to April 1996
and (ii) 250 barrels per day from May
-10-
<PAGE> 13
1996 to April 1997. The hedge provides for a fixed price of $18.505 per
barrel. Gains or losses under the above agreements are recorded in oil
revenues in periods in which the hedged production occurs and such agreements
are settled on a monthly basis.
The Company has a gas sales contract with Washington Energy Marketing,
Inc. ("WEM"), a subsidiary of Cabot Oil and Gas Corporation, under which the
Company receives approximately $1.80 per MMBtu at the wellhead for all of its
gas produced up to an agreed level of production in each field of the South
Texas Properties (up to a maximum of approximately 3,031 MMBtu per day, net to
the Company's interest, in the aggregate for all such fields in 1995) through
October 1995. The gas sales contract was amended in September 1993 to provide
a "floor" price of $2.05 per MMBtu for certain volumes from January 1995
through December 1995.
Beginning in 1995, Cabot has not paid the $1.80 per MMBtu price for
volumes of gas delivered pursuant to the gas sales contract, but rather has
paid the spot market price for such gas because Cabot claims that, as a result
of the dissolution of STLP, the gas sales contract was cancelled effective
December 31, 1994. In March 1995, the Company filed a lawsuit against Cabot to
enforce the terms of the gas sales contract because the Company believes that
such contract was assigned to the Company as part of the dissolution of STLP
and, therefore, is still in effect. Although the Company believes that it will
recover the amounts owed by Cabot and the court will enforce the terms of the
gas sales contract, the Company cannot predict the outcome of such lawsuit.
Pursuant to the terms of its credit facility, the Company entered into
a hedging contract covering 75% of its projected proved developed producing oil
production from the Bakersfield Properties until June 30, 1997 at a reference
price of $17.25 per barrel. Pursuant to such hedge contract, the Company pays
half of the difference between $17.25 and the index price (the NYMEX price for
light, sweet crude oil) if the index price is higher than $17.25; and the
Company receives the difference between $17.25 and the index price if the index
price is lower than $17.25, as determined on a monthly basis. The Company
entered into a gas sales contract covering the gas production from the
Bakersfield Properties pursuant to which the Company will receive (i) $1.985
per MMBtu for the delivery of 3,750 MMBtu of gas per day from October 1, 1994
to September 30, 1995; (ii) $2.0297 per MMBtu for the delivery of 3,000 MMBtu
of gas per day from October 1, 1995 to September 30, 1996 and (iii) $2.0753 per
MMBtu for the delivery of 2,500 MMBtu of gas per day from October 1, 1996 to
September 30, 1997.
The Company also entered into a firm gas sales contract for 3,750
MMBtu/day delivered into the SoCal Pipeline System. The term of the contract
is one year, commencing December 1, 1994 and ending November 30, 1995. The
composite average price received by the Company for the gas sold is
$1.81/MMBtu.
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<PAGE> 14
Sale of Royalty Interest -
In the event that the Company is not successful in refinancing the
Bridge Loan with ING Capital by the July 1, 1995 maturity date, the Company has
a firm option to sell to Bakersfield Energy, the operator of the Bakersfield
Properties, a 4-1/2% royalty interest with special provisions on a portion of
its production from certain of those properties for a sale price of $3,000,000.
The sale would be effective January 1, 1995, but royalty payments
attributable to the 4-1/2% royalty sold would accumulate for the period January
1, 1995 through June 30, 1998, with payments beginning on July 1, 1998.
The Company currently has an executed letter agreement with
Bakersfield Energy (whose Chairman of the Board and Chief Executive Officer is
also a director of the Company) to effect this transaction, but the Company has
the sole option to cancel such agreement. Any sale would be contingent upon a
mutually acceptable purchase and sale or exchange agreement.
(5) Stockholders' Equity
Common stock -
As a further condition to the Bridge Loan, the Company has issued to
ING Capital an aggregate of 75,000 shares of its common stock through May 2,
1995 (50,000 shares through March 31, 1995) and must issue an additional 25,000
shares on the second day of each second month thereafter until the repayment of
the Bridge Loan. The Company recorded $156,000 of deferred financing costs at
March 31, 1995 as a result of the issuance of the 50,000 shares through that
date which will be amortized over future periods.
In April 1995, holders of 2,500 shares of Series B Preferred Stock
converted these shares into 64,100 common shares of the Company.
Preferred stock dividends -
The Company has paid dividends on preferred stocks for the three
months ended March 31, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
Preferred Stock 1995 1994
--------------- -------- -------
<S> <C> <C>
8% Convertible (Series A, B, C) . . . $ 70,000 $70,000
9% Redeemable (Series D). . . . . . . 235,242 -
4% Convertible (Series E) . . . . . . 30,000 -
-------- -------
$335,242 $70,000
======== =======
</TABLE>
-12-
<PAGE> 15
Dividends on 8% Series A, Series B and Series C Preferred Stock were
paid in cash for both periods indicated.
Dividends on 9% Series D were paid, at the option of the Company, in
additional shares of Series D Redeemable Preferred Stock which included
detachable warrants to purchase 49,413 shares of the Company's common stock at
$4.72 per share.
Dividends on 4% Series E were paid, at the option of the Company, in
8,339 shares of common stock of the Company in lieu of cash.
Warrant exchanges -
The Company and BER entered into an agreement in May 1995 pursuant to
which BER will exchange its warrant to purchase 1,000,000 shares of the
Company's common stock at $5.00 per share for 182,500 unregistered shares of
the Company's common stock. The Company had ascribed a value of $850,000 to
the warrant upon its original issuance and will ascribe the same value to the
common stock to be issued in this exchange. The Company's total primary common
shares outstanding has increased to 7,522,776 shares effective with this
transaction.
In May 1995, the Company and the holders of the Series D Preferred
Stock (the "Series D Holders") were in negotiations on an agreement pursuant to
which the Series D Holders would exchange their warrants to purchase shares of
common stock for unregistered common stock of the Company.
The Series D Holders currently have warrants to purchase 2,458,476
shares of common stock at an exercise price of $4.72 per share (after Series D
Preferred Stock dividends and certain adjustments). If the Company has not
completed a public offering of its equity securities with net proceeds of at
least $17,500,000 by July 1, 1995, the exercise price of the warrants decreases
to 78.95% of the exercise price ($3.73 based on the initial exercise price) and
the number of shares of common stock purchasable with the warrant will be
adjusted to approximately 3,114,000 shares. The Company does not anticipate
completing a public offering of its equity securities by July 1, 1995 nor in
the currently foreseeable future.
Pursuant to the terms currently contemplated in the agreement, the
Series D Holders would exchange all of their warrants for 1,100,000
unregistered common shares of common stock of the Company. This exchange would
be subject to certain conditions including the Company's redemption of the
Series D Preferred Stock at par prior to September 30, 1995; certain
appreciation rights to the Series D Holders over a two-year period following
the exchange in the event of a sale of the Company or its assets;
recapitalization or restructuring of the Company's debt acceptable to the
Series D Holders; and certain registration rights to the Series D Holders.
This agreement is subject to the execution of a definitive agreement by and
between the Company and
-13-
<PAGE> 16
the Series D Holders. There can be no assurances that the Company and the
Series D Holders will enter into such a definitive agreement. In the event
that the Company and the Series D Holders enter into such a definitive
agreement, there can be no assurances that the conditions precedent necessary
to effect the warrant exchange will be successfully fulfilled.
-14-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All dollar amounts referenced in this Item 2. have been rounded to the
nearest thousand.
COMPARISON OF RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1994
ACQUISITION - Included in results of operations for the three months
ended March 31, 1995 are the results of operations from the Bakersfield
Properties, which were acquired on June 30, 1994.
REVENUES - The Company's total revenues increased $3,839,000 (233%)
from $1,645,000 in first quarter 1994 to $5,484,000 in the current period.
The Company's oil and gas revenues increased $2,047,000 (125%) from
$1,636,000 in the first three months of 1994 to $3,683,000 in the current
period. Oil revenues increased $1,133,000 (170%) from $668,000 in first
quarter 1994 to $1,801,000 in the current period due to higher oil production.
The Company's oil production increased 64,500 barrels (137%) from 47,000
barrels in the first three months of 1994 to 111,500 barrels in the current
period. The increased production was primarily a result of the acquisition of
the Bakersfield Properties, which contributed 72,000 barrels during the first
three months of 1995. The Company's Permian Basin Properties increased 3,000
barrels in the current period due to the Company's acquisition of additional
minor oil and gas interests in that area in late 1994. Oil production from the
Company's South Texas and other properties declined approximately 10,500
barrels in the aggregate due to normal production declines. The average price
received for oil was $16.15 per barrel during first quarter 1995 compared to
$14.20 per barrel for the same period in 1994.
The Company's gas revenues increased $915,000 (95%) from $968,000 in
the first three months of 1994 to $1,883,000 in the current period also due to
increased production. Gas production increased 599,000 Mcf (107%) from 558,000
Mcf in first quarter 1994 to 1,157,000 Mcf in first quarter 1995. The
Bakersfield Properties contributed an increase of 672,000 Mcf during the
current period. Gas production from the Company's other properties decreased
129,000 Mcf in the aggregate during the current period due to normal production
declines. Average prices received for gas were $1.62 per Mcf in first quarter
1995 as compared to $1.73 per Mcf in the first three months of 1994.
During the first three months of 1995, the Company realized revenues
of $1,785,000 from its share of the operations of the natural gas processing
plant acquired as part of the Bakersfield Properties. These revenues consisted
of $1,139,000 in the resale of natural gas purchased from third parties,
$622,000 in the sale of processed natural gas liquids, including the sale of
natural gas
-15-
<PAGE> 18
liquids extracted from the natural gas purchased from third parties and $24,000
in gas processing fees.
The Company realized total interest and other income of $15,000 in the
first quarter of 1995 as compared to $9,000 during the first three months of
1994.
COSTS AND EXPENSES - Total costs and expenses increased $3,765,000
(176%) from $2,139,000 in first quarter 1994 to $5,904,000 in the current
period.
The Company's production costs increased $721,000 (133%) from $542,000
in the first three months of 1994 to $1,263,000 in the current period. This
was primarily due to the acquisition of the Bakersfield Properties, which
accounted for $632,000 of production costs incurred during the first three
months of 1995. Production costs on the Company's South Texas and Permian
properties increased $66,000 and $44,000 in the current quarter, respectively,
due to developmental drilling and workover activities while production costs
from the Company's other oil and gas properties decreased slightly.
During the first quarter of 1995, the Company incurred operating costs
of $1,410,000 associated with the natural gas processing plant acquired as part
of the Bakersfield Properties. These costs included $958,000 from the purchase
of natural gas for processing and resale and $452,000 of direct operating
expenses.
The Company incurred engineering and geological expenses of $89,000
and $84,000 during the three months ended March 31, 1995 and 1994,
respectively.
The Company's depletion, depreciation and amortization ("DD&A")
expense increased $713,000 (113%) from $633,000 in first quarter 1994 to
$1,346,000 in the first three months of 1995 as a result of increases in
depreciable oil and gas assets due to substantial acquisition and development
costs incurred in the Bakersfield Property acquisition. The DD&A rate per BOE
for oil and gas reserves was $4.26 per barrel of oil equivalent ("BOE") in the
current period as compared to $4.52 during first quarter 1994. Further
affecting the increase in overall DD&A expense was depreciation expense
relating to the natural gas processing plant acquired as part of the
Bakersfield Properties in 1994.
The Company's general and administrative expenses increased $129,000
(24%) from $537,000 in the first three months of 1994 to $666,000 in the
current period due to the Company's recent expansion and increased activities.
The Company's interest expense increased $990,000 from $140,000 in
first quarter 1994 to $1,130,000 in the current quarter primarily as a result
of the bank debt used to finance the acquisition of the Bakersfield Properties
in June 1994. The Company's bank debt increased from $8,847,000 at March 31,
1994 to $39,400,000 during the current period, resulting in a significantly
-16-
<PAGE> 19
higher average debt balance during the current quarter. Also increasing
interest expense in the current period was $117,000 in amortization of deferred
financing costs resulting from the various financings effected in the
Bakersfield Property acquisition.
The Company recorded a charge of $203,000 in 1994 from a write-off of
a portion of its interests in the South Texas Properties, which portion was
conveyed to a third party pursuant to the terms of the dissolution of STLP.
Also in connection with the dissolution of STLP, the Company incurred an
extraordinary non-operating charge of $122,000 in 1994 resulting from the early
extinguishment of debt in the refinancing of the South Texas Properties.
Total dividends on preferred stock were $335,000 in the first three
months of 1995, as compared to $70,000 in the first quarter of 1994. The
increase in dividends was a result of the issuance of additional preferred
stock as part of the financing for the acquisition of the Bakersfield
Properties. Dividends in first quarter 1995 consisted of $70,000 in cash,
$235,000 in Series D Preferred Stock and detachable warrants and $30,000 in
common stock of the Company. The Company also incurred a non-cash charge of
$81,000 attributable to accretion on its Series D Redeemable Preferred Stock in
the current period. During the first quarter of 1994, $70,000 in dividends
were declared and accrued.
NET LOSS - The Company's net operating loss for first quarter 1995 was
$421,000, while net loss attributable to common stockholders was $837,000 ($.12
per share) after preferred dividends and accretion on preferred stock. In
first quarter 1994, the Company had a net loss of $616,000 after an
extraordinary item of $122,000 and net loss to common shareholders of $686,000
($.12 per share) after preferred dividends.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL - The Company had a net working capital deficiency of
$9,212,000 with a current ratio of 0.3:1 at March 31, 1995 as compared to a net
working capital deficiency of $7,943,000 and a current ratio of 0.4:1 at
December 31, 1994. Included in current liabilities at March 31, 1995 was
$5,000,000 representing the Bridge Loan with ING Capital and $4,266,000 of
current maturities of long-term debt related to its Credit Agreement due
December 31, 1995. At December 31, 1994, current liabilities included the
$5,000,000 Bridge Loan and $2,511,000 current maturities under the Credit
Agreement. The Company anticipates refinancing the Bridge Loan before the
mandatory due date of July 1, 1995 (see "Current Outlook - Financing
Contingencies").
OPERATING ACTIVITIES - Net cash provided by operating activities was
$944,000 in first quarter 1995 as compared to $345,000 of cash used in
operations during first quarter 1994.
During the first three months of 1995, net cash flow was $1,132,000
after adjusting net loss from operations of $421,000 for
-17-
<PAGE> 20
the following non-cash items: DD&A ($1,346,000), engineering and geological
($89,000) and amortization of deferred charges ($117,000). In the first
quarter 1994, cash flow from operations after non-cash adjustments was
$420,000. The improvement in the current quarter is primarily a result of
substantially increased oil and gas revenues resulting from the Bakersfield
Property acquisition in June 1994. Revenues from these properties were further
enhanced in the current period as a result of developmental drilling activities
subsequent to their acquisition. Cash flow from operating activities for the
first quarter 1995 was also impacted by decreases in other working capital of
$187,000.
INVESTING ACTIVITIES - Net cash used in investing activities was
$107,000 during first quarter 1995 as compared to a net of $1,181,000 used in
first quarter 1994. In the current period, the Company spent $18,000 in cash
on developmental drilling and $89,000 in geological and engineering activities.
In the first quarter of 1994, the Company realized $6,000 from the
sale of non-producing assets and used $1,103,000 to fund development drilling
and enhancement activities, primarily on the South Texas Properties. An
additional $84,000 was spent on engineering and geological activities in the
period.
FINANCING ACTIVITIES - The Company used net proceeds of $83,000 in
financing activities during first quarter 1995 as compared to $50,000 spent
during the first quarter of 1994.
During the current period, the Company paid $70,000 in cash dividends
on preferred stock and $13,000 on miscellaneous financing activities. The
Company elected to pay the dividends on the Series D Preferred Stock in shares
of Series D Preferred Stock with detachable warrants to purchase common stock,
and paid dividends on the Series E Preferred Stock in common stock during 1994.
The aggregate amount of these non-cash dividends was $265,000.
During first quarter 1994, the Company borrowed $3,884,000 on its
long-term credit facility and repaid its production note of $3,578,000. The
Company also spent $356,000 in that quarter on deferred financing and
miscellaneous activities.
Effective upon the closing of the acquisition of the Bakersfield
Properties, the Company amended its credit facility with ING Capital in June
1994 to provide for a total commitment of $34,400,000. One-half of the
commitment was funded by First Union (the "Amended Credit Agreement").
Outstanding advances under the Amended Credit Agreement bear interest at a
floating rate of, at the Company's option, prime plus 1% or LIBOR plus 3% per
annum. In addition, the Company must pay a commitment fee of 0.50% per annum
on the unused portion of the commitment. The principal balance outstanding
under the Amended Credit Agreement at March 31, 1995 is payable in 22 quarterly
installments commencing December 31, 1995, with maturity at March 31, 2001.
Pursuant to the terms of the
-18-
<PAGE> 21
Amended Credit Agreement, the Company entered into contracts which limit the
interest rate on the facility to a ceiling of no more than 8% per annum on
$16,000,000, $14,000,000, $15,000,000 and $12,000,000 of the outstanding
principal balance under such facility for 1995, 1996, 1997 and 1998,
respectively.
The Amended Credit Agreement also provides that no dividends may be
paid on any of the Company's capital stock, nor may the Company redeem,
purchase or acquire any such stock except that (i) cash dividends (not to
exceed $350,000 in any year) may be paid on the Company's Series A, B, C, D and
E Preferred Stock, (ii) the Company may redeem the Series D Preferred Stock in
accordance with the terms thereof, (iii) the Company may pay stock dividends on
the Series D Preferred Stock, (iv) the Company may repurchase certain of its
warrants, and (v) the Company may redeem $2,500,000 (2,500 shares) of its
Series D Preferred Stock and up to $3,300,000 of its Series E Preferred Stock
with the proceeds in excess of $15,000,000 from a subsequent equity offering.
The Amended Credit Agreement also provides that (i) general and administrative
expenses may not exceed $1,900,000 for any fiscal year, excluding certain
specified exceptions as may be approved by ING Capital at its reasonable
discretion, (ii) that the Company meet certain requirements relating to its
current ratio (not less than 1.1 to 1.0 excluding the $5,000,000 bridge loan
facility), net worth (not less than $6,750,000 plus 75% of consolidated net
income beginning with 1994 and 90% of any equity securities issued by the
Company after June 30, 1994) and fixed charge coverage ratio (not less than 1.2
to 1.0), (iii) that the Company may not assume any additional indebtedness
other than certain indebtedness to service contractors and certain indebtedness
relating to hedging arrangements, and (iv) that an event of default will occur
if for any reason Mark G. Harrington shall cease to act as the Chairman of the
Board and Chief Executive Officer of the Company and shall not be replaced
within 30 days by a successor that is acceptable to ING Capital or a change of
control shall occur with respect to the Company. The Company believes it was
in compliance with such covenants at March 31, 1995 with the exception of the
current ratio covenant. The Company's current ratio (excluding the Bridge Loan
and current portion of long-term debt as prescribed by the Amended Credit
Agreement) was 1.0 to 1.0 at March 31, 1995; however, ING Capital had
previously waived the working capital covenant requirements through March 31,
1995. The Company's obligations under the facility are secured by
substantially all of the Company's oil and gas properties, including the South
Texas Properties and the Bakersfield Properties.
Additionally, the Company obtained from ING Capital a $5,000,000
bridge loan facility in connection with the acquisition of the Bakersfield
Properties. Outstanding advances under the bridge loan facility bear interest
at a floating rate of, at the Company's option, prime plus 3.5% or LIBOR plus
5.5% per annum from February 1, 1995 to July 1, 1995. The bridge loan facility
contains substantially the same restrictive covenants as the Company's Amended
Credit Agreement. The bridge loan facility must be prepaid under certain
circumstances but in any event matures on
-19-
<PAGE> 22
July 1, 1995, and any outstanding portion thereon must be repaid at that date.
The Company anticipates refinancing the Bridge Loan before its maturity date,
but there can be no assurances that it will be successful in doing so. (See
"Current Outlook - Financing Contingencies".)
In conjunction with the closing of the acquisition of the Bakersfield
Properties, the Company sold 100,000 shares of its Series D Preferred Stock in
a private placement at a purchase price of $100.00 per share for an aggregate
face value of $10,000,000. In connection with the issuance of the Series D
Preferred Stock and payment of subsequent Series D Preferred Stock dividends,
the Company has issued to the holders thereof warrants to purchase 2,458,476
shares of common stock at an adjusted exercise price of $4.72 per share. The
Series D Preferred Stock agreement contains material voting rights,
restrictions and covenants. (See Note 9 of Notes to Consolidated Financial
Statements contained in Item 8 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.)
RESULTS OF HEDGING ACTIVITIES - The Company's hedging activities for
the three-month periods ended March 31, 1995 and 1994 have not had any material
effect on the Company's liquidity or results of operations. (See Note 4 of
Notes to Consolidated Financial Statements included herein.)
CURRENT OUTLOOK
The "Capital Expenditure Plans" section below summarizes management's
most likely plans for exploitation and development of its oil and gas
properties, primarily the Bakersfield Properties. The "Financing
Contingencies" section that follows summarizes potential limitations on the
availability and use of capital to implement such capital expenditure plans.
CAPITAL EXPENDITURE PLANS - The Company intends to use the cash flows
from the Bakersfield Properties to fund its increased debt service and cash
dividend obligations and to fund the future development costs of the
Bakersfield Properties. The Company plans to exploit the undeveloped reserves
of the Bakersfield Properties by drilling additional development wells and the
initiation of a waterflood project in 1998. The Company expects that an
additional 38 gross (28.5 net) development wells will be drilled on such
properties in 1995, at an estimated cost of $14,600,000 ($10,900,000 net to the
Company). The Company currently anticipates that total additional drilling
necessary to develop the Bakersfield Properties after 1995 will result in
approximately 123 gross (92.3 net) new wells. The projected total development
costs for the proved reserves assigned to the Bakersfield Properties after 1995
are estimated at approximately $56,000,000 ($42,000,000 net to the Company)
based on current drilling costs. No assurances can be given, however, that any
of such wells will be drilled or that, if such wells are drilled, they will be
either successful or completed in accordance with the Company's development
schedule.
-20-
<PAGE> 23
The Company intends to continue participating in development drilling
on the South Texas Properties as those opportunities arise and as resources are
available. The Company is also involved in two small waterflood projects on
its Permian Basin properties and plans to participate in a third waterflood
project on such properties. It is anticipated that capital expenditures
required for these developmental activities will be funded from operating cash
flows.
Exclusive of the Bridge Loan discussed further below, the Company
believes its available cash and expected cash flows from operating activities
will be sufficient to meet its financial obligations and fund its developmental
drilling activities until the end of 1995, provided that (i) there are no
further significant decreases in oil and gas prices beyond those experienced at
the end of 1994, (ii) there are no significant declines in oil and gas
production from existing properties other than declines in production currently
anticipated based on engineering estimates of the decline curves associated
with such properties, (iii) drilling costs for development wells with respect
to the Bakersfield Properties do not increase significantly from the drilling
costs recently experienced by Bakersfield Energy in such area with respect to
similar wells and (iv) Bakersfield Energy continues its development program
with respect to the Bakersfield Properties on the schedule currently
contemplated. No assurance can be given, however, that the Company will not
experience liquidity problems in the next year or on a long-term basis.
In the event incremental cash flows from the Bakersfield Properties
are not sufficient to fund both increased debt and cash dividend obligations
and development costs, or results from developmental drilling are not as
successful as anticipated, then the Company will either (i) curtail its
developmental drilling activities or (ii) seek additional financing to assist
in its developmental drilling activities.
The Company has the option of (i) paying quarterly dividends on its
Series D Redeemable Preferred Stock in shares of Series D Preferred Stock and
warrants to purchase common stock and (ii) paying quarterly dividends on its
Series E Preferred Stock in shares of the Company's common stock. This allows
the Company to conserve cash, but does have a dilutive effect to the Company's
existing common stock outstanding.
FINANCING CONTINGENCIES - The Amended Credit Agreement includes
restrictions including financial covenants. The Company believes it was in
compliance with such covenants at March 31, 1995 with the exception of the
current ratio covenant; however, ING Capital provided the Company with a waiver
of this event of default at December 31, 1994 and any similar event of default
through March 31, 1995. Management believes that, based on its projected
operations for the remainder of 1995 and its plan to limit capital expenditures
as necessary to manage its working capital levels, it will remain in compliance
with this covenant through the remainder of the year.
-21-
<PAGE> 24
The Company's Bridge Loan with ING Capital matures on July 1, 1995,
and any principal balance outstanding must be repaid at that date. Based on
currently projected cash flows, the Company would have a shortfall of
approximately $1,300,000 to $1,600,000 with respect to its ability to repay the
Bridge Loan at that date. These projected cash flows do not contemplate any
decrease in oil and gas prices or declines in estimated oil and gas production
from existing properties during the second quarter of 1995. The Company is
protected from price declines on a substantial portion of its production as a
result of its hedging activities and has experienced no material adverse
effects from prices during the first quarter of 1995.
The Company is currently in discussions with ING Capital to refinance
the Bridge Loan before the maturity date of July 1, 1995. The Company is
optimistic about its ability to refinance the Bridge Loan due to a substantial
increase in year-end proved reserves, which should have the effect of
increasing the Company's borrowing base under its credit facility with ING
Capital. ING Capital is currently in the process of evaluating the
redetermination of the Company's borrowing base with respect to the credit
facility, which will be completed by May 15, 1995. Management believes that
the borrowing base will be redetermined with terms no less favorable than those
currently in place. However, there can be no assurances that the Company will
be successful in its attempts to refinance the Bridge Loan with ING Capital by
its due date.
The Company and ING Capital are also discussing extending the due date
of the Bridge Loan for a period of time sufficient for the Company to refinance
its existing debt through other financing sources.
In the event that the Company is not successful in refinancing the
Bridge Loan with ING Capital by the maturity date, the Company may sell to the
operator of its Bakersfield Properties a 4-1/2% royalty interest on a portion
of its future undeveloped production from certain of those properties for a
sale price of $3,000,000. The Company currently has an executed letter
agreement in place with Bakersfield Energy (whose Chairman of the Board and
Chief Executive Officer is also a director of the Company) to effect this
transaction, but the Company would have the sole option to cancel the sale in
the event it is able to refinance the Bridge Loan or repay it with proceeds
from an equity offering or other financing. The Company believes that the
proceeds from this sale, if it is completed, combined with currently projected
cash flows from operations would be sufficient to repay the Bridge Loan at July
1, 1995.
Regardless of expected incremental cash flows from the Bakersfield
Properties, initial results of its developmental drilling activities or the
results of its efforts to refinance the Bridge Loan, the Company intends to
seek additional financing or refinance its existing debt to retire a portion of
the Redeemable Series D Preferred Stock and finance its drilling activities
which are expected to resume in the third quarter of 1995. However,
-22-
<PAGE> 25
there can be no assurance that the Company will be successful in its endeavors
to refinance its debt or raise sufficient capital to fully fund its planned
developmental drilling activities. Furthermore, the Company's highly leveraged
capital structure may limit the Company's ability to obtain outside capital on
terms acceptable to the Company.
The Company also intends to continue efforts to acquire additional
interests in selected producing oil and gas properties if and when these
opportunities become available. Any such acquisitions would require additional
debt or equity financing, as the Company does not currently have sufficient
financial resources to effect any additional material acquisitions. There can
be no assurances that the Company will be successful in these endeavors.
-23-
<PAGE> 26
HARCOR ENERGY, INC.
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits - None
Ex-27 - Financial Data Schedule
(b) Reports on Form 8-K - None
-24-
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HARCOR ENERGY, INC.
Registrant
Date: May 12, 1995 /s/ Francis H. Roth
-------------------------------
Francis H. Roth
President and Chief
Operating Officer
Date: May 12, 1995 /s/ Gary S. Peck
-------------------------------
Gary S. Peck
Vice President-Finance
Chief Accounting Officer
-25-
<PAGE> 28
INDEX TO EXHIBITS
Exhibits
Ex-27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000315272
<NAME> HARCOR, ENERGY, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,653,297
<SECURITIES> 0
<RECEIVABLES> 2,257,180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,319,087
<PP&E> 77,833,803
<DEPRECIATION> 18,020,798
<TOTAL-ASSETS> 67,149,637
<CURRENT-LIABILITIES> 13,530,786
<BONDS> 30,134,400
<COMMON> 725,118
8,673,198
675
<OTHER-SE> 14,022,571
<TOTAL-LIABILITY-AND-EQUITY> 67,149,637
<SALES> 5,468,615
<TOTAL-REVENUES> 5,483,730
<CGS> 2,673,436<F1>
<TOTAL-COSTS> 2,673,436
<OTHER-EXPENSES> 2,100,812<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,210,982<F3>
<INCOME-PRETAX> (420,514)
<INCOME-TAX> 0
<INCOME-CONTINUING> (420,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (836,742)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
<FN>
<F1>Includes oil and gas production costs and gas plant costs.
<F2>Includes engineering and geological, depletion, depreciation and amortization,
and general and administrative expenses.
<F3>Includes interest expense and accretion on redeemable preferred stock.
</FN>
</TABLE>
