<PAGE>
Mineral Development, Inc.
- ------------------------------------------------------------------
1996 Annual Report
For the Nine Month Transition Period ended December 31, 1995
<PAGE>
Dear Shareholders:
I believe that Mineral Development, Inc. is poised for change
and growth. For years, the Company's activities have been limited
by capital constraints, and as such, the Company has been prevented
from maximizing all opportunities available to it. The Board of
Directors has formulated a master plan, which we expect will
improve the capital structure of the Company and provide a solid
base for growth.
The shareholder meeting scheduled in June 1996 is the first
step in this plan. At the meeting, the shareholders will be asked,
among other things, to consider and approve the following
proposals:
1) the election of four new directors and myself as a
continuing director;
2) an amendment to the Company's Articles of Incorporation
to change the name of the Company to EXCO Resources,
Inc.; and
3) an amendment to the Company's Articles of Incorporation
to effect a one-for-five reverse stock split of the
Company's common stock.
We anticipate that these changes will allow the Company to approach
the capital markets for additional funding and, ultimately, to seek
listing on The Nasdaq National Market.
The results for the nine month transition period ended
December 31, 1995 were mixed. (In February 1995, the Company
changed its fiscal year to December 31, resulting in the nine month
reporting period.) Specifically, the Company reported a net loss
of $343,714, or $.10 per share, for the nine month period ended
December 31, 1995. A significant portion of this loss was
attributable to depletion expense taken on non-producing oil and
gas properties. Revenues for the nine month period ended
December 31, 1995, were $751,384 compared to $679,888 for the
corresponding period in 1994, an increase of 11%.
Production for the current nine month period was 18,526
barrels of oil and 181,121 Mcf of gas versus 16,085 barrels of oil
and 164,352 Mcf of gas for the comparable period in 1994. This is
an increase of 15% and 10%, respectively. Average oil and gas
prices for the nine month period ended December 31, 1995, were
$16.49 per barrel and $1.40 per Mcf, respectively.
A significant improvement was noted in estimated gas reserves.
Independent petroleum engineers estimated the Company's proved
(developed and undeveloped) reserves at December 31, 1995 to be
147,986 barrels of oil and 4,956,884 Mcf of gas. Gas reserves at
December 31, 1995, increased 127% over 1994 year-end estimated
reserves of 2,187,366 Mcf. This increase in gas reserves is
primarily attributable to the Company's 1995 reserve acquisition in
the Logansport Field in DeSoto Parish, Louisiana. Oil reserves
decreased 34% from the previous year's estimate of 224,916 barrels.
The proved reserve value at December 31, 1995 was valued at
$4,004,595 as compared to $3,118,035 for the fiscal year ended
March 31, 1995. These reserves are in a proved non-producing
category, and there is risk associated with the recovery of these
revenues. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Forward-Looking Information-
Cautionary Statements." (Reserve evaluations were estimated
utilizing guidelines of the Securities and Exchange Commission with
year-end pricing, discounted at 10%.)
I would like to thank the loyal employees who have worked
diligently to make the Company a success. I would particularly
like to thank Richard D. Collins, W.R. Granberry, Glenn L. Seitz
and John A. Schlensker for their services as Directors of the
Company. Their hard work and insight has guided the Company
through some difficult times.
Also, I would like to thank our long time shareholders who
have persevered with us.
I look forward to the future of EXCO Resources, Inc. with you.
Sincerely,
David N. Fitzgerald
Chairman of the Board, President
and Chief Executive Officer
1
<PAGE>
Other than historical and factual statements, the matters and
items discussed in this Annual Report on Form 10-K are forward-
looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results
discussed in the forward-looking statements. Certain factors that
could contribute to such differences are discussed in the forward-
looking statements and are summarized in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Forward-Looking Statements - Cautionary Statements."
THE COMPANY
Mineral Development, Inc. is an independent oil and gas
company engaging in onshore oil and gas exploration, development
and production in the continental United States. The Company, a
Texas corporation incorporated in 1955, presently conducts its
exploration, production and acquisition activities primarily in
Texas, Illinois and Louisiana.
SELECTED FINANCIAL DATA
Selected Financial Data for the nine months ended December 31,
1995 and the fiscal years ended March 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
Nine Months Ended ---------------------------
December 31, 1995 1995 1994 1993 1992
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations
- ----------
Revenues $ 751,384 $ 866,411 $1,040,829 $1,141,627 $ 968,298
Net income (loss) before
extraordinary item (343,714) (167,990) 45,738 120,337 (33,782)
Extraordinary items(1) 0 0 0 49,477 0
Net income (loss) (343,714) (167,990) 45,738 169,814 (33,782)
Net income (loss) per share
before extraordinary item(2) (.10) (.05) .02 .04 (.01)
Extraordinary item per share(1)(2) 0 0 0 .02 0
Net income (loss) per share (2)(3) (.10) (.05) .02 .06 (.01)
Balance Sheet
- -------------
Current assets $ 581,524 $ 577,388 $ 455,945 $ 419,447 $ 391,786
Current liabilities 861,414 652,434 418,221 364,140 445,957
Working capital (deficit) (279,890) (75,046) 37,724 55,307 (54,171)
Total assets 1,530,687 1,641,548 1,453,450 1,267,016 1,169,642
Long-term debt 39,548 15,675 18,800 18,004 8,627
Shareholders' equity 629,725 973,439 1,016,429 884,872 715,058
Current ratio .68 to 1 .88 to 1 1.09 to 1 1.15 to 1 .88 to 1
<FN>
- ---------------------
(1) The extraordinary gain in fiscal 1993 was due to the
utilization of the Company's net operating loss carryforward.
(2) Per share data has been restated to reflect the l-for-10
reverse stock split effective March 2, 1992.
(3) The Company has not declared nor paid any dividends during any
of the periods presented.
</FN>
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Nine Months Ended December 31, 1995 and 1994
(Unaudited). On February 13, 1996, the Company changed its fiscal
year end from March 31 to December 31. Accordingly, the following
comparison is for the nine month transition period ended December
31, 1995 and the nine month period ended December 31, 1994.
The net loss for the nine months ended December 31, 1995 was
$343,714, or $.10 per share, compared to a net loss of $59,705, or
$.02 per share, in the prior nine month period. This difference of
$284,009 was primarily the result of an increase in expenses, as
discussed below.
Oil and gas sales increased $68,301 to $559,844 for the nine
months ended December 31, 1995, from $491,543 in the prior nine
month period, a 14% increase. Oil production and gas production
for the nine months ended December 31, 1995 increased 15% and 10%,
respectively, from the prior nine month period. These increases
were primarily attributable to the production from several
successful workovers and newly completed wells overshadowing the
continued depletion of existing properties. Oil prices and gas
prices for the nine months ended December 31, 1995 were 8% higher
and 6% lower, respectively, than such prices in the comparable
prior nine month period.
Management fees and other income increased $14,403, or 8%, to
$191,540 for the nine months ended December 31, 1995 versus
$177,137 in the nine months ended December 31, 1994. Management
fees and other income primarily include overhead fees, well
supervision and interest income. The increase was due to a
slightly higher level of operated drilling and maintenance
activities.
The Company's costs and expenses increased $355,505, or 48%,
from $739,593 for the nine months ended December 31, 1994 to
$1,095,098 for the nine months ended December 31, 1995. This
increase was primarily due to a $166,840 increase in depreciation,
depletion and amortization, and to a $129,453 increase in general
and administrative expenses. Depreciation, depletion and
amortization expenses were $233,958 and $67,118, respectively, for
the nine month periods ended December 31, 1995 and 1994. This
249% increase was attributable to the significant depletion expense
taken on non-producing reserves. General and administrative
expenses were $480,446 and $350,993, respectively, for the nine
months ended December 31, 1995 and 1994, respectively. The 37%
increase between the nine month periods is the result of the
current period including nine months of expenses related to the
employment of a new Chairman of the Board, President and Chief
Executive Officer versus only four months of expenses reflected in
the previous nine month period.
Comparison of Fiscal Years Ended March 31, 1995 and 1994
The net loss for fiscal year ended March 31, 1995 was
$167,990, $0.05 per share, compared to net income of $45,738, $0.02
per share in fiscal 1994. This difference of $213,728 was
primarily the result of a decrease in revenue, as discussed below.
Oil and gas sales decreased $89,286, or 12.5%, to $625,790 in
fiscal year ended March 31, 1995 from $715,076 in fiscal 1994.
Fiscal year ended March 31, 1995 oil production was 24% lower than
1994 as the Company experienced continued depletion of current
properties with new wells being added only at year end. However,
gas production was 34% higher reflecting the acquisition of new
interests and one highly successful workover. On the basis of 6
mcf of gas being equivalent to 1 barrel of oil, total fiscal 1995
production increased 6%. The decline in total oil and gas revenues
of 12.5% was due to a 5% increase in oil prices being more than
offset by a 29% decrease in gas prices. Had oil and gas prices
remained unchanged from fiscal 1994 to fiscal 1995, oil and gas
revenues would have increased 3%.
Management fees and other income decreased $62,526, or 21%, to
$232,940 in fiscal 1995. The decrease was due to a combination of
a lower level of operated drilling and repair activities and
slightly fewer wells operated on average for fiscal 1995 than for
fiscal 1994.
3
<PAGE>
The Company's costs and expenses increased $39,310, or 4%.
Most of the $121,179 increase in general and administrative expense
was offset by reductions in oil and gas production costs and
dryhole and abandonment costs. The increased general and
administrative expense was primarily due to the hiring of a new
Chairman of the Board, President and Chief Executive Officer in
August 1994.
Comparison of Fiscal Years Ended March 31, 1994 and 1993
The net income for fiscal 1994 was $45,738, $0.02 per share,
compared to $169,814, $0.06 per share, in fiscal 1993. The
$124,076 difference was primarily the result of a decrease in oil
and gas revenue, as discussed below.
Oil and gas sales decreased $115,072, or 14%, to $715,076 in
fiscal 1994 from $830,148 in fiscal 1993 due mostly to the
significant decrease in the average oil price per barrel received
by the Company in fiscal 1994 and the normal declines from
depletion, dispositions and abandonments, which more than offset
revenues received from the acquisition of interests in producing
wells and successful workovers on certain of the Company's wells
and the increase in the average sales price per Mcf ($2.02 in
fiscal 1994 compared to $1.78 in fiscal 1993). The lower price per
barrel in fiscal 1994 ($14.92) compared to fiscal 1993 ($19.18) was
due to a temporary cyclical fluctuation, which as of the date of
this report has been almost completely reversed.
Management fees and other income decreased $7,781, or only
2.6%, from $303,247 in fiscal 1993 to $295,466 in fiscal 1994.
Management fees and other income primarily include overhead fees,
well supervision and interest income. Gain on disposition of
property and equipment was $30,287 for fiscal 1994 compared to
$8,232 for fiscal 1993. These gains or losses are entirely
dependent upon the frequency and magnitude of sales of properties
that management determines to sell and the disposition and book
value of properties plugged or otherwise disposed.
The Company's costs and expenses increased by $23,278, or 2%,
from $971,813 in fiscal 1993 to $995,091 in fiscal 1994. Oil and
gas production costs increased $8,983, or 2%, to $458,891 in fiscal
1994 from $449,908 in fiscal 1993 due to the additional costs
related to the acquired interests in producing wells, which more
than offset the cost savings efforts during the year. Dry hole and
abandonment costs increased to $44,141 in fiscal 1994 from $36,040
in fiscal 1993. Changes in this item are due to the timing and
frequency of wells and/or acreage that are drilled and/or abandoned
during any particular year. Depreciation, depletion and
amortization decreased $30,538, or 22% from $140,350 in fiscal 1993
to $109,812 in fiscal 1994 as a result of a large write-down on
several properties for book purposes in fiscal 1993 as well as a
decrease in oil production volumes. General and administrative
costs were $377,536 for 1994 as compared to $343,341 in 1993, an
increase of $34,195, or 10%, due to relatively small increases in
a variety of items.
For the fiscal year ended March 31, 1994, the Company utilized
its net operating loss carryforward to offset the charge for
federal income tax, and as a result, recorded a $6,861 benefit.
Liquidity and Capital Resources
The Company's working capital at December 31, 1995 was a
negative $279,890 as compared to a negative $75,046 at March 31,
1995. This $204,844 decrease resulted from the utilization of
Company funds for property acquisitions, well workovers and capital
expenditures on new wells and also from increased general and
administrative expenses as discussed above. Historically, the
Company has funded its oil and gas activities through cash flow
from operations, bank borrowings, equity capital from private sales
of stock and agreements with industry participants.
The Company's increase in cash of $75,057 for the nine months
ended December 31, 1995, was due to net borrowings of $181,054
being partially offset by net cash used for property and equipment
acquisitions of $101,822 and net cash used in operations of $4,175.
Cash decreased $43,157 for the nine months ended December 31, 1994,
due to $125,000 in proceeds from Common Stock issued being more
than offset by cash used in operations of $27,421, net property and
equipment acquisitions of $119,534 and repayments of long-term debt
of $21,202. For the fiscal years ended March 31, 1995 and 1994,
cash increased $62,465 and $74,348, respectively,
4
<PAGE>
due to cash flow from operations and Common Stock issuances
exceeding cash used for net property and equipment acquisitions and
debt repayments.
At December 31, 1995, the Company had a short-term bank note
payable in the amount of $200,000 and long-term debt (excluding
current portion) of approximately $40,000. At the date of this
report, the short-term note was paid in full through proceeds
received upon the exercise of an outstanding stock option described
below. At the date of this report, the Company did not have any
significant financing facility.
On March 29, 1996, William R. Granberry, a director of the
Company and former Chairman of the Board, President and Chief
Executive Officer, exercised his stock option and purchased 600,000
shares of the Company's Common Stock at $.375 per share, thus
generating $225,000 in cash for the Company. Proceeds were
primarily used to pay off the short-term bank note mentioned above.
During the fiscal year ended March 31, 1995, the Company issued
300,000 shares of Common Stock to two directors, David N.
Fitzgerald and William R. Granberry, resulting in $125,000 of new
capital.
Management is of the opinion that the Company's cash flow and
funds from the sale of additional equity capital will be adequate
to meet its current obligations as well as fund additional property
acquisitions, new projects, and generation and/or participation in
new drilling and recompletion work.
The Company has announced its intention to hold its annual
meeting of shareholders in June 1996, at which meeting the
shareholders will vote on proposals to elect a new slate of
directors, to change the name of the Company and to effect a one
for five reverse stock split of the Common Stock. The Company also
expressed its intention to file a Registration Statement with the
Commission relating to the public offering of up to 5,000,000 post-
split shares of the Common Stock. The proceeds of this offering,
if successful, would be used for the acquisition of producing oil
and gas properties as well as further development activities in any
acquired properties. The timing and size of any acquisition and
the associated capital commitments are unpredictable. Proceeds of
the contemplated offering would also assist the Company in meeting
certain Nasdaq listing requirements. There is no assurance that
the Company will be successful in registering its Common Stock for
sale or in selling all or any portion of the Common Stock offered.
The offering, if made, will be made only by means of a prospectus.
In anticipation of its proposed equity offering, the Company
has agreed to employ Charles W. Gleeson as President and Chief
Executive Officer effective June 1, 1996, provided the proposed
offering is successfully completed.
Inflation and Changing Prices
The impact of inflation, as always, is difficult to assess.
During the three fiscal years ended March 31, 1995 and the nine
months ended December 31, 1995, the oil and gas industry remained
depressed. As a result, the Company experienced continued weakness
in demand and in prices received for its oil and gas production.
The general softening of the market has; however, also reduced the
cost of labor, materials, contract services and other operating
costs. The Company cannot anticipate whether the present trend of
low inflation will remain; however, a sudden increase in inflation
and/or an increase in operating costs coupled with a continuation
of low oil prices could have an adverse effect on the operations of
the Company.
Forward-Looking Information - Cautionary Statements
Other than the historical and factual matters set forth
herein, the matters and items set forth in this report are forward-
looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results
discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not
limited to, the following:
Certain Industry and Marketing Risks. The Company's
operations are subject to the risks and uncertainties associated
with drilling for, and production and transport of, oil and gas.
The Company must incur significant expenditures for the
identification and acquisition of properties and for the drilling
and completion of
5
<PAGE>
wells. Drilling activities are subject to numerous risks,
including the risk that no commercial productive oil or gas
reservoirs will be encountered. The Company's operations may be
materially curtailed, delayed or cancelled as a result of numerous
factors, including the presence of unanticipated pressure or
irregularities in formations, accidents, title problems, weather
conditions, compliance with governmental requirements and shortages
or delays in the delivery of equipment. The Company's prospects
for future growth and profitability will depend predominately on
its ability to replace present reserves through acquisition as well
as its ability to successfully develop additional reserves. The
Company's ability to market its oil and gas production is dependent
upon the availability and capacity of oil and gas gathering systems
and pipelines. Federal and state regulation of oil and gas
production and transportation, general economic conditions, changes
in supply and in demand all could materially adversely affect the
Company's ability to market its oil and gas production.
Uncertainty of Estimates of Oil and Gas Reserves. There are
numerous uncertainties inherent in estimating quantities of proved
oil and gas reserves, including many factors beyond the control of
the Company. This report contains an estimate of the Company's
proved oil and gas reserves and the estimated future net revenue
therefrom based upon reports of the Company's independent petroleum
engineers. Such reports rely upon various assumptions, including
assumptions required by the Commission as to constant gas and oil
prices, drilling and operating expenses, capital expenditures,
taxes and availability of funds. The process of estimating gas and
oil reserves is complex, requiring significant decisions and
assumptions in the evaluation of available geological, engineering
and economic data for each reservoir. As a result, such estimates
are inherently an imprecise evaluation of reserve quantities or the
future net revenue therefrom. Actual future production, revenue,
taxes, development expenditures, operating expenses and quantities
of recoverable gas and oil reserves may vary substantially from
those assumed in the estimate. Any significant variance in these
assumptions could materially affect the estimated quantity and
value of reserves set forth in this report. In addition, the
Company's reserves may be subject to downward or upward revision,
based upon production history, results of future exploration and
development, prevailing gas and oil prices and other factors.
Development of Additional Reserves. The Company's future
success, as is generally the case in the industry, depends upon its
ability to find, develop and acquire additional gas and oil
reserves that are economically recoverable. Except to the extent
that the Company conducts successful development activities or
acquires properties containing proved reserves, the Company's
proved reserves will generally decline as reserves are produced.
There can be no assurance that the Company will be able to find
additional reserves or that the Company will drill economically
productive wells or acquire properties containing proved reserves.
Effects of Changing Oil and Gas Prices. The future financial
condition and results of operations of the Company depend upon the
prices it receives for its oil and gas production and the costs of
acquiring, developing and producing oil and gas. Oil and gas
prices have historically been volatile and are likely to continue
to be volatile in the future. Prices for oil and gas are subject
to fluctuations in response to relatively minor changes in supply
and demand, market uncertainty and a variety of other factors
beyond the control of the Company. These factors include, without
limitation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports,
the level of consumer demand, government regulation and taxes, the
price and availability of alternative fuels and general economic
conditions. A significant reduction in oil or gas prices can
adversely affect both the estimated amount and value of the
Company's oil and gas reserves.
Operating Hazards and Uninsured Risks. The Company's
operations are subject to the risks inherent in the oil and gas
industry, including the risks of fire, explosions, blow-outs, pipe
failure, abnormally pressured formations and environmental
accidents such as oil spills, gas leaks, ruptures or discharges of
toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and
suspension of operations. In accordance with customary industry
practice, the Company maintains insurance against some, but not
all, of the risks described above. There can be no assurance that
any insurance will be adequate to cover any losses or liabilities.
The Company cannot predict the continued availability of insurance,
or availability at commercially acceptable premium levels.
6
<PAGE>
Government Regulation. Oil and gas operations are subject to
certain federal, state and local laws and regulations that may be
changed from time to time in response to economic and political
conditions. Such laws and regulations have generally become more
stringent in recent years, often imposing greater liability on an
increasing number of parties. Because the requirements imposed by
such laws and regulations are frequently changed, the Company is
unable to predict the effect or cost of compliance with such
requirements or their effects on oil and gas use or prices. In
addition, a number of legislative proposals have been introduced in
Congress and state legislatures which, if enacted, would
significantly affect the oil and gas industry. Such proposals
involve among other things, the imposition of land use controls and
certain measures designed to prevent oil and gas companies from
acquiring assets in other energy areas. In view of the many
uncertainties which exist with respect to any legislative
proposals, the Company cannot predict the effect on the Company of
any legislation which might be enacted.
Substantial Competition. The oil and gas industry is highly
competitive and there are many other companies engaged in the oil
and gas business. Many of the companies with which the Company
competes have substantially greater financial, technical and other
resources and may have greater experience in the oil and gas
business than the Company.
Need for Additional Capital. The Company's ability to acquire
and exploit oil and gas properties is dependent upon its ability to
obtain necessary outside funding or to generate cash flow from
operations. The Company anticipates attempting to raise additional
capital through a registered public offering although there is no
assurance that the Company will be able to raise any additional
capital through the proposed offering or otherwise. The Company
anticipates that the net proceeds of the proposed offering,
together with any funds available from borrowings and potential
funds generated from operations, will be adequate for its currently
planned activities to develop its proved undeveloped and developed
non-producing oil and gas reserves, but there is no assurance that
such funds will be adequate. If additional capital is required for
future acquisitions or exploitation activities and the capital
available from internal or external sources is insufficient, the
Company will be required to curtail its acquisition and
exploitation activities and its ability to grow or replace reserves
may be adversely affected.
7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Mineral Development, Inc.
We have audited the accompanying balance sheets of Mineral
Development, Inc. as of December 31, 1995 and March 31, 1995, and
the related statements of operations, changes in stockholders'
equity and cash flows for the nine months ended December 31, 1995
and the years ended March 31, 1995 and 1994. 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 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 Mineral
Development, Inc. as of December 31, 1995 and March 31, 1995, and
the results of its operations and its cash flows for the nine
months ended December 31, 1995 and the years ended March 31, 1995
and 1994, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II, as
listed in the index to the financial statements, is presented for
purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and in our opinion
fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Belew Averitt LLP
March 22, 1996, except for Note 10
as to which the date is April 17, 1996
Dallas, Texas
8
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1995
<CAPTION>
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 220,785 $ 145,728
Accounts receivable - trade (net of allowance for doubtful
accounts of $37,056 and $31,830, respectively) 359,546 430,467
Other 1,193 1,193
---------- ----------
Total current assets 581,524 577,388
Property and equipment, at cost (Note 3):
Undeveloped oil and gas properties 68,626 119,352
Proved developed oil and gas properties, based on the
successful efforts method 5,488,225 5,443,617
Office and field equipment 372,248 350,728
---------- ----------
5,929,099 5,913,697
Allowance for depreciation, depletion and amortization (4,979,936) (4,849,537)
---------- ----------
949,163 1,064,160
---------- ----------
$1,530,687 $1,641,548
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 475,872 $ 327,959
Joint interest prepayments 69,188 270,216
Revenues and royalties payable 87,793 35,729
Note payable (Note 2) 200,000 -
Current portion of long-term debt (Note 3) 28,561 18,530
---------- ----------
Total current liabilities 861,414 652,434
Long-term debt, less current portion (Note 3) 39,548 15,675
Commitments and contingencies (Note 7) - -
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized,
3,375,721 shares issued and outstanding (Note 5) 33,757 33,757
Capital in excess of par value 8,844,005 8,844,005
Deficit (8,248,037) (7,904,323)
---------- ----------
Total stockholders' equity 629,725 973,439
---------- ----------
$1,530,687 $1,641,548
========== ==========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND
YEARS ENDED MARCH 31, 1995 AND 1994
<CAPTION>
Nine Months
Ended December 31, Year Ended March 31,
------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas $ 559,844 $491,543 $ 625,790 $ 715,076
Management fees and other income 191,540 177,137 232,940 295,466
Gain on disposition of property
and equipment - 11,208 7,681 30,287
---------- -------- ---------- ----------
751,384 679,888 866,411 1,040,829
Costs and expenses:
Oil and gas production costs 333,444 302,168 403,541 458,891
Dry hole and abandonment costs 42,257 16,890 21,555 44,141
Depreciation, depletion and
amortization 233,958 67,118 106,489 109,812
General and administrative 480,446 350,993 498,715 377,536
Interest 4,993 2,424 4,101 4,711
---------- -------- ---------- ----------
1,095,098 739,593 1,034,401 995,091
---------- -------- ---------- ----------
Income (loss) before income taxes (343,714) (59,705) (167,990) 45,738
Income taxes (Note 4) - - - -
---------- -------- ---------- ----------
Net income (loss) $ (343,714) $(59,705) $ (167,990) $ 45,738
========== ======== ========== ==========
Net income (loss) per share $ (.10) $ (.02) $ (.05) $ .02
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED DECEMBER 31, 1995
AND YEARS ENDED MARCH 31, 1995 AND 1994
<CAPTION>
Common Stock
------------- Capital in
Number of excess of
shares Amount par value Deficit Total
------ ------ ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993 2,753,000 $27,530 $8,639,413 $(7,782,071) $ 884,872
Exercise of stock options (Note 5) 230,000 2,300 18,000 - 20,300
Issuance of common stock 92,721 927 64,592 - 65,519
Net income - - - 45,738 45,738
--------- ------- ---------- ----------- ----------
Balance at March 31, 1994 3,075,721 30,757 8,722,005 (7,736,333) 1,016,429
Issuance of common stock 300,000 3,000 122,000 - 125,000
Net loss - - - (167,990) (167,990)
--------- ------- ---------- ----------- ----------
Balance at March 31, 1995 3,375,721 33,757 8,844,005 (7,904,323) 973,439
Net loss - - - (343,714) (343,714)
--------- ------- ---------- ----------- ----------
Balance at December 31, 1995 3,375,721 $33,757 $8,844,005 $(8,248,037) $ 629,725
========= ======= ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
AND YEARS ENDED MARCH 31, 1995 AND 1994
<CAPTION>
Nine months
ended December 31, Year ended March 31,
------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(343,714) $ (59,705) $(167,990) $ 45,738
Adjustments to reconcile net income
(loss) to net cash provided (used) by operating activities:
Depreciation, depletion and amortization 233,958 67,118 106,489 109,812
Gain on disposition of property and equipment - (11,208) (7,681) (30,287)
Loss on abandonment of property and equipment 35,711 - - -
(Increase) decrease in:
Accounts receivable 70,921 143,012 (61,733) 31,390
Other current assets - - 2,755 6,460
Increase (decrease) in accounts payable and other
current liabilities (1,051) (166,638) 243,072 72,806
--------- --------- --------- --------
Net cash provided (used) by operating activities (4,175) (27,421) 114,912 235,919
Cash flows from investing activities:
Additions to property and equipment (140,923) (137,736) (189,609) (182,106)
Proceeds from disposition of property and equipment 39,101 18,202 30,349 52,314
--------- --------- --------- --------
Net cash used by investing activities (101,822) (119,534) (159,260) (129,792)
Cash flows from financing activities:
Payment on line-of-credit - - - (25,000)
Proceeds from note payable and long-term debt 300,000 - 9,318 -
Payments on long-term debt (118,946) (21,202) (27,505) (27,079)
Proceeds from issuance of common stock - 125,000 125,000 20,300
--------- --------- --------- --------
Net cash provided (used) by financing activities 181,054 103,798 106,813 (31,779)
--------- --------- --------- --------
Net increase (decrease) in cash 75,057 (43,157) 62,465 74,348
Cash at beginning of period 145,728 83,263 83,263 8,915
--------- --------- --------- --------
Cash at end of period $ 220,785 $ 40,106 $ 145,728 $ 83,263
========= ========= ========= ========
Supplemental information:
Interest paid $ 4,993 $ 2,424 $ 4,101 $ 4,711
========= ========= ========= ========
Income taxes paid $ - $ - $ - $ -
========= ========= ========= ========
</TABLE>
12
<PAGE>
Noncash activities -
The Company acquired property and equipment for debt as follows:
<TABLE>
<CAPTION>
Nine months
ended December 31, Year ended March 31,
------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Assets acquired $81,822 $23,203 $23,203 $49,200
Book value of assets traded-in (28,972) - - (15,050)
------- ------- ------- -------
Debt incurred $52,850 $23,203 $23,203 $34,150
======= ======= ======= =======
</TABLE>
During the year ended March 31, 1995, the Company incurred a
casualty loss relating to one of its vehicles. The insurance
proceeds of $17,000 received for the loss were used to directly repay
the related note payable.
The Company issued 92,721 shares of common stock in the year
ended March 31, 1994 for producing oil and gas properties valued
at $65,519.
See accompanying notes to financial statements.
13
<PAGE>
MINERAL DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization. Mineral Development, Inc. (Company), a Texas
corporation, was formed in 1955. The Company's operations consist
primarily of acquiring interests in producing oil and gas
properties located in the continental United States. The Company
also acts as the operator on certain of these properties and
receives management fee income.
Year-end change. On February 13, 1996, the Company changed
its fiscal year-end from March 31 to December 31 effective December
31, 1995.
Management estimates. In preparing financial statements in
conformity with generally accepted accounting principles, the
Company is required to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses
during the reporting period. Actual results may differ from
management's estimates.
Cash equivalents. The Company considers time deposits with
original maturities of three months or less to be components of
cash.
Property and equipment. The Company accounts for oil and gas
properties in accordance with the successful efforts method.
Accordingly, costs to acquire mineral interests in oil and gas
properties, to drill exploratory wells that find proved reserves
and to drill and equip development wells, are capitalized.
Geological and geophysical costs and costs to drill exploratory
wells that do not find proved reserves are expensed.
Depletion of proved oil and gas properties is computed on the
basis of current gross production in relation to estimated future
production of proved oil and gas reserves, based on current
economic and operating conditions.
Upon sale or retirement of depreciable property, the cost and
related accumulated depreciation, depletion and amortization are
removed and gain or loss is recognized. Maintenance and repairs
are expensed as incurred; renewals and replacements that improve or
extend the life of existing properties are capitalized.
Upon determination that an oil or gas property is not
commercially productive, the well is plugged and abandoned. Costs
associated with plugging a well, including restoration and
dismantlement costs, are expensed.
Allowances are provided for the impairment of value associated
with unproved oil and gas leases and for proved oil and gas
properties when the carrying value of the properties exceeds the
total discounted future net value of oil and gas reserves.
Depreciation of office and field equipment is provided by the
straight-line method over an estimated useful life of five years.
Income (loss) per share. Income (loss) per share is based on
the weighted average number of common shares and common share
equivalents outstanding (December 31, 1995 - 3,375,721;
December 31, 1994 - 3,209,054; March 31, 1995 - 3,275,721;
March 31, 1994 - 2,926,254). The effects of common stock
equivalents (Note 5) are antidilutive.
Federal income tax. The Company utilizes the asset and
liability method of computing deferred income taxes. In the event
differences between the financial reporting bases and the tax bases
of the Company's assets and liabilities result in deferred tax
assets, an evaluation of the probability of being able to realize
the future benefits indicated by such assets is considered
necessary. A valuation allowance is provided for a portion or all
of the
14
<PAGE>
deferred tax assets when it is more likely than not that such
portion, or all of such deferred tax assets, will not be realized.
Concentration of credit risk. Financial instruments that
potentially subject the Company to concentration of credit risk
consist principally of cash and trade receivables. The Company
places its cash with high credit quality financial institutions.
The Company has the right to offset certain of its trade
receivables with payables related to properties it operates on
behalf of joint interest owners. Consequently, management does not
anticipate significant credit losses from such financial
instruments.
Advertising. The Company expenses the production costs of
advertising and promotion expenditures as incurred. Advertising
expense was not significant for the nine months ended December 31,
1995 and 1994 and the years ended March 31, 1995 and 1994.
NOTE 2. NOTE PAYABLE
At December 31, 1995, the Company had a $200,000 demand note
payable outstanding to a bank. The note bears interest at the
bank's prime lending rate adjusted every ninety days (eight and
three-quarter percent at December 31, 1995) and is due in full on
May 17, 1996. The note is collateralized by assets pledged by a
director of the Company. The director also personally guaranteed
the note.
NOTE 3. LONG-TERM DEBT
Long-term debt at December 31, 1995 and March 31, 1995
consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
Notes payable to a finance company; monthly principal and interest
payments of $1,423; interest at 9.9%; collateralized by equipment $39,764 $ -
Note payable to a finance company; monthly principal and interest
payments of $762; interest at 10.9%; collateralized by equipment 15,701 20,986
Note payable to a vendor, monthly principal and interest payments of
$410, interest at 14%; unsecured 9,452 -
Note payable to a finance company; monthly principal and interest
payments of $375; interest at 8.9%; collateralized by equipment 3,192 6,267
Note payable to a finance company; monthly principal and interest
payments of $1,031; interest at 9.9%; collateralized by equipment - 6,952
------- -------
68,109 34,205
Less current portion (28,561) (18,530)
------- -------
$39,548 $15,675
======= =======
</TABLE>
15
<PAGE>
Maturities of long-term debt consist of the following:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1996 $28,561
1997 27,525
1998 12,023
-------
$68,109
=======
</TABLE>
NOTE 4. INCOME TAXES
No tax provision was required for the periods ended
December 31, 1995, December 31, 1994 and March 31, 1995 as the
Company incurred a loss. Income tax expense at March 31, 1994 of
$6,861 (fifteen percent effective tax rate) was offset by the
utilization of a net operating loss carryforward.
Deferred taxes resulted from differences between financial
statement and tax bases of assets and liabilities as well as unused
tax losses and credit carryforwards. Temporary differences and
carryforwards that comprise deferred taxes at December 31, 1995
were approximately as follows:
<TABLE>
<S> <C>
Depreciation, depletion and amortization,
including percentage
depletion carryforwards $ 94,000
Allowance for doubtful accounts 13,000
Net operating loss carryforward 2,336,000
Investment tax credit carryforward 135,000
----------
2,578,000
Less: Valuation allowance (2,578,000)
----------
$ -
==========
</TABLE>
At December 31, 1995, the Company had net operating loss
carryforwards and investment tax credit carryforwards of
approximately $6,870,000 and $135,000, respectively, which may be
applied against future taxable income. If unused, such
carryforwards expire in varying amounts from 1996 to 2011. Under
current tax law, the Company could lose substantial future benefit
of its carryforwards should there be a significant change in
ownership. Due to the uncertainty of utilizing such carryforwards
in future years, all of the deferred tax assets resulting from such
carryforwards have been included in the valuation allowance.
NOTE 5. COMMON STOCK OPTIONS
In August, 1994, the Company approved a stock option plan
(Plan), whereby options may be granted to selected employees to
purchase an aggregate of 1,000,000 shares of the Company's
authorized common stock. Under the Plan, options to purchase
shares will be granted at a price determined by the Company's stock
option committee, but in no event will it be less than one hundred
percent of the fair market value per share at the time of grant.
The Plan terminates in August, 2004.
In August, 1994, options to purchase 400,000 and 200,000
shares of common stock were granted to an officer/director under a
non-qualified stock option agreement and an incentive stock option
agreement, respectively. Under both of these agreements, the
option price is $.375 per share. Because the Plan and the related
incentive stock option grant was not approved within one year of
the Plan's adoption, the incentive stock option grant is now a
nonqualified option grant. The officer/director options expire
March 31, 1996 due to the resignation of the officer/director
effective December 31, 1995. Subsequent to December 31, 1995,
these options were exercised prior to their expiration.
16
<PAGE>
The following table sets forth stock option transactions for
the nine months ended December 31, 1995 and the years ended March
31, 1995 and 1994:
<TABLE>
<CAPTION>
Option Price
Number of --------------
Shares Per share Total
--------- --------- -----
<S> <C> <C> <C>
Outstanding at March 31, 1993 200,000 $ .10 $ 20,000
Granted 30,000 $ .01 300
Exercised (230,000) (20,300)
-------- ----- --------
Outstanding at March 31, 1994 - - -
Granted 600,000 $.375 225,000
-------- ----- --------
Outstanding at March 31, 1995
and December 31, 1995 600,000 $225,000
======== ========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Certain directors of the Company, and the companies with which
they are affiliated, participate in oil and gas joint ventures with
the Company upon substantially the same terms and conditions as
unrelated parties. In addition, the Company has purchased certain
oil and gas prospects as well as drilling services and oil field
supplies and services in the normal course of business from
companies in which certain directors have financial interests. For
the year ended March 31, 1994, the Company had purchased oil and
gas prospects totaling $19,025 from related parties. No
significant purchases were made during the periods ended
December 31, 1995, December 31, 1994 or March 31, 1995.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease that
expires in November, 1996. Rent expense was approximately $32,000,
$26,700, $36,100 and $30,800 for the nine months ended December 31,
1995 and December 31, 1994 and the years ended March 31, 1995 and
March 31, 1994, respectively. As of December 31, 1995, the
Company's future minimum rental payments required under the
operating lease was $34,342 for the year ending December 31, 1996.
The Company entered into an employment agreement with its
former President through August 29, 1996 which provides for a
minimum annual salary, adjusted for incentives as determined by the
Board of Directors of the Company. Effective December 31, 1995,
the agreement was terminated due to the resignation of this
individual. No costs will be due under this agreement subsequent
to resignation.
NOTE 8. SIGNIFICANT CUSTOMERS
The Company sells a portion of its oil and gas production to
what is considered significant customers. During the periods ended
December 31, 1995, December 31, 1994, March 31, 1995 and March 31,
1994, sales to significant customers accounted for twenty-eight
percent, thirty percent, twenty-nine percent and thirteen percent,
respectively, of the Company's revenues.
NOTE 9. ENVIRONMENTAL REGULATION
Various Federal, state and local laws and regulations covering
discharge of materials into the environment, or otherwise relating
to the protection of the environment, may affect the Company's
operations and costs of oil and gas exploration, development and
production operations. It is not anticipated that the Company will
be required in the near future to expend amounts material in
relation to its total capital expenditure program by reason of
environmental laws and regulations, but because such laws and
regulations are constantly being changed, the Company is unable to
predict the conditions and other factors, over which the Company
does not exercise control, that may give rise to environmental
liabilities.
17
<PAGE>
NOTE 10. SUBSEQUENT EVENT
The Company is actively seeking additional capital and has
announced that it intends to file a registration statement with the
Securities and Exchange Commission relating to a public offering of
up to 5,000,000 post-split shares of its common stock. The Company
also contemplates a one-for-five reverse stock split subject to
shareholder approval. The proceeds of the anticipated offering
would be used for acquisitions of producing oil and gas properties
and would assist the Company in meeting certain Nasdaq listing
requirements. Any offering will be made only by means of a
prospectus.
On March 29, 1996, the options to purchase 600,000 shares of
common stock were exercised for $225,000. The proceeds were used
to repay the $200,000 note payable to bank.
The Company has entered into an employment agreement with Mr.
Charles Gleeson for the position of President and Chief Executive
Officer of the Company. The agreement provides for a minimum
annual salary, adjusted for incentives, as determined by the Board
of Directors for the period June 1, 1996 through June 1, 1999.
Additionally, the employment agreement stipulates the
Company's stock option plan be amended to increase the number of
pre-split shares of the Company's common stock subject to the grant
of options from 1,000,000 to 2,000,000. Options to purchase
500,000 pre-split shares of the Company's common stock are to be
granted to Mr. Gleeson at a purchase price per share of $.60. The
options are to have a ten-year term.
The employment agreement will not become effective unless the
Company is successful in raising a minimum of $9,000,000 in its
contemplated registered public offering.
18
<PAGE>
MINERAL DEVELOPMENT, INC.
SUPPLEMENTARY OIL AND GAS DISCLOSURES
A. Capitalized Cost (unaudited)
The Company's net investment in oil and gas producing
properties was as follows:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Capitalized cost of proved properties $5,488,225 $5,443,617 $5,459,810
Accumulated depreciation, depletion and amortization (4,716,768) (4,575,527) (4,604,563)
---------- ---------- ----------
Net capitalized costs $ 771,457 $ 868,090 $ 855,247
========== ========== ==========
</TABLE>
B. Cost incurred in oil and gas property acquisition, exploration
and development activities (unaudited)
The following table sets forth costs incurred in oil and gas
property acquisition, exploration and development activities,
including capital expenditures, for each of the respective periods:
<TABLE>
<CAPTION>
Nine months ended Year ended March 31,
December 31, --------------------
1995 1995 1994
------------------ ---- ----
<S> <C> <C> <C>
Unproved property acquisition $ 4,430 $ 82,743 $ 32,186
Proved property acquisition 51,397 64,640 128,539
Exploration 36,616 12,058 65,052
Development 71,166 30,446 53,043
-------- -------- --------
$163,609 $189,887 $278,820
======== ======== ========
</TABLE>
C. Oil and gas reserve quantities (unaudited)
The following unaudited information summarizes the Company's
net ownership interests in proved oil and gas reserves and related
data. Estimates of oil and gas reserves are made annually by the
Company's independent petroleum engineers. The determination of
these reserves is a complex and highly interpretive process subject
to continual revision as additional information becomes available.
In most cases, a relatively accurate determination of reserves may
not be possible for several years due to the time needed for
development, drilling, testing and studies of the reservoirs.
The quantities of proved crude oil and natural gas reserves
presented below include only those amounts which the Company
reasonably expects to recover in the future from known oil and gas
reservoirs under the existing economic and operating conditions and
which are located entirely in the United States. Therefore, proved
reserves are limited to those quantities that are recoverable
commercially at current prices and costs under existing regulatory
practices and with existing technology. Accordingly, any changes
in future prices, costs, regulations, technology and other factors
could significantly increase or decrease valuation estimates.
19
<PAGE>
<TABLE>
<CAPTION>
Crude Oil and Condensate (Barrels) Natural Gas (Mcf)
---------------------------------- -----------------
Nine Nine
Months Months
ended Year Ended March 31, ended Year Ended March 31,
Dec. 31, -------------------- Dec. 31, --------------------
1995 1995 1994 1995 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped
reserves at beginning of year 237,286 224,916 227,464 2,851,198 2,187,366 954,208
Sale of proved reserves - - - - -
(6,585)
Purchase of proved reserves 7,691 325 26,653 2,152,212 681,915 635,621
Revisions of previous estimates (91,075) 26,115 (27,034) 16,162 192,732 571,054
New discoveries and extensions 12,610 6,663 24,968 117,535 - 186,877
Production (18,526) (20,733) (27,135) (180,223) (210,815) (153,809)
------- ------- ------- --------- --------- ---------
Proved developed and undeveloped
reserves at end of year 147,986 237,286 224,916 4,956,884 2,851,198 2,187,366
======= ======= ======= ========= ========= =========
Proved developed reserves at end
of year 140,870 216,006 180,093 2,817,700 1,515,226 2,093,192
======= ======= ======= ========= ========= =========
</TABLE>
D. Standardized measure of discounted future net cash flows
relating to proved reserves (unaudited)
Certain assumptions used in computing the standardized measure
and their inherent limitations are discussed below. The Company
believes this discussion is essential for a proper understanding
and assessment of the data presented.
The tables below present the standardized measure of future
net cash flows relating to proved reserves and the changes therein
computed in accordance with the methodology prescribed by the
Financial Accounting Standards Board (FASB). The FASB requires the
following specified assumptions be followed when computing the
standardized measure:
Proved reserves: Only "proved" reserves are included in
the valuation. The FASB adopted the Securities and
Exchange Commission and Department of Energy definition
of proved reserves. Excluded from the definition are
estimates of potential or possible reserves associated
with existing proved or unproved properties, which often
are a significant factor in the Company's investment
decision-making process.
Current prices: Expected revenues are based on oil and
gas prices representative of actual prices existing at
year-end. Expected increases because of inflation or
anticipated Federal regulatory changes and actual price
changes since year-end are not considered until actually
in effect.
Current costs: Production and development costs related
to future production of proved reserves are based on cost
levels existing at the end of the year for which those
estimates were made and assume continuation of existing
economic conditions. Therefore, adjustments for
inflation or other anticipated cost changes are not
included in these forecasts until the actual cost changes
are realized.
Income taxes: Because it is estimated that the Company
will not pay a significant amount of taxes in the
foreseeable future, no income tax provision has been made
for any year presented.
Ten percent (10%) discount: Future net cash flows from
oil and gas production for December 31, 1995, March 31,
1995 and 1994 have been discounted at ten percent (10%).
20
<PAGE>
The assumptions used to compute the standardized measure are
those required by the FASB and, as such, do not necessarily reflect
the Company's expectations of actual revenues to be derived from
those reserves nor their present worth.
The limitations inherent in the reserve quantity estimation
process previously described are equally applicable herein because
these estimates are the basis for the valuation process. Assigning
monetary values to such quantity estimates does not reduce the
subjective and ever-changing nature of such reserve estimates.
Additional subjectivity occurs when determining present values
because the rate of producing the reserves must be estimated. In
addition to errors inherent in predicting the future, variations
from the expected production rate could also result directly or
indirectly from factors outside of the Company's control, such as
unintentional delays in development, environmental concerns,
changes in prices and regulatory controls.
The standardized measure does not necessarily reflect the
amounts that would be incurred to obtain an equivalent amount of
oil and gas reserves, nor would the Company necessarily be willing
to sell the existing reserves for those amounts. Numerous other
factors in addition to those used in the valuation must be
considered by the Company when allocating funds to the exploration
and development of known and prospective oil and gas reserves.
Standardized measure of discounted future net cash flows
relating to proved reserves (unaudited)
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Future estimated cash inflows $11,571,416 $8,002,057 $7,420,781
Future estimated production and
development costs 4,692,741 3,349,010 2,476,827
----------- ---------- ----------
Future estimated net cash flows 6,878,675 4,653,047 4,943,954
Discount to reduce estimated net cash flows
to present value 2,874,080 1,535,012 1,982,735
----------- ---------- ----------
Standardized measure of discounted future net
cash flows relating to proved reserves $ 4,004,595 $3,118,035 $2,961,219
=========== ========== ==========
</TABLE>
21
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED RESERVES (UNAUDITED)
<CAPTION>
Nine months
ended Year ended March 31,
December 31, --------------------
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Changes in discounted net cash flows:
Increases (decreases):
Additions to proved reserves resulting from extensions
and discoveries less related costs $ 193,900 $ 74,924 $ 478,479
Purchases of proved reserves 1,436,568 349,368 567,576
Accretion of discount 233,853 296,122 222,164
Sales of oil and gas, net of production costs of $333,444,
$403,541 and $458,891, respectively (226,400) (222,249) (256,185)
Revisions of previous estimates:
Changes in prices and production costs 136,251 (537,607) (593,274)
Changes in quantities (887,612) 196,258 342,073
Sales of proved reserves - - (8,363)
Other - - (12,893)
---------- ---------- ----------
Net increase 886,560 156,816 739,577
Beginning of year 3,118,035 2,961,219 2,221,642
---------- ---------- ----------
End of year $4,004,595 $3,118,035 $2,961,219
========== ========== ==========
</TABLE>
22
<PAGE>
<TABLE>
MINERAL DEVELOPMENT, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and Other at end
Description of year expenses changes of year
- ----------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C>
Year ended March 31, 1994:
Allowance for doubtful accounts $38,297 $ - $(6,467)* $31,830
======= ====== ======= =======
Year ended March 31, 1995:
Allowance for doubtful accounts $31,830 $ - $ - $31,830
======= ====== ======= =======
Nine months ended December 31, 1995:
Allowance for doubtful accounts $31,830 $6,500 $(1,274)* $37,056
======= ====== ======= =======
<FN>
- -------------------------------
* Doubtful accounts written-off.
</FN>
</TABLE>
23
<PAGE>
MARKET INFORMATION AND DIVIDENDS
Market Information
During the past few years, the Company has not met certain of
the criteria required for listing on The Nasdaq Stock Market's
National Market or Small Cap Market. Since October 1993, certain
quotations (high and low bid prices) for the outstanding shares of
common stock, par value $0.01 per share (the "Common Stock"), have
been published periodically on the OTC Bulletin Board under the
symbol "MDVP," but there has been limited trading in the Common
Stock. OTC Bulletin Board quotations for the 1994 and 1995
calendar years and for 1996 through April 1, 1996 were as follows:
<TABLE>
<CAPTION>
Calendar Years High Low
-------------- ---- ---
<S> <C> <C>
1994
----
First Quarter $ 3/8 $ 1/4
Second Quarter 5/16 3/16
Third Quarter 1/2 3/16
Fourth Quarter 1/2 3/8
1995
----
First Quarter $ 5/8 $ 3/8
Second Quarter 5/8 1/4
Third Quarter 1/2 1/4
Fourth Quarter 1/2 5/16
1996
----
First Quarter (through April 1) $ 1/2 $5/16
</TABLE>
The above quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
The Company is attempting to comply with certain listing
criteria, including minimum equity, share price, public float and
market maker requirements and intends to reapply for inclusion of
its Common Stock on The Nasdaq Stock Market's National Market or
Small Cap Market when the Company is able to satisfy such
requirements. The Company cannot insure that it will be successful
in any reapplication to have the Common Stock quoted on The Nasdaq
Stock Market's National Market or Small Cap Market. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Dividends
The Company has not paid any cash dividends on its Common
Stock, and does not anticipate that dividend payments will be made
in the foreseeable future. The Board of Directors of the Company
presently plans to retain the Company's earnings, if any, to
finance the development and expansion of the Company's operations.
Future dividend policy is subject to the discretion of the Board of
Directors and will depend on a number of factors, including future
earnings, capital requirements and the financial condition of the
Company.
24
<PAGE>
DIRECTORY
DIRECTORS
David N. Fitzgerald
Chairman of the Board,
President and Chief Executive
Officer of Mineral Development,
Inc.
Glenn L. Seitz
Treasurer of Mineral
Development, Inc.
Richard D. Collins
Independent Financial
Consultant
John A. Schlensker
Independent Drilling Consultant
William R. Granberry
President of Tom Brown, Inc.
OFFICERS
David N. Fitzgerald
President and Chief Executive
Officer
Glenn L. Seitz
Treasurer
Richard D. Collins
Secretary
Sharon L. Figueroa
Assistant Secretary
EXECUTIVE OFFICES
9400 N. Central Expressway
Suite 1209
Dallas, Texas 75231
Telephone: (214) 368-2084
LEGAL COUNSEL
Arter & Hadden
1717 Main Street
Suite 4100
Dallas, Texas 75201
AUDITORS
Belew Averitt LLP
2020 Plaza of the Americas
RPR Tower
Dallas, Texas 75201
TRANSFER AGENT
IData, Inc.
14675 Midway
Suite 221
Dallas, Texas 75244
TRANSITION REPORT ON FORM 10-K
THE COMPANY, WITHOUT CHARGE, WILL PROVIDE TO EACH SHAREHOLDER, UPON
WRITTEN REQUEST, A COPY OF THE COMPANY'S TRANSITION REPORT ON FORM
10-K INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, BUT WITHOUT EXHIBITS, REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE NINE MONTH TRANSITION
PERIOD ENDED DECEMBER 31, 1995. WRITTEN REQUESTS FOR SUCH FORM 10-
K SHOULD BE DIRECTED TO SECRETARY, MINERAL DEVELOPMENT, INC., 9400
N. CENTRAL EXPRESSWAY, SUITE 1209, DALLAS, TEXAS 75231.
25
<PAGE>
MINERAL DEVELOPMENT, INC.
9400 N. Central Expressway
Suite 1209
Dallas, Texas 75231
