UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number: 0-9204
EXCO RESOURCES, INC.
(formerly MINERAL DEVELOPMENT, INC.)
(Exact name of registrant as specified in its charter)
Texas 74-1492779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9400 N. Central Expressway,
Suite 1209, L.B. 196
Dallas, Texas 75231
(Address of principal executive offices) (Zip Code)
(214) 368-2084
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
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
--- ---
Indicate the number of shares outstanding of each of
the issuer's classes of common stock as of July 31, 1997.
Class: Common stock, par value $0.01 per share
Outstanding at July 31, 1997: 805,300 shares
<PAGE>
EXCO RESOURCES, INC.
(formerly MINERAL DEVELOPMENT, INC.
INDEX
Page
Number
------
Part I. Financial Information:
- ------- ---------------------
Item 1. Financial Statements 2
Condensed Balance Sheets - June 30, 1997
and December 31, 1996 (Unaudited) 2
Condensed Statements of Operations
Three Months Ended June 30, 1997 and 1996
and Six Months Ended June 30, 1997 and 1996
(Unaudited) 3
Condensed Statements of Cash Flows - Six
Months Ended June 30, 1997 and 1996 (Unaudited) 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
-1-
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
EXCO RESOURCES, INC.
(formerly MINERAL DEVELOPMENT, INC.)
CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 69,000 $ 46,000
Accounts receivable 210,000 326,000
Other 0 1,000
------------ ------------
TOTAL CURRENT ASSETS 279,000 373,000
PROPERTY AND EQUIPMENT, AT COST:
Undeveloped oil and gas properties 44,000 55,000
Proved developed oil and gas properties, based on
successful efforts method 3,778,000 5,243,000
Office and field equipment 317,000 375,000
------------ ------------
4,139,000 5,673,000
Allowance for depreciation, depletion and amortization (3,462,000) (4,803,000)
------------ ------------
677,000 870,000
------------ ------------
$ 956,000 $ 1,243,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 307,000 $ 352,000
Joint interest prepayments 17,000 31,000
Revenues and royalties payable 63,000 95,000
Current portion of long-term debt 17,000 30,000
Note payable 0 150,000
------------ -----------
TOTAL CURRENT LIABILITIES 404,000 658,000
LONG TERM DEBT, LESS CURRENT PORTION 22,000 36,000
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 25,000,000 shares
authorized, 805,300 shares issued and outstanding (Note 3) 8,000 8,000
Capital in excess of par value 9,118,000 9,118,000
Deficit (8,596,000) (8,577,000)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 530,000 549,000
------------ -----------
$ 956,000 $ 1,243,000
============ ===========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
EXCO RESOURCES, INC.
(formerly MINERAL DEVELOPMENT, INC.)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas $ 165,000 $ 222,000 $ 384,000 $ 442,000
Management fees and other 42,000 42,000 92,000 96,000
--------- --------- --------- ---------
207,000 264,000 476,000 538,000
COSTS AND EXPENSES:
Oil and gas production costs 100,000 96,000 199,000 204,000
Depreciation, depletion and
amortization 21,000 29,000 49,000 59,000
General and administrative 165,000 125,000 310,000 225,000
Interest 4,000 2,000 9,000 8,000
Dry hole and abandonment costs 0 1,000 0 1,000
Gain on disposition of properties (90,000) (2,000) (72,000) (2,000)
--------- --------- --------- ---------
200,000 251,000 495,000 495,000
--------- --------- --------- ---------
NET INCOME (LOSS) $ 7,000 $ 13,000 $ (19,000) $ 43,000
========= ========= ========= =========
INCOME (LOSS) PER
COMMON SHARE $ .01 $ .02 $ (.02) $ .06
========= ========= ========= =========
Weighted average shares outstanding
(Note 2) 805,300 795,300 805,300 736,463
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
EXCO RESOURCES, INC.
(formerly MINERAL DEVELOPMENT, INC.)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (19,000) $ 43,000
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation, depletion and amortization 49,000 59,000
Gain on disposition of property and equipment (72,000) (2,000)
Net decrease in:
Accounts receivable 116,000 80,000
Other current assets 1,000 0
Net decrease in accounts payable and other
current liabilities (91,000) (308,000)
---------- ----------
Net cash used by operating activities (16,000) (128,000)
Cash flows from investing activities:
Additions to property and equipment (29,000) (10,000)
Proceeds from disposition of property and equipment 232,000 6,000
---------- ----------
Net cash provided (used) by investing activities 203,000 (4,000)
Cash flows from financing activities:
Payments on long-term debt (14,000) (15,000)
Payments on note payable (150,000) (200,000)
Proceeds from issuance of common stock 0 225,000
Deferred financing and acquisitions costs 0 (70,000)
---------- ----------
Net cash used by financing activities (164,000) (60,000)
---------- ----------
Net increase (decrease) in cash 23,000 (192,000)
Cash at beginning of year 46,000 221,000
---------- ----------
Cash at end of period $ 69,000 $ 29,000
========== ==========
Supplemental information:
Interest paid $ 9,000 $ 8,000
========== ==========
Federal income tax paid $ 0 $ 0
========== ==========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
EXCO RESOURCES, INC.
(formerly MINERAL DEVELOPMENT, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1 - Statement by Management Concerning Interim Financial Information
- --------------------------------------------------------------------
The financial information included herein is unaudited and
does not include all information and footnotes required by
generally accepted accounting principles for complete financial
statements; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments), which are, in
the opinion of management, necessary for a fair presentation of the
results of operation for the interim period. It is recommended
that these interim financial statements be read in conjunction with
the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1996.
2 - Income Per Common Share
- ---------------------------
The income per common share was computed by dividing the net
income for each period by the weighted average number of common
shares outstanding during the quarter. Common stock options are not
considered to be common stock equivalents as their effect would be
anti-dilutive. The weighted average number of common shares
outstanding during the period were retroactively restated to give
effect to the one-for-five reverse stock split effective July 19,
1996.
3 - Stockholders' Equity
- ------------------------
On July 11, 1996, the Company's shareholders approved a one-
for-five reverse stock split of the Company's common stock. The
reverse stock split was effective July 19, 1996. The par value of
common stock and the number of authorized shares of common stock
remained unchanged. All references in the financial statements to
number of shares, per share amounts and market prices of the
Company's common stock have been retroactively restated to reflect
the decreased number of shares outstanding.
In April 1997, the Directors terminated the Company's 1996
Director Plan ("Director Plan") without the granting of any
automatic options thereunder. In lieu of the Director Plan
automatic grants, the Board granted each Director an option to
purchase 25,000 shares at an option exercise price of $2.75 per
share, the fair market of the Common Stock on the date of grant.
Options to purchase an aggregate of 125,000 shares were granted to
the Company's directors. In addition, in April 1997, the Company
amended the President's and Chief Executive Officer's Employment
Contract to provide for the grant of stock options to purchase up
to 100,000 shares of Common Stock and granted stock options to
another executive officer to purchase an aggregate of
-5-
<PAGE>
50,000 shares of Common Stock, both at an exercise price of $2.75
per share, the fair market value of the Common Stock on the date of
grant.
4 - Employment Agreement
- ------------------------
In April 1996, the Company entered into an employment
agreement with an individual to serve as President and Chief
Executive Officer of the Company. The agreement provides for a
three-year term, subject to extension upon mutual agreement of the
parties; provided, however, the employment agreement originally
provided that it would not become effective until the Company was
successful in raising at least $9,000,000 of capital in a
registered public offering (the "Funding Condition"). During the
employment term, the Company is required to cause such individual
to be nominated for election as a director at each annual or
applicable special meeting of shareholders of the Company, and the
Company is required to use its best efforts, consistent with its
fiduciary responsibilities to the shareholders, to cause the
election of such individual as a director. The employment agreement
has been amended to provide that it is effective, but that the
Board may terminate it at any time if the Company has not satisfied
the Funding Condition. The employment agreement is subject to
early termination as provided therein, including termination by the
Company for "cause" (as defined in the employment agreement) or
termination by such individual for "good reason upon change of
control" (as defined in the employment agreement). The employment
agreement provides for an annual base salary of $140,000 and such
bonuses or other discretionary compensation as the Board may
determine. In addition, the employment agreement provides, among
other things, for expense reimbursement and, as amended, the grant
of stock options to purchase up to 100,000 shares of Common Stock
for an exercise price of $2.75 per share. This stock option has a
ten year term, but will only vest upon the satisfaction of the
Funding Condition or upon the sale of the Company.
5 - Note Payable
- ----------------
In August 1996, the Company obtained a $200,000 short-term
credit facility with a bank to finance costs related to the
Company's finance and acquisition activities. The outstanding
principal amount of the loan was due June 2, 1997, or sooner if
demanded, and bore interest at the prime rate plus 2%, and interest
was payable monthly. The loan was secured by the pledge of certain
of the Company's oil and natural gas properties. The Company, as a
part of its overall refocus, sold certain nonstrategic assets
during the current fiscal year and utilized the proceeds to pay off
the remaining balance of the note.
6 - Recent Accounting Pronouncements
- ------------------------------------
In June 1996, the Financial Accounting Standards Board (the
"FASB") issued Statements of Financial Accounting Standards No. 125
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("FAS 125"). FAS 125 provides
accounting and reporting standards for, among other things, the
transfer and servicing of financial assets, such as factoring
receivables with recourse. FAS 125 is effective for transfers and
servicing of financial assets occurring after December 31, 1996,
and is to be applied prospectively. Earlier or retroactive
application is not permitted. In December 1996, the FASB issued
Statement of
-6-
<PAGE>
Financial Accounting Standards No. 127, "Deferral of the Effective
Date of Certain Provisions of FAS 125" ("FAS 127"). FAS 127 amends
the effective date for certain provisions of FAS 125 to December
31, 1997. Management of the Company does not anticipate the
adoption of FAS 125 will have a material impact on the Company's
financial position or results of operations.
In March 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"),
which establishes standards for computing and presenting earnings
per share for entities with publicly held common stock or potential
common stock. FAS 128 simplifies the standards for computing
earnings per share previously found in Accounting Principles Board
Opinion No. 15, "Earnings per Share," and makes them comparable to
international earnings per share standards. It replaces the
presentation of primary earnings per share with a presentation of
basic earnings per share, which excludes dilution. It also
requires dual presentation of basic and diluted earnings per share
on the face of the income statement for all entities with complex
capital structures. FAS 128 is effective for fiscal years ending
after December 15, 1997, and early adoption is not permitted.
Management of the Company does not anticipate the adoption of FAS
128 will have a material impact on the Company's financial position
or results of operations.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" ("FAS 129"), which establishes standards for
disclosing information about an entity's capital structure. FAS
129 continues the existing requirements to disclose the pertinent
rights and privileges of all securities other than ordinary common
stock, but expands the number of companies subject to portions of
its requirements. FAS 129 is effective for fiscal years ending
after December 15, 1997. Management of the Company does not
anticipate the adoption of FAS 129 will have a material impact on
the Company's financial statements or results of operations.
-7-
<PAGE>
Item 2.
EXCO RESOURCES, INC.
(formerly MINERAL DEVELOPMENT, INC.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q OF EXCO RESOURCES, INC.
(THE "COMPANY") CONTAINS "FORWARDING-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SPECIFICALLY, ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN
THIS REPORT REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS
STRATEGY AND PLANS AND OBJECTIVES OF MANAGEMENT OF THE COMPANY FOR
FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS. THESE FORWARD-
LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S
MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY
AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT,
THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO
THE COMPANY OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT
VIEW OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT
TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN
FACTORS INCLUDING, WITHOUT LIMITATION, PRICE LEVELS FOR OIL AND
NATURAL GAS, CONCENTRATION OF OIL AND NATURAL GAS RESERVES AND
PRODUCTION, DRILLING RISKS, UNCERTAINTY OF OIL AND GAS RESERVES,
RISKS ASSOCIATED WITH THE DEVELOPMENT OF ADDITIONAL REVENUES AND
WITH THE ACQUISITION OF OIL AND GAS PROPERTIES AND OTHER ENERGY
ASSETS, OPERATING HAZARDS AND UNINSURED RISKS, GENERAL ECONOMIC
CONDITIONS, GOVERNMENTAL REGULATION, CHANGES IN INDUSTRY PRACTICES,
MARKETING RISKS, ONE TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN
("CAUTIONARY STATEMENTS"). ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. BASED UPON CHANGING CONDITIONS, SHOULD
ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR
SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS
MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT
INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS. ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN
THEIR ENTIRETY BY THE APPLICABLE CAUTIONARY STATEMENTS. REFERENCE
IS MADE TO "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FORWARD-LOOKING INFORMATION -
CAUTIONARY STATEMENTS" INCLUDED IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, WHICH IS
INCORPORATED HEREIN BY REFERENCE.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTH PERIODS AND SIX
MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
REVENUES. Revenues for the three month period ended June 30,
1997 were $207,000 compared with $264,000 for the corresponding
period in 1996, a 22% decrease. Revenues decreased 12% for the six
month period ended June 30, 1997 to $476,000 from $538,000 for the
six month period ended June 30, 1996. These decreases in revenues
were primarily due to oil and gas production declines and the
disposition of various oil and gas properties during the current
periods.
-8-
<PAGE>
COSTS AND EXPENSES. Costs and expenses for the three month
period ended June 30, 1997 decreased $51,000, or 20%, to $200,000
versus $251,000 for the corresponding period of 1996. Costs and
expenses for the six month periods ended June 30, 1997 and 1996
were unchanged at $495,000. Impacting these results were gains on
the disposition of properties in the current six month period of
$72,000 offsetting an increase in general and administrative costs
of $85,000 for the current six month period resulting from the
addition of a new President and Chief Executive Officer in June
1996 (see Note 4).
NET INCOME (LOSS). Net income for the quarter ended June 30,
1997 was $7,000 compared to $13,000 for the corresponding quarter
of 1996, representing $.01 and $.02 per share, respectively. Net
income for the six month period ended June 30, 1997 was a loss of
$19,000 compared to a net income of $43,000 for the corresponding
six month period of 1996. These amounts represented $(.02) and
$.06 per share, respectively. All earnings per share figures are
based on restated weighted average shares outstanding after the
retroactive effect of the one-for-five reverse stock split approved
at the Company's shareholders' meeting held July 11, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 1997 was a negative
$125,000 compared to a negative $285,000 at December 31, 1996. In
the six months ended June 30, 1997, the Company paid off the
$150,000 note payable balance that was outstanding at December 31,
1996. Funds for the payoff were obtained from the proceeds of the
sale of certain nonstrategic assets during the six months ended
June 30, 1997.
As a result of these sales, the historical costs/amounts for
these assets as reflected in the Property and equipment balances of
Proved developed and Undeveloped oil and gas properties, Office and
field equipment and Allowance for depreciation, depletion and
amortization were written off and appropriate gains or losses
incurred.
Also impacting the Company's working capital was positive
earnings before interest, taxes, depreciation, depletion and
amortization ("EBITDA"). EBITDA for the three month and six month
periods ended June 30, 1997 was $32,000, or $.04 per share, and
$39,000, or $.05 per share, respectively. Management is of the
opinion that the Company's cash flow, available borrowing capacity
and ability to raise additional capital will be adequate to meet
its current obligations as well as fund currently anticipated
property acquisitions, new projects, and generation and/or
participation in new drilling and recompletion work. However, any
significant acquisitions, projects or drilling and/or recompletion
work will require additional debt and/or equity financing.
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed in
its behalf by the undersigned thereunto duly authorized.
EXCO RESOURCES, INC.
formerly MINERAL DEVELOPMENT, INC.
(Registrant)
Date: August 14, 1997 /s/ Glenn L. Seitz
-----------------------------------
Glenn L. Seitz, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR EXCO RESOURCES, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 69,000
<SECURITIES> 0
<RECEIVABLES> 210,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 279,000
<PP&E> 4,139,000
<DEPRECIATION> 3,462,000
<TOTAL-ASSETS> 956,000
<CURRENT-LIABILITIES> 404,000
<BONDS> 22,000
0
0
<COMMON> 8,000
<OTHER-SE> 522,000
<TOTAL-LIABILITY-AND-EQUITY> 956,000
<SALES> 0
<TOTAL-REVENUES> 476,000
<CGS> 0
<TOTAL-COSTS> 495,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> (19,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,000)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
