SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ______)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
ENERGY PRODUCTION COMPANY
-------------------------
Name of Registrant as Specified in its Charter
----------------------------------------------------------------------
Name of Person(s) Filing Proxy Statement, if Other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 Par Value
----------------------------
(2) Aggregate number of securities to which transaction applies:
75,000,000
---------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed: August ___, 1997.
<PAGE>
ENERGY PRODUCTION COMPANY
1703 Edelweiss Dr.
Cedar Park, TX 78613
September 22, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Energy Production Company, a Colorado corporation ( the
"Company") to be held on Tuesday, October 31, 1997 at 9:00 a.m., Central Time,
at 1703 Edelweiss Drive, Cedar Park, Texas 78613. Your Board of Directors and
management look forward to greeting personally those Shareholders able to
attend.
At the Meeting, you will be asked to consider and vote upon: (i) a
proposal to elect three (3) nominees as directors of the Company to serve until
the next annual meeting of Shareholders of the Company to be held in 1998; (ii)
a proposal to amend the Articles of Incorporation to change the name of the
Company to FieldPoint Petroleum Corporation; (iii) a proposal to ratify the May
1997 stock issuance to Bass Petroleum, Inc.,a Texas corporation and all action
taken by the Board of Directors or officers of the Company to effect such stock
issuance; (iv) a proposal to approve the 75 to 1 reverse stock split of the
75,000,000 shares of common stock of the Company issued and outstanding; (v) a
proposal to approve the acquisition by the Company of all of the outstanding
shares of common stock of Bass Petroleum, Inc. (vi) a proposal to ratify the
selection of Hein & Associates LLP as the Company's independent auditors for the
current fiscal year ending December 31, 1997; and (vii) any other business as
may properly come before the Meeting or any adjournment thereof (collectively,
the "Proposals"). The Proposals are fully set forth in the accompanying Proxy
Statement which you are urged to read thoroughly. For the reasons set forth in
the Proxy Statement, your Board of Directors recommends a vote FOR all nominees
as directors and IN FAVOR of all Proposals.
It is important that your shares be voted at the Meeting. Whether or
not you plan to attend in person, please complete, date and sign the enclosed
proxy and return it as promptly as possible in the accompanying postage prepaid
envelope. If you do attend the Meeting and wish to vote your shares in person,
even after returning the proxy, you still may do so.
Mailing of this proxy statement is expected to begin September 22,
1997. Thank you for your cooperation.
Respectfully,
Energy Production Company
Ray D. Reaves
President and Chief Executive Officer
<PAGE>
ENERGY PRODUCTION COMPANY
1703 Edelweiss Drive
Cedar Park, TX 78613
- -------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held October 31, 1997
- -------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Energy
Production Company will be held on Friday, October 31, 1997 at 1703 Edelweiss
Drive, Cedar Park, Texas 78613, to consider and vote on the following matters as
described in this notice and the accompanying Proxy Statement:
1. To elect three directors to hold office until the next annual meeting of
Shareholders or until their successors have been duly elected and
qualified.
2. To approve the change of the name of the Company to FieldPoint Petroleum
Corporation.
3. To ratify the May 1997 stock issuance to Bass Petroleum, Inc. and all
action taken by the Board of Directors or officers of the Company to effect
such stock issuance.
4. To approve the 75 to 1 reverse stock split of the 75,000,000 shares of
common stock of the Company issued and outstanding.
5. To approve the acquisition by the Company of all of the outstanding shares
of Bass Petroleum, Inc.
6. To ratify the selection of Hein & Associates LLP as the Company's
independent auditors for the current fiscal year ending December 31, 1997.
7. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on September 12, 1997 as
the record date for determination of Shareholders entitled to vote at the
Meeting or any adjournments thereof, and only Shareholders of record at the
close of business on that date will be entitled to vote. At the Record Date,
75,000,000 shares of common stock were issued and outstanding. A list of
Shareholders entitled to vote at the meeting will be available for inspection at
the principal executive offices of the Company located at 1703 Edelweiss Drive,
Cedar Park, Texas 78613.
<PAGE>
The approximate date on which this Proxy Statement is first being mailed to
Shareholders is September 22, 1997. Shareholders who execute proxies may revoke
them at any time prior to their being exercised by providing written notice to
the Company by delivering another proxy bearing a later date any time prior to
the meeting. Mere attendance at the Meeting will not revoke the proxy, but a
Shareholder present at the Meeting may revoke his or her proxy and vote in
person. Any duly executed proxy on which a vote is not indicated (except broker
non-votes expressly indicating a lack of discretionary authority to vote) will
be deemed a vote for the nominees and all Proposals. Abstentions and broker
non-votes will not be counted as votes either "for" or "against" any matters
coming before the Meeting.
To assure representation at the Meeting, Shareholders are urged to sign and
return the enclosed proxy card as promptly as possible in the postage prepaid
envelope enclosed for that purpose. Any Shareholder attending the Meeting may
vote in person even if he or she previously returned a proxy.
By Order of the Board of Directors
Kelly Latz
General Counsel and Secretary
<PAGE>
ENERGY PRODUCTION COMPANY
1703 Edelweiss Drive
Cedar Park, Texas 78613
PROXY STATEMENT FOR SPECIAL MEETING OF THE SHAREHOLDERS IN LIEU OF
ANNUAL MEETING TO BE HELD OCTOBER 31, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Energy Production Company (the "Company")
for use at the Special Meeting of Shareholders (the "Meeting") to be held at
1703 Edelweiss Drive, Cedar Park, Texas 78613 on Friday, October 31, 1997, at
9:00 a.m., central daylight savings time, and at any adjournments thereof. This
Proxy Statement and the accompanying form of proxy are first being mailed or
given to shareholders of record on or about September 22, 1997. Any proxy may be
revoked by a shareholder at any time before its exercise by delivery of written
revocation or a subsequently dated proxy to the Secretary of the Company or by
voting in person at the Meeting.
The close of business on September 12, 1997, has been designated as the
record date for the determination of shareholders entitled to vote at the
Meeting, and at such date, there were outstanding and entitled to vote an
aggregate of 75,000,000 shares of common stock, $.01 par value per share, of the
Company ("Common Stock"). Holders of Common Stock are entitled to one vote per
share.
Votes Required
The holders of one-third of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for shareholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
At the Meeting, Shareholders will be asked to consider and vote on
proposals to:
(i) elect the director nominees named herein;
(ii) approve the change of the Company's name;
(iii) ratify the May 1997 stock issuance to Bass Petroleum, Inc.
("BPI") and all action taken by the Board of Directors
or officers of the Company to effect such stock issuance;
(iv) approve the 75-to-1 reverse stock split of the 75,000,000
shares of Common Stock issued and outstanding;
(v) approve the acquisition of all of the outstanding shares of
common stock of BPI; and
(vi) ratify the selection of Hein & Associates, L.L.P. as the
Company's independent auditors for the current fiscal year.
<PAGE>
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. Cumulative
voting in the election of directors is not permitted. The affirmative vote of
the holders of a majority of the shares of Common Stock voting on the matter is
required to approve the change of the Company's name; ratify the May 1997 stock
issuance to Bass Petroleum, Inc. ("BPI") and all action taken by the Board of
Directors or officers of the Company to effect such stock issuance; approve the
75-to-1 reverse stock split of the 75,000,000 shares of Common Stock issued and
outstanding; approve the acquisition of all of the outstanding shares of common
stock of BPI; and ratify the selection of Hein & Associates, L.L.P. as the
Company's independent auditors for the current fiscal year.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be voted in favor of such matter, and will also not be counted
as shares voting on such matter. Accordingly, abstentions and "broker non-votes"
will have no effect on the voting on a matter that requires the affirmative vote
of a plurality or a majority of the shares voting on such matter.
Voting Proxies
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies. IF NO DIRECTION IS INDICATED, THE SHARES WILL BE
VOTED TO ELECT THE THREE DIRECTORS AND IN FAVOR OF ALL OTHER PROPOSALS DESCRIBED
IN THIS PROXY STATEMENT.
Annual Report
The Annual Report to Shareholders, covering the Company's fiscal year ended
December 31, 1996, including audited financial statements, is enclosed herewith.
The Annual Report to Shareholders does not form any part of the material for
solicitation of proxies.
The Annual Report is the Company's Form 10-KSB. The Company will provide
exhibits to its Annual Report on Form 10-KSB upon request to Ray D. Reaves,
President, at 1703 Edelweiss Drive, Cedar Park, Texas 78613 and upon payment of
the reasonable expenses incurred by the Company in furnishing such exhibits.
<PAGE>
ITEM 1
ELECTION OF DIRECTORS
The directors are elected annually by the shareholders of the Company. The
Bylaws of the Company provide that the number of directors will consist of at
least three and no more than nine directors. The shareholders will elect three
directors for the coming year. The three nominees presently serve as directors
of the Company.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted for the election of the nominees listed herein.
Although the Board of Directors of the Company does not contemplate that any of
the nominees will be unable to serve, if such a situation arises prior to the
Meeting, the persons named in the enclosed proxy will vote for the election of
such other person(s) as may be nominated by the Board of Directors.
Nominees
Set forth below for each nominee are his name and age, his positions with
the Company, and his principal occupation and business experience during the
past five years:
Ray D. Reaves, age 35, has been Chairman, Chief Executive Officer,
President, and Director of the Company since May 1997. Mr. Reaves has also
served as Chairman, Chief Executive Officer, Chief Financial Officer and
Director of BPI from October 1989 to present and as President of FieldPoint,
Inc., a private investment firm.
Robert A. Manogue, age 72, has been a Director of the Company since July
1997. Since 1982, Mr. Manogue has been retired and has been involved in house
construction in Albuquerque, New Mexico under R. A. Manogue Construction. From
1976 to 1982, Mr. Manogue was President of C. P. Clear International N. V. in
Brussels, Belgium, a $50 million subsidiary of General Instruments Corporation.
He also served as Vice President of Marketing for Emerson Electric Company, a
manufacturer and marketer of consumer and industrial products, from 1971 to
1976.
Robert D. Bryant, age 54, has been a Director of the Company since July
1997. From November 1994 to present, Mr. Bryant has been President of Canmax
Corporation. From May 1993 to October 1994, Mr. Bryant was President of Network
Data Corporation. From January 1993 to May 1993, he served as Senior Vice
President, Corporate Development, of Network Data Corporation. From May 1991 to
July 1992, he served as President of Dresser Industries, Inc., Wayne Division, a
leading international manufacturer of fuel dispensing equipment. Additionally,
from August 1989 to May 1991, Mr. Bryant was President of Schlumberger Limited,
Retail Petroleum Systems Division, U.S.A., a division of Schlumberger
Corporation.
<PAGE>
Board of Directors, Committees and Meetings
The Board of Directors held one meeting in fiscal year 1996, and each
Director attended the meeting. The Company has not established an audit,
nominating or compensation committee, or other committees performing similar
functions.
Director's Fees
The directors receive $250 for each meeting of the Board of Directors or
any committee thereof. In addition, the directors are reimbursed for the
reasonable expenses incurred for each Board of Directors meeting attended.
The Board of Directors unanimously recommends a vote FOR the election of
each of the nominees set forth above.
ITEM 2
APPROVAL OF AMENDMENT TO CHANGE NAME
On July 14, 1997, the Board of Directors of the Company unanimously voted
to recommend to the shareholders that the Company's articles of incorporation be
amended to change the name of the Company to FieldPoint Petroleum Corporation.
The Board of Directors believes that the proposed amendment changing the
name of the Company is in the best interests of the Company and its Shareholders
and therefore recommends a vote FOR Item 2.
<PAGE>
ITEM 3
RATIFICATION OF STOCK ISSUANCE TO BPI
In May 1997, the Board of Directors authorized the issuance of 44,038,222
shares of Common Stock of the Company to BPI for consideration of $45,000 of
which $5,000 was paid in cash and oil and gas properties valued at $40,000.
Although shareholder approval of the Board of Directors' issuance of Common
Stock to BPI and all actions taken by the Board of Directors or officers of the
Company to effect such stock issuance is not required by Colorado law, the Board
of Directors believes that it is advisable to give shareholders the opportunity
to ratify this action.
The Board of Directors is seeking the ratification of the shareholders in
order to be assured that the shareholders are aware of and in favor of the
recent change in control and business plan of the Company. If the shareholders
fail to ratify this action, the Board of Directors will attempt to determine the
appropriate action to take to appease the shareholders' concerns.
The Board of Directors believes the ratification of the stock issuance to
BPI is in the best interests of the Company and its Shareholders and therefore,
recommends a vote FOR Item 3.
ITEM 4
REVERSE STOCK SPLIT
On July 14, 1997, the Board of Directors of the Company approved and
authorized the effectuation a 75-to-1 reverse stock split (the "Stock Split")
with respect to all of the issued and outstanding shares of Common Stock of the
Company. Pursuant to the applicable provisions of the Colorado Business
Corporation Act, the Board directed that the Stock Split be submitted to the
stockholders of the Company for approval at the Meeting.
As of July 14, 1997, there was a total of 75,000,000 shares of the
Company's Common Stock issued and outstanding. If the shareholders of the
Company approve the Stock Split described below, a total 75,000,000 shares of
Common Stock, constituting all of the currently issued and outstanding shares of
Common Stock of the Company (collectively, the "Pre-Split Shares"), shall be
converted into an aggregate of 1,000,000 shares of Common Stock of the Company
(collectively, the "Post-Split Shares").
As a result, each outstanding Pre-Split Share shall be converted into 0.133
Post-Split Shares and accordingly, certificates representing one (1) Pre-Split
Share will, effective as of the effective date of the Stock Split, be deemed to
represent 0.133 Post-Split Shares of Company Common Stock. All of the Post-Split
Shares will have the same rights, preferences and privileges as the Pre-Split
Shares of the Company. No additional shares of Common Stock will be issued prior
to the effective date of the Stock Spilt. In addition, no fractional shares of
Common Stock will be issued in connection with the Stock Split, but in lieu
thereof, each holder of shares of Common Stock who would otherwise have been
entitled to a fraction of a share of Common Stock will be given a fraction of a
share of Common Stock sufficient, when added to the fraction to which the holder
would be entitled, to equal a whole share of Common Stock. No holder will be
entitled to dividends or other rights in respect of any fractional interest.
<PAGE>
Shareholders of the Company will need to exchange their stock certificates
representing Pre-Split Shares for newly issued stock certificates representing
Post-Split Shares of the Company. Stock certificates representing Pre-Split
Shares of the Company should not be destroyed or returned to the Company. As
certificates representing Pre-Split Shares of the Company are surrendered for
transfer to the Company's transfer agent, the Company's transfer agent will
issue in place thereof certificates representing Post-Split Shares. Accordingly,
each holder of a certificate or certificates representing one (1) Pre-Split
Share, upon surrender of the same to the Company's transfer agent, shall be
entitled to receive in exchange therefore a certificate representing 0.133
Post-Split Shares.
The primary effect of the Stock Split will be a reduction in the aggregate
amount of the Company's issued and outstanding shares of Common Stock. The Board
of Directors believes that it is desirable to have additional authorized shares
of Common Stock available for acquisitions, employee benefit and incentive
programs, and for other general corporate purposes. If the Stock Split is
approved, the additional shares of authorized but unissued shares of Common
Stock would be available for issuance without further action by Shareholders,
unless such action is required by applicable law.
The Board of Directors believes that the proposed reverse stock split of
all of the issued and outstanding shares of Common Stock of the Company is in
the best interests of the Company and its Shareholders and therefore recommends
a vote FOR Item 4.
ITEM 5
ACQUISITION OF ALL OF THE OUTSTANDING
SHARES OF CAPITAL STOCK OF BPI
The following discussion assumes that the Stock Split has been consummated,
and accordingly, all of the information set forth herein have been adjusted to
give effect to the Stock Split.
On July 14, 1997, the Board of Directors authorized and approved the
acquisition (the "Acquisition") of all of the issued and outstanding shares of
capital stock of BPI and directed that the Acquisition be submitted to the
stockholders of the Company for approval at the Meeting. In connection with such
Acquisition, the Company will issue an aggregate of 4,000,000 unregistered
shares of Common Stock to the shareholders of BPI, on a pro rata basis, in
exchange for an aggregate of 8,655,625 shares of capital stock of BPI. The
Acquisition will be effected pursuant to a Plan of Exchange by and among the
Company, BPI, and the shareholders of BPI, to be dated as of November 3, 1997
(the "Plan"), which will be substantially in the form attached hereto as Exhibit
"A". All references in this Proxy Statement to the Plan are qualified in their
entirety by and subject to the more complete information set forth in Exhibit
"A".
<PAGE>
The transactions contemplated by the Acquisition are scheduled to close on
November 3, 1997 (the "Effective Date"). The Company believes that the
Acquisition complies with the Company's business strategy of acquiring companies
which are involved in oil and gas exploration, development and operations and
have existing revenues and operating properties. Since October 1989, BPI has
been primarily engaged in the business of oil and gas exploration development
and operations. Prior to the Acquisition, the Company had no assets,
liabilities, or significant business operations. The business of BPI will be
conducted in the same manner as the business of BPI is currently conducted.
Following the Acquisition, the Company will continue to carry out its
business strategy of acquiring producing oil and gas properties, including
leasehold and other working interests, and the principal place of business of
the Company will be located at 1703 Edelweiss Drive, Cedar Park, Texas. The
persons who are serving as directors of the Company immediately prior to the
Effective Date will constitute the entire Board of Directors of BPI immediately
after the Effective Date. Following their election as such, the directors of BPI
will elect as officers of BPI the same persons who are elected as officers of
the Company following the Meeting. Neither the Company nor BPI has engaged
investment bankers or other professionals to render a fairness opinion and the
terms of the transaction were negotiated on an arms-length basis between the
shareholders of BPI and the Company. The directors of the Company have certain
relationships with BPI. See "Beneficial Ownership of Common Stock--Certain
Relationships and Related Transactions."
Although shareholder approval of the Acquisition is not required in
accordance with the Colorado Business Corporation Act, the Board of Directors
deems it to be in the best interests of the Shareholders of the Company to
provide such Shareholders with the opportunity to approve the Acquisition and
other related actions of the Board of Directors. Under Colorado law,
shareholders are not entitled to dissenter's rights with respect to the proposed
Acquisition.
No taxable gain or loss will be recognized by the Company, BPI, or the
shareholders of BPI who receive shares of Common Stock of the Company for their
shares of capital stock of BPI in connection with the Acquisition, and the
adjusted tax basis of shares of Common Stock received by a shareholder of BPI as
a result of the Acquisition will be the same as the adjusted tax basis of the
shares of capital stock of BPI exchanged into such shares of Common Stock of the
Company. No cash shall be paid by the Company or to the shareholders of BPI or
otherwise in connection with the Acquisition. Each shareholder is urged to
consult a tax advisor as to the consequences of the Acquisition under all
applicable tax laws.
The foregoing discussion should be read in conjunction with the financial
statements and notes thereto relating to BPI, attached hereto as Exhibit "B".
<PAGE>
The Board of Directors believes that the ratification of the Acquisition by
the shareholders of the Company is in the best interests of the Company and its
Shareholders and therefore recommends a vote FOR Item 5.
ITEM 6
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Hein & Associates, L.L.P.
as the Company's independent auditors for the current fiscal year. Although
shareholder approval of the Board of Directors' selection of Hein & Associates,
L.L.P. is not required by Colorado law, the Board of Directors believes that it
is advisable to give shareholders an opportunity to ratify this selection. If
this proposal is not approved at the Meeting, the Board of Directors will
reconsider its selection of Hein & Associates, L.L.P.
In the event the appointment of Hein & Associates, L.L.P., as independent
auditors for the current fiscal year, is not ratified by the stockholders, the
adverse vote will be considered as a direction to the Board of Directors to
select other auditors for the following year. However, because of the difficulty
in making any substitution of auditors so long after the beginning of the
current year, it is contemplated that the appointment for the current fiscal
year will be permitted to stand unless the Board of Directors finds other reason
for making a change.
Representatives of Hein & Associates, L.L.P. are expected to be present at
the Meeting and will have the opportunity to make a statement if they desire to
do so and will also be available to respond to appropriate questions from
Shareholders.
The Board of Directors believes that the ratification of the selection of
Hein & Associates, L.L.P. as the Company's independent auditors for the current
fiscal year is in the best interests of the Company and its Shareholders and
therefore recommends a vote FOR Item 6.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of December 31,
1996, with respect to the beneficial ownership of the Company's Common Stock by
(i) each person known by the Company to beneficially own more than five percent
(5%) of the outstanding shares of Common Stock, (ii) each director or nominee
for director of the Company, (ii) each executive officer of the Company and (iv)
all directors and executive officers of the Company as of December 31, 1996 as a
group. Unless otherwise indicated, each person listed above has sole voting and
investment power with respect to the shares listed.
<TABLE>
<S> <C> <C>
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Ownership Percent of Class
- --------------- ----------------------- ----------------
1 2
Robert N. Watson, Jr. 16,728,000 54%
P.O. Box 202650
Austin, Texas 78720
1
William G. Watson 0 0
P.O. Box 202650
Austin, Texas 78720
1
Linda R. Watson 0 0
P.O. Box 202650
Austin, Texas 78720
3
Robert Watson, Inc. 16,728,000 54%
P.O. Box 202650
Austin, Texas 78720
All Officers, Directors and
Five Percent Shareholders
as a group (3 persons) 16,728,000 54%
</TABLE>
1 Resigned as Directors and Officers of the Company effective May 22, 1997.
2 Mr. Watson is the beneficial owner of these shares based upon his
ownership of one hundred percent (100%) of the common stock of
Robert Watson, Inc.
3 Sold to Bass Petroleum, Inc. on May 22, 1997.
<PAGE>
The following table sets forth certain information, as of June 1, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to beneficially own more than five percent (5%)
of the outstanding shares of Common Stock, (ii) each director or nominee for
director of the Company, (ii) each executive officer of the Company and (iv) all
directors and executive officers of the Company as of June 1, 1997 as a group.
Unless otherwise indicated, each person listed above has sole voting and
investment power with respect to the shares listed, and all of the information
set forth below has been adjusted to give effect to the Stock Split and the
Acquisition.
<TABLE>
<S> <C> <C>
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Ownership Percent of Class
- ------------------ ----------------------- ----------------
Bass Petroleum, Inc. 810,216 81.0%
1703 Edelweiss Drive
Cedar Park, Texas 78613
1
Ray D. Reaves 1,010,216 84.2%
1703 Edelweiss Drive
Cedar Park, Texas 78613
2
Robert A. Manogue 108,000 9.8%
1703 Edelweiss Drive
Cedar Park, Texas 78613
3
Roger D. Bryant 100,000 9.1%
1703 Edelweiss Drive
Cedar Park, Texas 78613
1,2,3
All Officers, Directors and 1,218,216 87.0%
Five Percent Shareholders
as a group (3 persons)
- -----------------------
</TABLE>
1 Mr. Reaves is the beneficial owner of these shares based upon his position
as Chairman, Chief Executive Officer, Chief Financial Officer, Director and
owner of sixty percent (60%) of the common stock of BPI. Includes 200,000
shares of Common Stock of BPI underlying an option granted to Mr. Reaves by
BPI, which option has been assumed by the Company.
2 Includes (i) 277,200 shares of Common Stock of the Company owned by a
partnership of which Mr. Manogue is a partner; and (ii) 100,000 shares of
Common Stock of BPI underlying an option of BPI granted to Mr. Manogue by
BPI, which option has been assumed by the Company.
3 Includes 100,000 shares of Common Stock of BPI underlying an option
granted to Mr. Bryant by BPI, which option has been assumed by the Company.
<PAGE>
The Company does not employ any persons, other than its directors, who make
or are expected to make any significant contributions to the business of the
Company. There is no family relationship between any present director, executive
officer or person nominated or chosen by the Company to become a director or
executive officer. No present director or executive officer of the Company has
been the subject of any civil or criminal proceeding during the past five years,
which is material to an evaluation of its integrity or ability to serve as an
officer or director, nor is any such person the subject of any order, judgment
or decree of any federal or state authority which is material to an evaluation
of its abilities or integrity.
Recent Change in Control
In May 1997, Bass Petroleum, Inc., a Texas corporation ("BPI"), acquired
control of the Company in the following manner. The Company issued 44,038,222
shares of Common Stock to BPI in consideration of the cash payment by BPI of
$5,000, and an assignment by BPI to the Company of certain oil and gas
properties located in Texas, which the Company believed to be valued at $40,000.
In addition to the issuance of such shares, Robert Watson, Inc., the controlling
shareholder of the Company at the time, sold 16,728,000 shares of Common Stock
to BPI in consideration of the cash payment of $45,000 by BPI. The consideration
paid by BPI in each of these transactions came from BPI's working capital. As of
June 1, 1997, BPI owned an aggregate of 60,766,222 shares of Common Stock,
constituting approximately 81% of all of the issued and outstanding shares of
Common Stock. Prior to the resignation of Robert N. Watson, Jr., as Director,
President, Chairman and Chief Executive Officer of the Company in May 1997,
Robert N. Watson, Jr. appointed Ray D. Reaves Director of the Company.
Certain Relationships and Related Transactions
The Company entered into an annual management agreement with its prior
controlling shareholder, Robert Watson, Inc., in 1987 and renewed the agreement
each year until December 1996. The agreement called for an amount reached by
mutual agreement of the Company and Robert Watson, Inc. to be paid each year.
The Company paid management fees of $0 in 1996, $0 in 1995, and $1,500 in 1994.
As of December 31, 1996, 1995 and 1994, the Company had a receivable from
Robert Watson, Inc. in the amount of $20,000 ("Receivable"). This Receivable
bore interest at 10% and was due on demand. In connection with the successful
completion of the sale of 44,038,222 shares of the Company's Common Stock to
BPI, the Company paid a $20,000 management/finder fee ("Management Fee") to
Robert Watson, Inc. The Receivable was repaid in May 1997 by offsetting the
Management Fee.
<PAGE>
As discussed above, the Company intends to acquire all of the outstanding
shares of BPI, the majority shareholder of the Company, in a share exchange. Ray
D. Reaves, Director, President, Chairman, Chief Executive Officer and Chief
Financial Officer of the Company, is Chairman, Chief Executive Officer, Chief
Financial Officer, and Director of BPI. Mr. Reaves is the beneficial owner of
approximately 58.3% of the common stock of BPI. Mr. Reaves' shares of BPI common
stock include the following: 5,201,000 shares held directly by Mr. Reaves and
the option to purchase 200,000 shares which are currently exercisable. Robert A.
Manogue, Director of the Company, is a partner in OHM Partnership, which owns
600,000 shares of the common stock of BPI, and options to purchase 100,000
shares which are currently exercisable. Roger D. Bryant, Director of the
Company, owns options to purchase 100,000 shares of the common stock of BPI.
Executive Compensation
No compensation has been paid to any of the Company's directors or
executive officers for the year ended December 31, 1996.
Name Position with Company Compensation
- ---- --------------------- ------------
Robert N. Watson, Jr. Director, President, Chairman $0
and Chief Executive Officer
Reports
To the best knowledge of the Company, all reports as required under Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
were filed on a timely basis during the fiscal year ended December 31, 1996.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Meeting. However, if any other matters are properly presented to the
Meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
<PAGE>
COST OF SOLICITATION
The Company will bear the costs of solicitation of proxies from its
shareholders. In addition to the use of mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and employees
of the Company will not be compensated additionally for the solicitation but may
be reimbursed for out-of-pocket expenses in connection with the solicitation.
Arrangements are also being made with brokerage houses and any other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficiary owners of the Company, and the Company will reimburse the brokers,
custodians, nominees, and fiduciaries for their reasonable out-of-pocket
expenses.
STOCKHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1998 Annual
Meeting of the Shareholders must be received by the Company at its principal
office in Cedar Park, Texas not later than April 1, 1997 for inclusion in the
proxy statement for that meeting.
By Order of the Board of Directors,
/s/ RAY D.REAVES
--------------------------
Ray D. Reaves, President
<PAGE>
EXHIBIT "A"
PLAN OF EXCHANGE
This PLAN OF EXCHANGE (the "Plan") is entered into as of the 3rd day of
November 1997, by and between Energy Production Company, a Colorado corporation
(the "Parent"), Bass Petroleum, Inc., a Texas corporation whose address is 1703
Edelweiss Drive, Cedar Park, Texas 78613 (the "Subsidiary"), and all of the
shareholders of the Subsidiary as set forth on Schedule 1 hereto (collectively,
the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Parent is a corporation organized and existing under the
laws of the State of Colorado, having been incorporated on March 11, 1980;
WHEREAS, the Subsidiary is a corporation organized and existing under
the laws of the State of Texas, having been incorporated on October 12, 1989;
and
WHEREAS, the Board of Directors of the Parent has determined that it is
in the best interests of the Parent to acquire an aggregate of 8,655,625 shares
of common stock of the Subsidiary, constituting all of the issued and
outstanding shares of capital stock of the Subsidiary, in exchange for the
issuance of an aggregate of 4,000,000 shares of common stock of the Parent to
the Shareholders, on a pro rata basis (the "Exchange").
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Exchange
On the effective date of the Exchange ("Effective Date") as provided
herein, the Parent shall issue, on a pro rata basis, to each of the Shareholders
an aggregate of 4,000,000 shares of common stock of the Parent in exchange for
the sale, transfer, assignment, and conveyance by the Shareholders to the Parent
of an aggregate of 8,655,625 shares of common stock of the Subsidiary, which
shares constitute all of the issued and outstanding shares of capital stock of
the Subsidiary. No cash will be paid by the Company or otherwise to the
shareholders of the Subsidiary in connection with the Exchange.
ARTICLE II
Articles of Incorporation of the Subsidiary
The Articles of Incorporation of the Subsidiary ("Texas Charter"), as
in effect on the date hereof, shall continue in full force and effect without
change unless and until amended in accordance with applicable law.
ARTICLE III
Bylaws of the Subsidiary
The Bylaws of the Subsidiary ("Texas Bylaws"), as in effect on the date
hereof, shall continue in full force and effect without change unless and until
amended in accordance with applicable law.
ARTICLE IV
Officers and Directors of the Subsidiary
4.01. On the Effective Date, the officers and directors of the
Subsidiary shall be such officers and directors of the Subsidiary, as in office
at such date, and such persons shall hold office in accordance with the Texas
Bylaws until their respective successors shall have been appointed or elected.
4.02. If, on the Effective Date, a vacancy shall exist in the Board of
Directors of the Subsidiary, such vacancy shall be filled in the manner provided
by the Texas Bylaws.
ARTICLE V
Termination of Merger
This Plan may be terminated and the Exchange abandoned at any time
prior to the Effective Date, whether before or after the approval of this Plan
by the Shareholders, by the consent of the Board of Directors of the Parent and
the Subsidiary.
<PAGE>
ARTICLE VI
Miscellaneous
In order to facilitate the filing and recording of this Plan, this Plan
may be executed in counterparts, each of which when so executed shall be deemed
to be an original and all such counterparts shall together constitute one and
the same instrument.
[The remainder of this page is intentionally left blank]
<PAGE>
IN WITNESS THEREOF, the parties hereto have executed this Plan as of
the date first written above.
PARENT:
ENERGY PRODUCTION COMPANY
By:
Name:
Title:
SUBSIDIARY:
BASS PETROLEUM, INC.
By:
Name:
Title:
SHAREHOLDERS:
-------------
See Schedule 1 hereto
<PAGE>
Schedule 1
Shareholders of Bass Petroleum, Inc.
Name Number of Shares Certificate Number
- ---- ---------------- ------------------
BASS PETROLEUM, INC.
STOCKHOLDERS
AS OF 7/31/97
CERT. # NAME # OF SHARES
--------- ------------ ----------
1 RAY REAVES 5,001,000
2 GERNELL BRADLEY 600,000
3 GERNELL BRADLEY 400,000
4 MILDRED BABICH 400,000
5 PETER J. BABICH 400,000
6 OHM PARTNERSHIP 600,000
7 COUNTRY COUSIN, INC. 2,000
8 URBAN ANSLINGER 7,000
9 THOMAS F. JONES 3,000
10 NATHAN RASKA 3,000
11 ELIZABETH JEFFREY 3,000
12 ED SIMS 3,000
13 JERRY B. FOREMAN 625
14 BARRY F. HLUCHAN 3,000
15 SOMERSET PARTNERS 11,500
16 JAMES S. DEARTH 2,500
17 W.H. CARDWELL 1,500
18 BART JOHNSON 500
19 MILLARD D. LOGAN 1,500
20 E.P. HANSEN 500
21 HOYT & MARJORIE AMBROSIUS 4,000
22 J.A. LONGWELL 2,500
23 HARRY F. WARNKE 4,000
24 MARVIN KOLINEK, JR. 500
25 ROBERT E. MADISON 500
26 JACK LOGAN 6,000
27 LOWELL SCHULTZ 1,000
28 DON LEACH 2,500
29 JOHN E. FOX 500
30 JEFF WENAAS 1,500
31 BILL WILLIAMS 13,500
32 MILDRED BABICH 5,000
33 FRANK PETTY 1,500
34 RICHARD & DOLORES JEFFRIES 1,500
35 PETER KOCH 3,000
36 MATTIE JOHNSON 6,500
37 JOHN HARDIE 2,500
38 T.C. FLEMING 500
39 GEORGE ARP 1,500
40 WILLIAM MANGOLD 1,500
41 WAYNE LINDHOLM 1,500
42 GERNELL BRADLEY 8,500
43 DIANA SANDERS 1,500
44 RODGER ESTES 500
45 RICHARD & CAROLYN DALE 1,500
46 JOANN DEIHL (RON D. DEIHL) 1,500
47 MILDRED BABICH 300,000
48 PETER J. BABICH 300,000
49 GERNELL D. BRADLEY 300,000
50 JOYCE & GILBERT DANEY JR. 37,000
51 RAY REAVES 200,000
<PAGE>
EXHIBIT B
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Energy Production Company
Independent Auditor's Report....................................................F-2
Balance Sheets..................................................................F-3
Statements of Operations........................................................F-4
Statement of Changes in Stockholders' Equity....................................F-5
Statements of Cash Flows........................................................F-6
Notes to Financial Statements...................................................F-7
Bass Petroleum, Inc.
Independent Auditor's Report....................................................F-9
Balance Sheets..................................................................F-10
Statements of Income and Retained Earnings......................................F-12
Statements of Cash Flows........................................................F-13
Notes to Financial Statements...................................................F-15
Bass Petroleum, Inc. and Energy Production Company
Unaudited Pro Forma Financial Statements........................................F-22
Unaudited Pro Forma Income Statement - Six Months Ended June 30, 1997...........F-23
Unaudited Pro Forma Income Statement - Year Ended December 31, 1996.............F-24
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Energy Production Company
We have audited the accompanying balance sheets of Energy Production Company as
of December 31, 1996, 1995 and 1994 and the related statements of operations,
changes in stockholders' equity and cash flows for each of the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Energy Production Company as of
December 31, 1996, 1995 and 1994 and the results of its operations and its cash
flows for each of the years then ended, in conformity with generally accepted
accounting principles
HEIN + ASSOCIATES LLP
Dallas, Texas
July 1, 1997
F-2
<PAGE>
ENERGY PRODUCTION COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<S> <C> <C> <C> <C>
(UNAUDITED)
JUNE 30, DECEMBER 31,
----------- -----------
1997 1996 1995 1994
----------- ----------- ----------- -----------
CURRENT ASSETS:
Cash $ 200 $ 874 $ 1,272 $ 1,041
Receivable from related party - current -- 20,000 -- --
----------- ----------- ----------- -----------
Total current assets 200 20,874 1,272 1,041
OIL AND GAS PROPERTIES 40,000 -- -- --
RECEIVABLE FROM RELATED PARTY -- -- 20,000 20,000
----------- ----------- ----------- -----------
Total assets $ 40,200 $ 20,874 $ 21,272 $ 21,041
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES-
Accounts payable $ 65 $ 65 $ 65 $ 65
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 75,000,000
shares authorized, 75,000,000 shares
issued and outstanding at June 30, 1997
and 30,961,778 at December 31, 1994
through December 31, 1996 750,000 309,618 309,618 309,618
Additional paid-in capital 1,398,991 1,794,373 1,794,373 1,794,373
Accumulated deficit (2,108,856) (2,083,182) (2,082,784) (2,083,015)
----------- ----------- ----------- -----------
Total stockholders' equity 40,135 20,809 21,207 20,976
----------- ----------- ----------- -----------
Total liabilities and stockholders'equity $ 40,200 $ 20,874 $ 21,272 $ 21,041
=========== =========== =========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
ENERGY PRODUCTION COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
SIX MONTHS ENDED JUNE 30 YEARS ENDED DECEMBER 31,
-------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
INTEREST INCOME $ 833 $ 1,000 $ 2,000 $ 2,000 $ 2,000
GENERAL AND ADMINISTRATIVE EXPENSES 26,507 1,198 2,398 1,769 3,184
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) (25,674) (198) (398) 231 (1,184)
============ ============ ============ ============ ============
NET LOSS PER SHARE * * * * *
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 45,641,185 30,961,778 30,961,778 30,961,778 30,961,778
============ ============ ============ ============ ============
</TABLE>
* Less than $.01 per share
See accompanying notes to these financial statements.
F-4
<PAGE>
ENERGY PRODUCTION COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH JUNE 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional
Common Stock Paid-in Accumulated
------------
Shares Amount Capital Deficit Total
------ ------ ----------- ----------- -----------
Balance, January 1, 1994 30,961,778 $ 309,618 $ 1,794,373 $(2,081,831) $ 22,160
Net loss -- -- -- (1,184) (1,184)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 30,961,778 309,618 1,794,373 (2,083,015) 20,976
Net income -- -- -- 231 231
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 30,961,778 309,618 1,794,373 (2,082,784) 21,207
Net loss -- -- -- (398) (398)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 30,961,778 $ 309,618 $ 1,794,373 $(2,083,182) $ 20,809
Common stock issued for oil
and gas properties
(unaudited) 44,038,222 440,382 (395,382) -- 45,000
Net loss (unaudited) -- -- -- (25,674) (25,674)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997
(unaudited) 75,000,000 $ 750,000 $ 1,398,991 $(2,108,856) $ 40,135
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-5
<PAGE>
ENERGY PRODUCTION COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
JUNE 30 YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(25,674) $ (198) $ (398) $ 231 $ (1,184)
Decrease in receivable 20,000 -- -- -- --
-------- -------- -------- -------- --------
Total cash flow from operating activities (5,674) (198) (398) 231 (1,184)
CASH FLOW FROM FINANCING ACTIVITIES-
Issuance of stock 5,000 -- -- -- --
-------- -------- -------- -------- --------
NET CHANGE IN CASH (674) (198) (398) 231 (1,184)
CASH AT BEGINNING OF YEAR 874 1,272 1,272 1,041 2,225
-------- -------- -------- -------- --------
CASH AT END OF YEAR $ 200 $ 1,074 $ 874 $ 1,272 $ 1,041
======== ======== ======== ======== ========
</TABLE>
Non Cash Transaction
The Company issued 44,038,222 shares of its common stock to Bass Petroleum,
Inc. in May 1997 in partial exchange for two oil and gas properties valued at
$40,000.
See accompanying notes to these financial statements.
F-6
<PAGE>
ENERGY PRODUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Energy Production Company (the "Company") was incorporated under the
laws of the State of Colorado on March 11, 1980 and completed an
initial public offering in November 1980. From 1980 to 1987, the
company was engaged in the acquisition, operation and development of
oil and gas properties. In December 1986, the Company began to divest
its remaining oil and gas assets and operations and has been
relatively inactive since 1988.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Income Taxes
------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences
between the financial and income tax reporting bases of assets and
liabilities. Deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities
are recovered or settled. The Company has no deferred tax assets
or liabilities at June 30, 1997, December 31, 1996, 1995 or 1994,
except as described below.
The Company had substantial Federal income tax net operating loss
carryforwards (NOL) available at December 31, 1996, 1995 and 1994.
However, following a change in control of the Company in December
1986 and again in May 1997, use of the NOL is severely limited.
The deferred tax asset resulting from the NOL is fully reserved.
(b) Statements of Cash Flows
------------------------
For purposes of the statement of cash flows, the Company considers
cash on deposit and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(c) Net loss Per Common Share
-------------------------
Net loss per common share has been computed based upon the
weighted average number of common shares outstanding during each
year.
(d) Use of Estimates
------------------
The preparation of the Company' financial statements in
conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those
estimates.
(e) Unaudited Information
---------------------
The balance sheet as of June 30, 1997 and the statements of
operations for the six month periods ended June 30, 1997 and 1996
were taken from the Company's books and records without audit.
However, in the opinion of management, such information includes
all adjustments which are necessary to properly reflect the
financial position of the Company as of June 30, 1997 and the
results of operations for the six months ended June 30, 1997 and
1996.
F-7
<PAGE>
ENERGY PRODUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS
-------------------------
As of December 31, 1996, 1995 and 1994, the Company had a receivable
from the controlling shareholder in the amount of $20,000. This
unsecured receivable bore interest at 10% and was due on demand. The
receivable was repaid in May 1997 by offsetting a management fee as
described in Note 4.
The Company entered into an annual management agreement with its
controlling shareholder in 1987 and renewed the agreement each year
until December 1996. The agreement called for an amount reached by
mutual agreement of the Company and the shareholder to be paid each
year. The Company paid management fees of $0 for the six months ended
June 30, 1997 and 1996, $0, $0 and $1,500 for the years ended December
31, 1996, 1995 and 1994, respectively.
4. SUBSEQUENT EVENTS
-----------------
In May 1997, the Company's controlling shareholder sold his shares to
Bass Petroleum, Inc. (Bass) and the Company issued 44,038,222 shares
of its common stock to Bass in exchange for two oil and gas properties
valued at a total of $40,000, and $5,000 in cash. The oil and gas
properties were valued by management based upon an independent reserve
report. In connection with the successful completion of this
transaction, the Company paid a $20,000 management/finder's fee to the
old controlling shareholder.
F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Bass Petroleum, Inc.
We have audited the accompanying balance sheets of Bass Petroleum, Inc. as of
December 31, 1996 and 1995, and the related statements of income and retained
earnings and cash flows for the years then ended. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bass Petroleum, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Dallas, Texas
February 7, 1997
F-9
<PAGE>
BASS PETROLEUM, INC.
BALANCE SHEETS
ASSETS
------
<TABLE>
<S> <C> <C> <C>
(Unaudited)
JUNE 30, DECEMBER 31,
---------- -------------
1997 1996 1995
----- ----- ----
CURRENT ASSETS:
Cash $ 12,173 $ 57,454 $ 58,384
Certificate of deposit, pledged 20,000 120,000 100,000
Trading securities 2,880 2,880 2,880
Accounts receivable:
Oil and gas sales 100,380 107,560 106,976
Joint interest billings, no allowance for doubtful accounts
considered necessary 47,289 44,707 52,988
Advances to stockholder - - 3,492
Prepaid expenses 1,635 1,635 3,035
------------- -------------- -------------
Total current assets 184,357 334,236 327,755
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method):
Leasehold costs 951,289 786,860 647,785
Lease and well equipment 92,551 87,123 75,013
Furniture and equipment 28,526 24,119 22,939
Transportation equipment 69,080 54,444 67,444
Less accumulated depletion and depreciation (298,196) (242,115) (157,990)
--------- ------------- ------------
Net property and equipment 843,250 710,431 655,191
NOTE RECEIVABLE - - 38,000
OTHER ASSET 5,000 5,000 -
------------- ------------- --------------
Total assets $ 1,032,607 $ 1,049,667 $ 1,020,946
============ ============= ===========
</TABLE>
Continued
F-10
<PAGE>
BASS PETROLEUM, INC.
BALANCE SHEETS, continued
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
(Unaudited)
JUNE 30, DECEMBER 31,
-------- -----------
1997 1996 1995
---------- ---------- ----------
CURRENT LIABILITIES:
Current portion of long-term debt $ 283,208 $ 246,707 $ 267,687
Accounts payable and accrued expenses 112,612 97,342 107,312
Advances from gas purchaser -- -- 110,709
Oil and gas revenues payable 120,652 122,938 137,052
Federal income taxes payable 41,022 47,022 32,309
Due to related party -- 27,733 4,392
---------- ---------- ----------
Total current liabilities 557,494 541,742 659,461
LONG -TERM DEBT, net of current portion 100,000 146,306 114,998
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 60,000,000 shares authorized; 8,655,625 shares issued and
outstanding 128,038 128,038 128,038
Retained earnings 247,075 233,581 118,449
---------- ---------- ----------
Total stockholders' equity 375,113 361,619 246,487
---------- ---------- ----------
Total liabilities and stockholders' equity $1,032,607 $1,049,667 $1,020,946
========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
F-11
<PAGE>
BASS PETROLEUM, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<S> <C> <C> <C> <C>
(Unaudited)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------
1997 1996 1996 1995
--------- --------- --------- ---------
REVENUE:
Oil and gas sales $ 287,025 $ 206,314 $ 432,383 $ 374,294
Well operational and pumping fees 90,826 108,018 213,022 139,365
Other 2,000 1,657 3,314 6,530
--------- --------- --------- ---------
Total revenue 379,851 315,989 648,719 520,189
COSTS AND EXPENSES:
Production expense 87,712 52,472 122,862 91,070
Depletion and depreciation 55,500 53,300 103,336 99,166
General and administrative 144,161 104,550 251,660 180,950
--------- --------- --------- ---------
Total costs and expenses 287,373 210,322 477,858 371,186
OTHER INCOME (EXPENSE):
Gain on sale of assets -- 2,500 25,445 13,957
Loss on commodity trade -- -- -- (1,089)
Unrealized loss on securities -- -- -- (3,000)
Interest income (expense), net (12,765) (14,021) (35,773) (32,188)
Acquisition expenses (45,000) -- -- --
Miscellaneous 2,781 1,632 1,621 (2,447)
--------- --------- --------- ---------
Total other income (expense) (54,984) (9,889) (8,707) (24,767)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 37,494 95,778 162,154 124,236
INCOME TAX PROVISION - CURRENT 24,000 28,736 47,022 34,117
--------- --------- --------- ---------
NET INCOME 13,494 67,042 115,132 90,119
RETAINED EARNINGS, Beginning of year 233,581 118,449 118,449 28,330
--------- --------- --------- ---------
RETAINED EARNINGS, End of year $ 247,075 $ 185,491 $ 233,581 $ 118,449
========= ========= ========= ---------
</TABLE>
See accompanying notes to these financial statements.
F-12
<PAGE>
BASS PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
(Unaudited)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------
1997 1996 1996 1995
------ ------ ------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,494 $ 67,042 $ 115,132 $ 90,119
Adjustments to reconcile to net cash provided by operating activities:
Depletion and depreciation 55,500 53,300 103,336 99,166
Gain on sale of assets -- (2,500) (25,445) (13,957)
Unrealized loss on securities -- -- -- 3,000
Changes in current assets and liabilities:
Accounts receivable 4,598 (18,133) 11,189 (117,673)
Other 581 --
Prepaid expenses and other assets -- -- (3,600) --
Accounts payable and accrued expenses (18,528) (16,462) 28,084 88,732
Oil and gas revenues payable (2,286) 9,996 (14,114) 72,357
Advances (repayments) from gas purchaser -- (60,000) (110,709) 110,709
--------- --------- --------- ---------
Net cash provided by operating activities 53,359 33,243 103,873 332,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas properties -- -- 59,251 15,000
Purchase of oil and gas properties (169,992) (1,464) (153,202) (315,643)
Purchase of furniture and equipment (19,043) -- (1,180) (300)
(Increase)decrease in restricted cash 100,000 -- (20,000) (100,000)
--------- --------- --------- ---------
Net cash used by investing activities (89,035) (1,464) (115,131) (400,943)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- 255,000 250,000
Repayments of long-term debt (9,805) (22,730) (231,672) (174,663)
Borrowing from stockholder -- -- -- 28,000
Repayment of stockholder -- -- (13,000) --
--------- --------- --------- ---------
Net cash provided by financing activities (9,805) (22,730) 10,328 103,337
--------- --------- --------- ---------
</TABLE>
Continued
F-13
<PAGE>
BASS PETROLEUM, INC.
STATEMENTS OF CASH FLOWS, continued
<TABLE>
<S> <C> <C> <C> <C>
(Unaudited)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 30,
1997 1996 1996 1995
--------------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH (45,481) 9,049 (930) 34,847
CASH, BEGINNING OF THE YEAR 57,454 58,384 58,384 23,537
--------------- -------- -------- --------
CASH, END OF THE YEAR $ 11,973 $ 67,433 $ 57,454 $ 58,384
=============== ======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 35,773 $ 16,715 $ 43,838 $ 34,327
=============== ======== ======== ========
Cash paid during the year for income taxes $ -- $ -- $ 32,309 $ 5,315
=============== ======== ======== ========
Oil and gas properties acquired for note payable $ -- $ -- $ -- $219,598
=============== ======== ======== ========
Oil and gas properties acquired by decreasing note receivable $ -- $ 38,000 $ 38,000 $ --
=============== ======== ======== ========
</TABLE>
See accompanying notes to these financial statements.
F-14
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS (The
period subsequent to December 31, 1996 is unaudited.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
--------------------------------------
Bass Petroleum, Inc. (the "Company") is incorporated under the laws of the
state of Texas. The Company is engaged in the acquisition, operation and
development of oil and gas properties, which are located in South-Central
Texas and Wyoming as of December 31, 1996.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Oil and Gas Producing Operations
--------------------------------
The Company uses the successful efforts method of accounting for its oil
and gas producing activities. Costs incurred by the Company related to the
acquisition of oil and gas properties and the cost of drilling successful
wells are capitalized. Costs incurred to maintain wells and related
equipment and lease and well operating costs are charged to expense as
incurred.
Capitalized amounts for properties with proved reserves are classified as
proved property, and include both developed and undeveloped properties.
Amounts capitalized that relate to properties in which it has not been
determined if any reserves exist are classified as unproved property and
are assessed periodically for possible impairment. Any impaired amounts are
charged to expense. The Company had no unproved properties as of December
31, 1996 and 1995.
Capitalized amounts attributable to proved oil and gas properties are
depleted by the unit-of-production method based on proved reserves.
Depreciation and depletion expense for oil and gas producing property and
related equipment was $48,000, $45,091, $90,182 and $84,734 for the six
months ended June 30, 1997 and 1996 and the years ended December 31, 1996
and 1995, respectively.
Other Property
-------------
Other assets classified as property and equipment are primarily office
furniture and equipment and vehicles, and are carried at cost. Depreciation
is provided using the straight-line method over estimated useful lives
ranging from five to seven years. Gain or loss on retirement or sale or
other disposition of assets is included in income in the period of
disposition. Depreciation expense for other property and equipment was
$7,500, $6,577, $13,154 and $14,432 for the six months ended June 30, 1997
and 1996 and the years ended December 31, 1996 and 1995, respectively.
Income Taxes
------------
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due, if any, plus
net deferred taxes related primarily to differences between the bases of
assets and liabilities for financial and income tax reporting. Deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred tax assets
include recognition of operating losses that are available to offset future
taxable income and tax credits that are available to offset future income
taxes. Valuation allowances are recognized to limit recognition of deferred
F-15
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS (The
period subsequent to December 31, 1996 is unaudited.)
tax assets where appropriate. Such allowances may be reversed when
circumstances provide evidence that the deferred tax assets will more
likely than not be realized. The amount of deferred tax assets and
liabilities as of December 31, 1996 and 1995 are immaterial.
Use of Estimates and Certain Significant Estimates
--------------------------------------------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates. Significant assumptions are required in the valuation
of proved oil and gas reserves, which as described above may affect the
amount at which oil and gas properties are recorded. It is at least
reasonably possible those estimates could be revised in the near term and
those revisions could be material.
Unaudited Information
---------------------
The balance sheet as of June 30, 1997 and the statements of operations for
the six month periods ended June 30, 1997 and 1996 were taken from the
Company's books and records without audit. However, in the opinion of
management, such information includes all adjustments which are necessary
to properly reflect the financial position of the Company as of June 30,
1997 and the results of its operations for the six months ended June 30,
1997 and 1996.
2. RELATED PARTY TRANSACTIONS
--------------------------
During 1996, the Company acquired an oil and gas well from its majority
stockholder for $44,000. As partial consideration, the Company retired a
note receivable from the stockholder of $38,000, which had arisen from a
cash advance in 1994.
At December 31, 1996 and 1995, the Company had a liability to its majority
stockholder of $22,158 and $4,392, respectively, for past salary and
accrued bonuses. There was no balance due at June 30, 1997.
At June 30, 1997 and December 31, 1996, the Company had a liability to a
company controlled by its majority stockholder of $ 0 and $5,575,
respectively, for financial services rendered.
The Company rents office space from its majority stockholder. The terms of
the lease are disclosed in Note 6.
At December 31, 1995, the Company had non-interest bearing advances to its
majority stockholder of $3,492.
At December 31, 1996 and 1995, the Company had a note payable to a
stockholder in the amount of $13,000 and $28,000, respectively, as
described in Note 4. There was no balance due at June 30, 1997.
3. ADVANCES FROM GAS PURCHASER
---------------------------
During 1995, the Company received overpayments from a gas purchaser. The
Company and the purchaser agreed that the overpayment of approximately
$128,000 would be Frepaid without interest in an amount of $10,000 per
month beginning in December 1995. This liability was completely paid in
1996.
F-16
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS (The
period subsequent to December 31, 1996 is
unaudited.)
4. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<S> <C> <C>
1996 1995
---------- ----------
Line of credit with a bank, interest at prime plus 1% (9.25% at December
31, 1996), monthly payments of principal of $12,500 plus accrued interest,
beginning in March 1997, until paid in full. This note is collateralized by
oil and gas properties and is guaranteed by the majority stockholder of the
Company. [A] $ 256,140 $ -
Note payable to a bank, interest at prime plus 2% (10.25% at December 31,
1996), monthly payments of interest, with principal due at maturity in
April 1997. This note is collateralized by a certificate of deposit of
$100,000 held at the bank. 100,000 -
Note payable to a bank, interest at prime plus 2%, monthly payments of
principal and interest of $10,870. This note was paid in full in December
1996. - 173,913
Note payable to a company, non-interest bearing with interest imputed at
10%, and monthly payments of principal and interest of $10,000. This note
was paid in full in December 1996. - 149,212
Unsecured note payable to a stockholder, interest at 25%, payable monthly;
principal is due in monthly payments of $4,600 beginning in September 1996
until maturity in February 1997. 13,000 28,000
Note payable to a bank, interest at 10.25%, monthly payments of principal
and interest of $493 until maturity in December 2000. This note is
collateralized by a truck. 19,290 23,145
Note payable to a commercial lender, interest at 6.9%, monthly payments of
principal and interest of $433 until maturity in November 1997. This note
is collateralized by a truck. 4,583 8,415
---------- ---------
Total 393,013 382,685
----- ---------- ---------
Less current portion (246,707) (267,687)
-------------------- ---------- ---------
$ 146,306 $ 114,998
========== =========
</TABLE>
[A] The total amount available on this line of credit is $500,000. Draws
may be made on the facility until March 1, 1997 when principal repayment
begins.
F-17
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS (The
period subsequent to December 31, 1996 isunaudited.)
Maturities of long-term debt based on contractual requirements for the
years ending December 31, 1997 through 2000 are as follows:
1997 $ 246,707
1998 135,707
1999 5,058
2000 5,541
-----------
$ 393,013
===========
5. ENVIRONMENTAL ISSUES
--------------------
The Company is engaged in oil and gas exploration and production business
and may become subject to certain liabilities as they relate to
environmental clean up of well sites or other environmental restoration
procedures as they relate to the drilling of oil and gas wells and the
operation thereof. In the Company's acquisition of existing or previously
drilled well bores, the Company may not be aware of what environmental
safeguards were taken at the time such wells were drilled or during such
time the wells were operated. Should it be determined that a liability
exists with respect to any environmental clean up or restoration, the
liability to cure such a violation could fall upon the Company. No claim
has been made, nor is the Company aware of any liability which the Company
may have, as it relates to any environmental clean up, restoration or the
violation of any rules or regulations relating thereto.
6. COMMITMENTS
-----------
In August 1994, the Company entered into a lease agreement with the
majority stockholder of the Company to rent office space. The lease extends
through July 31, 1997 and automatically continues thereafter in successive
one year terms until either party terminates the lease with at least six
months written notice. The monthly rental is $650 until July 31, 1997, at
which time the monthly rental will be determined at the beginning of each
one year extension based on "market rates" as agreed to between the
landlord and tenant. Rent expense was $4,550 each of the six months ended
June 30, 1997 and 1996, and $7,800 for each of the years ended December 31,
1996 and 1995.
As of June 30, 1997 and December 31, 1996, the Company has a $20,000 open
letter of credit in favor of the State of Wyoming as a plugging bond. The
letter of credit is collateralized by a certificate of deposit in the same
amount.
7. CONCENTRATION OF RECEIVABLES AND SALES REVENUE
----------------------------------------------
The Company has the following concentrations in volume of oil and gas sales
revenue:
Customer 1996 1995
-------- ------ -----
A 38% 43%
B 21% 16%
Additionally, the two customers above accounted for a total of 61% and 85%
of accrued oil and gas sales as of December 31, 1996 and 1995,
respectively.
F-18
<PAGE>
8. ACQUISITION OF ENERGY PRODUCTION COMPANY
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS (The
period subsequent to December 31, 1996 is unaudited.)
In May 1997, the Company acquired an 81% interest in Energy Production
Company (EPC), an inactive public company. The Company acquired
approximately 52% of EPC from EPC's controlling shareholder for $45,000 and
approximately 29% in exchange for two oil and gas properties with a cost
basis of $23,500, and $5,000 in cash. The $45,000 cash payment has been
charged against operations. The accounts of EPC are consolidated with those
of the Company beginning May 1997. No pro forma financial statements have
been prepared to reflect the results of operations as if EPC had been
acquired at the beginning of the period, because EPC's operations were not
material .
9. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following table sets forth certain information with respect to the oil
and gas producing activities of the Company:
<TABLE>
<S> <C> <C>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
-----------------------
Costs incurred in oil and gas producing activities:
Acquisition of proved properties $ 179,091 $ 546,297
Development costs 11,069 8,713
----------- ------------
Total costs incurred $ 190,160 $ 555,010
=========== ============
Net capitalized costs related to oil and gas producing activities:
Proved properties $ 873,983 $ 722,798
Less accumulated depletion, depreciation and amortization (196,355) (113,143)
------------ ------------
Net oil and gas property costs $ 677,628 $ 609,655
============ ============
</TABLE>
The following table, based on information prepared by independent
petroleum engineers, summarizes changes in the estimates of the Company's
net interest in total proved reserves of crude oil and condensate and
natural gas, all of which are domestic reserves:
Oil Gas
(Barrels) (MCF)
--------- --------
Balance, January 1, 1995 66,817 312,070
Purchase of minerals in place 32,030 266,136
Revisions of previous estimates 17,917 50,941
Production (15,276) (67,907)
-------- --------
Balance, December 31, 1995 101,488 561,240
Purchase of minerals in place 55,361 26,733
Sale of minerals in place (2,947) (48,975)
Revisions of previous estimates 17,509 (19,828)
Production (18,897) (65,297)
-------- --------
Balance, December 31, 1996 152,514 453,873
======== ========
The foregoing reserves are all classified as proved developed at December
31, 1996 and 1995.
F-19
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Theperiod subsequent to December 31, 1996 is unaudited.)
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. The above estimated net interests in proved reserves are based
upon subjective engineering judgments and may be affected by the
limitations inherent in such estimation. The process of estimating reserves
is subject to continual revision as additional information becomes
available as a result of drilling, testing, reservoir studies and
production history. There can be no assurance that such estimates will not
be materially revised in subsequent periods.
10. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED)
-----------------------------------------------------------------
The standardized measure of discounted future net cash flows at December
31, 1996 and 1995, relating to proved oil and gas reserves is set forth
below. The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board 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 are equally applicable
to the standardized measure computations since these estimates are the
basis for the valuation process.
<TABLE>
<S> <C> <C>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---------- ----------
Future cash inflows $ 3,607,000 $ 2,403,000
Future development and production costs (1,784,000) (846,000)
----------- -----------
Future net cash flows, before income tax 1,823,000 1,557,000
Future income taxes (388,000) (324,000)
----------- -----------
Future net cash flows 1,435,000 1,233,000
10% annual discount (463,000) (383,000)
----------- -----------
Standardized measure of discounted future net cash flows $ 972,000 $ 850,000
=========== ===========
</TABLE>
F-20
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is
unaudited.)
Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates (adjusted for permanent differences) that
relate to existing proved oil and gas reserves at year end. The following
are the principal sources of change in the standardized measure of
discounted future net cash flows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
-------- ---------
Sale of oil and gas produced, net of production costs $(310,000) $(283,000)
Purchase of minerals in place 422,000 402,000
Sale of minerals in place (37,000) --
Net changes in prices and production costs 80,000 177,000
Revisions and other (74,000) 63,000
Accretion of discount 85,000 50,000
Net change in income taxes (44,000) (54,000)
--------- ---------
Net change 122,000 355,000
Balance, beginning of year 850,000 495,000
--------- ---------
Balance, end of year $ 972,000 $ 850,000
========= =========
F-21
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pro forma financial statements have been prepared as if the
following transactions had occurred at the beginning of the respective
periods presented:
1) The acquisition of approximately 81% of the outstanding common stock
of EPC by Bass, which occurred in May 1997.
2) The proposed acquisition of 100% of the common stock of Bass by EPC in
exchanged for 4,000,000 newly issued unregistered common shares (after
a 75 to 1 reverse split).
The pro forma financial statements should be read in conjunction with the
historical financial statements presented herein and should not be
considered to be a representation of actual results that would have
occurred if the transactions had occurred on the specified dates.
F-22
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C> <C> <C>
PRO FORMA
BASS EPC ADJUSTMENTS COMBINED
----- ----- ----------- --------
REVENUE:
Oil and gas sales $ 287,025 $ -- $ -- $ 287,025
Well operation and pumping fees 90,826 -- -- 90,826
Other 2,000 -- -- 2,000
--------- --------- --------- ---------
Total revenue 379,851 -- -- 379,851
COSTS AND EXPENSES:
Production expense 87,712 -- -- 87,712
Depletion and depreciation 55,500 -- -- 55,500
General and administrative 144,161 26,507 (4,865)(2) 165,803
--------- --------- --------- ---------
Total costs and expenses 287,373 26,507 (4,865) 309,015
OTHER INCOME (EXPENSE):
Gain on sale of assets -- --
Interest income (expense), net (12,765) 833 -- (11,932)
Acqusition Expenses (45,000) -- -- (45,000)
Miscellaneous 2,781 -- -- 2,781
--------- --------- --------- ---------
Total other income (expense) (54,984) 833 -- (54,151)
INCOME BEFORE INCOME TAXES 37,494 (25,674) -- 16,685
INCOME TAX PROVISION, CURRENT 24,000 -- (8,580)(1) 15,420
--------- --------- --------- ---------
NET INCOME (LOSS) $ 13,494 $ (25,674) $ (13,445) $ 1,265
========= ========= ========= =========
</TABLE>
(1) Adjustment to reduce the income tax provision for the effect of EPC's net
loss.
(2) Adjustment to eliminate EPC general and administrative expenses reflected
on the Bass income statement.
F-23
<PAGE>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C> <C> <C>
PRO FORMA
BASS EPC ADJUSTMENTS COMBINED
----- ------- ------------ --------
REVENUE:
Oil and gas sales $ 432,383 $ - $ - $ 432,383
Well operation and pumping fees 213,022 - - 213,022
Other 3,314 - - 3,314
--------- -------- --------- ---------
648,719 - - 648,719
COSTS AND EXPENSES:
Production expense 122,862 - - 122,862
Depletion and depreciation 103,336 - - 103,336
General and administrative 251,660 2,398 - 254,058
--------- --------- --------- --------
Total costs and expenses 477,858 2,398 - 480,256
OTHER INCOME (EXPENSE):
Gain on sale of assets 25,445 - - 25,445
Interest income (expense), net (35,773) 2,000 - (33,773)
Miscellaneous 1,621 - - 1,621
--------- --------- --------- -------
Total other income (8,707) 2,000 - (6,707)
--------- --------- --------- -------
INCOME BEFORE INCOME TAXES 162,154 (398) - 161,756
INCOME TAX PROVISION, CURRENT 47,022 - - 47,022
--------- --------- --------- -------
NET INCOME (LOSS) $ 115,132 $ (398) $ - $ 114,734
========= ========= ========= =========
</TABLE>
F-24
<PAGE>
PROXY
ENERGY PRODUCTION COMPANY
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 31, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ENERGY PRODUCTION
COMPANY. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE CHOICES SPECIFIED BELOW.
The undersigned shareholder of ENERGY PRODUCTION COMPANY (the "Company"), hereby
appoints Ray D. Reaves as such shareholder's true and lawful attorney, agent,
and proxy of the undersigned with full power of substitution for and in the name
of the undersigned, to vote all the shares of common stock, par value $0.01 per
share ("Common Stock"), of the Company, which the undersigned may be entitled to
vote at the Special Meeting of Shareholders of the Company, to be held at 1703
Edelweiss Drive, Cedar Park, TX 78613, on Friday, October 31, 1997 at 9:00 a.m.,
central daylight savings time, and any and all adjournments thereof, with all of
the powers which the undersigned would possess if personally present, for the
following purposes:
Please indicate For, Against or Abstain with respect to each of the following
matters:
<TABLE>
<S> <C> <C> <C>
For Against Abstain
1. To elect three (3) directors to hold office until their respective
successors have been duly elected and qualified (the Board of Directors
recommends a vote FOR each of the following director nominees):
- Ray D. Reaves [ ] [ ] [ ]
- Robert A. Manogue [ ] [ ] [ ]
- Robert D. Bryant [ ] [ ] [ ]
2. To approve a proposal to change the Company's
name (the Board of Directors recommends a
vote FOR) [ ] [ ] [ ]
3. To ratify the May 1997 stock issuance of the
Company to Bass Petroleum, Inc. and all actions
taken by the Board of Directors or officers of
the Company in connection therewwith (the Board
of Directors recommends a vote FOR) [ ] [ ] [ ]
4. To a pprove a 75-to-1 reverse stock split of
the 75,000,000 shares of Company Common
Stock issued and outstanding (the Board of
Directors recommends a vote FOR) [ ] [ ] [ ]
5. To approve the acquisition by the Company of
all of the issued and outstanding shares of capital
stock of Bass Petroleum, Inc. (the Board of
Directors recommends a vote FOR) [ ] [ ] [ ]
<PAGE>
For Against Abstain
6. To ratify the selection of Hein & Associates, L.L.P.,
as independent auditors of the Company for the
fiscal year ending December 31, 1997 (the Board
of Directors recommends a vote FOR) [ ] [ ] [ ]
</TABLE>
7. Other Matters:
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting.
This Proxy will be voted for the choices specified. If no choice is specified
for Items 1, 2, 3, 4, 5 and 6, this Proxy will be voted FOR these items. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting and the
Proxy Statement furnished herewith.
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IN THE ENCLOSED ENVELOPE.
DATED: _____________________________ ____________________________________
(Signature)
------------------------------------
(Signature if jointly held)
------------------------------------
(Printed Name)
Please sign exactly as name appears on stock exactly as name
certificate(s). Joint owners should sign each. Trustees and
others acting in a representative capacity should indicate
the capacity in which they sign.
This Proxy is limited to ________ shares.
2
