U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X Annual report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
(No fee required, effective October 7, 1996.)
For the fiscal year ended December 31, 1996.
Transition report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (No fee required)
For the transition period from _________ to ____________.
Commission File Number: 0-9435
ENERGY PRODUCTION COMPANY
(Name of Small Business Issuer in Its Charter)
Colorado 84-0811034
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1703 Edelweiss Drive
Cedar Park, Texas 78613
------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(512) 250-8692
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the
Exchange Act:
(None)
Securities registered under Section 12(g) of the
Exchange Act:
Common Stock, $.01 Par Value
Title of Class
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 No X
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
The issuer's revenues for its most recent fiscal year were $2,000.00.
As of June 1, 1997, 75,000,000 shares of the Registrant's common stock, par
value $.01 per share, were outstanding. The aggregate market value of the voting
stock held by non-affiliates of the Registrant at June 1, 1997, was $1,423.38.
Documents Incorporated by Reference: None.
<PAGE>
PART I
ITEM 1 - BUSINESS
General
Energy Production Company, a Colorado corporation (the "Company"), is an
independent oil and gas producer which was formed in March 1980 for the primary
purpose of identifying, acquiring, revitalizing, and enhancing the production of
mature oil and natural gas fields located primarily in the mid-continent and
Rocky Mountain region. Since inception, the Company has been a developmental
stage company with no material operations that has devoted substantially all of
its efforts to establishing its business, and beginning in December 1986, the
Company sold all of its oil and gas assets and operations. Since December 1986,
the Company has not engaged in any oil and gas operations, nor does the Company
presently have the requisite personnel, equipment, or finances to operate. Since
the 1986 fiscal year, as a primary result of the Company's lack of business
operations, the Company has failed to file the required reports and other
filings required to be filed with the Securities and Exchange Commission in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company intends to become current with regard to its reporting
requirements pursuant to the applicable provisions of the Exchange Act, and
through strategic acquisitions of identified oil and gas properties, the Company
believes that it will be able to commence business operations although its
planned operations have not yet commenced.
The principal offices of the Company are located at 1703 Edelweiss
Drive, Cedar Park, Texas 78613, and its telephone number is (512) 250-8692.
Recent Developments
In May 1997, the Company issued 44,038,222 shares of the Company's common stock,
par value $0.01 per share ("Common Stock"), to Bass Petroleum, Inc., a Texas
corporation ("BPI"), in consideration of the cash payment by BPI of $5,000, and
assignment by BPI to the Company of certain oil and gas properties located in
Texas, which the Company believes are valued at $40,000. In addition to the
issuance of such shares, the controlling shareholder of the Company sold
16,728,000 shares of the Common Stock to BPI in consideration of the cash
payment of $45,000 by BPI. To date, BPI owns an aggregate of 60,766,222 shares
of the Company's Common Stock, constituting approximately 81% of all of the
issued and outstanding shares of Common Stock of the Company.
Business Strategy
The Company intends to merge with or acquire a company actively involved in oil
and gas exploration, development and operations with existing revenues and
operating properties. Once such acquisition or merger is complete, the Company's
2
<PAGE>
activities will focus on the acquisition of producing oil and gas properties.
Such acquisitions will be based on an analysis of the properties' current cash
flow and the Company's ability to profit from the acquisition. The Company's
acquisitions will include leasehold and other working interests in exploration
areas.
The Company will also seek to identify promising areas for the exploration of
oil and gas through the use of outside consultants and the expertise of the
Company. This identification will include collecting and analyzing geological
and geophysical data for exploration areas. Once promising properties are
identified, the Company will attempt to acquire the properties either for
drilling oil and natural gas wells, using independent contractors for drilling
operations, or for sale to third parties.
Market for Oil and Gas
The demand for oil and gas is dependent upon a number of factors, including the
availability of other domestic production, crude oil imports, the proximity and
size of oil and gas pipelines in general, other transportation facilities, the
marketing of competitive fuels, and general fluctuations in the supply and
demand for oil and gas. The Company has not generated any revenues from the sale
of oil and gas during its past three fiscal years. The Company intends to sell
of all of its production to traditional industry purchasers, such as pipeline
and crude oil companies, who have facilities to transport the oil and gas from
the wellsite.
Competition
The oil and gas industry is highly competitive in all aspects. The Company will
be competing with major oil companies, numerous independent oil and gas
producers, individual proprietors, and investment programs. Many of these
competitors possess financial and personnel resources substantially in excess of
those which are available to the Company and may, therefore, be able to pay
greater amounts for desirable leases and define, evaluate, bid for and purchase
a greater number of potential producing prospects than the Company's own
resources permit. The Company's ability to generate resources will depend not
only on its ability to develop existing properties but also on its ability to
identify and acquire proven and unproven acreage and prospects for further
exploration.
Environmental Matters and Government Regulations
The Company's operations are subject to numerous federal, state and local laws
and regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. Such matters have not
had a material effect on operations of the Company to date, but the Company
cannot predict whether such matters will have any material effect on its capital
expenditures, earnings or competitive position in the future.
3
<PAGE>
The production and sale of crude oil and natural gas are currently subject to
extensive regulations of both federal and state authorities. At the federal
level, there are price regulations, windfall profits tax, and income tax laws.
At the state level, there are severance taxes, proration of production, spacing
of wells, prevention and clean-up of pollution and permits to drill and produce
oil and gas. Although compliance with their laws and regulations has not had a
material adverse effect on the Company's operations, the Company cannot predict
whether its future operations will be adversely effected thereby.
Employees
At December 31, 1996, the Company had three employees, and the Company currently
has one employee.
ITEM 2 - PROPERTIES
----------
The Company owns no significant properties other than oil and gas properties.
The Company owned no oil and gas properties during the 1994, 1995 and 1996
fiscal years. As of June 1, 1997, the Company owned interests in two oil and gas
properties which are described below. As of June 1, 1997, the Company had no
sales, no drilling activity, no operations, no production and no delivery
commitments.
The office space for the Company's executive offices at 1703 Edelweiss Drive,
Cedar Park, Texas 78613, is currently provided by the majority shareholder at no
cost to the Company.
Revenues Reported To Other Agencies
The Company filed no estimates of total, proved net oil or gas reserves and
included no such estimates in any reports to any federal authority or agency
since the beginning of the last fiscal year.
Production
During the last three fiscal years, the Company had no operations and no
production.
4
<PAGE>
Productive Wells And Acreage
All the Company's oil and gas properties, reserves and activities, are located
onshore in Texas. As of December 31, 1996, the Company had no interest in any
oil and gas leases or properties. As of June 1, 1997, the Company held interests
in oil and gas leases as follows:
Producing Wells
Acres Oil Gas
County Gross Net Gross Net Gross Net
- ------ ----- --- ----- --- ----- ---
Burleson 80 62.4 N/A N/A 1 .78
Lee 40 28.4 1 .71 N/A N/A
(a) A gross well is a well in which the Company owns a working interest. A
net well is the fractional interest owned by the Company.
Underdeveloped Acreage
For the last three fiscal years, the Company had no underdeveloped acreage.
Drilling Activity
The Company had no drilling activity in each of the last three fiscal years.
Present Activities
As of June 1, 1997, the Company had no drilling, waterflood installation,
pressure maintenance operations, or other related operations.
Delivery Commitments
As of June 1, 1997, and for the last three years, the Company had no delivery
commitments.
ITEM 3 - LEGAL PROCEEDINGS
-----------------
The Company knows of no material litigation pending, threatening or contemplated
or unsatisfied judgments against it, or any other proceeding in which the
Company is a party. The Company knows of no material legal actions pending or
threatened or judgments entered against any officers or the Board of Directors
of the Company in their capacity as such.
5
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the security holders during the quarter
ended December 31, 1996.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
The Company's Common Stock was quoted in the NASDAQ System until February 22,
1984, when the Company's Common Stock was deleted from the NASDAQ System due to
an insufficient number of active market makers. Since that date, the Company's
Common Stock has experienced only limited trading and its prices are quoted
irregularly in the National Quotation Bureau's "Pink Sheets". Information
regarding bid prices and closing bids has been obtained from the National
Quotation Bureau. The following quotations, where quotes were available, reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
FISCAL 1995 CLOSING BID
----------- -----------
HIGH LOW
---- ---
First Quarter1 .0001 .0001
Second Quarter .0001 .0001
Third Quarter .0001 .0001
Fourth Quarter .0001 .0001
FISCAL 1996
-----------
HIGH LOW
---- ---
First Quarter .0001 .0001
Second Quarter .0001 .0001
Third Quarter .0001 .0001
Fourth Quarter .0001 .0001
FISCAL 1997
-----------
HIGH LOW
---- ---
First Quarter .0001 .0001
Second Quarter .0001 .0001
- --------------
1 Closing Bid prices for the first quarter of 1995 were unavailable. The
prices provided are Bid Prices.
At June 1, 1997, the approximate number of holders of record of the Company's
Common Stock was 792. The Company has not paid any dividends on its Common Stock
and does not expect to do so in the foreseeable future.
6
<PAGE>
Recent Sales Of Unregistered Securities
On May 21, 1997, the Company issued 44,038,222 shares of Common Stock to BPI in
a transaction under Section 4(2) of the Securities Act of 1933, as amended, for
$45,000, consisting of $5,000 cash and two oil and gas properties valued at a
total of $40,000. (For a more complete description of the properties, see Item
2.)
ITEM 6 - PLAN OF OPERATION
-----------------
General
Energy Production Company, a Colorado corporation (the "Company"), is an
independent oil and gas producer which was formed in March 1980 for the primary
purpose of identifying, acquiring, revitalizing, and enhancing the production of
mature oil and natural gas fields located primarily in the mid-continent and
Rocky Mountain region. Since inception, the Company has been a developmental
stage company with no material operations that has devoted substantially all of
its efforts to establishing its business, and beginning in December 1986, the
Company sold all of its oil and gas assets and operations. Since December 1986,
the Company has not engaged in any oil and gas operations, nor does the Company
presently have the requisite personnel, equipment, or finances to operate. Since
the 1986 fiscal year, as a primary result of the Company's lack of business
operations, the Company has failed to file the required reports and other
filings required to be filed with the Securities and Exchange Commission in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company intends to become current with regard to its reporting
requirements pursuant to the applicable provisions of the Exchange Act, and
through strategic acquisitions of identified oil and gas properties, the Company
believes that it will be able to commence business operations although its
planned operations have not yet commenced.
Pre-Operating Activities
The Company's historical financial statements are not indicative of anticipated
revenues which may be obtained or expenditures which may be incurred by the
Company in future periods. The Company's plan of operation entails identifying
and strategically acquiring or merging with an existing corporation which is
actually involved in oil and gas exploration, development and operations within
the next six (6) months. The Company does not expect pre-operating expenses to
be significant. However, because the Company will incur some expenditures
without corresponding revenues prior to commencement of oil and gas operations,
the Company anticipates a net loss for the 1997 fiscal year, and possibly for
the 1998 fiscal year. Monthly pre-operating losses will continue until the
Company commences oil and gas operations.
Once the intended acquisition or merger is complete, the Company's business
strategy is to acquire and develop producing crude oil and natural gas
properties in Texas, Wyoming, Oklahoma and other areas identified by management.
7
<PAGE>
After the intended acquisition or merger, the Company intends to satisfy its
operating costs through the cash flow from the operations of the acquired
company. The Company does not intend to raise additional funds within the next
twelve months to satisfy its cash requirements.
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, and Chief Executive Officer of the Company, is
Chairman, Chief Executive Officer, Chief Financial Officer, and Director of BPI
and owns sixty percent (60%) of the common stock of Bass Petroleum, Inc. Such
acquisition is subject to any required approvals for the shareholders and Board
of Directors of the Company and BPI. There can be no assurance that such
acquisition will be successful.
Oil and Gas Operations
The Company is a developmental stage company that has devoted substantially all
of its efforts since inception to establishing its business plan, and operations
have not yet commenced. Commercial oil and gas operations are expected to begin
early 1998, although numerous factors may cause commencement of such operations
to be delayed. Although the Company believes that its markets will support oil
and gas operations and will enable the Company to establish sufficient market
share to operate profitably, the Company's plan to achieve profitable
operations, if any, is subject to various uncertainties. Because of the
substantial number of variables applicable to an oil and gas operation, and the
Company's lack of operating history, there can be no assurance that the
Company's business strategy will prove accurate, or that the Company's plan of
operation will lead to profitability.
ITEM 7 - FINANCIAL STATEMENTS
--------------------
The information required is included in this report as set forth in the "Index
to Financial Statements."
Index to Financial Statements
-----------------------------
Report of Independent Public Accountants F-1
Balance Sheets F-2
Statement of Operations F-3
Statement of Changes in Stockholders' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
8
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
-----------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------
None.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
-------------------------------------------------------
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
----------------------------------------------------------
(a) Identification of Directors and Executive Officers. The following table sets
forth the names and ages of the Directors and Executive Officers of the Company,
all positions and offices with the Company held by such person, and the time
during which each such person has served:
Name Age Position with Company Period Served
- ---- --- --------------------- -------------
Robert N. Watson, Jr. 54 Director, President, Chairman
and Chief Executive Officer 1986 - May 1997
William G. Watson 48 Director and Vice President 1986 - May 1997
Linda R. Watson 53 Director and Secretary 1986 - May 1997
Ray D. Reaves 35 Director, President, Chairman,
Chief Executive Officer and
Chief Financial Officer May 1997 - present
Mr. Robert N. Watson, Jr. received his B.A. and B.B.A. degrees from the
University of Texas at Austin in 1966 and 1967. He is a Director and President
of Robert Watson, Inc., an oil and gas and real estate development firm which he
founded in 1969. He has been a Director of the Company and its Chief Executive
Officer since 1986.
Mr. William G. Watson received his B.A. degree from Texas Tech University in
1970 and his M.S. degree from the University of Texas at Arlington in 1974. He
has been a Director of Robert Watson, Inc. and a Director and President of
William Watson, Inc., an independent petroleum geological firm, which he founded
in 1983, for more than the last five years. He is the brother of Robert N.
Watson, Jr. He has been a Director of the Company and its Vice President since
1986.
Ms. Linda R. Watson received her B.A. degree from the University of Texas at
Austin in 1966. She has been a Director and Secretary-Treasurer of Robert
Watson, Inc. for more than the last five years. She is the wife of Robert N.
Watson, Jr. She has been a Director of the Company and its Secretary since 1986.
Mr. Reaves has been Chairman, Director, President, Chief Executive Officer and
Chief Financial Officer of the Company since May 22, 1997. Mr. Reaves has also
served as Chairman, Chief Executive Officer, Chief Financial Officer and
Director of BPI from October 1989 to the present and as President of Field
Point, Inc., a private investment firm.
9
<PAGE>
Mr. Reaves will serve until the next meeting of the shareholders or until his
successor(s) have been duly elected
and qualified.
(b) Identification of Significant Employees. The Company does not employ any
persons, other than its sole director, who make or are expected to make any
significant contributions to the business of Company.
(c) Family Relationships. 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.
(d) Involvement in Certain Legal Proceedings. 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 his 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 his abilities or integrity.
ITEM 10 - 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 and $0
Chief Executive Officer
Ray D. Reaves Director, President, Chairman, $0
Chief Executive Officer and
Chief Financial Officer
10
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the persons known to the Company to own
beneficially more than five percent of the outstanding shares of Common Stock as
of December 31, 1996 and information as of December 31, 1996, with respect to
the ownership of Common Stock by each director and executive officer of the
Company. In all cases, the owners have sole voting and investment powers with
respect to the shares.
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Owner Percent of Class
- ------------------- ------------------- ----------------
Robert N. Watson, Jr.1 16,728,0003 54%4
P.O. Box 202650
Austin, Texas 78720
William G. Watson1 0 0
P.O. Box 202650
Austin, Texas 78720
Linda R. Watson1 0 0
P.O. Box 202650
Austin, Texas 78720
Robert Watson, Inc.2 16,728,000 54%4
P.O. Box 202650
Austin, Texas 78720
- --------------------
1 Resigned as Directors and Officers effective May 22, 1997.
2 Sold to Bass Petroleum, Inc. on May 22, 1997.
3 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.
4 Prior to the May 21, 1997 issuance by the Company of 44,038,222 shares
to Bass Petroleum, Inc.
11
<PAGE>
The following table sets forth the persons known to the Company to own
beneficially more than five percent of the outstanding shares of Common Stock as
of June 1, 1997 and information as of June 1, 1997, with respect to the
ownership of Common Stock by each director and executive officer of the Company.
Unless otherwise indicated, the owners have sole voting and investment powers
with respect to the shares.
Bass Petroleum, Inc. 60,766,222 81%
1703 Edelweiss
Cedar Park, Texas 78613
Ray D. Reaves 60,766,2221 81%
1703 Edelweiss
Cedar Park, Texas 78613
All Officers, Directors and 60,766,222 81%
Five Percent Shareholders
as a group
- -----------------------
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;
Mr. Reaves' voting and investment powers with respect to the Company's
Common Stock are limited by his position as Director and shareholder of
BPI.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company entered into an annual management agreement with its
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 the shareholder 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.
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 and owns sixty percent (60%) of the common stock of
Bass Petroleum, Inc. Such acquisition is subject to any required approvals for
the shareholders and Board of Directors of the Company and BPI. There can be no
assurance that such acquisition will be successful.
12
<PAGE>
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
Financial Statements of the Company as set forth under Item 7 of this Report on
Form 10-KSB
3.1 Articles of Incorporation1
3.2 Bylaws2
27 Financial Data Schedule
- ----------------------
1 Previously filed as Exhibit (2)(a) of the Company's registration
statement on Form S-2 (file number 2-6770).
2 Previously filed as Exhibit (2)(b) of the Company's registration
statement of Form S-2 (file number 2-6770).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the last
quarter of its fiscal year. The Company filed a report on Form 8-K
dated May 22, 1997 describing a change in control of the Company, a
disposition of the assets, the resignation of the officers and
directors and the appointment of a new officer and director.
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENERGY PRODUCTION COMPANY
(Registrant)
By: /s/ Ray Reaves
---------------------------------
Ray Reaves, President
Date: July 18, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Ray Reaves
--------------------------------
Ray Reaves, President, Chief Executive Officer,
Director, Chairman,
Chief Financial Officer
Date: July 18, 1997
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy material has been sent to security holders. Proxy
material, which is to be furnished to security holders subsequent to the filing
of the annual report on this form, shall be furnished to the Commission when it
is sent to security holders.
14
<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
F1
<PAGE>
ENERGY PRODUCTION COMPANY
BALANCE SHEETS
ASSETS
------
DECEMBER 31,
-------------
1996 1995 1994
------ ------ -----
CURRENT ASSETS:
Cash $ 874 $ 1,272 $ 1,041
Receivable from related party - current 20,000 - -
--------- --------- --------
Total current assets 20,874 1,272 1,041
RECEIVABLE FROM RELATED PARTY - 20,000 20,000
--------- --------- --------
Total assets $ 20,874 $ 21,272 $ 21,041
========= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES-
Accounts payable $ 65 $ 65 $ 65
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 75,000,000
shares authorized, 30,961,778 shares
issued and outstanding 309,618 309,618 309,618
Additional paid-in capital 1,794,373 1,794,373 1,794,373
Accumulated deficit (2,083,182) (2,082,784) (2,083,015)
------------ ----------- -----------
Total stockholders' equity 20,809 21,207 20,976
------------ ----------- -----------
Total liabilities and
stockholders' equity $ 20,874 $ 21,272 $ 21,041
============ ============ ===========
See accompanying notes to these financial statements.
F-2
<PAGE>
ENERGY PRODUCTION COMPANY
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
------ ------ -----
INTEREST INCOME $ 2,000 $ 2,000 $ 2,000
GENERAL AND ADMINISTRATIVE EXPENSES 2,398 1,771 3,184
------------ --------- ------------
NET INCOME (LOSS) (398) 231 (1,184)
============ ========== ============
NET LOSS PER SHARE * * *
============ ========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 30,961,778 30,961,778 30,961,778
============ ========== ===========
* Less than $.01 per share
See accompanying notes to these financial statements.
F-3
<PAGE>
ENERGY PRODUCTION COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1996
<TABLE>
<S> <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
=========== ============ =========== ============= ==========
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
ENERGY PRODUCTION COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
1996 1995 1994
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES-
Net income (loss) $ (398) $ 231 $ (1,184)
---------- --------- ---------
NET CHANGE IN CASH (398) 231 (1,184)
CASH AT BEGINNING OF YEAR 1,272 1,041 2,225
---------- --------- ---------
CASH AT END OF YEAR $ 874 $ 1,272 $ 1,041
========== ========= ========
See accompanying notes to these financial statements.
F-5
<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 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'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.
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.
F-6
<PAGE>
ENERGY PRODUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS
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, $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-7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 874
<SECURITIES> 0
<RECEIVABLES> 20,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,874
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,874
<CURRENT-LIABILITIES> 65
<BONDS> 0
0
0
<COMMON> 309,618
<OTHER-SE> (288,809)
<TOTAL-LIABILITY-AND-EQUITY> 20,874
<SALES> 0
<TOTAL-REVENUES> 2,000
<CGS> 0
<TOTAL-COSTS> 2,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (398)
<INCOME-TAX> 0
<INCOME-CONTINUING> (398)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (398)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
