SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report . . . . . . . . . . . . . . . . . . . . . . . . December 31, 1997
FIELDPOINT PETROLEUM CORPORATION
(F/K/A ENERGY PRODUCTION COMPANY)
(Exact Name of Registrant as Specified in its Charter)
COLORADO
(State or Other Jurisdiction of Incorporation)
0-9435 84-0811034
(Commission File Number) (IRS Employer Identification Number)
1703 Edelweiss Drive 78613
Cedar Park, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (512) 250-8692
<PAGE>
ITEM 1. CHANGES IN CONTROL OF THE REGISTRANT
On December 31, 1997, Energy Production Company (the "Registrant") closed
the transaction contemplated by a certain Plan of Exchange (the "Plan of
Exchange"), dated December 22, 1997, by and between the Registrant, Bass
Petroleum, Inc., a Texas corporation ("Bass") and the shareholders of Bass
Petroleum, Inc. (the "Shareholders"), pursuant to which Registrant has acquired
substantially all of the shares of Bass in exchange for 4,000,000 shares of
common stock of the Registrant. Pursuant to the Plan of Exchange Bass has become
a wholly owned subsidiary of the Registrant. However, as the exchange is a
Reverse Acquisition, Bass is deemed to be the acquiring entity for accounting
purposes. The description of the Plan of Exchange included herein does not
purport to be complete and is qualified in its entirety by reference to the
terms of the Plan of Exchange, a copy of which is attached hereto as Exhibit 2
and incorporated herein by reference.
The following table sets forth the information as to beneficial ownership
of shares by each person known to the registrant to own 5% or more of the shares
giving effect to the closing under the Plan of Exchange based upon shares of
Common Stock outstanding plus shares deemed outstanding pursuant to Securities
and Exchange Commission Rule 13d-3(d)(1).
Name and Address Amount & Nature of
- ---------------- -------------------
Ray D. Reaves
1703 Edelweiss Drive 2,603,525
Cedar Park, TX 78613
The Delray Trust
3606 Belle Grove 604,928
Sugarland, TX 77479
<PAGE>
Mildred Babich
4225 Clear Lake Circle 325,801
Fort Worth, TX 76109
Peter Babich
3310 Parkside Road 323,490
Flint, MI 48503
OHM Partnership
1019 Rocky Point Court, NE 377,277
Albuquerque, NM 87123
Bass Petroleum, Inc.
1703 Edelweiss Drive 223,040
Cedar Park, TX 78613
Prior to the closing of the Plan of Exchange, Bass Petroleum, Inc. owned
beneficially approximately 54% of the outstanding shares of common stock of
Energy Production Company.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
See Item 1 for a brief description of the Plan of Exchange. The description
of the Plan of Exchange included herein does not purport to be completed and is
qualified in its entirety by reference to the terms of the Plan of Exchange, a
copy of which is attached hereto as Exhibit 2 and incorporated herein by
reference. The registrant filed a Proxy Statement on December 1, 1997, and
mailed copies to its stockholders on December 11, 1997.
ITEM 5. OTHER EVENTS
The following changes with respect to the Registrant have been made as of
the date hereof (i) the name of the Registrant has been changed to FieldPoint
Petroleum Corporation; (ii) the trading symbol of the registrant on the OTC
Bulletin Board has been changed to "FPPC".
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
F-1 through F-7
(b) Pro forma Financial Statements
F-14 through F-18
(c) Exhibits
2.1 Plan of Exchange, dated December 22, 1997, among Energy Production
Company, Bass Petroleum, Inc., and the Shareholders of Bass Petroleum,
Inc.
99.1 Press Release dated January 2, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FieldPoint Petroleum Corporation
By: /s/ Ray D. Reaves
-----------------
Ray D. Reaves
President
Dated: January 9, 1998
EXHIBITS
Exhibit 2.1 PLAN OF EXCHANGE
This PLAN OF EXCHANGE (the "Plan") is entered into as of the 22nd day
of December 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, December 31, 1997 ("Effective
Date"), 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.
<PAGE>
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.
IN WITNESS WHEREOF, 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.
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 Gernell Bradley 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
<PAGE>
Cert. # Name # of Shares
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 99.1
Friday January 2, 9:15 a.m. Eastern Time
Company Press Release
SOURCE: FieldPoint Petroleum Corporation
FIELDPOINT PETROLEUM CORPORATION ANNOUNCES COMPLETION OF BASS PETROLEUM, INC.
ACQUISITION
AUSTIN, Jan. 2 /PRNewswire/ -- FieldPoint Petroleum Corporation (OTC Bulletin
Board: FPPC - News) announced today that it closed the acquisition of Bass
Petroleum, Inc. (BPI). The acquisition was effected pursuant to a Plan of
Exchange (the "Plan") by and among, FieldPoint Petroleum Corporation (the
"Company"), BPI, and the shareholders of BPI effective December 31, 1997, which
called for the Company to 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 transaction will be
accounted for as an acquisition of FieldPoint Petroleum Corporation by Bass
Petroleum, Inc.
Bass Petroleum, Inc. owns producing properties in south central Texas and
southeastern Wyoming. Additionally, the BPI properties consist of 75 producing
wells of which 55 are operated by BPI. Current net production from the BPI
properties is averaging 190 thousand cubic feet of natural gas per day and 75
barrels of oil per day.
FieldPoint Petroleum Corporation is an OTC Bulletin Board listed oil and gas
exploration and production company whose principal operations are conducted in
Texas and Wyoming oil and gas provinces.
SOURCE: FieldPoint Petroleum Corporation
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C> <C>
Bass Petroleum, Inc.
Independent Auditor's Report........................................................F-1
Balance Sheets......................................................................F-2
Statements of Income and Retained Earnings..........................................F-4
Statements of Cash Flows............................................................F-5
Notes to Financial Statements.......................................................F-7
Bass Petroleum, Inc. and Energy Production Company
Unaudited Pro Forma Financial Statements...........................................F-14
Unaudited Pro Forma Balance Sheet - September 30, 1997.............................F-15
Unaudited Pro Forma Income Statement - Nine Months Ended September 30, 1997........F-17
Unaudited Pro Forma Income Statement - Year Ended December 31, 1996................F-18
</TABLE>
<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-1
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC.
BALANCE SHEETS
ASSETS
------
<S> <C> <C> <C>
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
--------------- ---------------------
1997 1996 1995
--------- --------- ---------
CURRENT ASSETS:
Cash $ 10,986 $ 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 92,000 107,560 106,976
Joint interest billings, no allowance for doubtful accounts considered necessary 53,140 44,707 52,988
Advances to stockholder -- -- 3,492
Prepaid expenses 1,635 1,635 3,035
----------- ----------- -----------
Total current assets 180,641 334,236 327,755
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method):
Leasehold costs 956,344 786,860 647,785
Lease and well equipment 95,504 87,123 75,013
Furniture and equipment 30,167 24,119 22,939
Transportation equipment 74,945 54,444 67,444
Less accumulated depletion and depreciation (311,953) (242,115) (157,990)
----------- ----------- -----------
Net property and equipment 845,007 710,431 655,191
NOTE RECEIVABLE -- -- 38,000
OTHER ASSET 5,000 5,000 --
----------- ----------- -----------
Total assets $ 1,030,648 $ 1,049,667 $ 1,020,946
=========== =========== ===========
</TABLE>
Continued
F-2
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC.
BALANCE SHEETS, continued
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
(Unaudited)
SEPTEMBER. 30, DECEMBER 31,
-------------- --------------------
1997 1996 1995
--------- --------- ---------
CURRENT LIABILITIES:
Current portion of long-term debt $ 159,218 $ 246,707 $ 267,687
Accounts payable and accrued expenses 105,247 97,342 107,312
Advances from gas purchaser -- -- 110,709
Oil and gas revenues payable 126,020 122,938 137,052
Federal income taxes payable 15,333 47,022 32,309
Due to related party 65,000 27,733 4,392
---------- ---------- ----------
Total current liabilities 470,818 541,742 659,461
LONG -TERM DEBT, net of current portion 183,015 146,306 114,998
COMMITMENTS (Note 7)
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 248,777 233,581 118,449
---------- ---------- ----------
Total stockholders' equity 376,815 361,619 246,487
---------- ---------- ----------
Total liabilities and stockholders' equity $1,030,648 $1,049,667 $1,020,946
========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<S> <C> <C>
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- -----------------------
1997 1996 1996 1995
--------- --------- --------- ---------
REVENUE:
Oil and gas sales $ 411,053 $ 288,477 $ 432,383 $ 374,294
Well operational and pumping fees 132,364 164,501 213,022 139,365
Other 2,000 1,600 3,314 6,530
--------- --------- --------- ---------
Total revenue 545,417 454,578 648,719 520,189
COSTS AND EXPENSES:
Production expense 129,553 71,177 122,862 91,070
Depletion and depreciation 83,250 77,500 103,336 99,166
General and administrative 237,642 167,158 251,660 180,950
--------- --------- --------- ---------
Total costs and expenses 450,445 315,835 477,858 371,186
OTHER INCOME (EXPENSE):
Gain on sale of assets 3,235 21,590 25,445 13,957
Loss on commodity trade -- -- -- (1,089)
Unrealized loss on securities -- -- -- (3,000)
Interest income (expense), net (27,065) (16,651) (35,773) (32,188)
Acquisition expenses (45,000) -- -- --
Miscellaneous 4,387 21 1,621 (2,447)
--------- --------- --------- ---------
Total other income (expense) (64,443) 4,960 (8,707) (24,767)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 30,529 143,703 162,154 124,236
INCOME TAX PROVISION - CURRENT 15,333 43,110 47,022 34,117
--------- --------- --------- ---------
NET INCOME 15,196 100,593 115,132 90,119
RETAINED EARNINGS, Beginning of year 233,581 118,449 118,449 28,330
--------- --------- --------- ---------
RETAINED EARNINGS, End of year $ 248,777 $ 219,042 $ 233,581 $ 118,449
========= ========= ========= =========
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- -----------------------
1997 1996 1996 1995
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,196 $ 100,593 $ 115,132 $ 90,119
Adjustments to reconcile to net cash provided by operating activities:
Depletion and depreciation 83,250 77,500 103,336 99,166
Gain on sale of assets (3,235) (21,590) (25,445) (13,957)
Unrealized loss on securities -- -- -- 3,000
Changes in current assets and liabilities:
Accounts receivable 7,127 (15,343) 11,189 (117,673)
Prepaid expenses and other assets -- 400 (3,600) --
Accounts payable and accrued expenses (23,784) (20,021) 28,084 88,732
Oil and gas revenues payable 3,082 14,614 (14,114) 72,357
Payable to related party 37,267 3,000 -- --
Advances (repayments) from gas purchaser -- (90,709) (110,709) 110,709
--------- --------- --------- ---------
Net cash provided by operating activities 118,903 48,444 103,873 332,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas properties -- 56,750 59,251 15,000
Proceeds from sale of vehicle 11,000 -- -- --
Purchase of oil and gas properties (177,865) (146,539) (153,202) (315,643)
Purchase of furniture and equipment and vehicles (47,726) (890) (1,180) (300)
(Increase)decrease in restricted cash 100,000 (20,000) (20,000) (100,000)
--------- --------- --------- ---------
Net cash used by investing activities (114,591) (110,679) (115,131) (400,943)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 171,594 200,000 255,000 250,000
Repayments of long-term debt (209,374) (218,361) (231,672) (174,663)
Borrowing from stockholder -- 28,000 -- 28,000
Repayment of stockholder (13,000) -- (13,000) --
--------- --------- --------- ---------
Net cash provided by financing activities (50,780) 9,639 10,328 103,337
--------- --------- --------- ---------
</TABLE>
Continued
F-5
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC.
STATEMENTS OF CASH FLOWS, continued
<S> <C> <C> <C> <C>
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 30,
------------------------------- -----------------------
1997 1996 1996 1995
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH (46,468) (52,596) (930) 34,847
CASH, BEGINNING OF THE PERIOD 57,454 58,384 58,384 23,537
-------- -------- -------- --------
CASH, END OF THE PERIOD $ 10,986 $ 5,788 $ 57,454 $ 58,384
======== ======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 33,027 $ 24,536 $ 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-6
<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 September
30, 1997, and 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 $72,000, $67,636, $90,182 and $84,734 for the nine
months ended September 30, 1997 and 1996 and the years ended December 31,
1996 and 1995, respectively.
Joint Interest Billings Receivable and Oil and Gas Revenue Payable
------------------------------------------------------------------
Joint interest billings receivable represent amounts receivable for lease
operating expenses and other costs due from third party working interest
owners in the wells that the Company operates. The receivable is recognized
when the cost is incurred and the related payable and the Company's share
of the cost is recorded.
Oil and gas revenue payable represents amounts due to third party revenue
interest owners for their share of oil and gas revenue collected on their
behalf by the Company. The payable is recorded when the Company recognizes
oil and gas sales and records the related oil and gas sales receivable.
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
$11,250, $9,864, $13,154 and $14,432 for the nine months ended September
30, 1997 and 1996 and the years ended December 31, 1996 and 1995,
respectively.
F-7
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
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
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 September 30, 1997 and 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 September 30, 1997 and the statements of operations
for the nine month periods ended September 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
September 30, 1997 and the results of its operations for the nine months
ended September 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. During 1997, the Company acquired oil and gas
interests from its majority stockholder for $88,000.
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 September 30, 1997.
At September 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.
At September 30, 1997, the Company had a liability to a company controlled
by its majority stockholder of $65,000 for a working capital advance.
The Company rents office space from its majority stockholder. The terms of
the lease are disclosed in Note 7.
At December 31, 1995, the Company had non-interest bearing advances to its
majority stockholder of $3,492.
F-8
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
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 September 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 repaid without interest in an amount of $10,000 per month
beginning in December 1995. This liability was completely paid in 1996.
4. LONG-TERM DEBT
--------------
<TABLE>
<S> <C> <C>
Long-term debt at December 31, 1996 and 1995 consisted of the following:
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-9
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
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. GAIN ON SALES OF ASSETS
-----------------------
During the years ended December 31, 1996 and 1995, the Company recognized
gains on sales of oil and gas leases and equipment of $22,945 and $13,957,
respectively. Additionally, during the nine months ended September 30, 1997
and the year ended December 31, 1996, the Company recognized gains of
$3,235 and $2,500, respectively on the sales of Company vehicles.
6. 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.
7. 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 was $650 until July 31, 1997, and
$750 per month thereafter on a month-to-month basis. Rent expense was
$6,050 and $5,850 each of the nine months ended September 30, 1997 and
1996, and $7,800 for each of the years ended December 31, 1996 and 1995.
As of September 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.
F-10
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
8. 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.
9. ACQUISITION OF ENERGY PRODUCTION COMPANY
----------------------------------------
In May 1997, the Company acquired an 81% interest in Energy Production
Company (EPC), an inactive public company. The Company acquired
approximately 54% of EPC from EPC's controlling shareholder for $45,000 and
approximately 29% of EPC in the form of newly issued common shares, 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 as EPC had no identifiable assets at the time of acquisition.
The oil and gas properties that were contributed into EPC continue to be
carried at their historical book value. 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.
In October 1997, EPC and the Company rescinded the sale of 29% of EPC's
common stock to the Company. The Company returned the shares to EPC in
exchange for return of the purchase price. After returning the shares, the
Company owned 54% of EPC.
From 1980 to 1986, EPC was engaged in the acquisition, development and
operations of oil and gas properties. In December 1986, EPC began to divest
its remaining oil and gas assets and operations and has been relatively
inactive since that time with no significant operating revenues or
operations. Since 1986, the only assets of EPC have been cash and related
party receivables. EPC had a substantial accumulated deficit as of the
acquisition date.
10. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
------------------------------------------------------------------------
<TABLE>
<S> <C>
The following table sets forth certain information with respect to the oil
and gas producing activities of the Company:
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>
F-11
<PAGE>
BASS PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
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.
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.
11. 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>
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>
F12
<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-13
<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 (with respect to the pro forma income statements) and as
of September 30, 1997 (with respect to the balance sheet):
1) The acquisition of approximately 54% 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
exchange 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 of Bass 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-14
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
-----
<S> <C> <C> <C>
PRO FORMA PRO FORMA
BASS ADJUSTMENTS BASS
---------- ----------- ----------
CURRENT ASSETS:
Cash $ 10,986 $ - $ 10,986
Certificate of deposit pledged 20,000 - 20,000
Trading securities 2,880 - 2,880
Accounts receivable:
Oil and gas sales 92,000 - 92,000
Joint interest billings, no allowance for doubtful accounts
considered necessary 53,140 - 53,140
Prepaid expenses 1,635 - 1,635
--------- ---------- ----------
Total current assets 180,641 - 180,641
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method)
Leasehold costs 956,344 - 956,344
Lease and well equipment 95,504 - 95,504
Furniture and equipment 30,167 - 30,167
Transportation equipment 74,945 - 74,945
Less accumulated depletion and depreciation 11,953) - (311,953)
--------- ---------- ----------
Net property and equipment 845,007 - 845,007
Other asset 5,000 - 5,000
--------- ---------- ----------
Total assets $1,030,648 $ - $1,030,648
========== ========== ==========
</TABLE>
Continued
F-15
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA BALANCE SHEET, continued
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
PRO FORMA PRO FORMA
BASS ADJUSTMENTS BASS
CURRENT LIABILITIES:
Current portion of long-term debt $ 159,218 $ -- $ 159,218
Accounts payable and accrued expenses 105,247 -- 105,247
Oil and gas revenues payable 126,020 -- 126,020
Federal income taxes payable 15,333 -- 15,333
Due to related party 65,000 -- 65,000
----------- ----------- -----------
Total current liabilities 470,818 470,818
LONG-TERM DEBT, net of current portion 183,015 183,015
STOCKHOLDERS' EQUITY:
Common stock, par value $.01, 4,412,824 shares outstanding on
pro forma basis 128,038 (83,910)(1) 44,128
Additional paid-in capital -- 83,910 (1) 83,910
Retained earnings 248,777 -- 248,777
----------- ----------- -----------
Total stockholders equity 376,815 -- 376,815
----------- ----------- -----------
Total liabilities and stockholders' equity $ 1,030,648 $ -- $ 1,030,648
=========== =========== ===========
</TABLE>
(1) Adjustment to restate Bass' equity under the EPC capital structure.
See accompanying introduction to pro forma financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM, INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1997
<S> <C> <C>
PRO FORMA
BASS EPC ADJUSTMENTS COMBINED
------ ------ ----------- --------
REVENUE:
Oil and gas sales $ 411,053 $ -- $ -- $ 411,053
Well operation and pumping fees 132,364 -- -- 132,364
Other 2,000 -- -- 2,000
----------- -----------
Total revenue 545,417 -- -- 545,417
COSTS AND EXPENSES:
Production expense 129,553 -- -- 129,553
Depletion and depreciation 83,250 -- -- 83,250
General and administrative 237,642 26,507 (4,865) 259,284
----------- ----------- ----------- -----------
Total costs and expenses 450,445 26,507 (4,865) 472,087
OTHER INCOME (EXPENSE):
Gain on sale of assets 3,235 -- 3,235
Interest income (expense), net (27,065) 833 -- (26,232)
Acquisition expenses (45,000) -- -- (45,000)
Miscellaneous 4,387 -- -- 4,387
----------- -----------
Total other income (64,443) 833 -- (63,610)
INCOME BEFORE INCOME TAXES 30,529 (25,674) -- 9,720
INCOME TAX PROVISION, CURRENT 15,333 -- (6,358) 8,975
----------- ----------- -----------
NET INCOME (LOSS) $ 15,196 $ (25,674) $ (11,223) $ 745
=========== =========== =========== ===========
EARNINGS PER SHARE *
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,000,000
===========
</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 Bass' income statement.
* Less than $.01 per share.
See accompanying introduction to pro forma financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
BASS PETROLEUM INC. AND ENERGY PRODUCTION COMPANY
UNAUDITED PRO FORMA INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
<S> <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
=========== =========== =========== ===========
EARNINGS PER SHARE $ .02
-----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,000,000
===========
</TABLE>
See accompanying introduction to pro forma financial statements.
F-18
