<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from N/A to
------------------ --------------
Commission File Number 2-70145
SOUTH TEXAS DRILLING & EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2088619
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9310 Broadway, Bldg.I, San Antonio, Texas 78217
(Address of principal executive offices)
(Zip Code)
210-828-7689
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. N/A
Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at November 10, 1995
----- --------------------------------
Common Stock, $.10 par value 5,501,000
<PAGE> 2
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
ASSETS ------------- ---------
<S> <C> <C>
Current Assets:
Cash $ 28,939 221,816
Receivables 768,920 208,988
Contract drilling in progress 232,312 437,563
Prepaid expenses 84,117 60,006
------------ ------------
Total current assets 1,114,288 928,373
------------ ------------
Property and equipment 11,094,291 10,266,040
Accumulated depreciation, depletion and amortization 8,019,465 7,751,704
------------ ------------
Net property and equipment 3,074,826 2,514,336
------------ ------------
Investment in notes receivable 27,404 30,549
------------ ------------
Total assets 4,216,518 3,473,258
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt 582,354 622,025
Current installments, long-term debt 105,217 2,816
Accounts payable 1,170,021 763,591
Prepaid drilling contracts 147,750 -
Accrued expenses 211,211 198,340
------------ -----------
Total current liabilities 2,216,553 1,586,772
Long-term debt 283,373 87,623
Minority interest 214,067 258,024
------------ -----------
Total liabilities 2,713,993 1,932,419
------------ -----------
Shareholders' equity:
Preferred stock, noncumulative, $1.00 par value.
Authorized 1,000,000 shares; issued and out-
standing 235,000 shares at September 30, and
March 31, 1995. 235,000 235,000
Common stock, $0.10 par value.
Authorized 15,000,000 shares; issued and out-
standing 5,501,000 at September 30, and
5,408,000 March 31, 1995. 550,100 540,800
Additional paid-in capital 15,868,597 15,854,757
Retained earnings (deficit) (15,151,172) (15,089,718)
------------ -----------
Total shareholders' equity 1,502,525 1,540,839
------------ -----------
Total Liabilities and shareholders equity $ 4,216,518 3,473,258
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE> 3
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------- ------------------------
1995 1994 1995 1994
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $1,325,512 1,439,439 3,342,755 2,475,361
Oil & gas 122,686 132,789 258,052 251,712
Management fees and other 5,893 38,071 28,462 42,323
------------ ---------- --------- ---------
Total operating revenues 1,454,091 1,610,299 3,629,269 2,769,396
------------ ---------- --------- ---------
Costs and expenses:
Contract drilling 1,254,289 1,186,132 3,058,425 2,103,982
Oil and gas 41,959 34,870 77,438 72,027
Depreciation, depletion and amortization 150,289 118,293 289,991 217,818
General and administrative 148,552 134,414 269,623 240,290
Doubtful accounts - 113,800 - 113,800
------------ ---------- --------- ---------
Total operating costs & expenses 1,595,089 1,587,509 3,695,477 2,747,917
------------ ---------- --------- ---------
Earnings (loss) from operations (140,998) 22,790 (66,208) 21,479
------------ ---------- --------- ---------
Other income (expense):
Interest expense (27,924) (15,809) (53,254) (33,134)
Interest income 636 1,711 2,025 3,636
Gain on sale of assets (17) 481 23,983 33,038
Minority interest in loss (earnings) of
partnership 48,327 (12,543) 32,000 (12,543)
------------ ---------- --------- ---------
Total other income (expense) 21,022 (26,160) 4,754 (9,003)
------------ ---------- -------- ---------
Earnings (loss) before income taxes and
extraordinary item (119,976) (3,370) (61,454) 12,476
Income taxes - - - -
------------ ---------- -------- ---------
Earnings (loss) before extraordinary item (119,976) (3,370) (61,454) 12,476
Extraordinary item - - - -
------------ ---------- -------- ---------
Net earnings (loss) (119,976) (3,370) (61,454) 12,476
============ ========== ======== =========
Net earnings (loss) per common and
common equivalent share:
Earnings (loss)before extraordinary item $ (0.02) 0.00 (0.01) 0.00
Extraordinary item 0.00 0.00 0.00 0.00
------------ ---------- --------- ---------
Net earnings (loss) $ (0.02) 0.00 (0.01) 0.00
============ ========== ========= =========
Weighted average number of shares 5,489,333 5,408,000 5,448,667 5,264,333
============ ========== ========= =========
</TABLE>
NOTE: At September 30, 1995 the Company has a remaining net operating loss
carryforward of approximately $16,160,000 and investment credit
carryforward of approximately $789,000.
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended
September 30,
---------------------------------
1995 1994
----------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (61,454) 12,476
Adjustments to reconcile net earnings
to net cash provided (used) by operating activities:
Depreciation, depletion, amortization 289,991 217,818
Stock issued to directors and employees as compensation 13,340 40,770
Gain on sale of assets (23,983) (33,038)
Minority interest in equity of partnership (32,000) -
Changes in current assets and liabilities:
Accounts and note receivable (556,787) 187,171
Contract drilling in progress 205,251 (419,750)
Prepaid expenses (24,111) (47,342)
Accounts payable 406,430 (149,562)
Prepaid drilling contracts 147,750 27,000
Accrued expenses 12,871 (1,813)
----------- --------
Net cash provided (used) by operations 377,298 (166,270)
----------- --------
Cash flows from financing activities:
Payments of debt (1,121,329) (455,223)
Proceeds from notes payable 1,379,851 150,000
Proceeds from exercise of warrants 9,800 -
----------- --------
Net cash provided (used) in financing activities 268,322 (305,223)
Cash flows from investing activities:
Purchase of property and equipment (864,997) (421,004)
Proceeds from sale of equipment 26,500 277,251
----------- --------
Net cash used in investing activities (838,497) (143,753)
----------- --------
Net increase (decrease) in cash (192,877) (615,246)
Beginning cash and cash equivalents 221,816 788,172
----------- --------
Ending cash and cash equivalents $ 28,939 172,926
=========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements include the
accounts of South Texas Drilling & Exploration, Inc. and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
2. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
3. The Company uses the asset and liability method of Statement 109
for accounting for income taxes. Pursuant to this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
4. The Company has determined the cumulative effect of the change to
Statement 109 in accounting for income taxes is insignificant as the
deferred tax liabilities generated by temporary differences are
completely offset by deferred tax benefits generated by temporary
differences and available net operating loss carryforwards.
Additionally, the net deferred tax benefits resulting from the excess of
net operating loss carryforwards over the net deferred tax liability
will not be recorded due to uncertainties relating to the Company's
ability to generate sufficient future taxable income before the
expiration of the net operating loss carryforwards.
At April 1, 1995, the Company had investment tax credit
carryforwards for Federal income tax purposes of approximately $789,000
(expiring 1995 through 2007) which are available to reduce future
Federal income taxes. In addition, the Company had net operating loss
carryforwards of approximately $16,160,000 (expiring 1998 through 2006)
which are also available to reduce future Federal income taxes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
After the Company reduced its $200,000 revolving line of credit to
$1,000, cash and cash equivalents at September 30, 1995 were $28,939
compared to $221,816 at March 31, 1995. Working capital decreased to
a negative $1,102,265 at September 30, 1995 from a negative $658,399 at
March 31, 1995 primarily as a result of accounts payable and prepaid
drilling contracts increasing by $554,180. Correspondently, the current
ratio at September 30, 1995 was 0.5:1 compared to 0.6:1 at March 31,
1995. Working capital and the current ratio are negatively impacted by
the short-term nature of the Company's indebtedness. Accounts
receivable increased to $768,920 at September 30, 1995 from $208,988 at
March 31, 1995. Contract drilling in progress decreased to $232,312 at
September 30, 1995 from $437,563 at March 31, 1995.
Since March 31, 1995, property and equipment expenditures increased
by $828,251. This increase is comprised of the following: $527,460 on
drilling equipment, $265,393 on land, buildings and improvements,
$22,367 on transportation equipment, $7,444 on office furniture and
equipment and $5,587 on investment in oil and gas properties. Drilling
equipment increased primarily as a result of the acquisition of a fifth
land drilling rig. The purchase of this rig was accomplished through a
cash payment of $45,000 and a non-recourse seller note of $300,000. The
increase in land, buildings and improvements was the result of the
purchase of the 5,000 square foot office building which the Company
occupies as its headquarters in San Antonio. The building was
5
<PAGE> 6
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
purchased through a combination of $245,000 in bank and government
financing and cash of $20,000. The Company had leased the building
since February, 1993.
Current and long-term debt obligations in the form of notes payable
increased by $258,480 from March 31, 1995 to September 30, 1995. The
elements of this increase were the purchase of the rig for a debt of
$300,000, purchase of transportation equipment with related debt of
$31,575, conversion of a trade vendor's open account to a short term
note in the amount of $94,393, the borrowing of $106,641 for the cost of
drilling a well in the last quarter of fiscal 1995, the purchase of the
office building for $245,000 and payments $519,129 on debt during the
period. The financing secured by the office building contains a demand
clause which, under generally accepted accounting principles, requires
that the debt be classified as current even though it is payable over
ten years.
Accounts payable at September 30, 1995 were $1,170,021, an increase
of $406,430 from $763,591 at March 31, 1995. This increase resulted
from increased drilling activity in the period preceding the end of the
quarter, the granting of extended payment terms to certain drilling
customers resulting in slower payment of accounts payable, higher repair
and maintenance costs on drilling equipment and the lingering effects of
a $228,000 uncollectible account from one of the Company's drilling
customers in fiscal 1995. Accrued expenses increased to $211,211 at
September 30, 1995 from $198,340 at March 31, 1995.
Results of Operations
While contract drilling revenue for the quarter ended September 30,
1995 decreased 7.9% to $1,325,512 compared to $1,439,439 in the same
quarter a year earlier and oil and gas revenue decreased 7.6% to
$122,686 from $132,789, cash flow from operations remained positive.
Earnings before interest, taxes, depreciation, depletion and
amortization (EBITDA) was $9,291 in the current quarter compared to
$141,083 in the same quarter a year earlier and $223,783 for six months
ended September 30, 1995 compared to $239,297 for six months ended
September 30, 1994.
The decline in drilling revenue was due to decreased drilling
activity, 215 drilling days in the current quarter compared to 251
drilling days in the same quarter in fiscal 1995. Rig utilization
declined to 47% in the current quarter from 80% in the same quarter a
year earlier. This decline was due in part to the discontinuation of a
customer's long-term drilling program which provided steady drilling for
one of the rigs and decreased activity resulting from a softening in
natural gas prices. During the current quarter, the Company operated
five rigs, while in fiscal 1995, the Company operated three rigs for the
first two months of the quarter and four rigs in the last month of the
quarter.
In the current quarter, oil and natural gas production was
essentially level with last year at an equivalent of 7,476 barrels of
oil, while in the same quarter a year earlier production was the
equivalent of 7,471 barrels of oil. Average prices for natural gas
declined 15% to $1.66 this quarter compared to $1.96 per mcf in the same
quarter in fiscal 1995 and oil prices declined 1% to $17.12 per barrel
this quarter compared to $17.37 in the same quarter last year.
While total revenues declined by 10%, total operating costs and
expenses for the quarter ended September 30, 1995 increased slightly to
$1,595,089, up $7,580 from operating costs and expenses of $1,587,509 in
the same quarter a year earlier. Drilling costs, when compared with the
same quarter a year earlier, increased 5.7% and oil and gas costs
increased 20.3%. Drilling costs this quarter increased as a result of a
change in the mix of business to a greater percentage of turnkey work,
problems encountered on three specific jobs and higher repair and
maintenance costs. With the decline in the number of drilling days and
drilling revenue coupled with an increase in drilling costs, the
Company's average daily drilling margin (drilling revenue less drilling
costs) decreased to $331 per day in the current quarter from $1,009 per
day in the same quarter a year earlier. The increase in oil and gas
costs was primarily due to additional costs associated with the Willard
Behrens #2 which was put on production in February, 1995.
6
<PAGE> 7
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Increases in depreciation and depletion and general and
administrative expenses further impacted operating earnings.
Depreciation, depletion and amortization costs increased 27% to
$150,289 in the quarter ended September 30, 1995 from $118,293 in the
quarter ended September 30, 1994. This increase was due to an increase
in the estimated depletion cost per unit for the current quarter when
compared with the estimated depletion cost per unit for the same quarter
a year earlier and to an increase in depreciation expense resulting from
the addition of equipment since September 30, 1994. General and
administrative expenses increased to $148,552 in the current quarter from
$134,414 in the same quarter a year earlier resulting primarily from the
settlement of a personal injury lawsuit filed by one of the Company's
leased personnel. The settlement amount was $12,600, $5,000 of which
was the policy deductible and $7,600 of which was payable in lieu of an
insolvent Lloyds underwriter.
Other income and expense increased to $21,022 in the current
quarter from a negative $26,160 in the same quarter a year earlier.
Although interest expense increased 77% this quarter over the same
quarter in the prior year and interest income declined 63%, other income
and expense increased due to the minority partner's allocation of its
portion of the loss of the Company's partnership.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 25, 1995 the annual meeting was held to consider electing
five directors to serve until their successors are duly elected and
qualified; to consider a proposal to amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common
Stock from 10,000,000 to 15,000,000; to amend the Company's Articles of
Incorporation to effect a reverse stock split on a 1 for 3 basis of the
outstanding Common Stock of the Company, effective upon the subsequent
approval of the Company's Board of Directors; to approve the adoption of
the 1995 Stock Plan; and to approve selection of KPMG Peat Marwick as
auditors for the fiscal year ending March 31, 1996. Total shares voted
were 4,077,781 or 75.40 percent of the eligible voters representing
5,408,000 shares.
Mr. Robert R. Marmor, Wm. Stacy Locke, William D. Hibbetts, Al
Dowell and Charles Tichenor were elected by 3,981,663 or 73.63 percent
of the shareholders, with 96,118 or 1.77 percent votes withheld and no
exceptions. There were no other directors whose term of office
continued after the meeting. The shareholders approved the amendment to
the Company's Articles of Incorporation to increase the number of
authorized shares of Common Stock from 10,000,000 to 15,000,000 with
3,940,840 or 72.87 percent voting for, 110,000 or 2.03 percent against,
19,738 or .37 percent abstaining and 7,203 or .13 percent brokers no
vote. The proposal to amend the Company's Articles of Incorporation to
effect a reverse stock split on a 1 for 3 basis of the outstanding
Common Stock of the Company, effective upon the subsequent approval of
the Company's Board of Directors was approved by 3,966,174 or 73.34
percent voting for the proposition, 62,416 or 1.15 percent against,
41,988 or .78 percent abstaining and 7,203 or .13 percent brokers no
vote. The proposal for the adoption of the 1995 South Texas Drilling &
Exploration, Inc. Stock Plan was approved by 3,091,132 or 57.16 percent
voting for, 121,900 or 2.25 percent voting against, 38,273 or .71
percent abstaining and 826,476 or 15.28 percent brokers no vote. The
selection of KPMG Peat Marwick as auditors of the Company for the fiscal
year ending March 31, 1996 was approved by 4,038,169 or 74.67 percent
voting for, 6,324 or .12 percent voting against, and 33,288 or .61
percent abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None
7
<PAGE> 8
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
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 thereunto duly authorized.
SOUTH TEXAS DRILLING &
EXPLORATION, INC.
/s/ Robert R. Marmor
-------------------------------------
Robert R. Marmor
Chairman of the Board
Dated: November 10, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Robert R.Marmor Chairman of the Board November 10, 1995
--------------------
Robert R. Marmor
/s/ Wm. Stacy Locke President and Chief Executive November 10, 1995
-------------------- Officer
Wm. Stacy Locke
/s/ Chris F. Parma Controller November 10, 1995
--------------------
Chris F. Parma
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
<CIK> 0000320575
<NAME> SOUTH TEXAS DRILLING & EXPLORATION, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-1-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 28,939
<SECURITIES> 0
<RECEIVABLES> 768,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,114,288
<PP&E> 11,094,291
<DEPRECIATION> 8,019,465
<TOTAL-ASSETS> 4,216,518
<CURRENT-LIABILITIES> 2,216,553
<BONDS> 0
<COMMON> 550,100
0
235,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,216,518
<SALES> 122,686
<TOTAL-REVENUES> 1,454,091
<CGS> 41,959
<TOTAL-COSTS> 1,595,089
<OTHER-EXPENSES> (21,022)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (119,976)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119,976)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
