<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 June 30, 1997
OR
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from 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. 1, 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 August 11, 1997
----- ------------------------------
Common Stock, $.10 par value, 5,808,194
<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>
June 30, March 31,
ASSETS 1997 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 631,956 407,755
Receivables 772,693 642,677
Contract drilling in progress 468,318 593,162
Prepaid expenses 200,403 162,213
------------ ------------
Total current assets 2,073,370 1,805,807
------------ ------------
Property and equipment 13,170,676 10,887,935
Accumulated depreciation, depletion
and amortization 7,817,434 7,642,458
------------ ------------
Net property and equipment 5,353,242 3,245,477
------------ ------------
Total assets 7,426,612 5,051,284
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt 10,500 --
Current installments, long-term debt 447,255 261,394
Accounts payable 1,190,266 1,146,982
Prepaid drilling contracts 99,000 99,000
Accrued expenses 249,016 269,265
------------ ------------
Total current liabilities 1,996,037 1,776,641
Long term debt 2,260,725 1,220,103
------------ ------------
Total liabilities 4,256,762 2,996,744
------------ ------------
Shareholders' equity:
Preferred stock, noncumulative, $1.00
par value. Authorized 1,000,000
shares; issued and outstanding
no shares at June 30, and 235,000 shares
at March 31, 1997 -- 235,000
Preferred stock, 8%, cumulative, convertible, $2.00
par value. Authorized 400,000 shares;
issued and outstanding 400,000 shares at June 30,
and no shares at March 31, 1997 800,000 --
Common stock, $0.10 par value
Authorized 15,000,000 shares;
issued 6,147,961 at June 30 and 5,655,333 at
March 31, 1997 614,796 565,533
Additional paid-in capital 16,344,906 15,914,169
Retained earnings (deficit) (14,452,947) (14,523,257)
------------ ------------
3,306,755 2,191,445
Less Treasury stock, at cost, 339,767 shares 136,905 136,905
------------ ------------
Total shareholders' equity 3,169,850 2,054,540
------------ ------------
Total Liabilities and shareholders equity $ 7,426,612 5,051,284
============ ============
</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
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Contract drilling $ 2,005,140 2,095,132
Oil and gas 87,981 105,271
Management fees and other 41,532 43,574
----------- -----------
Total operating revenues 2,134,653 2,243,977
----------- -----------
Costs and expenses:
Contract drilling 1,599,879 1,803,450
Oil and gas 48,919 46,636
Depreciation, depletion and amortization 174,976 147,478
General and administrative 198,550 135,320
----------- -----------
Total operating costs and expenses 2,022,324 2,132,884
----------- -----------
Earnings (loss) from operations 112,329 111,093
----------- -----------
Other income (expense):
Interest expense (46,135) (37,810)
Interest income 4,839 3,695
Loss on sale of assets (724) --
----------- -----------
Total other income (expense) (42,020) (34,115)
----------- -----------
Earnings before income taxes 70,309 76,978
Income taxes -- --
----------- -----------
Net earnings 70,309 76,978
Preferred stock dividend requirements 13,333 --
----------- -----------
Net earnings applicable to common stockholders $ 56,976 76,978
=========== ===========
Primary earnings per common and common equivalent share $ 0.01 0.01
=========== ===========
Weighted average number of shares 6,808,584 5,316,788
=========== ===========
</TABLE>
NOTE: At June 30, 1997 the Company has a remaining net operating loss
carryforward of approximately $15,820,000 and investment credit
carryforward of approximately $125,000.
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>
Three Months Ended
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 70,309 76,978
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation, depletion, amortization 174,976 147,478
Stock issued to officer as compensation 55,000 --
Loss on sale of assets 724 --
Change in current assets and liabilities:
Accounts and notes receivable (130,016) (127,388)
Contract drilling in progress 124,844 76,681
Prepaid expenses (38,190) (41,286)
Accounts payable 43,284 (334,206)
Prepaid drilling contracts -- 115,575
Accrued expenses (20,248) (97,993)
----------- -----------
Net cash provided (used) by operations 280,683 (184,161)
----------- -----------
Cash flows from financing activities:
Payments of debt (157,885) (861,049)
Proceeds from notes payable 10,500 1,470,000
Purchase of preferred stock (75,000) --
Proceeds from issuance of preferred stock 765,000 --
----------- -----------
Net cash provided by financing activities 542,615 608,951
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (600,097) (240,803)
Proceeds from sale of equipment 1,000 --
----------- -----------
Net cash used in investing activities (599,097) (240,803)
----------- -----------
Net increase in cash 224,201 183,987
Beginning cash and cash equivalents 407,755 325,568
----------- -----------
Ending cash and cash equivalents $ 631,956 509,555
=========== ===========
Equipment purchased with debt 1,384,368 --
Equipment purchased with stock 300,000 --
</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. At April 1, 1997, the Company had investment tax credit carryforwards
for Federal income tax purposes of approximately $125,000 (expiring 1997
through 2007) which are available to reduce future Federal income taxes. In
addition, the Company had net operating loss carryforwards of approximately
$15,820,000 (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
Cash and cash equivalents at June 30, 1997 were $631,956 compared to
$407,755 at March 31, 1997. The current ratio at June 30, 1997 was 1.04:1
compared to 1.02:1 at March 31, 1997. Working capital increased to $77,333 at
June 30, 1997 from $29,166 at March 31, 1997. Accounts receivable increased to
$772,693 at June 30, 1997 from $642,677 at March 31, 1997. Contract drilling
in progress decreased to $468,318 at June 30, 1997 from $593,162 at March 31,
1997.
Since March 31, 1997, property and equipment costs increased by $2,282,741.
Of this amount, $2,189,620 was spent on drilling equipment, $113,108 was spent
on transportation equipment, $4,131 was spent on furniture and fixtures and
investment in oil and gas properties decreased by $24,118. The primary element
in the increase in drilling equipment was the expenditure of $1,500,000 for the
acquisition, described below, of equipment from San Patricio Corporation. In
addition to the two drilling rigs purchased, the Company assumed San Patricio's
lease of a third rig. Even though the purchase closed in June, 1997, the
purchase agreement allowed San Patricio to complete jobs it was drilling at the
time. Consequently, during the first quarter of fiscal 1998, only one of the
rigs was placed in service by the Company. By July 8, 1997, the other two rigs
were placed into service by the Company.
In June, 1997, the Company closed on the acquisition of the drilling
operations of San Patricio Corporation. Assets acquired by the Company
included two land drilling rigs, rig handling trucks and trailers and
miscellaneous drilling equipment. In addition, the Company assumed a lease of
a third land drilling rig. As a result of the acquisition, the Company now
operates seven land drilling rigs, primarily in central and south Texas. The
transaction was accounted for as a purchase.
5
<PAGE> 6
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt obligations in the form of notes payable, both short term and long
term, increased by $1,236,983 from March 31, 1997 to June 30, 1997. The
primary element of the increase was the purchase of drilling equipment from San
Patricio Corporation mentioned above. The purchase was accomplished with the
use of $900,000 in third-party financing, $300,000 in seller financing and the
issuance of $300,000 (400,000 shares) of the Company's common stock. The total
third-party financing was $1,050,000. This note carries an interest rate of
prime (8.5% at June 30, 1997) plus 2.25% and is due in June, 1999. The note
provides for monthly payments of $12,500 (based on seven year amortization)
plus interest. Concurrent with the issuance of this note, the third party
lender also modified the terms of the loans taken out in May, 1996. The
interest rate on both the revolving loan and the term loan was reduced to prime
plus 2.25% and the due date was extended to June, 1999. The $300,000 of seller
financing is payable in monthly payments of $5,000 plus interest at 10%. This
note is due in June, 2002.
Accounts payable at June 30, 1997 were $1,190,266, an increase of $43,284
from $1,146,982 at March 31, 1997. Accrued expenses decreased to $249,016 at
June 30, 1997 from $269,265 at March 31, 1997.
In April, 1997, the Company issued a new Series A 8% Convertible Preferred
Stock. The issue consisted of 400,000 shares with a designated par value of
$2.00 per share. Dividends on the stock are cumulative. This Preferred Stock
is convertible into two shares of Common Stock for each share of Preferred
Stock and one share of Common Stock for each $.50 of due but unpaid dividends
on the Series A 8% Convertible Preferred Stock. The stock is redeemable at the
Company's option at or following the third anniversary of the issuance of such
stock provided, generally, that the price of the Company's Common Stock equals
or exceeds $2.50 per share. The proceeds from the stock were used to reduce
trade accounts payable, bank debt and to acquire drilling equipment. Prior to
the issuance of this new Series A Preferred Stock, the Company redeemed its
previously issued and outstanding Series A Preferred Stock consisting of
235,000 shares of stock with a stated par value of $1.00 per share. The
outstanding shares were redeemed for a cash payment of $75,000.
Results of Operations
Contract drilling revenue for the quarter ended June 30, 1997 was $2,005,140
compared to $2,095,132 in the same quarter a year earlier. This decrease in
drilling revenue was the result of a decrease in drilling days. In the current
quarter, the Company had 259 drilling days compared to 293 drilling days in the
same quarter in fiscal 1997. One reason for the decrease in the number of
drilling days in the current quarter was the amount of down time incurred by
Rig 4 in preparation for its move to Belize. This rig was released from a job
on April 7, 1997 and did not begin drilling again until May 16, 1997. During
this time, the rig was being cleaned, crated, loaded and shipped to Belize.
Even while the rig was idle, it was earning day rates equal to or greater than
the day rates earned by rigs actually drilling. The rig utilization rate for
the current quarter was 69% compared to 80% in the same quarter a year earlier.
Even though drilling revenue declined in the current quarter, the average daily
drilling rate increased to $7,742 from $7,151 in the corresponding quarter of
fiscal 1997.
Oil and gas revenue for the quarter ended June 30, 1997 was $87,981 compared
to $105,271 in the same quarter a year earlier. This decrease in revenue in
the current quarter was due to lower production of both oil and gas. In the
current quarter, production was the equivalent of 4,051 barrels of oil while in
the same quarter a year earlier production was the equivalent of 6,098 barrels
of oil. In the current quarter, the average prices received by the Company
were $25.25 per barrel of oil and $3.02 per mcf of gas. In the same quarter in
fiscal 1997, the Company received $21.39 per barrel of oil and $2.31 per mcf of
gas.
Total operating costs and expenses for the quarter ended June 30, 1997 were
$2,022,324, down $110,560, from operating costs and expenses of $2,132,884 in
the same quarter a year earlier. When compared with the same quarter a year
earlier, contract drilling costs decreased $203,571 in the quarter ended June
30, 1997. Although total contract
6
<PAGE> 7
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
drilling costs decreased, average drilling costs per day in the current quarter
were $6,177 compared to $6,155 in the same quarter a year earlier. Oil and gas
costs and expenses were $48,919 in the quarter ended June 30, 1997 compared
with $46,636 in the same quarter a year earlier. Depreciation, depletion and
amortization costs increased to $174,976 in the quarter ended June 30, 1997
from $147,478 in the quarter ended June 30, 1996. This increase was the result
of increased depreciation expense due to the addition of equipment since June
30, 1996. General and administrative expenses increased to $198,550 in the
current quarter from $135,320 in the same quarter a year earlier. This
increase was primarily the result of increased payroll costs, including the
accrual of a $44,000 bonus as a result of the closing of the preferred stock
financing described above.
Other income (expense) increased to $(42,020) in the current quarter from
$(34,115) in the same quarter a year earlier, primarily due to increased
interest expense.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
An 8-K was filed by the Company on July 10, 1997 reporting the
acquisition by the Company of the assets of the San Patricio
Corporation.
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: August 11, 1997
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.
Signature Title Date
--------- ----- ----
/s/Robert R. Marmor Chairman of the Board August 11, 1997
- ----------------------------
Robert R. Marmor
/s/Wm. Stacy Locke President and Chief August 11, 1997
- ---------------------------- Executive Officer and
Wm. Stacy Locke Director
/s/Chris F. Parma Vice President and August 11, 1997
- ---------------------------- Chief Financial Officer
Chris F. Parma
8
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 631,956
<SECURITIES> 0
<RECEIVABLES> 1,241,011
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,073,370
<PP&E> 13,170,676
<DEPRECIATION> 7,817,434
<TOTAL-ASSETS> 7,426,612
<CURRENT-LIABILITIES> 1,996,037
<BONDS> 0
0
800,000
<COMMON> 614,796
<OTHER-SE> 1,755,054
<TOTAL-LIABILITY-AND-EQUITY> 7,426,612
<SALES> 87,981
<TOTAL-REVENUES> 2,134,653
<CGS> 48,919
<TOTAL-COSTS> 2,022,324
<OTHER-EXPENSES> 42,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,309
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,309
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
