<PAGE> 1
The following items were the subject of
a Form 12b-25 and are included herein:
Part I, Item 1
Part I, Item 2
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, 2000
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.
<TABLE>
<CAPTION>
Class Outstanding at November 14, 2000
----- --------------------------------
<S> <C>
Common Stock, $.10 par value 12,106,921
</TABLE>
<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>
ASSETS September 30, March 31,
2000 2000
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,461,682 1,922,457
Securities available for sale 1,146,418 1,003,116
Receivables 3,790,689 1,176,065
Contract drilling in progress 5,115,906 774,553
Prepaid expenses 271,869 489,952
------------- ------------
Total current assets 14,786,564 5,366,143
------------- ------------
Property and equipment 42,154,060 19,600,441
Accumulated depreciation, depletion and amortization (10,651,236) (9,296,357)
------------- ------------
Net property and equipment 31,502,824 10,304,084
------------- ------------
Total assets 46,289,388 15,670,227
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments, long-term debt 1,631,620 3,713,493
Accounts payable 9,936,360 3,964,934
Federal income tax payable 459,964 --
Current deferred income tax 181,000 --
Accrued expenses 1,701,832 941,241
------------- ------------
Total current liabilities 13,910,776 8,619,668
Long-term debt 10,525,234 267,067
Deferred income taxes 5,446,816 --
------------- ------------
Total liabilities 29,882,826 8,886,735
------------- ------------
Shareholders' equity:
Preferred stock, Series A, 8%, cumulative, convertible, $2.00
redemption and liquidation value. Authorized 400,000 shares; issued
and outstanding 400,000 shares 800,000 800,000
Preferred stock, Series B, 8%, cumulative, convertible, $16.25
redemption and liquidation value. Authorized 184,615 shares; issued
and outstanding 184,615 shares 2,999,994 2,999,994
Common stock, $.10 par value. Authorized 30,000,000 shares; issued
11,306,921 at September 30 and 7,274,684 shares at March 31, 2000 1,130,692 727,468
Additional paid-in capital 26,101,390 17,723,569
Accumulated deficit (14,916,295) (15,796,017)
Accumulated other comprehensive income-
unrealized gain on securities available for sale, net of tax 290,781 328,478
------------- ------------
Total shareholders' equity 16,406,562 6,783,492
------------- ------------
Total liabilities and shareholders' equity $ 46,289,388 15,670,227
============= ============
</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,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $ 12,178,551 3,294,535 20,983,544 6,394,575
Management fees and other 36,311 9,508 99,568 21,807
------------ ------------ ------------ ------------
Total operating revenues 12,214,862 3,304,043 21,083,112 6,416,382
------------ ------------ ------------ ------------
Costs and expenses:
Contract drilling 10,634,411 2,797,160 18,110,862 5,285,077
Depreciation, depletion and amortization 842,412 374,046 1,354,878 728,555
General and administrative 246,634 117,644 441,655 314,740
------------ ------------ ------------ ------------
Total operating costs and expenses 11,723,457 3,288,850 19,907,395 6,328,372
------------ ------------ ------------ ------------
Earnings from operations 491,405 15,193 1,175,717 88,010
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (197,191) (67,115) (305,587) (133,211)
Interest income 101,913 20,935 188,997 37,665
Gain on sale of assets -- -- -- 1,400
------------ ------------ ------------ ------------
Total other income (expense) (95,278) (46,180) (116,590) (94,146)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 396,127 (30,987) 1,059,127 (6,136)
Income taxes 12,995 3,159 27,405 6,382
------------ ------------ ------------ ------------
Net earnings (loss) 383,132 (34,146) 1,031,722 (12,518)
Preferred stock dividend requirements 76,000 76,000 152,000 152,000
------------ ------------ ------------ ------------
Net earnings (loss) applicable to common
stockholders $ 307,132 (110,146) 879,722 (164,518)
============ ============ ============ ============
Earnings (loss) per common share-basic $ 0.03 (0.02) 0.09 (0.03)
============ ============ ============ ============
Earning (loss) per common share-diluted $ 0.03 (0.02) 0.08 (0.03)
============ ============ ============ ============
Weighted average number of shares
outstanding-basic 11,111,591 6,100,784 10,228,683 6,100,784
============ ============ ============ ============
Weighted average number of shares
outstanding-diluted 14,147,856 6,100,784 13,176,127 6,100,784
============ ============ ============ ============
</TABLE>
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,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,031,722 $ (12,518)
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities:
Depreciation, depletion, amortization 1,354,878 728,555
Gain on sale of assets -- (1,400)
Changes in current assets and liabilities:
Accounts and notes receivable (2,614,624) 924,017
Contract drilling in progress (4,341,353) (669,483)
Prepaid expenses 218,083 (47,124)
Accounts payable 5,971,426 824,747
Federal income tax payable 459,964 --
Accrued expenses 608,591 (101,579)
------------ ------------
Net cash provided by operations 2,688,687 1,645,215
------------ ------------
Cash flows from financing activities:
Payments of debt (5,479,256) (243,313)
Proceeds of debt 12,106,221 1,776,645
Proceeds from sale of common stock 8,000,000 --
Payment of dividends on preferred stock (145,183) --
Proceeds from exercise of options 12,500 --
------------ ------------
Net cash provided by financing activities 14,494,282 1,533,332
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment:
Pioneer acquisition (10,713,456) --
Other (3,930,288) (3,466,428)
Proceeds from sale of equipment -- 1,398
------------ ------------
Net cash used in investing activities (14,643,744) (3,465,030)
------------ ------------
Net increase (decrease) in cash 2,539,225 (286,483)
Beginning cash and cash equivalents 1,922,457 1,411,493
------------ ------------
Ending cash and cash equivalents $ 4,461,682 $ 1,125,010
============ ============
Supplementary Disclosure:
Common stock issued on purchase of Pioneer Drilling Co. $ 768,544 --
Debt assumed on purchase of Pioneer Drilling Co. 1,549,329 --
Liabilities assumed and deferred tax recorded in the
acquisition of Pioneer Drilling Co. 7,909,875 --
Interest paid 245,059 133,470
Dividend accrual 152,000 152,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
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, 2000, the Company had investment tax credit
carryforwards of approximately $2,000 (expiring 2001) and a net
operating loss carryforward of approximately $12,324,000 (expiring
December 31, 2000 through 2015) which are available to reduce future
taxable income and taxes. Previously, a valuation allowance had been
established to decrease total gross deferred tax assets (primarily
investment credit tax carryforwards and net operating loss
carryforwards) to the amount of the total gross deferred tax
liabilities due to the uncertainties involved in the ultimate
realization of the deferred tax assets.
In connection with the acquisition of Pioneer Drilling Co.,
deferred income taxes and the related valuation allowance were reduced
in part by the recognition of the tax benefit of $1,254,302 of South
Texas Drilling & Exploration's net operating loss carryforwards.
The Company issued common stock in fiscal years 1999 and 2000
and during the first six months of fiscal 2001. The issuance of this
stock has not resulted in a substantial change of ownership as defined
in Internal Revenue Code section 382. In accordance with section 382, a
substantial change in ownership may have caused a limitation on the use
of the Company's net operating loss and investment credit carryovers.
Since there has not been a substantial ownership change resulting in a
limitation of the use of the carryovers, the Company has not provided
for federal income tax liability, except for taxes attributable to the
Pioneer acquisition, in the current quarter as management believes the
net operating loss and investment credit carryovers will be sufficient
to cover any projected tax liability.
5. On August 21, 2000, the Company completed its acquisition of
all outstanding stock of Pioneer Drilling Co., a Corpus Christi, Texas
based land drilling contractor. Pioneer Drilling Co.'s assets include
four land drilling rigs and associated machinery and equipment, three
of which are owned and one of which is leased from International
Drilling Services, Inc. The consideration for the acquisition consisted
of a cash payment of $10,731,456 and issuance of 341,575 restricted
shares of the Company's common stock. The acquisition of Pioneer
Drilling Co. has been accounted for as a purchase by the Company and
these statements reflect the results of operations of Pioneer Drilling
Co. since the date of acquisition. The purchase price plus assumed net
liabilities and a deferred tax liability of $5,446,816 have been
allocated to the assets and liabilities based on their relative fair
values. The source of the funds for the acquisition includes proceeds
from the Company's borrowings under its (1) $9,000,000 credit facility
with The Frost National Bank, N.A., and (2) $3,000,000 credit facility
with The American Bank. The Frost Bank debt is payable in monthly
principal payments of $107,143, based on a seven year amortization,
plus interest at prime (9.5% at September 30, 2000) plus one percent.
The debt is due on August 11, 2003. The American Bank debt is payable
in 87 monthly installments, the first three installments being for
interest only, interest being charged at prime (9.5% at September 30,
2000) plus one percent; the fourth through 86th installments being in
the amount of $50,585 each, including interest and the 87th and final
installment, due on November 15, 2007, being in the amount of the
remaining principal balance plus accrued interest.
5
<PAGE> 6
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
The following pro forma information for the six months ended
September 30, 2000 and 1999 gives effect to the above acquisition as
though it were effective at the beginning of each period. The
information reflects historical data from both Pioneer Drilling Co. and
the Company for the six months ended September 30, 1999. For the six
months ended September 30, 2000, the historical information of Pioneer
Drilling through August 21, 2000 was combined with the historical
information of the Company through September 30, 2000. The pro forma
information may not be indicative of the results that would have
occurred had the acquisition been in effect on April 1, 1999, or of the
results that may be obtained in the future. The pro forma information
should be read in conjunction with the consolidated financial
statements and notes thereto of the Company.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
Six Months Ended September 30,
-----------------------------------
2000 1999
---- ----
<S> <C> <C>
Total Revenues $ 28,088,136 16,666,278
Net earnings (loss) (168,183) (1,146,976)
Net earnings (loss) applicable to common stockholders (320,183) (1,298,976)
Earnings (loss) per common share-basic (0.03) (0.20)
Earnings (loss) per common share-diluted (0.03) (0.20)
</TABLE>
6. The following table presents a reconciliation of the numerators and
denominators of the basic EPS and diluted EPS computations as required
by Financial Accounting Standards No. 128:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
------------------
Weighted
Average
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net earnings $ 383,132
Less: preferred stock dividends (76,000)
-----------
Income available to common
stockholders - basic 307,132 11,111,591 $0.03
=====
Effect of dilutive securities
Options 1,313,190
Preferred stock 76,000 1,723,075
----------- -------------
Income available to common stockholders
and assumed conversions - diluted $ 383,132 14,147,856 $0.03
=========== ============= =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
------------------
Weighted
Average
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net loss $ (34,146)
Less: preferred stock dividends (76,000)
-----------
Net (loss) applicable to common
stockholders - basic and diluted $ (110,146) 6,100,784 $ (0.02)
=========== =========== =======
</TABLE>
6
<PAGE> 7
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended
September 30, 2000
------------------
Weighted
Average
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net earnings $ 1,031,722
Less: preferred stock dividends (152,000)
-----------
Income available to common
stockholders - basic 879,722 10,228,683 $0.09
========
Effect of dilutive securities
Options 1,224,369
Preferred stock 152,000 1,723,075
----------- -------------
Income available to common stockholders
and assumed conversions - diluted $ 1,031,722 13,176,127 $0.08
=========== ============= ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1999
------------------
Weighted
Average
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net loss $ (12,518)
Less: Preferred stock dividends (152,000)
-----------
Net (loss) available to common stockholders -
basic and diluted $ (164,518) 6,100,784 $(0.03)
=========== ============= ======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 2000 were $4,461,682 compared
to $1,922,457 at March 31, 2000. The current ratio at September 30, 2000 was
1.06 compared to .62 at March 31, 2000. Working capital increased to $875,788 at
September 30, 2000 from $(3,253,525) at March 31, 2000. The primary reasons for
the increase in the current ratio and in working capital were the retirement of
debt due in November, 2000, all classified as current installments of long term
debt at March 31, 2000, the acquisition of debt for the Pioneer transaction,
most of the debt being classified as long term, and the receipt of $8,000,000
from the sale of the Company's common stock. Accounts receivable increased to
$3,790,689 at September 30, 2000 from $1,176,065 at March 31, 2000. Contract
drilling in progress increased to $5,115,906 at September 30, 2000 from $774,553
at March 31, 2000. The substantial increases in accounts receivable and contract
drilling in progress at September 30, 2000 compared to March 31, 2000, were due
to more and larger drilling contracts in process at September 30, 2000 than at
March 31, 2000.
In August, 2000, the Company acquired all of the issued and outstanding
stock of Pioneer Drilling Co., a Texas corporation, pursuant to a Stock Purchase
Agreement dated July 21, 2000, as amended. Pioneer Drilling Co. is engaged in
the onshore contract drilling business, and its assets include four land
drilling rigs and associated machinery and equipment, three of which are owned
and one of which is leased on a month-to-month basis. The consideration for the
7
<PAGE> 8
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
acquisition consisted of a cash payment of $10,713,456 and issuance of 341,575
restricted shares of the Company's common stock.
Since March 31, 2000, property and equipment costs increased
$22,553,619. Of this amount, $18,623,331 was attributable to the Pioneer
Drilling Co. acquisition, $3,777,839 was spent on drilling equipment, $135,185
on transportation equipment and $17,264 on office furniture and fixtures. Of the
funds spent on drilling equipment, $1,650,000 was spent on two rigs under
construction.
Debt obligations in the form of notes payable increased by a net of
$8,176,294 from March 31, 2000 to September 30, 2000. This increase was
principally the result of retiring $3,627,381 of debt to the Company's previous
lender and the $12,000,000 in new debt used for the Pioneer Drilling Co.
acquisition. The source of the funds for the acquisition includes proceeds from
the Company's borrowings under its (1) $9,000,000 credit facility with The Frost
National Bank, N.A., and (2) $3,000,000 credit facility with The American Bank.
The Frost Bank debt is payable in monthly principal payments of $107,143, based
on a seven year amortization, plus interest at prime (9.5% at September 30,
2000) plus one percent. The debt is due on August 11, 2003. The American Bank
debt is payable in 87 monthly installments, the first three installments being
for interest only, interest being charged at prime (9.5% at September 30, 2000)
plus one percent; the fourth through 86th installments being in the amount of
$50,585 each, including interest and the 87th and final installment, due on
November 15, 2007, being in the amount of the remaining principal balance plus
accrued interest. Both loans contain certain covenants pertaining to leverage
ratio, cash flow coverage ratio and capitalization ratio. Compliance with the
ratios is determined on an annual basis except for Frost Bank's capitalization
ratio which is determined on a quarterly basis.
Accounts payable at September 30, 2000 were $9,936,360, an increase of
$5,971,426 from $3,964,934 at March 31, 2000. The primary reasons for this
increase were the higher costs associated with turnkey contracts, increased rig
utilization in the period since March 31, 2000, and the utilization of twelve
rigs in the period ended September 30, 2000 compared with eight rigs in the
period ended March 31, 2000. Accrued expenses increased to $1,701,832 at
September 30, 2000 from $941,241 at March 31, 2000. This increase is primarily
the result of increased payroll and interest costs associated with the inclusion
of Pioneer Drilling Co.'s operations. At September 30, 2000, the Company is
reporting an accrued current federal income tax liability of $459,964, all
attributable to Pioneer Drilling Co.'s operations.
Results of Operations
Contract drilling revenue for the quarter ended September 30, 2000 was
$12,178,551 compared to $3,294,535 in the same quarter a year earlier. This
increase in drilling revenue was the result of increased utilization, increased
dayrates and the inclusion of Pioneer Drilling Co.'s activity for the period
from August 21, 2000 through September 30, 2000. In the current quarter, the
Company had 864 drilling days compared to 364 drilling days in the same quarter
in fiscal 2000. The rig utilization rate for the current quarter was 96%
compared to 74% in the same quarter a year earlier. The increase in the number
of drilling days occurred due to increased drilling activity and the inclusion
of Pioneer Drilling Co.'s rigs for the latter part of the quarter. The increased
utilization rate was the result of increased drilling activity. The average
revenue per drilling day increased to $14,096 from $9,051 in the corresponding
quarter of fiscal 2000. This increase was primarily due to increased day rates
and more turnkey contracts.
Total operating costs and expenses for the quarter ended September 30,
2000 were $11,723,457, up $8,434,607 from operating costs and expenses of
$3,288,850 in the same quarter a year earlier. When compared with the same
quarter a year earlier, contract drilling costs increased $7,837,251 in the
quarter ended September 30, 2000. Average drilling costs per day in the current
quarter were $12,308 compared to $7,684 in the same quarter a year earlier. The
average daily drilling margin increased to $1,788 in the current quarter from
$1,367 in the same quarter a year earlier. Depreciation, depletion and
amortization costs increased to $842,412 in the quarter ended September 30, 2000
from $374,046 in the quarter ended September 30, 1999. This increase was the
result of the Company's capital expenditures during the last year and the
depreciation on Pioneer Drilling Co.'s assets. General and administrative
expenses increased to $246,634 in the current quarter from $117,644 in the same
quarter a year earlier. The primary reasons for this increase were increased
payroll costs and costs associated with the Company's annual meeting held in
August, 2000.
Other income and expense increased to $95,278 of net expenses in the
current quarter from $46,180 of net expenses in the same quarter a year earlier
primarily due to interest expense.
8
<PAGE> 9
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Contract drilling revenue for the six months ended September 30, 2000
was $20,983,544 compared to $6,394,575 in the same period in fiscal 2000. This
increase in drilling revenue was the result of higher demand for drilling rigs
in the six-month period ended September 30, 2000 and higher day rates. In the
six months ended September 30, 2000, the Company had 1,470 drilling days
compared to 617 drilling days in the same period in fiscal 2000. The rig
utilization rate for the six months ended September 30, 2000, was 90% compared
to 42% in the same period in fiscal 2000. Average revenues per drilling day were
$14,275 compared to $10,364 in the same period in fiscal 2000.
Total operating costs and expenses for the six months ended September
30, 2000 were $19,907,395, up $13,579,023, from operating costs and expenses of
$6,328,372 in the same period a year earlier. Drilling costs increased
$12,825,785 in the current year when compared to the same period in fiscal 2000.
Average drilling costs per day in the current year were $12,320 compared to
$8,566 in the same period a year earlier. Depreciation, depletion and
amortization costs increased to $1,354,878 in the six months ended September 30,
2000 from $728,555 in the same period in fiscal 2000. General and administrative
expenses increased to $441,655 in the six months ended September 30, 2000 from
$314,740 in the same period in fiscal 2000.
Other income and expense increased to $116,590 of net expenses in the
six months ended September 30, 2000 from $94,146 of net expenses in the same
period a year earlier.
Subsequent Event
In October, 2000, the holder of the Series A Preferred stock converted
its 400,000 shares of preferred stock into 800,000 shares of the Company's
common stock in accordance with the terms of the issuance of the preferred
stock.
Accounting Matters
In June, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative investments embedded in other contracts, and for hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a "fair value hedge," a "cash flow hedge," or a hedge
of a foreign currency exposure of a net investment in a foreign operation. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. In June 1999, the FASB issued SFAS No. 137, which delayed the
adoption of SFAS No. 133 for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Management does not expect that the adoption of SFAS No.
133 will have a material impact on the Company's financial position, results of
operations or liquidity.
Market Risk
There have been no significant changes in the Company's market risk
factors since March 31, 2000, except for the additional debt incurred for the
purchase of Pioneer Drilling Co.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 30, 2000 the annual meeting of the shareholders of
the Company was held. At that meeting, Michael E. Little, William D.
Hibbetts, Richard Phillips, Wm. Stacy Locke and William H. White were
elected to the board of directors of the Company. The Company has no
other directors except for those mentioned above. The following matters
were submitted to the shareholders of the Company for their approval:
9
<PAGE> 10
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
1. Election of Directors:
Michael E. Little. 10,020,166 votes were cast for and 30,425 votes
were withheld, 3,400 votes were abstentious and -0- votes were
broker non-votes.
William D. Hibbetts. 10,020,166 votes were cast for and 30,425 votes
were withheld, 3,400 votes were abstentious and -0- votes were
broker non-votes.
Richard Phillips. 10,020,166 votes were cast for and 30,425 votes
were withheld, 3,400 votes were abstentious and -0- votes were
broker non-votes.
Wm. Stacy Locke. 10,020,166 votes were cast for and 30,425 votes
were withheld, 3,400 votes were abstentious and -0- votes were
broker non-votes.
William H. White. 10,020,166 votes were cast for and 30,425 votes
were withheld, 3,400 votes were abstentious and -0- votes were
broker non-votes.
2. Increase the number of authorized shares.
The shareholders voted to increase the number of authorized shares
of its $0.10 par value common stock from 15 million to 30 million.
10,001,805 votes were case for the matter and 43,310 were cast
against the matter. 5,475 votes were withheld, -0- votes were
abstentions and -0- votes were broker non-votes.
3. Adoption of the 1999 Stock Plan.
The shareholders voted to approve the adoption of the 1999 Stock
Plan by the Board of Directors on December 13, 1999. 7,829,845 votes
were cast for the matter and 72,425 were cast against the matter.
5,475 votes were withheld, -0- votes were abstentions and -0- votes
were broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
No. Document
3.1 Articles of Amendment to Articles of Incorporation of South
Texas Drilling & Exploration, Inc.
The following Exhibits files with the Company's report on Form 8-K
described in (b) below are hereby incorporated by reference:
No. Document
10.1 Stock Purchase Agreement by and among South Texas Drilling &
Exploration, Inc., and the shareholders of Pioneer Drilling
Co., Inc. dated July 21, 2000.
10.2 Loan Agreement between South Texas Drilling & Exploration,
Inc. and The Frost National Bank.
10.3 Promissory Note between South Texas Drilling & Exploration,
Inc. and The Frost National Bank.
10.4 Loan Agreement between South Texas Drilling & Exploration,
Inc. and American Bank, N.A.
10
<PAGE> 11
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
10.5 Promissory Note between South Texas Drilling & Exploration,
Inc. and American Bank, N.A.
27 Financial Data Schedule
(b) Reports on Form 8-K.
On September 1, 2000 the Company filed a Current Report on Form 8-K
reporting the acquisition by the Company of all of the issued and
outstanding stock of Pioneer Drilling Company, a Texas corporation.
On October 31, 2000, the Company filed a From 8-K/A amending the 8-K
filed on September 1, 2000, by adding the Financial Statements
required by Item 7 of Form 10-K within the 60 day period allowed by
Item 7.
11
<PAGE> 12
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/ Michael E. Little
---------------------------
Michael E. Little
Chairman of the Board
Dated: November 17, 2000
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>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael E. Little Chairman of the Board and November 17, 2000
----------------------------- Chief Executive Officer
Michael E. Little
/s/ Wm. Stacy Locke President and Chief November 17, 2000
----------------------------- Financial Officer and
Wm. Stacy Locke Director
/s/ William D. Hibbetts Director November 17, 2000
-----------------------------
William D. Hibbetts
/s/ Chris F. Parma Vice President and November 17, 2000
----------------------------- Chief Accounting Officer
Chris F. Parma
</TABLE>
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
