1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
For the transition period from ....................
to.....................
Commission File No. 1-8523
MSR Exploration Ltd.
(Exact name of Registrant as specified in its charter)
Alberta, Canada None
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Main Street, Suite 210, Fort Worth, Texas 76102
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:(817) 877-3151
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Shares, United States
no par value American Stock Exchange
Securities registered pursuant to Section 12(b) of the Act: None
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months and (2) has been subject to such filing requirement for
the past 90 days. Yes X No __
Check whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after distribution of securities under a plan confirmed by a
Court. Yes__ No X because there was no distribution of
securities under the Registrant's confirmed plan.
Common Shares outstanding at September 30, 1996: 13,812,014
Transitional Small Business Disclosure Format: Yes __ or No X
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
MSR Exploration Ltd. and Subsidiaries
(Incorporated Under the Laws of Alberta)
CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS
September 30, December 31,
1996 1995
ASSETS (unaudited) (audited)
<S> <C> <C>
Cash and cash equivalents $ 272,000 $ 280,000
Accounts receivable 701,000 700,000
Inventories 191,000 184,000
Prepaid expenses 43,000 12,000
Total current assets 1,207,000 1,176,000
PROPERTIES, PLANT AND EQUIPMENT - NET
("full cost") 29,068,000 29,040,000
OTHER ASSETS 483,000 538,000
$30,758,000 $30,754,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 525,000 $ 91,000
Accounts payable 200,000 368,000
Accrued liabilities 557,000 503,000
Total current liabilities 1,282,000 962,000
LONG-TERM DEBT 6,133,000 6,252,000
DEFERRED INCOME TAXES 3,881,000 4,003,000
STOCKHOLDERS' EQUITY
Common stock, without par value
Authorized 20,000,000 shares, issued and
outstanding 13,812,014 in 1996 and
13,712,014 in 1995 17,896,000 17,796,000
Less notes receivable arising from
the issuance of common stock (130,000) (190,000)
Foreign currency translation adjustment (96,000) (98,000)
Retained earnings 1,792,000 2,029,000
19,462,000 19,537,000
$30,758,000 $30,754,000
</TABLE>
See Condensed Notes to Consolidated Financial Statements
2
MSR Exploration Ltd. and Subsidiaries
(Incorporated Under the Laws of Alberta)
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
U.S. DOLLARS
<CAPTION>
Three Months Ended Nine Months Ended
Ended September 30, Ended September 30,
<S> <C> 1996 <C> 1995 <C> 1996 <C> 1995
REVENUE
Oil sales $ 599,000 $ 551,000 $ 1,755,000 $1,540,000
Gas sales 483,000 253,000 1,349,000 340,000
Interest, dividends and other income 23,000 23,000 98,000
Total revenues 1,082,000 827,000 3,127,000 1,978,000
EXPENSES
Operating expenses 376,000 356,000 1,058,000 1,001,000
Production taxes 69,000 49,000 185,000 159,000
Depletion and depreciation 329,000 295,000 979,000 640,000
General and administrative 271,000 246,000 717,000 798,000
Interest 187,000 118,000 547,000 320,000
Total expenses 1,232,000 1,064,000 3,486,000 2,918,000
Loss before income taxes (150,000) (237,000) (359,000 (940,000)
Income tax benefit 51,000 49,000 122,000 188,000
Net income (loss) $ (99,000) $ (188,000) $ (237,000) $ (752,000)
Per share net income (loss) $ (0.01) ($0.01) $ (0.02) ($0.05)
The weighted average number of shares
outstanding for the periods is 13,767,569 14,412,014 13,812,014 14,345,347
</TABLE>
See Condensed Notes to Consolidated Financial Statements
3
<TABLE>
MSR Exploration Ltd. and Subsidiaries
(Incorporated Under the Laws of Alberta)
CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended September 30, 1996 and 1995
(UNAUDITED)
U.S. DOLLARS
<CAPTION> 1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (237,000) $ (752,000)
Charges and credits to net loss not affecting cash
Depletion and depreciation 979,000 640,000
Common stock issued for payment of general
and administrative expenses 50,000
Changes in other assets and liabilities (223,000) (614,000)
NET CASH FROM (USED FOR) OPERATING ACTIVITIES 519,000 (676,000)
INVESTING ACTIVITIES
Acquisition of properties and equipment (1,002,000) (3,948,000)
Proceeds on notes receivable arising from the
issuance of common stock 60,000 105,000
NET CASH FROM (USED FOR) INVESTING ACTIVITIES (942,000) (3,843,000
FINANCING
Principal payments on long-term debt (85,000) (591,000)
Notes payable, bank proceeds 400,000 5,200,000
Common stock issued for acquisition of assets 100,000
Payment of financing costs (315,000)
NET CASH FROM (USED FOR) FINANCING ACTIVITIES 415,000 4,294,000
NET INCREASE (DECREASE) IN CASH (8,000) (225,000)
CASH AT BEGINNING OF PERIOD 280,000 527,000
CASH AT END OF PERIOD $ 272,000 $ 302,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest expense $ 505,000 $ 320,000
Cash payments for income taxes $ 0 $ 0
NONCASH TRANSACTIONS:
Common stock issued for payment of general
and administrative expenses $ 0 $ 50,000
See Condensed Notes to Consolidated Financial Statements
4
</TABLE>
MSR Exploration Ltd. and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995
ACCOUNTING POLICIES AND DISCLOSURES
Note 1. In the opinion of management of MSR Exploration Ltd. (the
"Company"), the Company's Consolidated Financial Statements
contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of
the Company as of September 30, 1996, and the results of its
operations and its cash flows for the nine months ended September
30, 1996 and 1995.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto
included in the Form 10-KSB for the year ended December 31, 1995.
The results of operations for the three and nine month periods
ended September 30, 1996 and 1995 are not necessarily indicative
of the operating results to be expected for the full fiscal year.
Note 2. NOTE PAYABLE AND LONG-TERM DEBT.
September30, December 31,
1996 1995
(Unaudited) (Audited)
The notes payable and long-term debt consists of :
Prime rate plus 1.0% note
payable to Banque Paribas
(9.25% at September 30, 1996)
$ 6,400,000 $ 6,000,000
Various pre-petition claims at
interest rates ranging from 6%
to 10%, due in monthly,
quarterly and annual
installments. 258,000 343,000
6,658,000 6,343,000
Less current maturities (525,000) (91,000)
$ 6,133,000 $ 6,252,000
During the first quarter of 1995, the Company entered into a
revolving credit/term loan agreement with a bank. The agreement
allowed the Company to borrow up to $15,000,000 under a revolving
credit arrangement for a two year period. On August 15, 1996 the
loan limit was set at $6,5000,000 and on January 1, 1997 the
outstanding balance of the loan will be converted to a five year
term loan to be repaid in monthly installments. The interest
rate on amounts outstanding shall be the London Interbank Offered
Rate (LIBOR) + 2.5% or bank prime plus 1%. The collateral for
this loan agreement consists of substantially all of the existing
assets of the Company and any future reserves acquired.
MSR Exploration Ltd. and Subsidiaries
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Three and Nine Months Ended September 30, 1996, compared to Three
and Nine Months Ended
September 30, 1995.
Revenue. The total revenue for the Company's third quarter ended
September 30, 1996 was $1,082,000 a 31% increase compared to
$827,000 reported for the third quarter of 1995. The total
revenue for the nine months ended September 30, 1996 was
$3,127,000, a 58% increase compared to $1,978,000 for the first
nine months of 1995. The increase in revenues resulted
primarily from higher gas volumes produced from the Company's gas
wells in Southeast Texas and from favorable increases in product
prices.
Oil sales for the three and nine months ended September 30, 1996
were $599,000 and $1,755,000, respectively. This was a 9% and
14% increase in oil sales compared to the same periods in 1995.
Total oil barrels sold for the third quarter of 1996 was 30,800,
a 9% decrease compared to the 33,900 barrels of oil sold in the
same period last year. For the nine months ended September 30,
1996, oil sales volumes were 94,700 barrels, a 2% decrease
compared to 96,800 barrels reported in 1995. The average price
per barrel the Company received for oil during the three months
ended September 30, 1996 increased 20% to $19.43, compared to
$16.24 for the same period last year. The average price per
barrel the Company received for the first nine months of 1996 was
$18.53, an increase of 16% compared to $15.91 per barrel in 1995.
Gas sales for the three months ended September 30, 1996 were
$483,000, a 91% increase compared to $253,000 for the same period
in 1995. Gas sales for the nine months ended September 30, 1996
were $1,349,000, an increase of three times compared to the
$340,000 reported in 1995. The average sale price the Company
received for gas sold during its third quarter and first nine
months of 1996 was $2.18 and $2.09 per Mcf, respectively. These
were 62% and 58% increases in average gas prices compared to 1995
average gas prices of $1.34 and $1.33 per Mcf, respectively. The
Company sold 221,000 Mcf and 646,000 Mcf of gas during the three
and nine months ended September 30, 1996. This was a 17% and
152% increase compared to 189,000 Mcf and 257,000 Mcf for the
respective periods in 1995. Most of the increases in gas sales
are attributable to production from the Company's Southeast Texas
wells purchased in July, 1995.
Interest, dividends, and other income for the three and nine
months ended September 30, 1996 was $0 and $23,000 respectively,
and $23,000 and $98,000 during the same respective periods in
1995.
Expenses. Total expenses for the three months and nine months
ended September 30, 1996 were $1,232,000 and $3,486,000, an
increase of 16% and 19% compared to $1,064,000 and $2,918,000
reported for the same periods last year. Operating expenses were
$376,000 for the third quarter and $1,058,000 for the nine months
ended September 30, 1996, a 6% increase compared to the 1995
periods. Production taxes for the three and nine months ended
September 30, 1996 were $69,000 and $185,000 respectively, an
increase of 41% and 16% compared to the 1995 periods. Production
tax expenses did not increase proportionately to the increases in
product sales principally due to reduced tax rates in Montana.
Depletion and depreciation expenses increased 12% to $329,000 for
the third quarter of 1996 and 53% to $979,000 for the first nine
months of 1996 compared to $295,000 and $640,000 respectively,
reported during the same periods in 1995. This was the highest
dollar increase of all expense categories and was primarily due
to the increase in product sales volumes. General and
administrative expenses for the third quarter of 1996 were
$271,000 a 10% increase compared to $246,000 reported in 1995.
General and administrative expenses for the nine months ended
September 30, 1996 were $717,000, a decrease of 10% compared to
$798,000 for the same period last year. The 1995 general and
administrative expenses were up principally due to the Company
moving its headquarters to Fort Worth, Texas and to an increase
in professional personnel. Interest expense for the three and
nine months ended September 30, 1996 was $187,000 and $547,000
respectively, a 58% and 71% increase when compared to the
$118,000 and $320,000 reported for the same respective periods
last year. The increases were due to the increase in long-term
debt associated with the Company's acquisitions of property and
equipment.
Net Income (Loss). The Company's results of operations for the
quarter ended September 30, 1996 was a net loss of $99,000 as
compared to a net loss of $188,000 for the same period in 1995.
The results for the nine months ended September 30, 1996 was a
net loss of $237,000 as compared to a net loss of $752,000
reported in the 1995 period. These improvements were primarily
the result of increased gas sales from the Company's Southeast
Texas properties, contributions from its development drilling
program and favorable product pricing.
Liquidity and Capital Resources - September 30, 1996 vs. December
31, 1995. The Company's liquidity position at September 30,
1996 shows a current ratio of .94 to 1 with working capital
deficit of approximately $75,000. The current portion of long-
term debt on September 30, 1996 was increased by $440,000 for the
scheduled payments of bank debt that begins in 1997. This
compares to a December 31, 1995 current ratio of 1.2 to 1 and
working capital of approximately $214,000.
Cash generated from operating activities for the first nine
months of 1996 was $519,000, a significant increase compared to
$676,000 used for operating activities in the same period in
1995.
For investing activities, the Company used $942,000 for the nine
months ended September 30, 1996 compared to $3,843,000 used in
1995. During the 1996 period the Company purchased an additional
21% working interest in the Cinco Ltd. #1 well in Southeast
Texas, bringing its total interest to 74%. The Company ran an
additional 6 miles of gathering line to six gas wells and drilled
and completed three gas wells in Montana. During the first nine
months of 1995 $3,622,000 of the $3,843,000 used for investing
activities was used in the acquisition of producing properties.
Net cash from financing activities was $415,000 for the first
nine months of 1996 compared to $4,294,000 from financing
activities for the same period in 1995. The 1996 bank loan
proceeds and the issuance of 100,000 shares of the Company's
common stock, valued at $1.00 per share, were used primarily to
acquire property and equipment.
MSR Exploration Ltd. and Subsidiaries
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings: None
ITEM 2. Changes in Securities: None
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submission of Matters to a Vote of Security Holders:
The Company held its Annual General Meeting on
September 27, 1996. All items in the Proxy Statement-
Information Circular, including election of Directors and the
appointment of Deloitte & Touche LLP as independent
auditors, were approved.
ITEM 5. Other Information: None
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K: None
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, thereunto duly authorized.
Dated: November 12, 1996
MSR Exploration Ltd.
By: /S/ Otto J. Buis
Otto J. Buis, Chairman of the Board
President and Chief Executive Officer
By: /S/ Howard N. Boals
Howard N. Boals, Vice President of Finance
and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 272000
<SECURITIES> 0
<RECEIVABLES> 701000
<ALLOWANCES> 0
<INVENTORY> 191000
<CURRENT-ASSETS> 1207000
<PP&E> 48395000
<DEPRECIATION> 19327000
<TOTAL-ASSETS> 30758000
<CURRENT-LIABILITIES> 1282000
<BONDS> 0
0
0
<COMMON> 17896000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30758000
<SALES> 3104000
<TOTAL-REVENUES> 3127000
<CGS> 2222000
<TOTAL-COSTS> 2222000
<OTHER-EXPENSES> 717000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 547000
<INCOME-PRETAX> (359000)
<INCOME-TAX> (112000)
<INCOME-CONTINUING> (237000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
