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 June 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 June 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
June 30, December 31,
1996 1995
ASSETS (unaudited) (audited)
<S> <C> <C>
Cash and cash equivalents $163,000 $280,000
Accounts receivable 753,000 700,000
Inventories 184,000 184,000
Prepaid expenses 52,000 12,000
Total current assets 1,152,000 1,176,000
PROPERTIES, PLANT AND EQUIPMENT - NET
("full cost") 29,168,000 29,040,000
OTHER ASSETS 497,000 538,000
$30,817,000 $30,754,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $84,000 $91,000
Accounts payable 196,000 368,000
Accrued liabilities 452,000 503,000
Total current liabilities 732,000 962,000
LONG-TERM DEBT 6,594,000 6,252,000
DEFERRED INCOME TAXES 3,932,000 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 (98,000) (98,000)
Retained earnings 1,891,000 2,029,000
19,559,000 19,537,000
$30,817,000 $30,754,000
See Condensed Notes to Consolidated Financial Statements
</TABLE>
2
<TABLE>
MSR Exploration Ltd. and Subsidiaries
(Incorporated Under the Laws of Alberta)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
U.S. DOLLARS
Three Months Ended Six Months Ended
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUE
Oil sales $600,000 $489,000 $1,156,000 $989,000
Gas sales 451,000 43,000 866,000 87,000
Interest and other income 5,000 44,000 23,000 75,000
Total revenues 1,056,000 576,000 2,045,000 1,151,000
EXPENSES
Operating expenses 371,000 340,000 682,000 645,000
Production taxes 60,000 48,000 116,000 110,000
Depletion and depreciation 334,000 171,000 650,000 345,000
General and administrative 225,000 269,000 446,000 552,000
Interest 180,000 147,000 360,000 202,000
Total expenses 1,170,000 975,000 2,254,000 1,854,000
Loss before income taxes (114,000) (399,000) (209,000) (703,000)
Income tax benefit 52,000 113,000 71,000 145,000
Net income (loss) ($62,000) ($286,000) ($138,000) ($558,000)
Per share net income (loss) ($0.00) ($0.02) ($0.01) ($0.04)
Weighted average number
of shares outstanding 13,778,680 14,312,014 13,745,347 14,312,014
See Condensed Notes to Consolidated Financial Statements
3
</TABLE>
<TABLE>
MSR Exploration, Ltd. and Subsidiaries
(Incorporated Under the Laws of Alberta)
CONSOLIDATED STATEMENTS OF CASH FLOW
Six months ended June 30, 1996 and 1995
(UNAUDITED)
U.S. DOLLARS
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) ($138,000) ($558,000)
Charges and credits to net loss not affecting cash
Depletion and depreciation 650,000 345,000
Common stock issued for payment of general
and administrative expenses 50,000
Changes in other assets and liabilities (350,000) (364,000)
NET CASH FROM (USED FOR) OPERATING ACTIVITIES 162,000 (527,000)
INVESTING ACTIVITIES
Acquisition of properties and equipment (774,000) (120,000)
Escrow deposit for purchase of producing properties (950,000)
Proceeds on notes receivable arising from the
issuance of common stock 60,000 90,000
NET CASH FROM (USED FOR) INVESTING ACTIVITIES (714,000) (980,000)
FINANCING
Principal payments on long-term debt (65,000) (565,000)
Notes payable, bank proceeds 400,000 4,710,000
Common stock issued for acquisition of assets 100,000
Payment of financing costs (292,000)
NET CASH FROM (USED FOR) FINANCING ACTIVITIES 435,000 3,853,000
NET INCREASE (DECREASE) IN CASH (117,000) 2,346,000
CASH AT BEGINNING OF PERIOD 280,000 527,000
CASH AT END OF PERIOD $163,000 $2,873,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest expense $296,000 $180,000
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
Six Months Ended June 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 June 30, 1996, and the results of its
operations and its cash flows for the six months ended June 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 six month periods
ended June 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.
June December
30, 1996 31, 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 June 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. 278,000 343,000
6,678,000 6,343,000
Less current maturities (84,000) (91,000)
$ 6,594,000 $ 6,252,000
During the first quarter of 1995, the Company entered into a
revolving credit/term loan agreement. The agreement allows the
Company to borrow up to $15,000,000 under a revolving credit
arrangement for a two year period, at which time any outstanding
balance shall convert to a five year term loan to be repaid in
quarterly 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 Six Months Ended June 30, 1996, compared to Three and
Six Months Ended June 30, 1995.
Revenue. Total revenue for the Company's second quarter ended
June 30, 1996 was $1,056,000, an 83% increase compared to the
$576,000 reported for the same quarter in 1995. Total revenue
for the six months ended June 30, 1996 was $2,045,000, a 78%
increase compared to $1,151,000 for the first six months of 1995.
The increases are the result of the Company's recent development
drilling program, the significantly higher gas sales from the
Company's new gas wells in Southeast Texas, and favorable
increases in product prices.
Oil sales for the three and six month periods ended June 30, 1996
were $600,000 and $1,156,000, respectively. This was a 23% and
17% increase in oil sales compared to the same periods in 1995.
Total oil barrels sold for the second quarter of 1996 was 31,800,
a 3% increase compared to 31,000 barrels of oil sales in the same
period last year. For the six months ended June 30, 1996 sales
volumes were 63,900 barrels, a 2% increase over the 62,900
barrels reported for the same period of 1995. These modest sales
volume increases were primarily the result of development
drilling during the fourth quarter of 1995 and first quarter of
1996 in Montana. The average price received for oil during the
second quarter of 1996 increased 20% to $18.85 per barrel
compared to the $15.71 average price for the same period in 1995.
The average price for oil for the first six months of 1996 was
$18.09 per barrel, an increase of 15% compared to the $15.73
average in 1995.
Gas sales for the quarter ended June 30, 1996 were $451,000, an
increase of over ten times the $43,000 reported for the second
quarter of 1995. Gas sales for the six months ended June 30,
1996 were $866,000, an increase of almost ten times the $87,000
reported for the same period in 1995. The average sale price the
Company received for gas sold during its second quarter and first
six months of 1996 was $2.05 and $2.04 per Mcf, respectively.
These were 86% and 60% increases in gas prices compared to 1995
average gas prices of $1.10 and $1.28, respectively. The Company
sold 220,000 Mcf and 424,000 Mcf of gas during the three and six
months ended June 30, 1996, a 460% and 524% increase compared to
39,200 and 68,000 Mcf for the respective periods in 1995. Most
of this significant increase in gas sales is from the Company's
Southeast Texas wells purchased in July, 1995.
Interest, dividends and other income for the three and six months
ended June 30, 1996 was $5,000 and $23,000, respectively, and
$44,000 and $75,000 during the same respective periods in 1995.
Expenses. Total expenses for the second quarter and first six
months of 1996 were $1,170,000 and $2,254,000, an increase of 20%
and 22% compared to $975,000 and $1,854,000 reported for the same
periods last year. Operating expenses were $371,000 for the
second quarter of 1996 and $682,000 for the six months ended June
30, 1996, a 9% and 6% increase compared to the 1995 periods.
Production taxes for the three and six months ended June 30, 1996
were $60,000 and $116,000, respectively an increase of 25% and 5%
compared to the 1995 periods. Production tax expenses for 1996
did not increase proportionately to the increased product sales
principally due to reduced tax rates in Montana. Depletion and
depreciation expenses increased 95% to $334,000 for the second
quarter of 1996 and 88% to $650,000 for the first six months of
1996 compared to the same periods in 1995, which is primarily due
to the increase in product sales volumes. General and
administrative expenses for the three and six months ended June
30, 1996 decreased 16% to $225,000 and 19% to $446,000,
respectively, compared to amounts reported for the like periods
in 1995. 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 second quarter of 1996 was $180,000 a
22% increase over $147,000 for the same quarter in 1995.
Interest expense for the first six months of 1996 was $360,000, a
78% increase compared to the $202,000 in 1995. This increase was
attributable 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 June 30, 1996 was a net loss of $62,000 as compared
to a net loss of $286,000 for the same period in 1995. The
results for the six month period ended June 30, 1996 was a net
loss of $138,000 as compared to a net loss of $558,000 reported
in the 1995 period. These improvements were primarily
attributable to the increase in gas sales from the Company's new
Southeast Texas properties, contributions from its development
drilling program and favorable product pricing.
Liquidity and Capital Resources - June 30, 1996 vs. December 31,
1995. The Company's liquidity position at June 30, 1996 shows a
current ratio of 1.6 to 1 with working capital of approximately
$420,000. This compares to a current ratio of 1.2 to 1 and
working capital of approximately $214,000 at December 31, 1995.
Cash from operating activities for the first six months of 1996
was $162,000 compared to $527,000 used for operating activity in
the same period in 1995.
For investing activities, the Company used $714,000 for the six
months ended June 30, 1996 compared to $980,000 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.
Net cash from financing activities was $435,000 for the first six
months of 1996 compared to $3,853,000 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:
None
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
MSR EXPLORATION LTD.
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: August 8, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 163000
<SECURITIES> 0
<RECEIVABLES> 753000
<ALLOWANCES> 0
<INVENTORY> 184000
<CURRENT-ASSETS> 1152000
<PP&E> 48167000
<DEPRECIATION> 18999000
<TOTAL-ASSETS> 30817000
<CURRENT-LIABILITIES> 732000
<BONDS> 0
0
0
<COMMON> 17896000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30817000
<SALES> 2022000
<TOTAL-REVENUES> 2045000
<CGS> 1448000
<TOTAL-COSTS> 1448000
<OTHER-EXPENSES> 446000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360000
<INCOME-PRETAX> (209000)
<INCOME-TAX> (71000)
<INCOME-CONTINUING> (138000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138000)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
