<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
Amendment No. 1
----------------------------
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition period from to
--------------------------
COMMISSION FILE NUMBER 0-13305
--------------------------
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1971716
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Marienfeld Place, Suite 465,
Midland, Texas 79701
(Address of principal executive offices) (Zip Code)
(915) 684-3727
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former 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 Exchange 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
At November 1, 1999, there were 18,331,858 shares of the Registrant's
Common Stock, $0.01 par value, outstanding.
===============================================================================
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2
INDEX
PART I. - FINANCIAL INFORMATION
Page No.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the succeeding pages for
the following financial statements:
- Consolidated Balance Sheet as of December 31,
1998 and September 30, 1999 (unaudited) 4
- Unaudited Consolidated Statements of Operations
for the three months ended September 30, 1998
and 1999 and nine months ended September 30, 1998
and 1999 6
- Unaudited Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1999 7
- Notes to Consolidated Financial Statements 8
<PAGE>
3
EXPLANATORY NOTE
This amendment reflects the unaudited pro forma results of operations that
include Parallel's acquired interest in First Permian, LLC, as described in Note
3. The pro forma results for the nine months ended September 30, 1999 and 1998
give effect to the acquisition as if it had occurred at the beginning of fiscal
1998.
<PAGE>
4
PARALLEL PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, September 30, 1999
ASSETS 1998* (Unaudited)
- ------------- ------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,178,819 $ 1,175,419
Accounts receivable:
Oil and gas 1,432,659 2,002,115
Others, net of allowance for doubtful accounts
of $71,358 in 1998 and 1999 247,740 587,989
Affiliate 11,844 608
------------ ------------
1,692,243 2,590,712
Other assets 61,504 22,248
Assets held for sale (Note 2) 3,825,000
------------ ------------
Total current assets 2,932,566 7,613,379
------------ ------------
Property and equipment, at cost:
Oil and gas properties, full cost method 65,565,466 84,281,470
Other 287,586 316,821
------------ ------------
65,853,052 84,598,291
Less accumulated depreciation and depletion 22,279,355 25,208,704
------------ ------------
Net property and equipment 43,573,697 59,389,587
------------ ------------
Other assets, net of accumulated amortization of
$86,917 in 1998 and $117,623 in 1999 58,519 345,356
------------ ------------
$ 46,564,782 $ 67,348,322
============ ============
</TABLE>
<PAGE>
5
PARALLEL PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
December 31, September 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 1998* (Unaudited)
- ------------------------------------ ------------ ------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities:
Current portion of affiliate's long-term
debt (Note 5) $ -- $ 675,000
Subordinated notes payable (Note 6) -- 3,600,000
Trade 2,803,539 2,359,833
Affiliate 214 1,242
Preferred stock dividend -- 170,537
------------ ------------
Total current liabilities 2,803,753 6,806,612
------------ ------------
Long-term debt:
Bank credit facility (Note 5) 18,035,889 18,815,889
Proportionate share of affiliate's long-
term debt, net of current portion(Note 5) -- 15,975,000
------------ ------------
Total long-term debt 18,035,889 34,790,889
Deferred income taxes -- --
Stockholders' equity:
Preferred stock 6% convertible preferred stock
par value $.10 per share(aggregate liquidation
preference of $10) authorized 10,000,000 shares,
issued and outstanding 974,500 in 1998 and 1999 97,450 97,450
Common stock - par value $.01 per share, authorized
60,000,000 shares, issued and outstanding
18,306,858 in 1998 and 18,331,858 in 1999 183,069 183,319
Additional paid-in surplus 32,341,971 31,896,022
Retained deficit (6,897,350) (6,425,970)
------------ ------------
Total stockholders' equity 25,725,140 25,750,821
Contingencies
------------ ------------
$ 46,564,782 $ 67,348,322
============ ============
</TABLE>
*The balance sheet as of December 31, 1998 has been derived from Parallel's
audited financial statements. The accompanying notes are an integral part of
these financial statements.
<PAGE>
6
PARALLEL PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Nine months Ended
September 30, September 30,
---------------------- ----------------------
1998 1999 1998 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas revenues $2,540,809 $3,792,755 $7,106,512 $7,747,572
---------- ---------- ---------- ----------
Cost and expenses:
Lease operating expense 622,205 1,065,158 1,792,895 2,130,123
General and administrative 227,865 301,761 647,371 725,908
Depreciation, depletion
and amortization 1,114,438 1,067,700 3,108,721 2,928,494
---------- ---------- ---------- ----------
1,964,508 2,434,619 5,548,987 5,784,525
---------- ---------- ---------- ----------
Operating income 576,301 1,358,136 1,557,525 1,963,047
---------- ---------- ---------- ----------
Other income (expense), net:
Interest income 403 10,761 873 37,732
Other income 8,226 116,621 59,337 129,850
Interest expense (396,682) (883,321) (1,042,777) (1,630,449)
Other expense (2,687) (26,290) (11,264) (28,800)
---------- ---------- ---------- ----------
Total other expense, net (390,740) (782,229) (993,831) (1,491,667)
---------- ---------- ---------- ----------
Income before income taxes 185,561 575,907 563,694 471,380
Income tax expense deferred 61,269 -- 185,964 --
---------- ---------- ---------- ----------
Net income $ 124,292 $ 575,907 $ 377,730 $ 471,380
========== ========== ========== ==========
Cumulative preferred stock dividend $ 90,000 $ 146,175 $ 173,000 $ 462,887
========== ========== ========== ==========
Net income available
to common stockholders $ 34,292 $ 429,732 $ 204,730 $ 8,493
========== ========== ========== ==========
Net income per common share
Basic $ .002 $ .023 $ .011 $ .0005
========== ========== ========== ==========
Diluted $ .002 $ .023 $ .011 $ .0005
========== ========== ========== ==========
Weighted average common shares
Outstanding basic 18,381,967 18,331,858 18,207,852 18,329,759
========== ========== ========== ==========
Outstanding - diluted 18,756,045 18,505,647 18,751,500 18,468,642
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
7
PARALLEL PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
<TABLE>
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 377,730 $ 471,380
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation, depletion and amortization 3,108,721 2,928,494
Incomes taxes 185,964 --
Other, net (4,531) (286,837)
Changes in assets and liabilities:
Decrease (increase) in trade receivables 16,622 (898,469)
(Increase) decrease in prepaid expenses and other (61,201) 39,256
Increase (decrease) in accounts payable and accrued
liabilities 612,545 (272,141)
Increase in current portion of affiliate
long-term debt -- 675,000
Increase in subordinated notes payable -- 3,600,000
----------- -----------
Net cash provided by operating activities 4,235,850 6,256,683
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (17,353,375) (23,004,615)
Proceeds from disposition of property and equipment 883,144 435,231
----------- -----------
Net cash used in investing activities (16,470,231) (22,569,384)
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 14,307,390 16,755,000
Payment of long-term debt (8,584,000) --
Proceeds from exercise of options and warrants 70,625 17,188
Stock offering costs (80,851) --
Proceeds from common stock issuance -- --
Proceeds from preferred stock issuance 6,000,000 --
Payment of preferred stock dividend (68,000) (462,887)
----------- -----------
Net cash provided by financing activities 11,645,164 16,309,301
----------- -----------
Net increase (decrease) in cash
and cash equivalents (589,217) (3,400)
Beginning cash and cash equivalents 597,149 1,178,819
----------- -----------
Ending cash and cash equivalents $ 7,932 $ 1,175,419
=========== ===========
Non-cash financing activities:
Accrued preferred stock dividend $ -- $ 170,537
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financials.
<PAGE>
8
PARALLEL PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
Parallel's proportionate share of the assets, liabilities, revenues and
expenses of an affiliated limited liability company are included in the
accompanying consolidated financial statements. On June 25, 1999, we acquired a
22.5% interest in First Permian, LLC, a Delaware limited liability company.
Subsequently, on June 30, 1999, First Permian merged with a wholly owned
subsidiary of Fina Oil and Chemical Company. The assets acquired by First
Permian in the merger consisted primarily of producing oil and gas properties in
the Permian Basin of west Texas. The transaction was accounted for by the
purchase method of accounting for business combinations. Accordingly, the
accompanying consolidated financial statements before July 1, 1999 do not
include any revenues or expenses associated with our 22.5% interest in First
Permian. See Note 3 to Consolidated Financial Statements.
The financial information included herein, with the exception of the
balance sheet as of December 31, 1998, is unaudited. However, such information
includes all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of the
results of operations for the interim periods. The results of operations for the
interim period are not necessarily indicative of the results to be expected for
an entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q Report pursuant to certain
rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the
financial statements and notes included in Parallel's 1998 Annual Report and
1998 Form 10-K.
NOTE 2. ASSETS HELD FOR SALE
In the normal course of business, we review opportunities for the possible
sale of certain non-core oil and gas properties. If the bids or offers submitted
are acceptable and consistent with our growth strategy, we may elect to sell the
property to raise additional capital. Likewise, we review opportunities for the
possible acquisition of oil and gas reserves. When possible acquisition
opportunities are consistent with our growth strategy, we may submit bids or
offers in amounts and with terms consistent with our growth strategy. Such
acquisitions would require additional financing.
Because of the protracted period of low prices and the resultant negative
effect on cash flows and our line of credit, a part of our longer term business
strategy is to sell certain non-core assets, which may include producing oil and
gas properties, undeveloped leasehold acreage and other assets, to raise
additional capital and reduce debt. Accordingly, we have classified the basis in
these assets as assets held for sale within the balance sheet.
NOTE 3. RECENT EVENTS
On November 12, 1999, we terminated the offering period for a private
placement of 2,000,000 shares of common stock. Stock Purchase Agreements
covering a total of 2,000,000 shares were received from 22 accredited investors
and eight unaccredited investors. The offering price of the stock was $1.60 per
share. After deducting estimated expenses in the amount of $27,000 payable by us
and sales commissions in the amount of $26,000 payable to Netherland Securities,
Inc. and $4,000 payable to Everen Securities, Inc., net proceeds are estimated
to be $3,143,000, of which approximately $1,500,000 million will be used to
reduce bank debt and the remaining amount will be used to fund capital
expenditures and for general corporate purposes. Upon issuance of the 2,000,000
shares of common stock, we will have 20,338,858 shares of common stock
outstanding. The private placement was made in reliance on the exemptions from
registration under the Securities Act of 1933 pursuant to Section 4 (2) and Rule
506 of Regulation D under the Securities Act.
On June 30, 1999, First Permian, LLC and a wholly owned subsidiary of Fina
Oil and Chemical Company consummated a cash merger. First Permian was the
<PAGE>
9
surviving entity. The transaction was accounted for as a purchase. The assets
acquired consisted primarily of producing oil and gas properties located in the
Permian Basin of west Texas. After giving effect to purchase price adjustments,
First Permian paid to Fina cash in the aggregate amount of approximately $92.0
million.
First Permian is owned by Parallel, Baytech, Inc., Tejon Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas companies. Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership interest. Tejon Exploration and
Mansefeldt Investment each own a 27.5% interest in First Permian. If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of subordinated unsecured notes made by First Permian and payable to
Tejon and Mansefeldt, the proceeds of which were used to help finance the
acquisition, Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit.
The purchase was financed, in part, with the proceeds of the revolving
credit facility provided by Bank One, Texas, N.A. to First Permian. On June 30,
1999, Parallel and Baytech entered into a credit agreement with Bank One, Texas,
N.A. providing for a $110.0 million revolving credit facility. The principal
amount of the initial loan from Bank One was $74.0 million. Parallel's
obligation is limited to a guaranty of $10.0 million of the bank borrowings. See
Note 5 to Consolidated Financial Statements for further discussion of the credit
facility.
Additional financing for the cash merger was obtained through subordinated
debt borrowings, which included an $8.0 million loan from Tejon Exploration
Company and an additional $8.0 million loan from Mansefeldt Investment. The
terms of the subordinated debt and the effect on Parallel's balance sheet are
discussed in Note 6 to Consolidated Financial Statements.
The following unaudited pro forma results of operations for the nine months
ended September 30, 1999 and 1998 give effect to the acquisition of First
Permian as if it had occurred at the beginning of fiscal 1998.
<TABLE>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Oil and gas revenues $ 10,040,474 $ 10,864,715
Income (loss) before income taxes (271,489) 63,470
Net income (loss) (179,183) 41,890
Net loss available to common shareholders (495,896) (131,110)
Net loss per common share
Basic $ (.027) $ (.007)
Diluted $ (.027) $ (.007)
</TABLE>
NOTE 4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Although Parallel has not entered into any derivative instruments or
hedging arrangements, First Permian uses swap agreements and other financial
instruments in an attempt to reduce the risk of fluctuating oil and gas prices
and interest rates. Effective July 1, 1999, a portion of the future crude oil
production associated with our proportionate interest in First Permian was
hedged against price risks through the use of swap contracts. Settlements on
price swap contracts are realized monthly, generally based upon the difference
between the contract price and the average closing NYMEX price and are reported
as a component of oil and gas revenues and operating cash flows in the period
realized.
Effective August 6, 1999, approximately 54% of the long term debt
associated with our proportionate share in First Permian was hedged against the
impact of interest rate changes through an interest rate swap agreement. The
principal amount of the swap agreement is $40 million, or $9 million net to our
interest. The agreement terminates on July 1, 2002. The terms of the agreement
provide for quarterly payments either to or from First Permian, determined by
<PAGE>
10
whether the quarterly London Interbank Offered Rate (LIBOR) in effect at the
beginning of each quarterly calculation period is greater or less than 6.52%.
The calculation periods begin on the first day of each January, April, July and
October of each year during the term of the agreement, commencing on October 1,
1999. If, on the date of the beginning of the calculation period, the monthly
LIBOR exceeds 6.52%, Bank One, Texas, N.A. (the Lendor) will owe First Permian
the quarterly amount of the excess rate applied to $40 million. Alternatively,
if the monthly LIBOR rate on the applicable monthly date is less than 6.52%,
First Permian will owe the Lender. The swap agreement is accounted for as a
hedge, with the amount which is either due to or from First Permian recorded as
a reduction or increase in interest expense.
NOTE 5. LONG TERM DEBT
Our long term debt at September 30, 1999 consisted of the following:
Revolving credit facility note payable to
bank at the bank's base lending rate plus
.25% (8.5% at September 30, 1999) $18,815,889
Affiliate debt: Parallel's proportionate share
(22.5%) of the First Permian, LLC
revolving credit facility note payable to bank
at bank's base lending rate plus 1.5% (9.75% at
September 30, 1999) 16,650,000
-----------
$35,465,889
Less: Parallel's proportionate share of current
maturities of affiliate debt 675,000
-----------
Total long term debt $34,790,889
===========
Scheduled maturities of Parallel's debt and our
proportionate share of affiliate's
debt at September 30, 1999 are as follows:
2000 $ 675,000
2001 19,490,889
2002 15,300,000
-----------
$35,465,889
===========
Revolving Credit Facility. At September 30, 1999, Parallel was a party to a
loan agreement with Bank One, Texas, N.A. which provides for a revolving credit
facility (the "Revolving Facility") under which we may borrow up to the lesser
of $30,000,000 or the "borrowing base" then in effect. The borrowing base in
effect at September 30, 1999 was $18,815,889. The borrowing base was subject to
reduction by a monthly commitment reduction of $380,000. However, effective
March 23, 1999, the monthly commitment reduction was suspended by the bank until
May 1, 1999 at which time the borrowing base and monthly commitment reduction
were scheduled for redetermination. The loan agreement provides for a
redetermination of the borrowing base and monthly commitment reduction every six
months on April 1 and October 1 of each year or at such other times as the bank
elects. As of the date of this Form 10-Q Report, we had not received from the
bank the redetermined borrowing base or monthly reduction amount. At September
30, 1999, we had borrowed all the funds currently available under the Revolving
Facility. All indebtedness under the Revolving Facility matures July 1, 2001.
The loan is secured by substantially all of our oil and gas properties.
Commitment fees of .25% per annum on the difference between the commitment and
the average daily amount outstanding are due quarterly.
The unpaid principal balance of the Revolving Facility bears interest at
our election at a rate equal to (i) the bank's base lending rate plus .25% or
(ii) the bank's Eurodollar rate plus a margin of 2.5%. Interest under the
Revolving Facility is due and payable monthly. At September 30, 1999, the
interest rate was the bank's base rate plus .25% or 8.5%.
The loan agreement contains various restrictive covenants and compliance
requirements, which include (1) maintenance of certain financial ratios, (2)
limiting the incurrence of additional indebtedness, (3) prohibiting payment of
dividends on common stock, and (4) prohibiting the payment of dividends on
preferred stock when an event of default under the loan agreement is in
existence.
Long Term Debt of Affiliate. On June 30, 1999, Parallel, Baytech and First
Permian entered into a credit agreement, dated as of June 30, 1999, with Bank
One, Texas, N.A. that established a $110.0 million revolving credit facility to
finance, in part, the merger of a subsidiary of Fina Oil and Chemical Company
<PAGE>
11
with and into First Permian. The principal amount of the initial loan from Bank
One was $74.0 million. Under terms of the credit agreement, as restated on
August 16, 1999, the principal amount outstanding under the revolving credit
facility bears interest, at First Permian's election, at Bank One's base rate
plus 1.50% or the Eurodollar rate plus 3.25% until such time that subordinated
debt in the principal amount of $16.0 million has been paid in full. When these
subordinated unsecured loans have been paid in full, amounts outstanding under
the revolving credit facility will bear interest at Bank One's base rate plus a
margin ranging from .25% to .75%, depending upon the principal amount then
outstanding, or the Eurodollar rate plus a margin ranging from 2.00% to 2.50%,
depending upon the principal amount then outstanding.
The credit facility provides for revolving loans subject to a borrowing
base and a monthly commitment reduction. The initial borrowing base is $74.0
million and the initial monthly commitment reduction amount is $250,000. The
monthly commitment reduction commenced on October 1, 1999 and continues with a
like reduction on the first day of each following month. The borrowing base and
the monthly commitment reduction amount may be redetermined by the bank on
January 1 and July 1 of each year or at other times requested by First Permian.
All outstanding principal under the revolving credit facility is due and payable
on July 1, 2002. Interest is payable on the last day of each month. The loan is
secured by substantially all of the oil and gas properties First Permian
acquired from Fina Oil and Chemical Company. Parallel and Baytech each
guaranteed $10.0 million of the loans from Bank One. Our proportionate share of
First Permian's long term debt is $16,650,000.
NOTE 6. AFFILIATE SUBORDINATED UNSECURED LOANS
In addition to the $74.0 million loan from Bank One, First Permian borrowed
$8.0 million from Tejon Exploration Company and $8.0 million from Mansefeldt
Investment Corporation to help finance the acquisition of oil and gas properties
from Fina Oil and Chemical Company. Under terms of an Intercreditor Agreement,
dated June 30, 1999, the loans made by Tejon and Mansefeldt are unsecured and
subordinate in all respects to the senior loans made by Bank One.
Each subordinated loan requires a principal payment of $2.5 million on
December 31, 1999 and $5.5 million on September 30, 2000. Principal payments on
the subordinated loans can only be made with proceeds from the issuance of First
Permian's equity securities; advances under First Permian's revolving credit
facility (if the borrowing base is greater than $74.0 million); proceeds from
the sale of First Permian's assets with the prior consent of Bank One; and any
other source of payment with Bank One's prior consent. Our proportionate share
of the subordinated debt is $3.6 million and is reflected in our September 30,
1999 consolidated balance sheet as subordinated notes payable.
NOTE 7. PREFERRED STOCK
We have outstanding 974,500 shares of 6% Convertible Preferred Stock, $0.10
par value per share. Cumulative annual dividends of $0.60 per share are payable
semi-annually on June 15 and December 15 of each year. Each share of Preferred
Stock may be converted, at the option of the holder, into 2.8571 shares of
common stock at an initial conversion price of $3.50 per share, subject to
adjustment in certain events. The preferred stock has a liquidation preference
of $10 per share and has no voting rights, except as required by law. We may
redeem the preferred stock, in whole or part, for $10 per share plus accrued and
unpaid dividends.
NOTE 8. FULL COST CEILING TEST
We use the full cost method to account for our oil and gas producing
activities. Under the full cost method of accounting, the net book value of oil
and gas properties, less related deferred income taxes, may not exceed a
calculated "ceiling." The ceiling limitation is the discounted estimated
after-tax future net revenues from proved oil and gas properties. In calculating
future net revenues, current prices and costs are generally held constant
indefinitely. The net book value, less related deferred income taxes, is
compared to the ceiling on a quarterly and annual basis. Any excess of the net
book value, less related deferred income taxes, is generally written off as an
expense. Under rules and regulations of the SEC, the excess above the ceiling is
not written off if, subsequent to the end of the quarter or year but prior to
the release of the financial results, prices increased sufficiently such that an
excess above the ceiling would not have existed if the increased prices were
used in the calculations.
During the fourth quarter of 1998, we recognized a non-cash impairment
charge of $15.0 million, or $12.0 million net of tax, related to our oil and gas
reserves and unproved properties. The impairment of oil and gas assets was
<PAGE>
12
primarily the result of the effect of significantly lower oil and natural gas
prices on both proved and unproved oil and gas properties. At September 30,
1999, our net book value of oil and gas, less related deferred income taxes, was
below the calculated ceiling. As a result, we were not required to record a
reduction of our oil and gas properties under the full cost method of
accounting.
NOTE 9. NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share is computed similarly to the previously
reported fully diluted earnings per share and reflects the assumed conversion of
all potentially dilutive securities.
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1999 1998 1999
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Basic EPS Computation:
Numerator
Net income $ 124,292 $ 575,907 $ 377,730 $ 471,380
Preferred stock dividends (90,000) (146,175) (173,000) (462,887)
---------- ---------- ---------- ----------
Net income available to common Stockholders 34,292 429,732 204,730 8,493
========== ========== ========== ==========
Denominator -
Weighted average common shares outstanding 18,381,967 18,331,858 18,207,852 18,329,759
---------- ---------- ---------- ----------
Basic EPS $ 0.002 $ .023 $ 0.011 $ .0005
========== ========== ========== ==========
</TABLE>
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1999 1998 1999
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Diluted EPS Computation:
Numerator
Net income $ 124,292 $ 575,907 $ 377,730 $ 471,380
Preferred stock dividends (90,000) (146,175) (173,000) (462,887)
---------- ---------- ---------- ----------
Net income available to common stockholders 34,292 429,732 204,730 8,493
========== ========== ========== ==========
Denominator -
Weighted average common shares outstanding 18,381,967 18,331,858 18,207,852 18,329,759
Employee 370,530 173,789 537,307 138,883
Warrants 3,548 -- 6,341 --
---------- ---------- ---------- ----------
18,756,045 18,505,647 18,751,500 18,468,642
========== ========== ========== ==========
Diluted EPS $ 0.002 $ .023 $ 0.011 $ .0005
========== ========== ========== ==========
</TABLE>
Convertible preferred stock equivalents of 974,500 shares for the three-
and nine-month periods ended September 30, 1999, that could potentially dilute
basic earnings per share in the future, was not included in the computation of
diluted earnings per share for the periods presented because to do so would have
been antidilutive.
NOTE 10: RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
<PAGE>
13
position and measure those instruments at fair value. It establishes conditions
under which a derivative may be designated as a hedge, and establishes standards
for reporting changes in the fair value of a derivative. SFAS No. 133 is
required to be implemented for the first quarter of the fiscal year ended 2000.
Early adoption is permitted. Recently, the FASB deferred the implementation
requirements of SFAS No. 133 for one year. We have not evaluated the effects of
implementing SFAS No. 133.
<PAGE>
14
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.
PARALLEL PETROLEUM CORPORATION
BY: /s/ THOMAS R. CAMBRIDGE
Date: January 19, 2000 ----------------------------------------
Thomas R. Cambridge
Chairman of the Board of Directors
and Chief Executive Officer
Date: January 19, 2000 BY: /s/ LARRY C. OLDHAM
----------------------------------------
Larry C. Oldham,
President ( Principal Financial Officer)
