<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
XX THE SECURITIES EXCHANGE OF 1934
----
For the quarterly period ended October 31, 1995
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 : 0-13399
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LaTex Resources, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1405081
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
918-747-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name or former address, 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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of December 5 1995, there were 18,022,195 shares of the Registrant's
single class of common stock issued and outstanding.
Page 1 of 20 consecutively numbered pages
<PAGE>
LaTex Resources, Inc.
Index to Form 10-Q for the Quarterly Period
Ended October 31, 1995
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Page
--------------------- ----
Consolidated Balances Sheets as of 4
July 31, 1995 and October 31, 1995
Consolidated Statements of Operations 6
for the three months ended
October 31, 1995 and 1994
Consolidated Statements of Cash Flows 7
for the three months ended
October 31 1995 and 1994
Consolidated Statements of Stockholders' 9
Equity for the three months ended
October 31, 1995 and the year ended
July 31, 1995
Notes to Consolidated Financial 10
Statements
Item 2. Management's Discussion and Analysis 10
of Financial Condition and Results
of Operations.
------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
The information called for by Item 2. Changes in
Securities, Item 3. Default Upon Senior Securities,
Item 4. Submission of Matters to a Vote of Security
Holders, Item 5. Other Information and Item 6. Exhibits
and Reports on Form 8-K has been omitted as either
inapplicable or because the answer thereto is negative.
SIGNATURES 20
2
<PAGE>
PART I
FINANCIAL INFORMATION
3
<PAGE>
LATEX RESOURCES, INC.
Consolidated Balance Sheet
Unaudited
<TABLE>
<CAPTION>
Oct 31, July 31,
1995 1995
=========== ===========
<S> <C> <C>
ASSETS
Current assets:
Cash $ 31,165 $ 314,229
Accounts receivable-net 2,753,086 2,836,596
Accounts receivable & notes
receivable-related 2,475,350 2,235,238
Accounts receivable-other 688,560 696,688
Inventories 90,976 90,976
Other current assets 161,221 84,791
Deferred loan costs 156,250 148,800
Assets held for resale 144,990 144,990
----------- -----------
Total current assets 6,501,598 6,552,308
----------- -----------
Property, plant, and equipment:
Oil and gas properties 34,383,278 31,778,663
Uncompleted properties 3,363,000 3,363,000
Other depreciable assets 968,581 954,415
----------- -----------
38,714,859 36,096,078
Less accumulated depreciation
and depletion 7,386,990 6,296,473
----------- -----------
Net property, plant,
and equipment 31,327,869 29,799,605
----------- -----------
Other assets:
Goodwill 9,636,246 9,747,657
Deposits and other assets 137,559 137,559
Reorganization cost 105,547 113,522
Investments-other 1,961,347 2,002,847
Deferred loan costs 568,242 555,769
----------- -----------
Total other assets 12,408,941 12,557,354
----------- -----------
TOTAL ASSETS $50,238,408 $48,909,267
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LATEX RESOURCES, INC.
Consolidated Balance Sheet
Unaudited
<TABLE>
<CAPTION>
Oct 31, July 31,
1995 1995
============ ============
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS EQUITY
Current liabilities:
Accounts Payable $ 5,675,372 $ 5,742,342
Accounts payable-other 2,591,721 2,928,107
Accrued expenses payable 126,856 139,113
Income taxes payable 31,177 31,177
Current portion long-term debt 3,910,000 3,644,723
----------- -----------
Total current liabilities 12,335,126 12,485,462
----------- -----------
Long-term liabilities:
Long term debt-net of current 22,111,915 20,634,809
----------- -----------
Total long-term liabilities 22,111,915 20,634,809
----------- -----------
Total Liabilities 34,447,041 33,120,271
----------- -----------
Stockholders' equity:
Common stock 189,802 188,802
Preferred stock 8,362,410 8,226,180
Additional paid-in capital 9,008,549 8,931,424
Treasury stock (399,106) (399,106)
Retained earnings (1,370,288) (1,158,304)
----------- -----------
Total stockholders' equity 15,791,367 15,788,996
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $50,238,408 $48,909,267
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LATEX RESOURCES, INC.
Consolidated Statement of Operations
Unaudited
<TABLE>
<CAPTION>
For The Three Months Ended
--------------------------------
October 31, October 31,
1995 1994
=========== ===========
<S> <C> <C>
Revenue:
Oil and gas sales $ 2,904,380 $ 1,757,217
Oil and gas marketing 188,843 373,734
Lease operations and management fees 1,022,401 98,862
----------- -----------
Total operating income 4,115,624 2,229,813
----------- -----------
Operating expenses:
Lease operating expense 1,635,036 1,113,330
Marketing expense 84,183 234,496
General & administrative expense 747,863 710,967
Depreciation, depletion
and amortization 1,247,979 471,576
Interest 473,697 188,268
----------- -----------
Total operating expenses 4,188,758 2,718,637
----------- -----------
Net operating income (loss) (73,134) (488,824)
Other income:
Equity in earnings (losses)
of joint ventures and
unconsolidated subsidiary (41,500) (101,159)
Gain on sale of assets - 31,244
Interest income 38,653 24,080
Other income (expense) - -
----------- -----------
Net income (loss) from continuing
operations before income taxes (75,981) (534,659)
Income taxes - current (227) (135,544)
Income taxes - deferred - -
----------- -----------
Net income (loss)
from continuing operations (75,754) (399,115)
----------- -----------
Historical net income (loss) (75,754) (399,115)
Preferred stock dividends 136,230 -
----------- -----------
Historical net loss from continuing
operations for common shareholders $ (211,984) $ (399,115)
=========== ===========
Historical loss per share from
continuing operations $ (.01) $ (.02)
=========== ===========
Earnings (loss) per share $ (.01) $ (.02)
=========== ===========
Weighted avg number of shares o/s 17,950,456 17,922,195
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
LATEX RESOURCES, INC.
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
October 31, October 31,
1995 1994
============ ============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Historical net income $ (75,754) $ (399,115)
Adjustments to reconcile net income net cash
provided by (used for) operating activities:
Depreciation, amortization and depletion 1,247,979 471,576
Write-down of investments - -
Equity losses from investments in
unconsolidated subsidiaries (41,500) (101,159)
Changes in Assets and Liabilities:
Accounts receivable (148,474) 662,311
Accrued expenses payable (12,257) 29,983
Accounts payable (403,356) 87,490
Other assets 103,126 (103,605)
Prepaid expenses (76,430) (77,048)
----------- ------------
Net cash provided by operating activities 593,334 570,433
----------- ------------
Cash flows from investing activities:
Investments - 71,159
Property, plant, and equipment (2,618,781) (965,014)
Reorganization cost, net - 7,412
Treasury stock - 124,099
----------- ------------
Net cash used for investing activities $(2,618,781) $ (762,344)
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
LATEX RESOURCES, INC.
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
October 31, October 31,
1995 1994
============ ============
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Public offering of common stock $ - $ -
Notes payable 1,742,383 175,941
Capital contributions - -
------------ ------------
Net cash provided by (used for) financing activities 1,742,383 175,941
------------ ------------
Net (decrease) in cash and cash equivalents (283,064) (15,970)
Cash and cash equivalents beginning of period 314,229 208,399
------------ ------------
Cash and cash equivalents end of period $ 31,165 $ 192,429
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 473,697 $ 188,268
Income taxes - -
============ ============
Supplemental schedules of noncash investing and
financing activities: - -
Decrease in related party accounts receivable for
the acquisition of unconsolidated affiliate $ - $ -
Stock issued for public relations services - -
Stock issued to acquire unconsolidated affiliate - -
Stock issued to acquire Phoenix Metals - -
Pre-acquisition exercise of Panda Resources, Inc.
stock options in exchange for note receivable - -
------------
Total - $ -
============ ============
</TABLE>
Disclosure of accounting policy:
For purposes of the statement of cash
flows, the company considers all highly
liquid debt instruments purchased with
a maturity of three months or less to
be cash equivalents.
The accompanying notes are an integral part of these financial statements
8
<PAGE>
LATEX RESOURCES, INC.
Consolidated Statements of Stockholders' Equity
Three Months Ended October, 1995 Year Ended July 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional Total
------------ Paid-in Retained Treasury Preferred Stockholders'
Shares Par Value Capital Earnings Stock Stock Equity
============ ========== ========== =========== ========== ========== ============
<S> <C> <C> <C> <C> <C> <C> <C>
Balance July 31, 1995 (excluding
subscriptions receivable) 18,880,195 $ 188,802 $8,931,424 $(1,158,304) $ (399,106) $8,226,180 $ 15,788,996
Preferred stock dividends (136,230) 136,230 -
Net loss for quarter ended 10/31/95 (75,754) (75,754)
Issued for consulting services 100,000 1,000 77,125 - - - 78,125
---------- ---------- ---------- ----------- ---------- ---------- ------------
Balance October 31, 1995 18,980,195 $ 189,802 $9,008,549 $(1,370,288) $ (399,106) $8,362,410 $ 15,791,367
========== ========== =========== ========== ========== ============
Less treasury shares (958,000)
----------
Total outstanding 18,022,195
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
LaTex Resources, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Notes Payable
-------------
The Company has a credit facility with Bank of America providing loan advances
up to $28,200,000 net to the company based on the proven oil and gas properties
of the Company. The Company negotiated the facility in April 1995, and amended
in October 1995,with current outstanding advances of $26,021,915. Principal
payments are required monthly beginning June 30, 1995 and total $342,500 per
month with interest accruing on the unpaid balance at the current interest rate
of 9.6%.
(2) Accounting Policies
-------------------
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and 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 only normal recurring items) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
LaTex Resources, Inc. financial statements and notes thereto as of July 31, 1995
which are included in the Company's Form 10-K.
(3) Income Taxes
------------
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax reporting purposes. Such timing
differences arise primarily from the deduction of certain oil and gas
exploration and development costs which are capitalized for financial reporting
purposes and differences in the methods of depreciation.
The Financial Accounting Statements Board issued SFAS No. 109, Accounting for
Income Tax. The Company has adopted SFAS 109 beginning with its July 31, 1993
financial statements. SFAS 109 allows, but does not require, restatement of
financial statements for previous years. SFAS 109 represents a new method of
accounting for income taxes. It generally requires that deferred taxes be
provided using a liability approach at current enacted income tax rates, rather
than the deferred approach at historical rates which has been required. The
adoption of SFAS 109 has no material effect on the financial statements.
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
------------------------------------
10
<PAGE>
Acquisition of Germany Oil Company
- ----------------------------------
During the quarter ended April 30, 1995, the Company completed its acquisition
of Germany Oil Company for cash, stock and assumed liabilities for a total
consideration of $23,900,000. In conjunction with the closing of the Germany
transaction, the Company also announced that it had refinanced its senior debt
with Bank of America National Trust and Saving Association in the total amount
of $25,000,000 which included $2,000,000 to be spent on additional development
of the Company's oil and gas properties.
The Germany transaction resulted in the Company acquiring the outstanding
capital stock of Germany together with a production payment and net profits
interest from ENRON Capital & Trade Resources Corp. for $10,500,000 in cash,
250,000 shares of restricted common stock of LaTex, 411,427 shares of Series A
convertible Preferred Stock (par value of $10.00 per share); 370,000 shares of
Series B convertible Preferred Stock (par value $10.00 per share) and $5,400,000
in assumed Germany liabilities. The Series A Preferred Stock is convertible
into common stock at $3.33 per share and has a 2% non-cash annual dividend. The
Series B Preferred Stock is convertible into common stock at $1.50 per share and
has a 12% non-cash annual dividend.
Sackett Acquisition
- -------------------
In October, 1995, the Company closed the acquisition of certain oil and gas
properties totaling $2,890,000 before adjustments from Sackett Oil Company and
Prudential Insurance Company of America. The properties were acquired for cash
and financed through the facility with Bank of America. The oil and gas
properties produce approximately 185 BOPD and 850 MCFPD and generate about
$900,000 per year in net cash flow to the Company's interest.
Results of Operations
- ---------------------
The following is a discussion of the results of operations of the Company for
the three months ended October 31, 1995. This discussion should be read in
conjunction with the Company's unaudited Consolidated Financial Statements and
the notes thereto included in Part I of this Quarterly Report.
The Company follows the "successful efforts" method of accounting for its oil
and gas properties whereby costs of productive wells and productive leases are
capitalized and amortized on a unit-of-production basis over the life of the
remaining proved reserves. Amortization of capitalized costs is provided on a
prospect-by-prospect basis. Exploratory expenses, including geological and
geophysical expenses and annual delay rentals, are charged to expense as
incurred. Exploratory drilling costs, including the cost of stratigraphic test
wells, are initially capitalized, but charged to expense if and when the well is
determined to be unsuccessful.
The factors which most significantly affect the Company's results
11
<PAGE>
of operations are (i) the sale prices of crude oil and natural gas,(ii) the
level of total sales volumes, (iii) the level of lease operating expenses, and
(iv) the level of and interest rates on borrowings. Total sales volumes and the
level of borrowings are significantly impacted by the degree of success the
Company experiences in its efforts to acquire oil and gas properties and its
ability to maintain or increase production from its existing oil and gas
properties through its development activities. The following table reflects
certain historical operating data for the periods presented:
<TABLE>
<CAPTION>
Quarter Ended October 31
------------------------
1995 1994
------ ------
<S> <C> <C>
Net Sales Volumes:
Oil (MBbls) 110 83
Natural gas (MMcf) 941 496
Oil equivalent (MBOE) 267 166
Average Sales Prices:
Oil (per Bbl) $ 13.40 $ 12.01
Natural Gas (per Mcf) $ 1.52 $ 1.49
Operating Exp. per BOE of Net Sales:
Lease operating $ 5.39 $ 5.99
Severance tax $ 0.74 $ 0.71
General and administrative $ 2.80 $ 4.28
Depreciation, depletion and amort. $ 4.68 $ 2.84
</TABLE>
Average sales prices received by the Company for oil and gas have historically
fluctuated significantly from period to period. Fluctuations in oil prices
during these periods reflect market uncertainties as well as concerns related to
the global supply and demand for crude oil. Average gas prices received by the
Company fluctuate generally with changes in the spot market price for gas. Spot
market gas prices have generally declined in recent years because of lower
worldwide energy prices as well as excess deliverability of natural gas in the
United States. Relatively modest changes in either oil or gas prices
significantly impact the Company's results of operations and cash flow and could
significantly impact the Company's borrowing capacity.
Three months ended October 31, 1995. Total revenues from the Company's
- ------------------------------------
operations for the quarter ended October 31, 1995 were $4,115,624 compared to
$2,229,813 for the quarter ended October 31, 1994. Revenues increased over the
comparable period a year earlier due to the addition of the Germany Oil Company
acquisition in April 1995 and settlements on payables associated with the
Germany Oil Company transaction.
Depreciation, depletion and amortization increased to $1,247,979 from $471,576 a
year earlier due to an increase in the depletion rate based on the write-down of
the Company's oil and gas reserves at year-end 1995 primarily resulting from
reduced oil and gas prices.
12
<PAGE>
Lease operating expenses and marketing expenses were $1,113,330 and $234,496
respectively, for the three-month period ending October 31, 1994 compared to
$1,635,036 and $84,183, respectively for the period ending October 31, 1995.
The increase in lease operating expenses is due to the addition of the Germany
Oil Company properties. Marketing expenses reflect Enpro's lower oil sales for
the period.
General and administrative expenses increased from $710,967 during the quarter
ended October 31, 1994 to $747,863 for the period ending October 31, 1995. The
increase is attributed to additional costs associated with the Germany
acquisition.
The Company had an after tax loss from continuing operations of $75,754 ($.01
per share) versus $399,115 ($.02 per share) for the same period last year. The
increase in income reflects the addition of the Germany Oil Company properties.
The historical net loss of the Company for the quarter ended October 31, 1995
was $211,984 ($.01 per share) compared to net loss of $399,115 ($.02 per share)
for the previous year. The increase in income is a result of the Germany Oil
Company acquisition.
Capital Resources and Liquidity
- -------------------------------
The Company's capital requirements relate primarily to the acquisition of
developed oil and gas properties and undeveloped leasehold acreage and
exploration and development activities. In general, because the Company's oil
and gas reserves are depleted by production, the success of its business
strategy is dependent upon a continuous acquisition and exploration and
development program.
Historically, the Company's operating needs and capital expenditures have been
funded by borrowings under its bank credit facilities and cash flow from
operations. As a result of significant capital expenditures since 1991, the
Company has experienced a decease in its short-term liquidity and a decline it
its working capital. In connection with the Company's acquisition of Germany
Oil Company in April 1995, the Company's new credit facility provided a source
of long-term financing. As a result of the Germany acquisition, the Company
assumed approximately $6.0 million in liabilities and accounts payable which
created a significant working capital deficit. The Company immediately began a
program designed to reduce these liabilities through negotiated reductions in
amounts owed and term payments out of the Company's cash flow. At October 31,
1995 the Company has current assets of $6.5 million and current liabilities of
$12.3 million, which resulted in negative working capital of $5.8 million and
reflects an improvement of $0.1 million over the Company's working capital
position at July 31, 1995. Overall the Company's Accounts Payable balance
improved by $0.4 million and the Accounts Receivable balance increases by $0.15
million since July 31, 1995. The Company's debt to its principal bank at
October 31, 1995, was $26.0 million. The Company intends to continue to pursue
its program to
13
<PAGE>
achieve an orderly liquidation of its indebtedness and to timely resolve the
Germany payables. There can be no assurance that, without an infusion of
additional debt or equity capital, the Company will be able to timely liquidate
these liabilities.
Capital Expenditures
- --------------------
The timing of most of the Company's capital expenditures is discretionary. The
Company's only current and material capital commitment is in connection with the
exploration and development of the Tunisian prospect and its participation in
the Kazakhstan project pursuant to which the Company will be required to meet
regular cash calls. The Company currently anticipates these cash calls will not
exceed $100,000 for Tunisia, subject to revision based upon the exploration and
development budgets ultimately agreed upon by the parties to the Tunisian
prospect development agreements, and $2.0 million for Kazakhstan, subject to
satisfactory resolution of the issues discussed in the Company's 10-K filing.
It is anticipated that these cash calls will be paid out of additional third
party financing to the Company's subsidiary, LaTex Resources International.
Except for the Company's capital commitments with respect to the international
activities, there are no material long-term commitments associated with the
Company's capital expenditure plans. Consequently, the Company has a
significant degree of flexibility to adjust the level of such expenditures as
circumstances warrant. The Company primarily uses internally generated cash
flows to fund capital expenditures other than significant acquisitions, and to
fund its working capital deficit. If the Company's internally generated cash
flows should be insufficient to meet its debt service or other obligations, the
Company may reduce the level of discretionary capital expenditures in order to
meet such obligations. The level of the Company's capital expenditures will
vary in future periods depending on energy market conditions and other related
economic factors. The Company anticipates that its cash flow will be sufficient
to fund its domestic operations and debt service at their current levels for the
next year. However, the Company does currently anticipate that additional
external debt or equity financing will be required to fund its international
activities.
Substantially all of the Company's significant capital expenditures over its
recent history have been made to acquire oil and gas properties. During the
quarter ended October 31, 1995, the Company made one significant acquisition of
oil and gas properties from Sackett Oil Company and the Prudential Insurance
Company of America for a total purchase price of $2,885,320, less adjustments.
The properties are located in Texas and Louisiana. This acquisition was funded
through additional borrowings under the Company's principal credit facility.
The Company's strategy is to continue to expand its reserve base through
acquisitions of producing oil and gas properties. As a result, it is likely
that capital expenditures will exceed cash provided by operating activities in
years where significant growth occurs in the Company's oil and gas reserve base.
In such cases, additional external financing is likely to be required.
14
<PAGE>
The Company intends to continue its practice of reserve replacement and growth
through the acquisition of producing oil and gas properties, although at this
time it is unable to predict the number and size of such acquisitions, if any,
which will be completed during the remainder of fiscal 1996. The Company's
ability to finance its oil and gas acquisitions is determined by its cash flow
from operations and available sources of debt and equity financing. Exclusive of
potential acquisitions, the Company presently anticipates total capital
expenditures in fiscal 1996 of approximately $100,000 in connection with
exploration and development of the Tunisian prospect, approximately $2 million
in connection with its Kazakhstan project (assuming certain issues are resolved
to the Company's satisfaction), and approximately $600,000 for oil and gas
property enhancement activities.
Financing Arrangements
- ----------------------
Since July 31, 1991, the Company has made 13 acquisitions of oil and gas
properties. These acquisitions have been financed primarily through borrowings
under the Company's bank credit facilities and through internal cash flow. In
April, 1995, the Company entered into a new credit facility pursuant to a Credit
Agreement between Bank of America, NT and SA ("Bank") and the Company's wholly
owned subsidiaries, LaTex Petroleum, Germany Oil and LaTex/GOC Acquisition
("Borrowers"). In addition, under the new credit facility the Company and the
Borrowers refinanced the Company's then existing indebtedness to the Company's
former principal lender. The Company and its wholly owned subsidiary, ENPRO,
have guaranteed the obligations of the Borrowers under the Credit Agreement.
The Agreement was subsequently amended in October, 1995, to include the Sackett
acquisition.
The credit agreement consists of an initial loan of $23,000,00 for the purposes
of refinancing the borrower's existing indebtedness partially funding the
acquisition of the Germany Oil and Enron interests (including funding the cash
portion of the consideration paid pursuant to the exchange offer) and for
working capital and secondly up to $2,000,000 of additional financing for
approved development drilling, workover or recompletion work on oil and gas
properties mortgaged by the borrowers to the bank as security for the loans
under the credit agreement. The Amended Credit Agreement increased the total
available borrowing capacity to $28.2 million to include the Sackett
acquisition. At October 31, 1995, outstanding advances totaled $26,021,915.
Principal on any loans under the amended credit agreement is repayable in
minimum monthly installments of $342,500 plus and additional payment equal to
the positive difference, if any, between the net proceeds from borrower's oil
and gas production times a variable dedicated percentage and the minimum monthly
payment. All unpaid principal and accrued interest under the credit agreement
is due March 31, 2000. Currently all advances under the credit agreement are
maintained at LIBOR rate loans at an interest rate of 9.6%. The Company's
indebtedness to the bank under the credit agreement is secured by mortgages on
all the Company's producing oil and gas
15
<PAGE>
properties and pledges of the stock of the Company's subsidiaries.
Under the Amended Credit Agreement, the Borrowers have also granted an affiliate
of the Bank an overriding royalty interest in all of the Borrower's producing
oil and gas properties, other than those situated in the State of Oklahoma (the
"Bank ORRI") and those acquired in the Sackett Acquisition. The Bank ORRI is
6.3% of borrower's net revenue interest in each property. The Bank is not
entitled to the Bank ORRI on any property acquired after closing of the
financing. On the later to occur of (i) March 31, 1998 or (ii) at such time as
the Bank has received a 15% internal rate of return on the $25,000,000
commitment amount under the Credit Agreement, the Bank ORRI will be adjusted
downward to 2.1%.
As required under the Credit Agreement, LaTex Petroleum has entered into hedging
agreements designed to enable the Company to obtain agreed upon net realized
prices for the Company's oil and gas production and designed to protect the
Company against fluctuations in interest rates with respect to the principal
amounts of all loans under the Credit Agreement.
The Amended Credit Agreement contains affirmative and negative covenants which
impose certain restrictions and requirements on the Company, including:
limitations on the amount of additional indebtedness the Company or the
Borrowers may incur; prohibition against payment by the Company or Borrowers of
cash dividends; requirements that the Borrowers maintain a current ratio
(current assets to current liabilities) of at least 1.0 to 1.0, tangible net
worth of at least $5.0 million, no less that $500,000 in cash equivalent
investments on hand at any given time, and no less than $500,000 in working
capital; limitations on the ability of the Company and Borrowers to sell assets
or to merge or consolidate with or into any other person; and requirements that
the Company maintain a consolidated current ratio of at least 1.0 to 1.0 and
consolidated tangible net worth of at least $10 million. At July 31, 1995, the
Company was not in compliance with certain of these covenants. The Bank has
waived these events of default by the Company through January 31, 1996.
The Company recently entered into an investment banking relationship with
Rauscher, Pierce and Clark, Inc. and Rauscher, Pierce and Clark, Limited
(collectively "RP&C") to assist the Company in accessing capital markets and to
develop a comprehensive financial plan for the continued growth of the Company.
The Company believes that, through additional borrowing and cash flow from
operations, it should be able to meet its anticipated capital requirements for
the foreseeable future for its domestic operations. However, because future
cash flows and the availability of financing are subject to a number of
variables, such as the level of production and the prices of oil and gas, there
can be no assurance that the Company's capital resources will be sufficient to
maintain currently planned levels of capital expenditures.
16
<PAGE>
Seasonality
- -----------
The results of operations of the Company are somewhat seasonal due to
seasonal fluctuations in the price for crude oil and natural gas. Recently,
crude oil prices have been generally higher in the third calendar quarter and
natural gas prices have been generally higher in the first calendar quarter.
Due to these seasonal fluctuations, results of operations for individual
quarterly periods may not be indicative of results which may be realized on an
annual basis. The company expects the same situation to occur during this
fiscal year.
Inflation and Prices
- --------------------
The Company's revenues and the value of its oil and gas properties have
been and will be affected by changes in oil and gas prices. The Company's
ability to maintain current borrowing capacity and to obtain additional capital
on attractive terms is also substantially dependent on oil and gas prices. Oil
and gas prices are subject to significant fluctuations that are beyond the
Company's ability to control or predict.
17
<PAGE>
PART II
OTHER INFORMATION
18
<PAGE>
Item 1. Legal Proceedings
-----------------
Nuevo Liquids, Inc. v. LaTex Resources, Inc. and LaTex Petroleum Corp.,
----------------------------------------------------------------------
United States District Court for the Southern District of Texas, Houston
Division, Case No. H-95-0028; Torch Energy Marketing, Inc. v LaTex Resources,
-----------------------------------------------
Inc. and LaTex Petroleum Corp., United States District Court for the Southern
- ------------------------------
District of Texas, Houston Division, Case No. H-95-0029. The Company and its
wholly-owned subsidiary, LaTex Petroleum, entered into a Settlement Agreement
(the "Settlement") with Torch Energy Marketing, Inc. ("Torch"), Nuevo Liquids,
Inc. ("Nuevo"), Panda Resources, Inc. ("Panda"), Steve Wilson, and Wilson,
Tucker & Associates. Pursuant to the Settlement, the Company has agreed (a) to
pay Nuevo $20,000 by December 7, 1995, and an additional $30,000 over the course
of 90 days following execution of the Settlement, and (b) to pay Torch $50,000
within one year of executing the Settlement, an additional $50,000 within two
years of the Settlement, and additional $150,000 within three years of the
Settlement together with interest in the amount of $36,000. To secure its
obligations under the Settlement, the Company has entered into an agreed
judgment against it in the amount of $1 million (less any amounts paid pursuant
to the Settlement) which will be enforced only upon the Company's default of its
obligations under the Settlement. In addition, the Company has agreed to assume
and indemnify Panda and Torch against all obligations owing under the May 2,
1989 agreement between Panda and Northern Natural Gas relating to the
transportation of natural gas through a facility located in Dewey County,
Oklahoma. In exchange for this consideration, Torch and Nuevo have agreed to
dismiss their respective claims against the Company and LaTex Petroleum arising
from the litigation.
Northern Natural Gas Company v. LaTex Resources, Inc., 152nd District Court
-----------------------------------------------------
of Harris County, Texas, Case No. 94-049766. On October 20, 1995, the Company
filed a Motion for Leave to File Third-Party Action against Panda Resources,
Inc. ("Panda") (the "Motion"). Pursuant to the Settlement Agreement between the
Company, Panda, LaTex Petroleum, Torch Energy Marketing, Inc., Nuevo Liquids,
Inc., Steve Wilson, and Wilson, Tucker & Associates referenced above, the
Company has agreed to withdraw the Motion. In return, Panda and Torch have
agreed to produce certain documents and witnesses in the litigation. Settlement
negotiations between the Company and Northern Natural Gas Company continue.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission to Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
SEC
Exhibit
No. Description of Exhibits
------- ---------------------------------------
(2) Plan of Acquisition, Reorganization,
Arrangement Liquidation or Succession
-------------------------------------
Not Applicable.
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
-------------------------------------------
Not Applicable.
(10) Material Contracts
------------------
Not Applicable.
(11) Statement re Computation of Per-Share Earnings
----------------------------------------------
Not Applicable.
(15) Letter re Unaudited Interim Financial Information
-------------------------------------------------
Not Applicable.
(18) Letter re Change in Accounting Principles
-----------------------------------------
Not Applicable.
(19) Report Furnished to Security Holders
------------------------------------
Not Applicable.
(22) Published Report Regarding Matters Submitted to
Vote of Security Holders
-----------------------------------------------
Not Applicable.
(23) Consents of Experts and Counsel
-------------------------------
Not Applicable.
(24) Power of Attorney
-----------------
Not Applicable.
(27) Financial Data Schedule
-----------------------
*27.1 Financial Data Schedule of LaTex Resources, Inc.
(99) Additional Exhibits
-------------------
Not Applicable.
- ------------------------
* Filed Herewith.
(b) Reports on Form 8-K
-------------------
On December 7, 1995, the Company filed Amendment No. 1 to Current
Report on Form 8-K which amended Item 7 of the Company's Current
Report on Form 8-K filed on May 11, 1995 to include audited
financial statements of Germany Oil Company and pro forma
financial information, all relating the Company's acquisition of
Germany Oil Company.
19
<PAGE>
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.
LaTex Resources, Inc.
By: /s/ John L. Cox
----------------------------
John L. Cox, Vice President
and Chief Financial Officer
Date: December 18, 1994
20
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