<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
XX SECURITIES EXCHANGE OF 1934
----
For the quarterly period ended April 30, 1996
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
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 June 14, 1996, there were 18,030,495 shares of the Registrant's
single class of common stock issued and outstanding.
<PAGE>
LaTex Resources, Inc.
Index to Form 10-Q for the Quarterly Period
Ended April 30, 1996
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Page
--------------------
Consolidated Balance Sheets as of
April 30, 1996 and July 31, 1995 4
Consolidated Statements of Operations 6
for the nine months ended
April 30, 1996 and 1995
Consolidated Statements of Cash Flows 7
for the nine months ended
April 30 1996 and 1995
Consolidated Statements of Stockholders' 9
Equity for the nine months ended
April 30, 1996 and the year ended
July 31, 1995
Notes to Consolidated Financial 10
Statements
Item 2. Management's Discussion and Analysis 11
of Financial Condition and Results
of Operations.
PART II - OTHER INFORMATION 19
Item 1. Legal Proceedings
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 22
2
<PAGE>
PART I
FINANCIAL INFORMATION
3
<PAGE>
ITEM 1. Financial Statements
LATEX RESOURCES, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30, 1996 July 31, 1995
(unaudited) (audited)
---------------- ---------------
ASSETS
Current assets:
<S> <C> <C>
Cash $ - $ 314,229
Accounts receivable-net 3,472,946 2,836,596
Accounts receivable & notes
receivable-related 2,687,525 2,235,238
Accounts receivable-other 45,032 696,688
Inventories 239,584 90,976
Other current assets 219,155 84,791
Deferred loan costs 117,950 148,800
Assets held for resale 910,096 144,990
---------------- ---------------
TOTAL CURRENT ASSETS $ 7,692,288 $ 6,552,308
<CAPTION> ---------------- ---------------
Property, plant, and equipment:
Oil and gas properties $ 33,453,021 $ 31,778,663
Uncompleted properties 3,363,000 3,363,000
Other depreciable assets 969,109 954,415
---------------- ---------------
$ 37,785,130 $ 36,096,078
Less accumulated depreciation
and depletion 9,141,871 6,296,473
---------------- ---------------
Net property, plant
and equipment $ 28,643,259 $ 29,799,605
---------------- ---------------
<CAPTION>
Other assets:
Goodwill $ 9,248,423 $ 9,747,657
Deposits and other assets 132,299 137,559
Reorganization cost 89,664 113,522
Investments-other 1,914,935 2,002,847
Deferred loan costs 524,735 555,769
---------------- ---------------
TOTAL OTHER ASSETS 11,910,056 12,557,354
---------------- ---------------
TOTAL ASSETS $ 48,245,603 $ 48,909,267
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LATEX RESOURCES, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30, 1996 JULY 31, 1995
(unaudited) (audited)
----------------- ------------------
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 6,659,566 $ 5,742,342
Accounts payable-other 2,581,365 2,928,107
Accrued expenses payable 70,340 139,113
Income taxes payable 6,177 31,177
Current portion long-term debt 3,909,624 3,644,723
----------------- ------------------
Total current liabilities $ 13,227,072 $ 12,485,462
----------------- ------------------
Long-term liabilities:
Long term debt-net of current $ 18,710,190 $ 20,634,809
----------------- ------------------
Total long-term liabilities $ 18,710,190 $ 20,634,809
----------------- ------------------
Total Liabilities $ 31,937,262 $ 33,120,271
----------------- ------------------
Stockholders' equity:
Common stock $ 190,390 $ 188,802
Preferred stock 8,645,796 8,226,180
Additional paid-in capital 9,008,549 8,931,424
Treasury stock (489,365) (399,106)
Retained earnings (1,047,029) (1,158,304)
----------------- ------------------
Total stockholders' equity $ 16,308,341 $ 15,788,996
----------------- ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 48,245,603 $ 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 For The Nine Months Ended
-------------------------- -------------------------
April 30, April 30,
--------- ---------
1996 1995 1996 1995
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales $ 3,910,727 $2,083,602 $10,225,823 $ 5,501,374
Oil and gas marketing 117,418 293,273 420,998 1,059,254
Lease operations and management fees 810,559 141,616 2,291,235 315,901
-------------- -------------- --------------- ---------------
Total operating income $ 4,838,704 $2,518,491 $12,938,056 $ 6,876,529
Operating expenses:
Lease operating expense $ 1,694,108 $1,113,207 $ 5,266,351 $ 3,225,437
Marketing expense 10,226 187,521 125,900 681,140
General & administrative expense 664,823 600,413 2,210,791 1,916,540
Depreciation, depletion and amortization 1,295,710 547,206 3,895,042 1,458,524
Interest 380,337 207,947 1,303,544 613,246
-------------- -------------- --------------- ---------------
Total operating expenses $ 4,045,204 $2,656,294 $12,801,628 $ 7,894,887
-------------- -------------- --------------- ---------------
Net operating income (loss) $ 793,500 $ (137,803) $ 136,428 $(1,018,358)
Other income:
Hedging income (loss) (720,552) - (1,379,139) -
Equity in earnings (losses) of
joint ventures and
unconsolidated subsidiary $ (16,500) $ (26,812) $ (88,500) $ (223,838)
Gain on sale of assets 527,478 (86,009) 1,819,757 (16,809)
Interest income 13,071 25,147 42,120 72,087
-------------- -------------- --------------- ---------------
Net income (loss) from continuing
Operations before income taxes $ 596,997 $ (225,477) $ 530,666 $(1,186,918)
Income taxes - current - (80,672) (227) (328,542)
Income taxes - deferred - - -
-------------- -------------- --------------- ---------------
Net income (loss)
from continuing operations $ 596,997 $ (144,805) $ 530,893 $ (858,376)
Historical net income (loss) $ 596,997 $ (144,805) $ 530,893 $ (858,376)
Preferred stock dividends $ 143,626 $ - $ 419,616 $ -
Historical net income (loss) from continuing
operations for common shareholders $ 453,371 $ (144,805) $ 111,277 $ (858,376)
Historical income (loss) per share from
continuing operations $ 0.03 $ (0.01) $ 0.01 $ (0.05)
============== ============== =============== ===============
Earnings (loss) per share $ 0.03 $ (0.01) $ 0.01 $ (0.05)
============== ============== =============== ===============
Weighted avg. number of shares o/s 18,042,368 17,566,015 18,004,734 17,536,481
============== ============== =============== ===============
</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>
Nine Nine
Months Ended Months Ended
April 30, April 30,
1996 1995
============== ==============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Historical net income $ 530,893 $ (858,376)
Adjustments to reconcile net income net cash
provided by (used for) operating activities: - -
Depreciation, amortization and depletion 3,895,042 1,458,524
write-down of investments - -
Equity losses from investments in
unconsolidated subsidiaries (88,500) (223,838)
Changes in Assets and Liabilities:
Inventories (148,608) -
Accounts receivable (436,981) (1,859,820)
Accrued expenses payable (93,773) 2,525
Accounts payable (499,895) 5,501,983
Other assets 53,575 (640,475)
Prepaid expenses 75,268 (45,549)
Assets held for resale (765,106) -
--------------- ---------------
Net cash provided by operating activities $ 2,521,915 $ 3,334,974
--------------- ---------------
Cash flows from investing activities:
Investments $ - $ 194,232
Property, plant, and equipment (2,021,052) (23,929,474)
Reorganization cost, net - 12,098
Treasury stock 90,259 124,106
--------------- ---------------
Net cash used for investing activities $ (1,930,793) $ (23,599,038)
</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>
Nine Nine
Months Ended Months Ended
April 30, April 30,
1996 1995
============== ==============
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Public offering of common stock $ - $ -
Notes payable (1,659,718) 16,427,998
Capital contributions - 4,156,607
--------------- ---------------
Net cash provided by (used for) financing activities $ (1,659,718) $ 20,584,605
--------------- ---------------
Net (decrease) in cash and cash equivalents $ (1,068,596) $ 320,541
Cash and cash equivalents beginning of period $ (1,781) $ 208,399
--------------- ---------------
Cash and cash equivalents end of period $ (1,070,377) $ 528,940
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,303,544 $ 613,246
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 Pheonix Metals - -
Pre-acquisition exercise of Panda Resources, Inc.
stock options in exchange for note receivable - -
--------------- ---------------
Total $ - $ -
=============== ===============
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.
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
LATEX RESOURCES, INC.
Consolidated Statements of Stockholders' Equity
Nine Months Ended April 30, 1996 Year Ended July 31, 1995
<TABLE>
<CAPTION>
Common Stock
---------------------------------- Additional
Paid-in Retained
Shares Par Value Capital Earnings
============= ============== =============== =============
<S> <C> <C> <C> <C>
Balance July 31, 1995 (excluding subscriptions 18,880,195 $ 188,802 $ 8,931,424 $ (1,158,304)
receivable)
Preferred stock dividends (419,616)
Net income for the nine months ended 530,891
Issued as consideration for Debt 58,800 588
Issued for consulting services 100,000 1,000 77,125 -
Purchase of Treasury Stock
Balance April 30, 1996 19,038,995 $ 190,390 $ 9,008,549 (1,047,029)
============== =============== =============
Less treasury shares (1,008,500)
-------------
Total outstanding 18,030,495
=============
</TABLE>
<TABLE>
<CAPTION>
Total
Treasury Preferred Stockholders
Stock Stock Equity
============== =============== ================
<S> <C> <C> <C>
Balance July 31, 1995 (excluding subscriptions$ $ (399,106) $ 8,226,180 $ 15,788,996
receivable)
Preferred stock dividends 419,616
Net income for the nine months ended 530,891
Issued as consideration for Debt 588
Issued for consulting services - - 76,125
Purchase of Treasury Stock (90,259) (90,259)
Balance April 30, 1996 $ (489,365) $ 8,645,796 $ 16,308,341
=============== ============= =============
</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 $22,580,192. Principal
payments are required monthly beginning June 30, 1995 and total $322,500 per
month with interest accruing on the unpaid balance at the current interest rate
of 9.6%. The company is currently in default with certain financial covenants
as specified in the Amended Credit Agreement, however the company is current in
its payments to the Bank of America.
(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.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
-----------------------------------
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% annual dividend. The Series B
Preferred Stock is convertible into common stock at $1.50 per share and has a
12% annual dividend. The company is restricted from paying cash dividends in
accordance with the Amended Credit Agreement. Stock dividends are issued
quarterly to satisfy the dividend requirement.
Results of Operations
- ---------------------
The following is a discussion of the results of operations of the Company for
the three months and nine months ended April 30, 1996. 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 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:
11
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended April 30
--------------------------
1996 1995
---- ----
<S> <C> <C>
Net Sales Volumes:
Oil (Mbbls) 331 244
Natural gas (Mmcf) 2904 1623
Oil equivalent (MBOE) 800 515
Average Sales Prices:
Oil (per Bbl) $14.32 $12.57
Natural Gas (per Mcf) $ 1.74 $ 1.47
Operating Exp. per BOE of Net Sales:
Lease operating $ 5.73 $ 5.57
Severance tax $ 0.85 $ 0.70
General and administrative $ 2.76 $ 3.72
Depreciation, depletion and amortization $ 4.87 $ 2.83
</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.
The company entered into hedging arrangements in April 1995 designed to offset
large fluctuations in oil and gas prices through financial instruments. For
fiscal 1996 the company has experienced a net loss of $1,379,139 as a result of
its hedging program.
Three months ended April 30, 1996. Total revenues from the Company's operations
- ---------------------------------
for the quarter ended April 30, 1996 were $4,838,704 compared to $2,518,491 for
the quarter ended April 30, 1995. Revenues increased over the comparable period
a year earlier due to the addition of the Germany Oil Company acquisition in
April 1995 and the Sackett acquisition in October 1995 and increased product
prices.
Depreciation, depletion and amortization increased to $1,295,710 from $547,206 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.
Lease operating expenses and marketing expenses were $1,694,108 and $10,226
respectively, for the three-month period ending April 30, 1996 compared to
$1,113,207 and $187,521 respectively for the period ending April 30, 1995. The
increase in lease operating expenses is due to the addition of the Germany Oil
Company properties, while the reduction in marketing expense is due to reduced
non-LaTex related marketing activity and the timing of the liftings at South
Carlton.
12
<PAGE>
General and administrative expenses increased from $600,413 during the quarter
ended April 30, 1995 to $664,823 for the period ending April 30, 1996. The
increase is attributed to additional costs associated with the Germany
acquisition.
The Company had after tax income from continuing operations of $596,997 ($ .03
per share) versus a loss of $225,477 ($.02 per share) for the same period last
year. The increase in income reflects the addition of the Germany Oil Company
properties and increased oil & gas prices.
The historical net income of the Company for the quarter ended April 30, 1996
was $453,371 ($.03 per share) compared to a net loss of $144,805 ($.01 per
share) for the previous year. The increase in income is a result of the Germany
Oil Company acquisition, higher product prices, and a gain of $527,478 on the
sale of non-strategic properties partially offset by the loss of $720,552 on
product and financial hedges for the quarter.
Nine months ended April 30, 1996. Total revenues from the Company's operations
- --------------------------------
for the nine months ended April 30, 1996 were $12,938,056 compared to $6,876,529
for the nine months ended April 30, 1995. Revenues increased over the same
period in the previous year due to the addition of Germany Oil Company in April
1995, settlements on payables associated with the Germany Oil Company
transaction and increased product prices.
Depreciation, depletion and amortization increased from $1,458,524 for the
period ended April 30, 1995 to $3,895,042 for the current period due to
additional volumes associated with the Germany Oil Company transaction and the
write-down of the Company's oil and gas reserves at year-end 1995 resulting from
reduced oil and gas prices.
Lease operating expenses increased to $5,266,351 in the current nine month
period compared to $3,225,437 for the comparable period a year earlier due to
the additional production associated with the April 1995 Germany Oil Company
transaction.
General and administrative expenses increased from $1,916,540 during the period
ended April 30, 1995 to $2,210,791 for the period ending April 30, 1996. The
increase is attributed to additional professional fees associated with the
Germany Oil acquisition.
The Company had an after tax profit from continuing operations of $530,893
($.03 per share) versus a loss of $858,376 ($.05 per share) for the same period
last year. The increased income reflects additional profit margin from the
Germany Oil Company properties, producing property sales during the year which
generated gains of $1,819,757 partially offset by costs associated with the
company's oil and gas product hedge and interest rate hedge of $1,379,139 and
increased lease operating expenses.
The historical net income of the Company for the period ended April 30, 1996,
was $111,277 ($.01 per share) compared to a net loss of $858,376 ($.05 per
share) for the previous year. The reduction in the loss is due to the
additional revenues from the Germany acquisition, and the gain on the sale of
non-strategic assets of $1,819,757 partially offset by the loss of $1,379,139
due to the Company's hedging programs.
13
<PAGE>
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 in
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. The company has
reduced the long-term payables associated with the Germany acquisition to
approximately $2.7 million at April 30, 1996. At April 30, 1996 the Company has
current assets of $7.7 million and current liabilities of $13.2 million, which
resulted in negative working capital of $5.5 million. The Company's debt to its
principal bank at April 30, 1996, was $22.6 million. The Company intends to
continue to pursue its program to 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. Satisfactory resolution of the issues
discussed in the Company's 10-K filing relating to Kazakhstan have not been
achieved but the Company presently expects no further cash calls in fiscal 1996.
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 sale of
14
<PAGE>
certain non-strategic properties resulted in a gain of $2.3 million with a
portion of the funds dedicated to working capital. The $1.8 million gain
reflected in the financial statements is net of $.5 million of asset write downs
associated with the Torch and Northern Natural litigation. The Company
anticipates that its cash flow will be sufficient to fund its domestic
operations and debt service at their current levels for the remainder of the
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.
In January, the Company sold certain non-strategic assets purchased in the
Sackett acquisition to Foster Brown Company for a total consideration of
$2,857,275. The Company realized a total gain of $1,832,853 as a result of the
sale. In May 1996, the Company sold additional non-strategic assets purchased
in the Sackett acquisition for proceeds totaling $860,000 which resulted in a
$485,086 gain. Approximately $2.7 million of the proceeds were used to pay off
bank debt while, the balance of the proceeds have been dedicated to working
capital.
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, and approximately
$1,100,000 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 $23,000,000 for
the purposes of refinancing the borrower's existing indebtedness partially
funding the acquisition of the Germany Oil and Enron interests (including
funding the
15
<PAGE>
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 April 30, 1996, outstanding advances totaled $22,580,192.
Principal on any loans under the amended credit agreement is repayable in
minimum monthly installments of $322,500 plus an 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 as 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 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; 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. The requirement that no less than $500,000 in cash equivalent
investments on hand at any given time, and no less than $500,000 in working
capital has been waived and replaced with a Trance C Revolving Loan which makes
available to the Company amounts up to $300,000 to handle short-term cash
commitments. The loan is due and payable within 60 days and additional
reborrowings will be available seven days after the date of payment in full.
Effective May 28, 1996 the Lenders Commitment to make available $300,000 of the
Tranche C Commitment as a Tranche C Revolving Loan as indicated in the Credit
Agreement has been terminated. No outstanding obligations are due and payable
under the Tranche C. Loan. At July 31, 1995 the Company was not in compliance
with certain covenants. The Bank waived these events of default by the Company
through January 31, 1996 but subsequent to that time have not issued any
additional waivers of default.
16
<PAGE>
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 is continuing to work with R P & C to finalize its financial plan.
The Company believes that, through sales of non-strategic properties 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. Nor
can there be any assurance that the Company will continue to be able to sell
non-strategic properties at favorable prices.
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 this 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 despite financial hedges
presently in place. 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>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
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.
Both Companies have agreed to a settlement in principle with the execution of a
confidential letter of Intent which is subject to further agreements to be
executed by the parties. Subsequent to the end of the quarter these agreements
were executed and the litigation has been settled.
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
19
<PAGE>
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 Contacts
-----------------
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 Matter submitted
-------------------------------------------
to Vote of Security Holders
---------------------------
Not Applicable.
(23) Consents of Experts and Counsel
-------------------------------
Not Applicable.
(24) Power of Attorney
-----------------
Not Applicable
20
<PAGE>
(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 of 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.
21
<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: June 14,1996
22
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<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 6,205,503
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<INVENTORY> 239,584
<CURRENT-ASSETS> 7,692,288
<PP&E> 37,785,130
<DEPRECIATION> 9,141,871
<TOTAL-ASSETS> 48,245,603
<CURRENT-LIABILITIES> 13,227,072
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0
8,645,796
<COMMON> 190,390
<OTHER-SE> 7,472,155
<TOTAL-LIABILITY-AND-EQUITY> 48,245,603
<SALES> 0
<TOTAL-REVENUES> 4,838,704
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<TOTAL-COSTS> 3,664,867
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