<PAGE> 1
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1995
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to _______________
Commission file number 0-16303
BOUNTY GROUP, INC.
________________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 76-0214013
________________________________________________________________________________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2500 Tanglewilde, Suite 250, Houston, Texas 77063
(Address of principal executive offices)
(713) 975-1900
________________________________________________________________________________
(Issuer's telephone number)
NONE
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 of the past 90 days.
Yes [X] No ______.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class OUTSTANDING AT MARCH 31, 1995
---------------------------- -----------------------------
Common Stock, $.10 par value 1,128,327
<PAGE> 2
BOUNTY GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
Number
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet (Unaudited) at March 31, 1995 and
at December 31, 1994........................................................... 3
Consolidated Statement of Operations (Unaudited) Three Months
Ended March 31, 1995 and March 31, 1994........................................ 4
Consolidated Statement of Cash Flows (Unaudited) Three Months
Ended March 31, 1995 and March 31, 1994........................................ 5
Notes to Consolidated Financial Statements (Unaudited)........................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders................................ 11
Item 6. Exhibits and Reports on Form 8-K................................................. 11
Signature Page.............................................................................. 12
</TABLE>
<PAGE> 3
BOUNTY GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION> March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 251,740 $ 80,167
Accounts receivable:
Trade 146,730 120,747
Sale of offshore properties (Note 3) 53,367 63,764
Due from stockholders and affiliates 48,450 0
Other 55,636 39,530
----------- -----------
TOTAL CURRENT ASSETS 555,923 304,208
Property, plant and equipment:
Oil and gas properties (Full Cost Method), net of accumulated
depreciation of $5,727,464 and $5,653,270, respectively 2,598,874 2,497,467
Furniture, fixture and equipment, net of accumulated
depreciation of $59,353 and $51,273, respectively 52,647 56,531
Other assets:
Restricted cash (Note 2) 100,000 100,000
Other noncurrent assets 24,331 21,899
----------- -----------
TOTAL ASSETS $ 3,331,775 $ 2,980,105
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $15,505 $ 21,326
Plugging and abandonment liability (Note 3) 115,250 115,250
Accounts payable and accrued liabilities 282,029 215,567
Due to stockholders and affiliates (Note 4) 297,932 31,559
----------- -----------
TOTAL CURRENT LIABILITIES 710,716 383,702
Long-term debt 18,932 22,693
Convertible debt payable to stockholders (Note 4) 1,200,000 1,055,770
----------- -----------
TOTAL LONG-TERM LIABILITIES 1,218,932 1,078,463
TOTAL LIABILITIES 1,929,648 1,462,165
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - shares authorized
1,000,000; none issued and outstanding 0 0
Common stock, $.10 par value - shares authorized
5,000,000; 1,128,327 issued and outstanding 112,833 112,833
Additional capital 6,681,526 6,681,526
Accumulated deficit (5,392,232) (5,276,419)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,402,127 1,517,940
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,331,775 $ 2,980,105
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
BOUNTY GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
--------- ---------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 208,992 $ 210,829
Other income 294 791
--------- ---------
TOTAL REVENUES 209,286 211,620
EXPENSES:
Production costs 98,199 74,922
Depreciation, depletion and amortization 82,274 71,941
General and administrative 119,402 121,110
Interest expense 23,589 7,087
--------- ---------
TOTAL EXPENSES 323,464 275,060
LOSS FROM OPERATIONS (114,178) (63,440)
Provision for income taxes 1,635 0
--------- ---------
NET LOSS ($115,813) ($63,440)
========= =========
LOSS PER COMMON SHARE ($0.10) ($0.06)
========= =========
AVERAGE SHARES OUTSTANDING 1,128,327 1,125,327
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
BOUNTY GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($115,813) ($63,440)
Adjustments to reconcile net loss:
Depreciation, depletion and amortization 82,274 71,941
Interest expense 22,635
Changes in components of working capital:
(Increase) decrease in accounts receivable (25,983) 61,792
Increase in other current assets (7,191) (35,207)
Increase in accounts payable and accrued
liabilities 66,462 14,922
Increase in noncurrent receivables and other (2,432) (3,042)
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,952 46,966
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 19,502 59,930
Additions to property, plant and equipment (188,902) (313,372)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (169,400) (253,442)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings (9,582) (13,919)
Proceeds from borrowings from stockholders and
affiliates 350,000 230,000
Payments on notes payable from stockholders and
affiliates (19,397) (82,120)
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 321,021 133,961
---------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS 171,573 (72,515)
Cash and cash equivalents at beginning of period 80,167 129,476
---------- ---------
Cash and cash equivalents at end of period $251,740 $56,961
========== =========
CASH PAID DURING THE PERIOD FOR:
Interest $954 $3,879
Income taxes $1,206 $0
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
BOUNTY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. MANAGEMENT'S OPINION REGARDING THE PREPARATION OF INTERIM FINANCIAL
STATEMENTS
The consolidated financial statements included herein have been
prepared by management of Bounty Group, Inc. (the "Company") without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
results for the interim periods. Certain information and notes normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, management believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
Certain reclassifications have been made in the 1994 amounts to
conform with the 1995 presentation.
NOTE 2. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Bounty Group, Inc. and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.
NOTE 3. SALE OF THE COMPANY'S OFFSHORE PROPERTIES
In January 1994, the Company completed the sale of its offshore
properties and gas imbalance positions to a gas transportation company, Excel
Resources, Inc. ("Excel") effective December 1, 1993.
Excel paid $46,100 at closing with the remaining balance payable
in 12 equal monthly interest free installments of $13,830 each commencing March
1994. In addition, the Company received 92,200 shares of Excel Common Stock
which cannot be sold until January 27, 1996 (two years after the issuance of
the shares). If the shares are publicly traded in January 1996, Excel
guarantees to repurchase 75% of the shares at $8 a share or issue additional
shares to Bounty so that 75% of the shares plus the additional issued shares
have a market value of $553,200. Based on the uncertainties surrounding the
financial situation of Excel, the Company has recorded its investment in
Excel's shares at fair market value instead of the guaranteed price. Due to
the lack of a valuation report of Excel and a market for the Excel shares at
the time of the transaction, the Company used its percentage of book value of
Excel at September 30, 1993, to establish a fair market value for the shares.
The Company will continue to monitor this investment to ensure that it is
stated at the lower
6
<PAGE> 7
BOUNTY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
of cost or market. In 1996, if Excel's shares are sold, the associated realized
gain or loss will be recorded in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115.
The Company has agreed to pay a portion of the plugging and abandonment
costs if a specific well that was sold to Excel has to be plugged within three
years of the closing. The Company has recorded an estimated liability for this
item. In addition, as part of this sale, all imbalance positions related to the
offshore properties were assumed by Excel.
Excel was not current with the installment payments as of March 31,
1995. If any amount under the note turns out to be uncollectable, the Company
intends to offset this amount against the plugging liability that the Company
agreed to pay. Accordingly, no reserve for bad debt has been recorded.
NOTE 4. RELATED PARTY TRANSACTIONS
Due to Affiliates:
In March 1995, the Company obtained a two year, convertible note for
$350,000 from Norse Petroleum AS. The note carries an interest rate of 10% per
annum and the conversion price for the stock is $1.00.
Also, in March 1995, the Company obtained a two year, convertible note
for $80,000 from Norse Petroleum AS with a conversion price for the stock at
$1.00. The note carries an interest rate of 10% per annum, commencing March 31,
1996.
In addition, in March 1995, the Company issued a new convertible note to
Norse Petroleum AS for $55,770 with interest at 10% per annum, due March 31,
1996 and with a conversion price for the stock at $1.00. The new note was in
exchange for a note due March 31, 1995 which had a remaining principal balance
of $55,770 and was convertible at a conversion price for the stock at $1.00.
The note exchange was effected as a means of extending the maturity of the old
note.
At March 1995, Norse Petroleum AS held subordinated convertible notes of
the Company in the aggregate principal amount of $1,485,770 maturing between
1996 and 1997.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVENUES
Revenues, volumes and prices for the three months ended March 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1994
------- -------
<S> <C> <C>
Oil and gas sales (1) $208,992 $210,829
======== ========
Volumes sold for the quarter (Mcf equivalents) 92,267 77,760
======== ========
Average daily sales (Mcf equivalent/day) 1,025 864
======== ========
Average sales price (Mcf equivalent) $ 2.27 $ 2.71
======== ========
</TABLE>
(1) During the three months ended March 31, 1995 approximately 89% of the
revenues were derived from natural gas sales, compared to over 98%
for the three months ended March 31, 1994.
Results of Operations
THREE MONTHS ENDED MARCH 31, 1995 VS. MARCH 31, 1994:
Oil and gas revenues for the quarter ended March 31, 1995, decreased
1% compared to the prior period. The decrease is attributable to the
following:
Texas wells: A 146% increase in production volumes coupled with a
decrease in price of 8% resulted in an $8,000 increase in oil and gas revenues
for 1995 as compared to the same period of 1994. The increase in production is
mainly due to a well that was shut-in for rework in 1994, now is back on
production.
New York wells: A 12% increase in production volumes coupled with a
decrease in price of 15% from the Company's New York wells resulted in a
$10,000 decrease in oil and gas revenues for 1995 as compared to the same
period of 1994. The increase in production is due to the Company's drilling
and purchase of additional wells since March 31, 1994.
COSTS AND EXPENSES
Production costs increased 31% for the quarter ended March 31, 1995,
compared to the same prior year period. The increase in whole is attributable
to the New York properties and results from the rework of 14 wells purchased by
the Company last fall, an increase in number of wells operated by the Company
and an extra fee charged for outside accounting for the New York wells in 1995.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses which are net of operator fees
received by the Company, decreased 1% for the quarter ended March 31, 1995,
compared to the same prior year period. Employee salaries and related costs
decreased 14% for the quarter ended March 31, 1995, compared to the same prior
year period primarily due to a reduced workforce in New York. The Company
shares office space and some personnel with Exploration. Rent, telephone and
other general office expenses were 9% higher for the first three months of
1995, compared to 1994. The increase primarily reflects expenses related to
the postponed annual meeting for stockholders held February 10, 1995.
Consulting, audit and legal fees decreased 7% for the quarter ended March 31,
1995, compared to the same prior year period. The decrease is mainly due to
extra expenses incurred in 1994 in connection with the sale of the offshore
properties and the potential acquisition of Norse Petroleum (U.S.)
Incorporated.
Liquidity and Capital Resources
The Company had cash provided from operation of $19,952 for the three
months ended March 31, 1995 compared to $46,966 in the prior year. The Company's
working capital decreased from a deficit of $79,494 at year end to a deficit of
$154,793 as of March 31, 1995. The negative working capital is mainly a result
of the reduced prices received for the Company's gas and the extra expenses for
rework of the new wells. The Company is marketing its own gas and expects to
see higher prices in the coming months. The rework program for existing wells
is almost finished and consequently the operating expenses should be lower for
the rest of the year.
INVESTMENTS
As of early May 1995, 15 of the 18 wells in the Area of Mutual Interest
("AMI") Program for drilling of oil wells have been successfully completed.
Based on the appraisal done by the independent engineering firm Wright &
Company, Inc. the recoverable reserves from each of the above captioned wells
are anticipated to be 6,000 - 8,000 barrels. The remaining three wells are
expected to be drilled in the summer of 1995. The Company may consider selling
its interest in this AMI.
FUTURE COMMITMENTS AND CASH FLOW
On March 9, 1995, the Company entered into a Letter of Understanding
with Ardent Resources, Inc. ("Ardent"), a New York independent oil and gas
producer, for participation in two AMI programs for exploring the possible
extension of the Ohio Rose Run play in western New York. The Ohio Rose Run
play is considered to be one of the more economical prolific plays in the
Appalachian Basin, with reserves of 1 to 3 billion cubic feet of gas equivalent
for successful wells. On March 24, 1995, Ardent and the Company signed a
Joint Venture Agreement to cover the two AMIs and related mutual rights between
the two companies. The AMIs constitute gross leasehold positions of
approximately 30,000 acres. In the two AMIs, the Company has a 5% and 25%
interest, respectively. Six wells are planned to be drilled in the next twelve
months. As part of the agreement the Company will acquire a 5% interest in a
discovery well in Wyoming County, New York, which came on production in April
1995. The current production is not significant and is
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
more like a regular Medina well. However, more evaluation is required to
determine the reservoir. The Company's initial commitment in the AMIs is
anticipated to be up to $350,000 which is financed through the new loan from
Norse Petroleum AS of the same amount.
The Company is in discussion with Norse Petroleum AS to restructure
the debt of $1,485,770, maturing between February 1996 and March 1997. The
Company does not know, at this time, from what source cash would be obtained to
repay these notes and any accrued interest if an agreement to restructure is
not reached.
Management believes that future internally generated operating cash
flow should be sufficient to fund the existing operations based on current
market conditions, including higher prices for oil and gas. There exist,
however, uncertainties to whether the Kiantone line will be shut-in this summer
due to high line pressure and low Jamestown demand and the effect such a
shut-in will have on the Company's cash flow. Future activities and
acquisitions would be financed mostly by notes, the issuing of the Company's
stock or through selling off existing wells. Management will continue to
consider issuing shares of its capital stock as partial payment for
acquisitions or related expenses.
Future Outlook
During the coming months, the Company intends to organize development
drilling and other investment programs in New York with outside investors. The
Company's share in these projects will vary with risk and the possibility of
obtaining financing. Currently, the Company is in the process of having most
of its leases in New York geologically mapped. If the maps indicate good
drilling locations and the Company can obtain financing, the Company will try
to put together a drilling program for five or more Medina wells in the summer
of 1995. The Company also intends to finalize its building of gathering lines
this summer if financing can be obtained. An additional 50 miles of gathering
line at a total cost of approximately $500,000 is anticipated to be necessary
to complete this work. When completed, the Company will have the flexibility
to sell gas from most of the wells to the best market year round. Also, the
number of master meters will decrease, from 42 to about 10, resulting in
savings to the Company of $50,000 annually in meter fees.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) On February 10, 1995, the Company held an Annual Meeting of Stockholders
(the "Meeting").
b) At the Meeting the following persons were elected directors to serve
until the next annual meeting for the election of directors or as otherwise
provided in the By-Laws of the Company:
Oivind Risberg
Bruce A. Rich
James D. Snyder
Robert H. Steelhammer
c) The only matters voted upon at the Meeting by the stockholders were the
election of the directors and the adoption of the Stock Option Plan.
In the voting for the directors, 1,081,832 share were cast in favor of
each nominee and 33,774 shares were withheld.
In the voting for the 1994 Stock Option Plan, 913,209 shares were cast for
approval, 34,513 shares were opposed and 52,322 shares abstained or were
broker nonvotes.
d) Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
The Company filed a Form 8-K for an event of March 15, 1995,
reporting in Item 5 the issuance of two new convertible notes and the
restructuring of an existing note. The new and restructed notes were filed as
exhibits under Item 7 in the Company's 1994 10-K.
11
<PAGE> 12
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.
BOUNTY GROUP, INC.
(Registrant)
Date: May 12, 1995 By: /s/ OIVIND RISBERG
-----------------------------------
Oivind Risberg
Acting President and CEO
Date: May 12, 1995 By: /s/ HEGE K. RISBERG
-----------------------------------
Hege K. Risberg
Treasurer (Principal Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1995
CONSOLIDATED STATEMENT OF OPERATIONS AT MARCH 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) MARCH 31, 1995 10-Q
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 251,740
<SECURITIES> 0
<RECEIVABLES> 304,183
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 555,923
<PP&E> 8,438,338
<DEPRECIATION> 5,786,817
<TOTAL-ASSETS> 3,331,775
<CURRENT-LIABILITIES> 710,716
<BONDS> 18,932<F1>
<COMMON> 112,833
0
0
<OTHER-SE> 1,289,294
<TOTAL-LIABILITY-AND-EQUITY> 3,331,775
<SALES> 209,286
<TOTAL-REVENUES> 209,286
<CGS> 98,199
<TOTAL-COSTS> 201,676
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,589
<INCOME-PRETAX> (114,178)
<INCOME-TAX> 1,635
<INCOME-CONTINUING> (115,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (115,813)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
<FN>
<F1>Does not include subordinated convertible note payable to parent of $1,200,000.
</FN>
</TABLE>
