Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the quarterly period ended September 30, 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 No. 0-17267
MALLON RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 84-1095959
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
999 18th Street, Suite 1700
Denver, Colorado 80202
(Address of principal executive offices)
(303) 293-2333
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period of time Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of November 14, 1996, 4,383,617 shares of Registrant's Common
Stock were outstanding.
MALLON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
___________
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
(Unaudited)
<T> <C> <C>
Current assets:
Cash and cash equivalents $ 1,269,000 $ 1,066,000
Short-term investments -- 2,814,000
Accounts receivable, with no allowance for doubtful accounts:
Oil and gas sales 1,065,000 949,000
Joint interest participants 376,000 355,000
Related parties 22,000 36,000
Inventories 53,000 41,000
Other 143,000 169,000
Total current assets 2,928,000 5,430,000
Property and equipment:
Oil and gas properties, under the full cost method 43,751,000 45,165,000
Mining properties and equipment 6,248,000 9,764,000
Other equipment 508,000 549,000
50,507,000 55,478,000
Less accumulated depreciation, depletion and
amortization (22,085,000) (23,728,000)
28,422,000 31,750,000
Notes receivable - related parties 63,000 31,000
Other, net 222,000 125,000
Total Assets $ 31,635,000 $ 37,336,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ 2,000,000
Current portion of long-term debt -- 1,170,000
Current portion of capital lease obligation 23,000 25,000
Trade accounts payable 2,309,000 1,255,000
Undistributed revenue 711,000 738,000
Drilling advances 271,000 196,000
Accrued taxes and expenses 90,000 211,000
Total current liabilities 3,404,000 5,595,000
Long-term debt 10,000,000 7,400,000
Notes payable, other -- 230,000
Capital lease obligation, net of current portion 37,000 17,000
Drilling advances 315,000 409,000
Accrued expenses -- 4,000
Total non-current liabilities 10,352,000 8,060,000
Total liabilities 13,756,000 13,655,000
Commitments and contingencies -- --
Minority interest 2,275,000 8,633,000
Series B Mandatorily Redeemable Convertible Preferred Stock,
$0.01 par value, 500,000 shares authorized, 400,000 shares
issued and outstanding, liquidation preference and mandatory
redemption of $4,000,000 3,844,000 3,884,000
Shareholders' equity:
Series A Convertible Preferred Stock, $0.01 par value,
1,467,890 shares authorized, 1,100,918 shares
issued and outstanding, liquidation preference
$6,000,000 5,730,000 5,730,000
Common Stock, $0.01 par value, 25,000,000
shares authorized; 1,949,914 and 2,083,617
shares issued and outstanding, respectively 19,000 21,000
Additional paid in capital 38,965,000 39,726,000
Accumulated deficit (32,954,000) (34,313,000)
Total shareholders' equity 11,760,000 11,164,000
Total Liabilities and Shareholders' Equity $ 31,635,000 $ 37,336,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
MALLON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
___________
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1995 1996 1995 1996
<T> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,348,000 $ 4,098,000 $ 830,000 $ 1,263,000
Deferred revenue amortization 1,420,000 -- 335,000 --
Operating service revenue 131,000 115,000 44,000 38,000
Gain on termination of volumetric
production payment 446,000 -- 446,000 --
Gain on sale of subsidiary stock -- 329,000 -- 329,000
Interest and other 82,000 105,000 43,000 76,000
4,427,000 4,647,000 1,698,000 1,706,000
Costs and expenses:
Oil and gas production 1,406,000 1,511,000 402,000 537,000
Mine project expenses 361,000 648,000 114,000 289,000
Depreciation, depletion and
amortization 1,758,000 1,671,000 525,000 501,000
General and administrative 1,453,000 1,367,000 471,000 403,000
Interest and other 199,000 702,000 88,000 248,000
5,177,000 5,899,000 1,600,000 1,978,000
Minority interest in loss of
consolidated subsidiary -- 92,000 -- 39,000
Income (loss) before extraordinary item (750,000) (1,160,000) 98,000 (233,000)
Extraordinary loss on early retirement
of debt (344,000) (160,000) (344,000) --
Net loss (1,094,000) (1,320,000) (246,000) (233,000)
Dividends on preferred stock and
accretion (269,000) (281,000) (91,000) (94,000)
Net loss attributable to common
shareholders $(1,363,000) $(1,601,000) $ (337,000) $ (327,000)
Per share:
Loss attributable to common
shareholders before
extraordinary item $ (0.52) $ (0.71) $ -- $ (0.16)
Extraordinary loss (0.18) (0.08) (0.17) --
Net loss attributable to common
shareholders $ (0.70) $ (0.79) $ (0.17) $ (0.16)
Weighted average shares outstanding 1,946,000 2,032,000 1,949,000 2,084,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
MALLON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
___________
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1995 1996
<T> <C> <C>
Cash flows from operating activities:
Net loss $ (1,094,000) $(1,320,000)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of deferred revenues (1,420,000) --
Depreciation, depletion and amortization 1,758,000 1,671,000
Gain on sale of subsidiary stock -- (329,000)
Stock issued for compensation 37,000 293,000
Termination of volumetric production payment (5,586,000) --
Gain on termination of volumetric production payment (446,000) --
Extraordinary loss on early retirement of debt 219,000 160,000
Write-off of notes receivable - related parties -- 32,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 87,000 123,000
Inventory and other assets (73,000) (21,000)
Increase (decrease) in:
Trade accounts payable (430,000) (263,000)
Undistributed revenue -- 27,000
Accrued taxes and expenses 15,000 125,000
Deferred revenues and drilling advances (90,000) (19,000)
Net cash (used in) provided by operating activities (7,023,000) 479,000
Cash flows from investing activities:
Increase in short-term investments -- (2,814,000)
Additions to property and equipment (3,132,000) (2,806,000)
Proceeds from sale of subsidiary stock -- 372,000
Proceeds from sale of property and equipment -- 11,000
Increase in notes receivable-related parties (18,000) --
Net cash used in investing activities (3,150,000) (5,237,000)
Cash flows from financing activities:
Proceeds from long-term debt 11,801,000 10,570,000
Payments of long-term debt (2,500,000) (10,000,000)
Payment of loan origination fees -- (83,000)
Payment of capital lease obligation -- (17,000)
Net proceeds from sale of subsidiary preferred stock 2,278,000 --
Net proceeds from sale of subsidiary special warrants -- 4,325,000
Payment of preferred dividends (239,000) (240,000)
Net cash provided by financing activities 11,340,000 4,555,000
Net increase (decrease) in cash and cash equivalents 1,167,000 (203,000)
Cash and cash equivalents, beginning of period 88,000 1,269,000
Cash and cash equivalents, end of period $ 1,255,000 $ 1,066,000
Supplemental disclosure of cash flow information:
Cash paid for interest $ 191,000 $ 637,000
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock in exchange for:
Property and equipment $ 112,000 $ --
Loan origination fee $ 112,000 $ --
Consultants' accounts payable $ -- $ 791,000
Issuance of warrants for loan origination fee $ 50,000 $ --
Capital lease transaction $ 63,000 $ --
Acquisition of Red Rock Ventures, Inc. for subsidiary
common stock and notes payable. $ -- $2,300,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
MALLON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 1995 and 1996
(Unaudited)
___________
Note 1. GENERAL
Mallon Resources Corporation (the "Company") was
incorporated in Colorado in 1988, in connection with the
consolidation of Mallon Oil Company ("Mallon Oil"), Laguna Gold
Company ("Laguna") and 19 limited partnerships that they
sponsored. Mallon Oil continues as a wholly-owned subsidiary of
the Company. As of September 30, 1996, the Company owned 56% of
Laguna common stock. All of the Company's business activities
are conducted through these two subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The accompanying interim consolidated financial statements
are unaudited; however, in the opinion of management, the
consolidated financial statements include all adjustments
(consisting of normal recurring adjustments) necessary for a fair
statement of the results for the interim periods. On
September 9, 1996, a four to one reverse stock split of the
Company's issued and outstanding shares of common stock was
effected. Common stock, paid-in capital and earnings per share
information have been restated to give retroactive effect to the
reverse stock split. These interim statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Note 2. PUBLIC STOCK OFFERING
In October 1996, the Company sold 2,300,000 shares of its
common stock in a public offering at $6.50 per share. The
Company received proceeds of approximately $13.3 million, net of
offering costs of $1.7 million. The net proceeds will be used
primarily to finance the drilling and development of the
Company's New Mexico oil and gas properties and to purchase and
retire all outstanding shares of its Series A Convertible
Preferred Stock (see Note 3). In connection with the public
offering, the Company issued to the underwriters a warrant to
purchase an aggregate of 184,000 shares of the Company's common
stock at 120% of the offering price to the public at any time
between October 16, 1997 and October 16, 1999.
Note 3. SERIES A CONVERTIBLE PREFERRED STOCK
On October 23, 1996, the Company acquired and retired all of
the previously outstanding shares of its Series A Convertible
Preferred Stock for an aggregate purchase price of approximately
$1.9 million. The difference between the carrying value of the
stock and the purchase price was credited to additional paid-in
capital.
Note 4. NOTES PAYABLE AND LONG-TERM DEBT
In March 1996, the Company established a credit facility
(the "Facility") with Bank One, Texas N.A. (the "Bank"). The
significant terms of the Facility, as it has been amended, are as
follows:
- - The Facility establishes two separate lines of credit; a
primary revolving line of credit (the "Revolver") and a line of
credit to be used for development drilling approved by the Bank
(the "Drilling Line").
- The borrowing base under the Revolver is subject to
redetermination every six months, at June 30 and December 31, or
at such other times as the Bank may determine.
- - The interest rate on amounts drawn under the Revolver is, at
the Company's election, either at the Bank's base rate plus
0.75%, or LIBOR plus 2.5% (7.969% as of September 30, 1996).
Amounts outstanding under the Drilling Line bear interest at the
greater of 12.5% or the Bank's base rate plus 4%.
- - The Facility requires a reduction in the commitment under the
Revolver of $130,000 per month beginning on January 31, 1997,
subject to the borrowing base redetermination.
- Amounts drawn under the Drilling Line are repayable from 100%
of the net revenues generated by wells drilled with such funds.
If the borrowing base under the Revolver increases, such
additional amounts must be borrowed and used to reduce amounts
outstanding under the Drilling Line.
- The Facility is collateralized by substantially all of the
Company's oil and gas properties.
- The Company is obligated to maintain certain financial and
other covenants, including a minimum current ratio, minimum net
equity, a debt coverage ratio, and a total bank debt ceiling.
- - The Facility expires on March 31, 1999.
Initial amounts drawn under the Revolver were used to retire
the Company's prior line of credit and related accrued interest.
The initial borrowing base under the Revolver was $10,500,000.
At June 30, 1996, the borrowing base was redetermined and reduced
to $8,820,000. At the time of this redetermination, the amount
outstanding under the Revolver was $10,231,000, or $1,411,000 in
excess of the redetermined borrowing base. Under the terms of
the Facility, as amended, the Company drew $2,000,000 under the
Drilling Line and applied it to reduce amounts outstanding under
the Revolver to an amount less than the redetermined borrowing
base. The outstanding balance at of the Revolver at
September 30, 1996 was $8,570,000. The $2,000,000 drawn under
the Drilling Line and $3,301,000 under the Revolver were paid in
October 1996 at the completion of the stock offering (see Note
4). The outstanding balance of the Facility at November 14, 1996
is $5,269,000.
Note 5. LAGUNA GOLD COMPANY
In May 1996, Laguna sold 5,000,000 Special Warrants for
$1.00 per Warrant in a private placement in Canada. Laguna
received proceeds of $4,325,000 (net of offering costs of
$675,000), which are reflected as an increase to minority
interest in the September 30, 1996 consolidated balance sheet.
Each Special Warrant has since been converted into one share of
Laguna's common stock and one Common Share Purchase Warrant. Each
Common Share Purchase Warrant entitles the holder to purchase one
share of Laguna's common stock for $1.50 (subject to adjustment)
on or before November 24, 1997. In connection with the sale of
the Special Warrants, Laguna issued to the underwriters warrants
that entitle the holders to purchase 500,000 shares of Laguna's
common stock on or before November 24, 1997 at $1.00 per share.
In June 1996, Laguna acquired Red Rock Ventures, Inc. ("Red
Rock") for 2 million shares of Laguna's common stock, valued at
$1.00 per share, and Convertible Secured Promissory Notes in the
aggregate principal amount of $230,000 for a total consideration
of $2,230,000. The notes bear interest at 5% per annum.
Principal and accrued interest are due December 31, 2000. The
notes are convertible into shares of Laguna's common stock, at
the holder's option. The initial conversion price, which is
subject to anti-dilution adjustments, is $1.10. The note is
collateralized by a general security agreement encumbering all of
the assets of Laguna. Red Rock's sole asset at the time of the
merger was a 10% interest in the Rio Chiquito gold project in
which Laguna held a 90% interest and now holds 100%.
Note 6. SALE OF LAGUNA GOLD COMPANY STOCK
In September 1996, the Company sold 400,000 shares of Laguna
common stock and realized a gain of $329,000. Proceeds from the
sale were devoted to the Company's oil and gas operations. At
September 30, 1996, the Company owned 14 million common shares
of Laguna. Laguna's common stock is listed on The Toronto Stock
Exchange. Approximately 8.4 million of the Laguna shares owned
by the Company are subject to an escrow agreement with The
Toronto Stock Exchange that restricts the ability of the Company
to sell such shares for up to three years.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in
understanding the Company's historical consolidated financial
position at December 31, 1995 and September 30, 1996, cash flows
for the nine months ended September 30, 1995 and 1996, and the
results of operations and cash flows for each of the unaudited
three and nine month periods then ended. The Company's
Consolidated Financial Statements should be referred to in
conjunction with the following discussion. Except as noted, the
financial information discussed below is consolidated
information, which includes the accounts of Laguna Gold Company
("Laguna").
Overview
Historically, the Company has engaged in two disparate and
distinct facets of the natural resources business. Through its
wholly-owned subsidiary, Mallon Oil Company, it has pursued its
core oil and gas interests. Through its majority owned
subsidiary, Laguna, it has pursued its mining interests. The
Company has determined that the level of capital and management
resources required to fully develop each of these businesses
makes it inadvisable for the Company to continue to pursue both.
Accordingly, the Company decided to separate the businesses by
establishing the financial independence of Laguna and having the
Company focus its efforts on the oil and gas business. Laguna's
1996 Canadian financing and listing on The Toronto Stock Exchange
(see Note 5 to the interim unaudited consolidated financial
statements) have been major steps toward the accomplishment of
that goal, and should permit Laguna to operate independently
without further reliance on the Company for financial support.
The Company does not have any obligation or intention to finance
Laguna's future operations.
In light of the recent implementation of this fundamental
change in the manner in which the Company will henceforth pursue
its business, the Company's past financial performance is not
necessarily indicative of its future operations. Moreover,
because the accounts of Laguna continue to be consolidated with
the Company's financial information, the Company's consolidated
financial information does not necessarily reflect the Company's
performance in its core oil and gas operations. See Selected
Financial Information below.
Liquidity and Capital Resources
Since inception, the Company has been constrained by a
continued shortage of capital. Management believes that as the
Company successfully develops its oil and gas properties, its
cash flow will increase and its liquidity will improve, thereby
eliminating the Company's historic working capital deficits. The
Company lacked the funds for such operations until the completion
of its 2.3 million share common stock offering in October 1996,
which is described below. Net proceeds from that offering
established the foundation necessary for the Company to begin
solving its liquidity problem through development of its oil and
gas properties. To implement its planned drilling and
development programs, the Company will expend approximately $10.7
million during the remainder of 1996 and through 1997.
Management believes that the combination of the net proceeds of
the stock offering, the Company's working capital and credit
facility and future operating cash flows, will provide sufficient
capital to fund these operations. Moreover, management believes
that Laguna's 1996 Canadian financing (described below) should
permit Laguna to operate independently without further reliance
on the Company for financial support.
In October 1996, the Company sold 2,300,000 shares of the
Company's common stock in a public offering. The Company
received proceeds of approximately $13.3 million, net of offering
costs of $1.7 million. Of the net proceeds, approximately $1.9
million was used to purchase and retire all outstanding shares of
its Series A Convertible Preferred Stock. The balance of the net
proceeds will be used primarily to finance the drilling and
development of the Company's New Mexico oil and gas properties.
In August 1996, for net proceeds of $4,325,000, Laguna sold
5 million shares of Laguna common stock and 5 million warrants
which entitle the holder to purchase one share of common stock
for $1.50 (subject to adjustment) on or before November 24, 1997.
In June 1996, Laguna acquired Red Rock Ventures, Inc. ("Red
Rock") for 2 million shares of Laguna's common stock, valued at
$1.00 per share, and Convertible Secured Promissory Notes in the
aggregate principal amount of $230,000 for a total consideration
of $2,230,000. The notes bear interest at 5% per annum.
Principal and accrued interest are due December 31, 2000. The
notes are convertible into shares of Laguna's common stock, at
the holder's option. The initial conversion price, which is
subject to anti-dilution adjustments, is $1.10.
In order to further address its liquidity challenges, in
March 1996, the Company established a credit facility with Bank
One, Texas N.A., the details of which are described in Note 2 to
the interim unaudited consolidated financial statements. The
Company intends to draw on this line, as necessary, in order to
fund its drilling and other operations.
Cash Flows
The Company's net loss for the nine months ended
September 30, 1996 increased by $226,000 compared to the same
period in 1995. This increased net loss is primarily the result
of an increase in mine project expenses and interest expense
offset by an increase in oil and gas sales and a decrease in
extraordinary loss on early retirement of debt.
The Company generated net cash from operating activities of
$479,000 for the nine months ended September 30, 1996 compared to
net cash used of $7,023,000 for the nine months ended
September 30, 1995.
Cash flows used in investing activities was $5,237,000 and
$3,150,000 for the nine months ended September 30, 1996 and 1995,
respectively. Cash flows used in investing activities for the
nine months ended September 30, 1996 consisted primarily of:
additions to property and equipment of $2,806,000, an increase in
short-term investments of $2,814,000, offset by proceeds from the
sale of subsidiary stock of $372,000, and proceeds from the sale
of property and equipment of $11,000. Cash flows used in
investing activities for the nine months ended September 30, 1995
consisted primarily of additions to property and equipment of
$3,132,000. The Company has focused its efforts toward
development drilling activities during 1996.
Net cash provided by financing activities were $4,555,000 in
1996 compared to $11,340,000 in 1995. Cash flows from financing
activities for the nine months ended September 30, 1996 consisted
primarily of proceeds from long-term debt of $10,570,000, and net
proceeds from sale of subsidiary special warrants of $4,325,000,
offset by payments of long-term debt of $10,000,000 and payment
of preferred dividends of $240,000. Cash flows from financing
activities for the nine months ended September 30, 1995 consisted
primarily of proceeds from long-term debt of $11,801,000 and net
proceeds from sale of subsidiary preferred stock of $2,278,000,
offset by payments of long-term debt of $2,500,000 and payment of
preferred dividends of $239,000.
The above factors led to a decrease in cash of $203,000 for
the nine months ended September 30, 1996 as compared to an
increase in cash of $1,167,000 for the nine months ended
September 30, 1995.
Results of Operations
Nine Months Ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995
The following table summarizes the results of operations for
the nine months ended September 30:
<TABLE>
<CAPTION>
1995* 1996
<T> <C> <C>
Operating Results:
Oil and gas revenues $3,768,000 $4,098,000
Oil and gas production expenses 1,406,000 1,511,000
Depletion 1,646,000 1,546,000
Mine project expenses 361,000 648,000
Depreciation and amortization 112,000 125,000
General and administrative expenses 1,453,000 1,367,000
Net Production:
Oil (bbl) 135,000 135,000
Gas (mcf) 1,000,000 934,000
Average Sales Price Realized:
Oil (per bbl) $ 16.43 $ 17.21
Gas (per mcf) $ 1.55 $ 1.90
Average production costs and taxes
(per BOE) $ 4.66 $ 5.19
Average depletion (per BOE) $ 5.45 $ 5.31
</TABLE>
_______________________
* Includes 692,000 mcf and 26,000 bbls delivered in 1995 pursuant
to the terms of the volumetric production payment agreement,
which was retired in August 1995.
Oil and gas sales increased during the first nine months of
1996 to $4,098,000 from $3,768,000 in 1995, representing a
$330,000 (9%) increase. This increase is due primarily to higher
oil and gas prices. Average oil prices increased $0.78 per
barrel (5%) over the same period in 1995. Net gas production
decreased by 66,000 mcf (7%) from the same period in 1995. This
decrease is due primarily to deliveries in excess of the
Company's working interest of natural gas. Average gas prices
increased $0.35 per mcf (23%) over the same period in 1995.
Oil and gas production expense per equivalent barrel
averaged $5.19 in the first nine months of 1996 compared to $4.66
during the first nine months of 1995, an increase of $0.53 (11%).
The increase is due primarily to increased operating costs
relating to new wells drilled in 1996 and increased workover
expenses.
Depletion decreased to $5.31 per barrel of oil equivalent
for the first nine months of 1996, down slightly from $5.45 in
1995, a decrease of $0.14 (3%), primarily due to an increase in
oil and gas reserves.
There were no sales of gold and silver in 1996 or 1995, and
no sales are expected in the immediate future. Costs related to
the mining operation were $648,000 for the nine months ended
September 30, 1996 compared to $361,000 for the nine months ended
September 30, 1995, representing a $287,000 (80%) increase. The
additional expense resulted from the drilling program in new
exploration areas and business development expenses related to
reviewing other mineral concessions.
Depreciation and amortization increased to $125,000 in the
first nine months of 1996, compared to $112,000 for the nine
months ended September 30, 1995, representing a $13,000 (12%)
increase due primarily to increased depreciation on the mining
equipment.
General and administrative expenses were $1,367,000 for the
first nine months of 1996, a decrease of $86,000 (6%) over
general and administrative expenses of $1,453,000 for the first
nine months of 1995. Additional allocation of expenses to the
mine project were offset by increased stock compensation costs.
Interest and other expenses were $702,000 for the first nine
months of 1996, compared to $199,000 for the first nine months of
1995, representing an increase of $503,000 (72%). The increase
is primarily due to higher outstanding borrowings under the
Company's credit facility, which were used primarily to terminate
a volumetric production payment in August 1995.
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
The following table summarizes the results of operations for
the three months ended September 30:
<TABLE>
<CAPTION>
1995* 1996
<T> <C> <C>
Operating Results:
Oil and gas revenues $1,165,000 $1,263,000
Oil and gas production expenses 402,000 537,000
Depletion 483,000 461,000
Mine project expenses 114,000 289,000
Depreciation and amortization 42,000 40,000
General and administrative expenses 471,000 403,000
Net Production:
Oil (bbl) 46,000 44,000
Gas (mcf) 259,000 234,000
Average Sales Price Realized:
Oil (per bbl) $ 16.00 $ 17.70
Gas (per mcf) $ 1.66 $ 2.07
Average production costs and taxes
(per BOE) $ 4.52 $ 6.48
Average depletion (per BOE) $ 5.43 $ 5.55
</TABLE>
_______________________
* Includes 172,000 mcf and 6,000 bbls delivered in 1995 pursuant
to the terms of the volumetric production payment agreement,
which was retired in August 1995.
Oil and gas sales increased to $1,263,000 in 1996 from
$1,165,000 in 1995, representing a $98,000 (8%) increase. Oil
production decreased by 2,000 barrels (5%), because the Company
had lower flush production attributable to limited drilling
activity in 1996 while in 1995 there was flush production from
newly drilled wells. Average oil prices increased from $16.00
per barrel in 1995 to $17.70 per barrel 1996, a $1.70 (11%)
increase. Gas production decreased by 25,000 mcf (10%) in third
quarter 1996 as compared to third quarter 1995 due primarily to
deliveries in excess of the Company's working interest in natural
gas offset by increases relating to production from new wells.
Average gas prices increased in 1996 by $0.41 per mcf (25%).
Oil and gas production expense per equivalent barrel
averaged $6.48 in 1996, compared to $4.52 in 1995, an increase of
$1.96 (43%). The drop in production of gas in 1996 and
additional expenses relating to increased operating costs on new
wells drilled in 1996 contributed to the increase.
There were no sales of gold and silver in 1996 or 1995, and
no sales are expected in the immediate future. Direct costs
related to the mining operation were $289,000 in 1996 and
$114,000 in 1995, representing a $175,000 (153%) increase. The
additional expense resulted from the drilling program in new
exploration areas and business development expenses related to
reviewing other mineral concessions.
Depletion increased to $5.55 per barrel of oil equivalent
for 1996, up from $5.43 in 1995, a $0.12 (2%) increase.
General and administrative expenses were $403,000 in 1996, a
decrease of $68,000 (15%) over the $471,000 for 1995, mostly due
to allocation of expenses to the mine project and decreased legal
fees.
Interest and other expenses were $248,000 for 1996, compared
to $88,000 for 1995, representing an increase of $160,000 (182%).
The increase is primarily due to higher outstanding borrowings.
Selected Financial Information
The selected information presented below is provided to
explain further the Company's operating results on a consolidated
basis and without the effects of Laguna.
Selected Consolidated Results
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1995 1996 1995 1996
<T> <C> <C> <C> <C>
Revenues $ 4,427,000 $ 4,647,000 $1,698,000 $1,706,000
Costs and expenses 5,177,000 5,899,000 1,600,000 1,978,000
Net loss (1,094,000) (1,320,000) (246,000) (233,000)
Net loss per share (0.56) (0.65) (0.13) (0.11)
EBITDA (1) 1,193,000 1,207,000 741,000 505,000
EBITDA per share 0.61 0.59 0.38 0.24
Weighted average shares outstanding 1,946,000 2,032,000 1,949,000 2,084,000
Selected Results Without Laguna Gold Company
Revenues $ 4,408,000 $ 4,560,000 $1,682,000 $1,636,000
Costs and expenses 4,780,000 5,187,000 1,483,000 1,666,000
Net loss (716,000) (787,000) (145,000) (30,000)
Net loss per share (0.37) (0.39) (0.07) (0.01)
EBITDA (1) 1,549,000 1,682,000 839,000 685,000
EBITDA per share 0.80 0.83 0.43 0.33
Weighted average shares outstanding 1,946,000 2,032,000 1,949,000 2,084,000
</TABLE>
(1) EBITDA is income before income taxes, interest,
depreciation, depletion and amortization, and extraordinary loss.
EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a
substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
Miscellaneous
The Company has in the past and may in the future engage in
hedging transactions when management believes it is in the
Company's interest to do so. Such transactions "lock in" prices,
thus protecting against future price downturns, the Company's
ability to benefit from future price increases. The Company's
use of hedging arrangements is limited to management of commodity
price risks. Gains and losses on such transactions are matched
to product sales and charged or credited to oil and gas sales
when that product is sold. Management believes that the use of
various hedging arrangements can be a prudent means of protecting
the Company's financial interests from the volatility of oil and
gas prices.
When evaluating the Company, its operations, or its
expectations, the reader should bear in mind that the Company and
its operations are subject to numerous risks and uncertainties.
Among these are risks related to the oil and gas and the mining
businesses (including operating risks and hazards and the
plethora of regulations imposed thereon), risks and uncertainties
related to the volatility of the prices of oil and gas and
minerals, uncertainties related to the estimation of reserves of
oil and gas and minerals and the value of such reserves, the
effects of competition and extensive environmental regulation,
the uncertainties related to foreign operations, and many other
factors, many of which are necessarily beyond the Company's
control.
PART II
OTHER INFORMATION
Item 2. Changes in Securities
Effective September 9, 1996, the Company's common stock, $0.01
par value per share, was reverse split on a four shares into one
share basis.
On October xx, 1996, the Company purchased and retired all of the
previously outstanding shares of its Series A Convertible
Preferred Stock.
Item 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of Shareholders held on September 3, 1996,
the shareholders of the Company approved the 4-into-1 reverse
split of the Company's common stock described in Item 2 of this
Part II by a vote of 5,072,805 For, 161,352 Against, and 18,840
Abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During third quarter 1996, the Company filed Periodic Reports of
Form 8-K dated July 19, 1996, August 15, 1996, August 16, 1996,
September 3, 1996, September 11, 1996, September 24, 1996,
October 17, 1996, October 23, 1996 and October 30, 1996. Each
Report related to an "Item 5, Other Events" matter.
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.
MALLON RESOURCES CORPORATION
Registrant
Date: November 14, 1996 By: /s/ Roy K. Ross
Roy K. Ross
Executive Vice President
Date: November 14, 1996 By: /s/ Alfonso R. Lopez
Alfonso R. Lopez
Vice President, Finance/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,066
<SECURITIES> 2,814
<RECEIVABLES> 1,340
<ALLOWANCES> 0
<INVENTORY> 41
<CURRENT-ASSETS> 5,430
<PP&E> 55,478
<DEPRECIATION> 23,728
<TOTAL-ASSETS> 37,336
<CURRENT-LIABILITIES> 5,595
<BONDS> 16,693
<COMMON> 21
3,884
5,730
<OTHER-SE> 5,413
<TOTAL-LIABILITY-AND-EQUITY> 37,336
<SALES> 4,098
<TOTAL-REVENUES> 4,647
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 702
<INCOME-PRETAX> (1,160)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,160)
<DISCONTINUED> 0
<EXTRAORDINARY> (160)
<CHANGES> 0
<NET-INCOME> (1,320)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
