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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
JANUARY 21, 1998
Date of Report
(Date of earliest event reported)
LONE STAR INTERNATIONAL ENERGY, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-17244 87-0434288
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
528 GRANT ROAD
MINERAL WELLS, TEXAS 76067
(Address of principal executive offices) (Zip code)
(940) 325-1700
Registrant's telephone number, including area code
200 PALO PINTO, SUITE 108, WEATHERFORD, TEXAS 76086
(Former name or former address, if changed since last report.)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
(1) Independent Auditor's Report
(2) Statements of Revenues and Direct Operating Expenses
(3) Notes to Statements of Revenues and Direct Operating Expenses
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INDEPENDENT AUDITOR'S REPORT
To Lone Star International Energy, Inc.:
We have audited the accompanying statements of revenues and direct operating
expenses of the Two Medicine Cut Bank Sand Unit for the years ended December 31,
1997 and 1996. These statements of revenues and direct operating expenses are
the responsibility of Lone Star International Energy, Inc.'s management. Our
responsibility is to express an opinion on these statements of revenues and
direct operating expenses based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and direct operating expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements of
revenues and direct operating expenses. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the Two Medicine Cut Bank Sand Unit for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
DAVIS, KINARD & CO., P.C.
/s/ Davis, Kinard & Co., P.C.
Abilene, Texas,
March 19, 1998.
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TWO MEDICINE CUT BANK SAND UNIT
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Oil $ 138,918 $ 82,202
---------- ----------
Total revenues 138,918 82,202
---------- ----------
DIRECT OPERATING EXPENSES:
Production and other expenses 62,788 21,808
Production taxes 12,225 7,234
---------- ----------
Total direct operating expenses 75,013 29,042
---------- ----------
EXCESS (DEFICIT) OF REVENUES OVER
DIRECT OPERATING EXPENSES $ 63,905 $ 53,160
========== ==========
</TABLE>
The accompanying notes are an integral part of
This financial statement.
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Note 1: BASIS OF PRESENTATION
On August 22, 1997, Lone Star International Energy, Inc. (LSIE) entered
into an agreement with Mont-Mill Operating Company and the Bankruptcy
Court to acquire the Two Medicine Cut Bank Sand Unit. On January 7,
1998, LSIE closed the acquisition of the Two Medicine Cut Bank Sand
Unit from Mont-Mill Operating Company in exchange for cash of $300,000
and 1,628,571 shares of LSIE restricted common stock valued at
$5,700,000. The property was contributed to Provident Energy Associates
of Montana, L.L.C. (owned 75% by LSIE and 25% by Prism Corporation).
Prism Corporation presented the property to LSIE and will operate the
property through Provident Energy Associates of Montana, L.L.C.
receiving a 25% carried interest.
The Two Medicine Cut Bank Sand Unit consists of over 10,000 acres of
oil and gas leases and approximately 82 well bores of which all but 10
are currently shut-in located on Blackfeet Indian Tribal lands, State
of Montana lands and private lease lands. The property was acquired
from the bankruptcy estate of Mont-Mill Operating Company which had
been in bankruptcy during 1996 and 1997.
The accompanying statements of revenues and direct operating expenses
do not include general and administrative expense, interest income or
expense, a provision for depreciation, depletion and amortization or
any provision for income taxes because the property interests acquired
represent only a portion of the respective businesses and the costs
incurred by the respective companies are not necessarily indicative of
the costs to be incurred by LSIE. The accompanying statements of
revenues and direct operating expenses are presented for the calendar
years ended December 31, 1997 and 1996.
Historical financial information reflecting financial position, results
of operations, and cash flows of the Two Medicine Cut Bank Sand Unit is
not presented because the acquisition cost was assigned to the oil and
gas property interests. Accordingly, the historical statements of
revenues and direct operating expenses have been presented in lieu of
the financial statements required under Rule 3-05 of Securities and
Exchange Commission Regulation S-X.
LSIE entered into an agreement with the owner which allowed LSIE to
begin work over of certain wells beginning in October 1997 prior to the
closing of the acquisition. The agreement compensated Provident Energy
Associates of Montana, L.L.C. (LSIE 75% and Prism Corporation 25%)
$3,500 per month to operate the property and allowed them to retain
production in excess of 23 barrels per day until the sale closed and to
pay all operating costs. LSIE's 1997 financial statements include oil
sales of $21,930, production taxes of $653 and production and other
expenses of $24,923 which are included in these statements and
operating income of $7,875.
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Note 2: CAPITALIZED COSTS
During the years ended December 31, 1997 and 1996 there were
capitalized costs incurred, primarily in conjunction with the work over
of the properties in the fall of 1997. These costs, which are not
included in production and other expenses are summarized below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Equipment $ 51,630 $ 1,000
Intangible work over costs 90,730
</TABLE>
Note 3: SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Reserve information presented below has been estimated by management
using January 1, 1998 prices and costs. Proved reserves are estimated
quantities of crude oil and natural gas which, based on geologic and
engineering data, are estimated to be reasonably recoverable in future
years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those which are expected to
be recovered through existing wells with existing equipment and
operating methods. The Company anticipates reworking the leases to
increase the production of the properties. Because of inherent
uncertainties and the limited nature of reservoir data, such estimates
are subject to change as additional information becomes available.
All reserves are proved developed. The proved developed oil and gas
reserves at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Oil (Bbls)
----------
<S> <C>
Proved developed reserves 7,158,131
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows
(Standardized Measure) is prepared using assumptions required by the
Financial Accounting Standards Board. Such assumptions include the use
of period end prices for oil and gas and period end costs for estimated
future development and production expenditures to produce period end
estimated proved reserves. Discounted future cash flows are calculated
using a 10% discount rate.
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Note 3: SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) - (continued)
The Standardized Measure does not represent the Company's estimate of
future net cash flows or the value of proved oil and gas reserves.
Furthermore, period end prices, used to determine the Standardized
Measure, are influenced by seasonal demand and other factors and may
not be the most representative in estimating future revenues or reserve
data.
The Standardized Measure at January 1, 1998, is as follows:
<TABLE>
<S> <C>
Future cash inflows $ 93,125,997
Future production costs (27,235,873)
Future development costs (7,687,639)
------------
Future net cash flows 58,202,486
10% annual discount (35,062,875)
------------
Discounted net cash flows $ 23,139,611
============
</TABLE>
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(b) Proforma Financial Information
(1) Proforma Combined Condensed Statement of Operations
(2) Proforma Combined Condensed Balance Sheet
The following unaudited pro forma combined condensed financial statements give
effect to the January 1, 1998 acquisition by Lone Star International Energy,
Inc. (Company), of certain oil and gas producing properties in exchange for
$300,000 cash and 1,628,571 shares of unregistered Rule 144 Restricted Shares of
Lone Star International Energy, Inc. common stock.
The pro forma combined condensed balance sheet gives effect to the acquisition
of the oil and gas properties as if it had been consummated December 31, 1997.
The pro forma combined condensed statements of operations for the year ended
December 31, 1997, give effect to all transactions as if all had been
consummated at the beginning of each period.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the financial position or operating results that would
have occurred had the transactions been consummated at the dates indicated, nor
are they indicative of future financial position or operating results.
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LONE STAR INTERNATIONAL ENERGY, INC. AND SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Lone Star Two Medicine Pro Forma
Actual Actual Adjustments Pro Forma
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas revenues $ 404,890 $ 138,918 $ $ 543,808
Operating income 104,475 104,475
----------- ------------ ----------- -----------
Total revenue 509,365 138,918 648,283
EXPENSES
Production expenses 414,893 75,013 489,906
Depreciation, depletion and amortization 142,638 34,730 (1) 177,368
General and administrative expenses 3,349,671 3,349,671
----------- ------------ ----------- -----------
Total expenses 3,907,202 75,013 34,730 4,016,945
Operating income (loss) (3,397,837) 63,905 (34,730) (3,368,662)
OTHER INCOME (EXPENSES)
Other income 10,079 10,079
Interest expense (152,710) (152,710)
----------- ------------ ----------- -----------
Other income (expense), net (142,631) (142,631)
Net income (loss) before income taxes (3,540,468) 63,905 (34,730) (3,511,293)
Provision (benefit) for income taxes
----------- ------------ ----------- -----------
Net income (loss) $(3,540,468) $ 63,905 $ (34,730) $(3,511,293)
=========== ============ =========== ===========
Net income (loss) per common share $ (0.1853) $ (0.1693)
=========== ===========
Weighted average shares outstanding 19,109,735 20,738,306
</TABLE>
Pro Forma Adjustments - Pro Forma Combined Condensed Statements of Operations -
(1) Pro forma entry to adjust actual depreciation and depletion expense on
oil and gas properties for the acquired interests to the depreciation
and depletion expense calculated on a consolidated basis.
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LONE STAR INTERNATIONAL ENERGY, INC. AND SUBSIDIARY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Lone Star Two Medicine
Actual Properties Pro Forma
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets $ 1,308,162 $ (126,635)(1) $ 1,181,527
Property and equipment, net 5,733,255 5,826,635 (1) 11,559,890
Other assets 1,240,690 1,240,690
----------- ------------ -----------
Total assets $ 8,282,107 $ 5,700,000 $13,982,107
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 2,861,308 $ $ 2,861,308
Long-term liabilities 2,513,255 2,513,255
Stockholders' equity 2,907,544 5,700,000 (1) 8,607,544
----------- ------------ -----------
Total liabilities and stockholders' equity $ 8,282,107 $ 5,700,000 $13,982,107
=========== ============ ===========
</TABLE>
Pro Forma Adjustments - Pro Forma Combined Condensed Balance Sheet -
(1) Pro forma entry to record, as of December 31, 1997, the acquisition of
the Two Medicine properties in exchange for cash of $300,000 and
1,628,571 shares of Lone Star common stock. Lone Star has valued these
shares of Lone Star common stock to be issued at $5,700,000. A down
payment of $173,365 was made during August of 1997, leaving a balance
due at closing of $126,635.
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(c) Exhibits
10.1 Agreement between Lone Star International Energy, Inc. and Prism
Corporation. (Previously filed as the same exhibit number with the
Company's Form 8-K dated January 21, 1998 and incorporated herein by
reference.)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
LONE STAR INTERNATIONAL ENERGY, INC.
(Registrant)
Date: March 20, 1998 /s/ C. E. Justice
President (principal executive officer)
Date: March 20, 1998 /s/ Michael D. Herrington
Chief Financial Officer, Treasurer
(principal accounting officer)
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INDEX TO EXHIBITS
Exhibit No. Description
10.1 Agreement between Lone Star International Energy, Inc. and Prism
Corporation. (Previously filed as the same exhibit number with the
Company's Form 8-K dated January 21, 1998 and incorporated herein by
reference.)
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