U. S. Securities and Exchange Commission
Washington, D. C. 20549
Amended Form 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Quarterly Period Ended March 31, 1996
--------------
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act For the
transition period from .......... to ..........
Commission File Number..........1-12508
MAGNUM PETROLEUM, INC.
Exact name of small business issuer as specified in its charter
Nevada 87-0462881
State or other jurisdiction of IRS employer identification No.
Incorporation or organization
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
Address of principal executive offices
(214) 401-0752
Issuer's telephone number
Check whether the issuer (1) 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 for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1996.
11,607,958
Transitional Small Business Disclosure Format Yes No X
Page 1 of ____ pages contained in the sequential numbering system. The Exhibit
Index is on Page ___ of the sequential numbering system.
1
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of Magnum Petroleum, Inc. ("Magnum") required by
Item 310(b) of Regulation S-B follow Item 2. Management's Discussion and
Analysis or Plan of Operation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
Magnum's consolidated financial statements and the notes associated with them
contained in its Form 10-KSB for the year ended December 31, 1995. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment by management of Magnum.
On July 21, 1995, Magnum closed a definitive agreement to combine (the
"Business Combination") with Hunter Resources, Inc. ("Hunter"), subject to
Hunter shareholder approval. Pursuant to the definitive agreement, Magnum issued
to Hunter 2,750,000 shares of newly issued restricted common stock in exchange
for substantially all of the assets of Hunter, subject to its associated
liabilities. Hunter's assets primarily consisted of stock in wholly-owned
subsidiaries and stock ownership interests in limited liability companies
("Hunter Subsidiaries").
On December 19, 1995 to be effective December 22, 1995, Magnum and Hunter
entered into an Agreement and Plan of Reorganization and Plan of Liquidation, as
amended. The amendment was executed on December 19, 1995 by Hunter shareholders
holding over fifty percent (50%) of the common stock of Hunter and provided for
the issuance to Hunter of an additional 2,335,077 shares of newly issued
restricted common stock and 111,825 shares of Series C preferred stock.
Therefore, the total consideration paid by Magnum for the Hunter subsidiaries
was 5,085,077 shares of restricted common stock and 111,825 shares of Series C
preferred stock.
Hunter's shareholders have no dissenter rights. However, Hunter is required
to distribute an Information Statement and hold a special meeting of its
shareholders to formally approve the Agreement. Magnum shares issued in the
Business Combination are held in escrow pending formal shareholder approval of
the Agreement. Subsequent to the Business Combination, Magnum has conducted its
oil and gas operations and energy related acquisitions in conjunction with the
Hunter Subsidiaries. Acquisitions completed by Magnum and Hunter after the
initial agreement, were completed by Magnum Hunter Production, Inc. ("Magnum
Hunter"), a Hunter Subsidiary. Hunter and its subsidiaries were consolidated in
Magnum's financial statements beginning December 31, 1995.
2
<PAGE>
Results of Operations for the Interim Periods in 1996 and 1995
As discussed above, Magnum completed a business combination with Hunter,
which for accounting purposes, was recorded under the purchase method of
accounting. Hunter's operations were consolidated with those of Magnum beginning
December 31, 1995. As such, the comparison of the increases in the 1996 interim
period over the 1995 interim period are, unless otherwise stated, the result of
the Hunter operating activities.
Magnum incurred an operating profit of $135,000 for the three month period
ended March 31, 1996 versus an operating loss of $154,000 during the previous
year. This $289,000 improvement in operations can be directly attributed to the
acquisition of Hunter completed for accounting purposes, as of December 31,
1995.
Magnum incurred a net loss after payment of dividends on preferred stock of
$265,000 during the three month period ended March 31, 1996, compared to a net
loss of $252,000 for the same period of the preceding year. While the net loss
increased slightly ($14,000), the loss per common share improved to $0.02 from
$0.05 due to the increase in the common shares used in per share calculation, as
a result of the Hunter acquisition.
Total revenues increased 1,273% from $176,000 during the first quarter of
1995 to $2,239,000 during the first quarter of 1996. During the three month
period ended March 31, 1996, revenue from oil and gas sales increased 747% to
$1,380,000 from total oil and gas sales of $164,000 for the same period of the
prior year. For the first three months of 1996, Magnum sold 44,383 barrels of
oil and 255,748 mcf of gas. In comparison, during the same three month period of
1995, Magnum sold 8,550 barrels of oil and 15,874 mcf of gas with an average oil
price of $16.69 per barrel in 1995 versus $18.56 per barrel in the 1996 period.
Average gas prices were $2.18 per mcf in 1996 as compared to $1.34 per mcf in
1995.
Gas gathering and marketing activities, which have all resulted from the
combination with Hunter, provided revenues of $757,000 and a net profit from
these activities of $113,000. Expenses associated with this activity were
$96,000 and $548,000 representing pipeline operating expenses and purchase of
natural gas from third parties, respectively.
Revenues from oil field services and commissions were $102,000 in the 1996
period as compared to $12,000 in the 1995 period. Related cost of services
expense of $167,000 and $4,000 for the 1996 and 1995 period, respectively, were
recognized resulting in a net loss in 1996 from these activities of $55,000 as
compared to a net profit in 1995 of $8,000.
Lease operating expenses amounted to $565,000 in 1996 as compared to
$57,000 in the 1995 period. On an equivalent barrel basis, the expense was $6.49
per barrel and $5.05 per barrel for the respective 1996 and 1995 periods.
Depreciation and depletion rose to $506,000 in 1996 versus $56,000 in 1995 due
to the increased oil and gas activities from the combination with Hunter.
General and administrative expense remained relatively unchanged at
$222,000 in the 1996 period. as compared to $213,000 in 1995. Professional fees
attributed to Magnum's year-end audit of its financial statements represented
approximately $35,000 and $28,000 in the respective 1996 and 1995 periods.
Interest expense rose to $254,000 in 1996 from $2,000 in 1995 primarily as
a result of commercial bank indebtedness assumed in the combination with Hunter.
Preferred dividends increased to $172,000 in 1996 from $147,000 in 1995 due to
the issuance of additional Series C preferred stock due to the combination with
Hunter.
3
<PAGE>
Liquidity and Capital Resources
In March 1996, Magnum increased its available borrowing base for its oil
and gas properties under its line of credit arrangements with a commercial bank
to $9 million. At March 31, 1996, there remained approximately $1 million of
available borrowings under the Company's existing line of credit. In addition at
the same time, interest rates on borrowings under the line of credit were
lowered from prime plus one and one-half percent (1 1/2%) to prime plus one
percent (1%) per annum. In addition, subsequent to December 31, 1995, Magnum
entered into an exclusive arrangement with an investment banking firm
specialized in raising capital for energy companies for a private placement of
preferred stock for as much as $15 million to be completed during 1996. Proceeds
from the offering would be utilized to develop a significant portion of Magnum's
proved undeveloped reserves predominately comprised of waterflood projects. In
the event Magnum is unsuccessful in raising the new capital from this preferred
stock offering, Magnum will be able to meet its obligations for the remainder of
1996 out of cash flow from operations and funds available from its existing line
of credit.
4
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
March 31,
1996
----
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,408,000
Securities available for sale 102,000
Accounts receivable
Trade, net of allowance of $134,158 1,264,000
Due from affiliates 61,000
Note receivable from affiliate 152,000
Note receivable 155,000
Other current assets 49,000
Current portion of long-term note receivable 202,000
-------
TOTAL CURRENT ASSETS 3,393,000
---------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, full cost method
Unproved 864,000
Proved 36,676,000
Pipelines 1,087,000
Other property 167,000
-------
TOTAL PROPERTY, PLANT AND EQUIPMENT 38,794,000
Accumulated depreciation, depletion and impairment (2,424,000)
----------
NET PROPERTY, PLANT AND EQUIPMENT 36,370,000
OTHER ASSETS
Deposits and other assets 131,000
Long-term notes receivable, net of imputed interest 172,000
-------
TOTAL ASSETS $ 40,066,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued liabilities $ 1,650,000
Dividends payable 172,000
Suspended revenue payable 794,000
Current maturities of long-term debt 1,922,000
---------
TOTAL CURRENT LIABILITIES 4,538,000
---------
LONG-TERM LIABILITIES
Long-term debt 7,818,000
Production payment liability 272,000
Other 82,000
Deferred income taxes 3,125,000
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 10,000,000 authorized,
216,000 designated as Series A;
80,000 shares issued and outstanding
925,000 designated as Series B;
42,500 shares issued and outstanding
625,000 designated as Series C;
625,000 shares issued and outstanding -
(liquidation preference of $6,250,000 at March 31, 1996) 1,000
Common stock - $.002 par value; 50,000,000 shares authorized,
11,607,958 shares issued and outstanding 23,000
Additional paid-in capital 29,660,000
Accumulated deficit (5,510,000)
Receivable from stockholders -
Unrealized gain(loss) on investments 57,000
------
TOTAL STOCKHOLDERS' EQUITY 24,231,000
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,066,000
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Operating Revenues:
Oil and gas sales $ 1,380,000 $ 164,000
Gas gathering and marketing 757,000 -
Oil field services and commissions 102,000 12,000
------- ------
Total Operating Revenue 2,239,000 176,000
--------- -------
Operating Costs and Expenses:
Lease operating 565,000 57,000
Pipeline operating 96,000 -
Purchases of natural gas 548,000 -
Costs of services 167,000 4,000
Depreciation and depletion 506,000 56,000
General and administrative 222,000 213,000
------- -------
Total Operating Costs and Expenses 2,104,000 330,000
--------- -------
Operating Profit (Loss) 135,000 (154,000)
Gain on sale of assets - 19,000
Interest income 17,000 32,000
Other income 9,000 -
Interest expense (254,000) (2,000)
-------- ------
Net Loss (93,000) (105,000)
Dividends Applicable to Preferred Stock (172,000) (147,000)
-------- --------
Net Loss Applicable to Common Shares $ (265,000) $ (252,000)
============== ===========
Loss Per Common Share $ (0.02) $ (0.05)
============== ===========
Common Shares Used in Per Share Calculation 11,607,958 5,007,207
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS
Adjustments to reconcile net income to net cash
provided by operating activities: $ (93,000) $ (105,000)
Depreciation and depletion 506,000 56,000
Change in assets and liabilities
(Increase) decrease in securities available for sale - 23,000
(Increase) decrease in accounts receivable (60,000) (181,000)
(Increase) decrease in notes receivable (169,000) 13,000
(Increase) decrease in other current assets (49,000) (6,000)
(Increase) decrease in costs in excess of billings on uncompleted
drilling contracts - 55,000
(Increase) decrease in deposits and other current assets (13,000) 1,000
Increase (decrease) in trade accounts payable and accrued liabilities 367,000 (359,000)
Increase (decrease) in other liabilities (8,000) -
------
NET CASH USED FOR OPERATING ACTIVITIES (601,000) (503,000)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (672,000) (21,000)
-------- -------
NET CASH USED FOR INVESTING ACTIVITIES (672,000) (21,000)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock,
net of offering costs - 3,092,000
Proceeds from long-term debt borrowings 2,520,000 -
Payments of principal on notes payable (2,392,000) (19,000)
Payments on production payment liability (16,000) -
(Increase) decrease in segregated funds for payments of notes payable - 130,000
Dividends paid (177,000) (144,000)
-------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (65,000) 3,059,000
------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (136,000) 2,535,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,544,000 1,645,000
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,408,000 $ 4,180,000
================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
(1) MANAGEMENT'S REPRESENTATION
The consolidated balance sheet as of March 31, 1996, the consolidated
statements of operations for the three months ended March 31, 1996 and 1995, and
the consolidated statements of cash flows for the three month periods then ended
are unaudited. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary have been made to present fairly the
financial position, results of operations and changes in cash flows for the
interim periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in the December 31, 1995 annual report on Form 10-KSB for
Magnum Petroleum, Inc. ("Magnum"). The results of operations for the three month
period ended March 31, 1996 are not necessarily indicative of the operating
results for the full year.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain items
have been reclassified to conform with the current presentation. The Company has
changed the presentation format for the consolidated statements of cash flows
from the direct method to the indirect method.
During 1995, Magnum changed its accounting method for oil and gas
activities from the successful efforts method to the full cost method. The
comparable 1995 amounts in the financial statements included herein have been
restated to comply with the full cost method.
During the quarter ended March 31, 1996, 19,550 shares of Series B
preferred stock were converted to 9,775 shares of common stock.
8
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
<TABLE>
<CAPTION>
Item No. Items Reported F/S Included Date Filed (Date of Event)
-------- -------------- ------------ --------------------------
<S> <C> <C> <C>
2 Description of assets acquired None [July 21, 1995]
March 14, 1996
7 Financial Statements See Attached Description
------------
4 Change in Registrants [November 1, 1995]
Certifying Accountant N/A March 19, 1996
4 Change in Acocunting Principle
</TABLE>
9
<PAGE>
Financial Statements and Exhibits
- ---------------------------------
a) Financial Statements of Businesses Acquired:
Accountants' Report of Hein+Associates LLP, dated April 14, 1995
Audited Consolidated Balance Sheet of Hunter Resources, Inc. and
Subsidiaries as of December, 1994
Audited Consolidated Statements of Operations for Hunter Resources, Inc.
and Subsidiaries for the Years Ended Decmber 31, 1994 and 1993
Audited Consolidated Statements of Stockholders' Equity for Hunter
Resources, Inc. and Subsidiaries for the Years Ended Decmber 31, 1994
and 1993
Audited Consolidated Statements of Cash Flows for Hunter Resources, Inc.
and Subsidiaries for the Years Ended Decmber 31, 1994 and 1993
Unaudited Consolidated Balance Sheet of Hunter Resources, Inc. and
Subsidiaries as of June 30, 1995
Unaudited Consolidated Statements of Operations for Hunter Resources, Inc.
and Subsidiaries for the Quarters and Six Months Ended June 30, 1995
and 1994
Unaudited Consolidated Statements of Cash Flows for Hunter Resources, Inc.
and Subsidiaries for the Quarters and Six Months Ended June 30, 1995
and 1994
b) Pro Forma Financial Information:
Consolidated Pro Forma Financial Information (unaudited)
Consolidated Pro Forma Balance Sheet at June 30, 1995 (unaudited)
Consolidated Pro Forma Statement of Operations
For the Twelve Months Ended December 31, 1994 (unaudited)
Consolidated ProForma Statement of Operations
For the Six Months Ended June 30, 1995 (unaudited)
Notes to the Pro Forma Consolidated Statements of Operations (unaudited)
c) Restated Consolidated Financial Statements:
Accountants' Report of HANSEN, BARNETT & MAXWELL, a Professional
Corporation, dated March 26, 1995, except for Note 2, as to which the
date is September 29, 1995
Audited Restated Consolidated Balance Sheet of Magnum Petroleum, Inc. and
Subsidiary as of December 31, 1994 and Unaudited Consolidated Balance
Sheet of Magnum Petroleum, Inc. and Subsidiary as of June 30, 1995
Audited Consolidated Statements of Operations for Magnum Petroleum, Inc.
and Subsidiary for the Years Ended December 31, 1994 and 1993 and
Unaudited Consolidated Statments of Operaitons for Magnum Petroleum,
Inc. and Subsidiary for the Six Months Ended June 30, 1995
Audited Consolidated Statements of Stockholders' Equity for Magnum
Petroleum, Inc. and Subsidiary for the Years Ended December 31, 1994
and 1993 and Unaudited Consolidated Statements of Stockholders' Equity
for Magnum Petroleum, Inc. and Subsidiary for the Six Months Ended
June 30, 1995
Audited Consolidated Statements of Cash Flows for Magnum Petroleum, Inc.
and Subsidiary for the Years Ended December 31, 1994 and 1993 and
Unaudited Consolidated Statements of Cash Flows for Magnum Petroleum,
Inc. and Subsidiary for the Six Months Ended June 30, 1995
10
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this Form 10-QSB Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MAGNUM PETROLEUM, INC.
By: /s/ Gary C. Evans May 15, 1996
Gary C. Evans
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
By: /s/ Gary C. Evans May 15, 1996
Gary C. Evans
President and Chief Executive Officer
/s/ Steven P. Smart
Steven P. Smart
Senior Vice President and Chief Financial Officer May 15, 1996
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,408,000
<SECURITIES> 102,000
<RECEIVABLES> 1,398,158
<ALLOWANCES> (134,158)
<INVENTORY> 0
<CURRENT-ASSETS> 3,393,000
<PP&E> 38,794,000
<DEPRECIATION> (2,424,000)
<TOTAL-ASSETS> 40,066,000
<CURRENT-LIABILITIES> 4,538,000
<BONDS> 7,818,000
0
1,000
<COMMON> 23,000
<OTHER-SE> 24,207,000
<TOTAL-LIABILITY-AND-EQUITY> 40,066,000
<SALES> 2,137,000
<TOTAL-REVENUES> 2,239,000
<CGS> 1,209,000
<TOTAL-COSTS> 1,376,000
<OTHER-EXPENSES> 702,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254,000
<INCOME-PRETAX> (93,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
