<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from ________________ to ________________________
Commission file number 0-19753
--------------------------------------------------------
GOTHIC ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 22-2663839
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5727 SOUTH LEWIS, #700, TULSA, OKLAHOMA 74105-7148
(Address of principal executive offices)
918-749-5666
(Registrant's telephone number, including area code)
Check whether the issuer (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 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 13, 1997, 13,691,981 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
<PAGE>
GOTHIC ENERGY CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Unaudited Balance Sheets
June 30, 1997 and December 31, 1996................................ 3
Consolidated Unaudited Statements of Operations
Six Months ended June 30, 1997 and 1996............................ 4
Consolidated Unaudited Statements of Operations
Three Months ended June 30, 1997 and 1996.......................... 5
Consolidated Unaudited Statements of Cash Flows
Six Months ended June 30, 1997 and 1996............................ 6
Notes to Unaudited Consolidated Financial Statements............... 7
Report of Review by Independent Accountants........................ 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis or Plan of Operations......... 12
PART II - OTHER INFORMATION PAGE
Item 1 - Legal Proceedings......................................... 19
Item 2 - Changes in Securities..................................... 19
Item 3 - Defaults Upon Senior Securities........................... 19
Item 4 - Submission of Matters to a Vote of Security Holders....... 19
Item 5 - Other Information......................................... 19
Item 6 - Exhibits and Reports on Form 8-K.......................... 19
Signatures......................................................... 20
2
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GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 303,657 $ 206,648
Oil and gas receivables 2,829,350 2,802,140
Receivable from officers and employees 84,697 51,932
Assets held for sale - 209,740
Other 293,070 78,786
------------ ------------
TOTAL CURRENT ASSETS $ 3,510,774 $ 3,349,246
PROPERTY AND EQUIPMENT:
Oil and gas properties on full cost
method:
Properties being amortized $ 62,542,380 $ 39,857,665
Unproved properties not subject to 1,768,000 -
amortization
Gas gathering and processing system 5,045,500 -
Equipment, furniture and fixtures 359,225 328,492
Accumulated depreciation and depletion (6,309,614) (3,636,414)
------------ ------------
PROPERTY AND EQUIPMENT, NET $ 63,405,491 36,549,743
OTHER ASSETS, NET 5,332,942 1,566,894
------------ ------------
TOTAL ASSETS $ 72,249,207 $ 41,465,883
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable trade $ 1,857,946 $ 1,336,854
Revenues payable 1,899,308 1,978,221
Accrued liabilities 510,463 512,400
Notes payable 14,500,000 -
Current portion of long-term debt 4,760,209 5,927,660
------------ ------------
TOTAL CURRENT LIABILITIES 23,527,926 9,755,135
LONG-TERM DEBT 29,835,312 15,854,000
GAS IMBALANCE LIABILITY 882,927 1,025,266
COMMON STOCK SUBJECT TO REPURCHASE 2,700,000 -
(1,500,000 SHARES) (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.05,
authorized 500,000 shares;
issued and outstanding 4,490 and
5,540 shares 224 277
Common stock, par value $.01,
authorized 100,000,000 shares;
issued and outstanding 13,606,511
and 12,381,857 shares 136,065 123,819
Additional paid in capital 34,726,132 33,321,990
Accumulated deficit (19,559,379) (18,614,604)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 15,303,042 14,831,482
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 72,249,207 $ 41,465,883
============ ============
</TABLE>
See accompanying notes
3
<PAGE>
GOTHIC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
REVENUE:
Oil and gas sales $ 8,024,836 $ 4,343,126
Gas system revenue 2,178,844 -
Well operations 631,232 483,865
Interest and other income 20,080 31,642
----------- -----------
TOTAL REVENUE 10,854,992 4,858,633
COSTS AND EXPENSES:
Lease operating expense 3,221,523 2,059,735
Gas system expense 1,742,334 -
Depreciation, depletion and
amortization 2,673,200 1,586,782
General and administrative expense 1,040,788 818,324
Provision for impairment of oil and - 5,050,000
gas properties ----------- -----------
Operating income (loss) 2,177,147 (4,656,208)
Interest and financing cost 2,926,137 648,261
----------- -----------
LOSS BEFORE INCOME TAXES AND $ (748,990) $(5,304,469)
EXTRAORDINARY ITEM
INCOME TAX BENEFIT - 2,992,547
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (748,990) (2,311,922)
LOSS ON EARLY EXTINGUISHMENT OF DEBT - 1,432,973
----------- -----------
NET LOSS $ (748,990) $(3,744,895)
PREFERRED DIVIDEND 195,785 173,125
PREFERRED DIVIDEND - AMORTIZATION OF
PREFERRED DISCOUNT - 359,740
----------- -----------
NET LOSS AVAILABLE FOR COMMON SHARES $ (944,775) $(4,277,760)
=========== ===========
LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM,
PRIMARY AND FULLY DILUTED /(A)/ $ (.07) $ (.26)
=========== ===========
LOSS PER COMMON SHARE, PRIMARY AND
FULLY DILUTED $ (.07) $ (.39)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,820,079 10,954,947
=========== ===========
</TABLE>
(a) Loss per common share before extraordinary item is computed after giving
effect to the preferred dividends, both actual and imputed.
See accompanying notes
4
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GOTHIC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
REVENUE:
Oil and gas sales $ 3,318,018 $ 2,734,910
Gas system revenue 909,844 -
Well operations 324,779 322,652
Interest and other income 2,837 30,485
----------- -----------
TOTAL REVENUE $ 4,555,478 3,088,047
COSTS AND EXPENSES:
Lease operating expense 1,521,393 1,176,638
Gas system expense 639,334 -
Depreciation, depletion and
amortization 1,438,000 960,415
General and administrative expense 493,170 412,017
----------- -----------
Operating income 463,581 538,977
Interest and financing cost 1,740,240 326,716
----------- -----------
NET INCOME (LOSS) $(1,276,659) $ 212,261
PREFERRED DIVIDEND 91,910 103,875
PREFERRED DIVIDEND - AMORTIZATION OF
PREFERRED DISCOUNT - 215,844
----------- -----------
NET LOSS AVAILABLE FOR COMMON SHARES $(1,368,569) $ (107,458)
=========== ===========
LOSS PER COMMON SHARE, PRIMARY AND
FULLY DILUTED $ (.10) $ (.01)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 13,171,643 12,295,564
=========== ===========
</TABLE>
See accompanying notes
5
<PAGE>
GOTHIC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (748,990) $ (3,744,895)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation, depletion and
amortization 2,673,200 1,586,782
Amortization of discount and loan
costs 953,592 -
Provision for impairment of oil and
gas properties - 5,050,000
Deferred income tax benefit - (2,992,547)
Loss on early extinguishment of debt - 1,432,973
CHANGES IN ASSETS AND LIABILITIES:
Increase in accounts receivable (59,975) (1,258,503)
(Increase) decrease in other current
assets (214,284) 13,823
Increase in accounts and revenues
payable 442,179 53,129
Decrease in gas imbalance payable (405,339) -
Decrease in accrued liabilities (197,722) (753,874)
Decrease in other assets 494,794 205,700
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ 2,937,455 $ (407,412)
NET CASH USED BY INVESTING ACTIVITIES:
Proceeds from sale of investment - 200,000
Proceeds from collection on note
receivable - 123,000
Proceeds from sale of property and
equipment 304,812 191,239
Purchase of property and equipment (27,963,733) (7,962,335)
Property development (1,406,287) (347,423)
Acquisition of business, net of cash
acquired - (17,592,973)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES $(29,065,208) $(25,388,492)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt 14,500,000 -
Payment of short-term debt - (1,560,000)
Proceeds from long-term debt 36,250,312 18,230,195
Payment of long-term debt (23,411,451) (7,608,983)
Proceeds from sale of common stock,
net - 13,141,368
Proceeds from sale of preferred
stock, net - 3,997,430
Proceeds from exercise of common
stock warrants 325,000 -
Payment of loan fees (1,368,933) -
Payment of dividends - (173,125)
Other (70,166) (245,729)
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 26,224,762 $ 25,781,156
NET CHANGE IN CASH AND CASH EQUIVALENTS 97,009 (14,748)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 206,648 157,559
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 303,657 $ 142,811
============ ============
SUPPLEMENTAL DISCLOSURE OF INTEREST PAID $ 1,972,545 $ 648,261
============ ============
</TABLE>
See accompanying notes
6
<PAGE>
GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL AND ACCOUNTING POLICIES
BUSINESS - The consolidated financial statements include the accounts of
Gothic Energy Corporation, (the "Company"), and its subsidiaries, Gothic Energy
of Texas, Inc. ("Gothic Texas"), since its inception in 1995 and Gothic Gas
Corporation ("Gothic Gas"), since its inception in 1997. The Company is
primarily engaged in the business of acquiring, developing and exploiting oil
and gas reserves in Oklahoma, Texas, and Kansas.
PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The December 31, 1996 consolidated balance sheet data was derived
from the audited financial statements but does not include all disclosures
required by generally accepted accounting principles. The financial statements
should be read in conjunction with the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
In the opinion of management of the Company, the accompanying financial
statements contain all adjustments, none of which were other than normal
recurring accruals, necessary to present fairly the financial position of the
Company as of June 30, 1997, and the results of its operations and cash flows
for the periods ended June 30, 1997 and 1996. The results of operations for the
periods presented are not necessarily indicative of the results of operations to
be expected for the full year.
IMPACT OF FINANCIAL ACCOUNTING PRONOUNCEMENTS - In February 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, Earning Per Share ("FAS 128"). FAS 128 will change the
computation, presentation and disclosure requirements for earnings per share.
FAS 128 requires the presentation of "basic" and "diluted" earnings per share,
as defined, for all entities with complex capital structures. FAS 128 is
effective for financial statements issued for periods ending after December 15,
1997, and requires restatement of all prior period earning per share amounts.
The Company has not yet determined the impact that FAS 128 will have on its
earning per share when adopted.
NOTE 2. OIL AND GAS PROPERTY ACQUISITIONS
Fina Acquisition - On May 15,1997, the Company acquired from Fina Oil and
Chemical Company various working interests in 20 producing gas wells located in
Beaver County, Oklahoma and Clarke County, Kansas. The purchase price was $3.35
million after reflecting closing adjustments. The Company operates all 20
producing wells.
NORSE ACQUISITION - On December 11, 1996, the Company entered into a
purchase and sale agreement with Norse Exploration, Inc., and Norse Pipeline,
Inc. (collectively, "Norse"), to acquire various working interests in 11 oil and
gas producing properties and a 40.09% interest in the related Sycamore Gas
System (the "Sycamore System"), an Oklahoma gathering system, processing plant
and storage facility. The oil and gas wells and the gathering system are
located in the Springer Field in Carter County, Oklahoma. The total purchase
price was $10,750,000, plus two-year warrants to purchase 200,000 shares of the
Company's Common Stock at a per share exercise price of $2.50. The estimated
fair value of such warrants at the date of acquisition
7
<PAGE>
NOTE 2. OIL AND GAS PROPERTY ACQUISITIONS (CONTINUED)
was approximately $254,000. The Company paid a deposit of $1,075,000 toward the
purchase price in December 1996.
HUFFMAN ACQUISITION - The Company also, on December 13, 1996 entered into a
purchase and sale agreement with H. Huffman & Company ("Huffman"), an Oklahoma
limited partnership, to acquire various working interests in 13 oil and gas
producing properties and an additional 10.97% interest in the Sycamore System.
The oil and gas wells are located in the same producing area as the properties
acquired from Norse. The total purchase price for the assets acquired was
$3,950,000, of which the Company paid a deposit of $287,500 toward the purchase
price in December 1996.
HORIZON ACQUISITION - The Company also entered into a purchase and sale
agreement on January 22, 1997, with Horizon Gas Partners, L.P. and HSRTW, Inc.
(collectively, "Horizon"), to acquire various working and royalty interests in
approximately 100 oil and gas producing properties. The producing properties
are located in Major and Blaine counties of Oklahoma. The purchase price was
$10,000,000.
The effective date of the Norse, Huffman and Horizon acquisitions was
January 1, 1997 with the formal closing of the transactions occurring on
February 18, 1997.
EVERGREEN ACQUISITION - On March 13, 1997, the Company also entered into a
purchase and sale agreement with Evergreen Investments, Inc.("Evergreen"), to
acquire various working interests in three oil and gas producing properties and
an additional 4.17% interest in the Sycamore System for $733,316. The oil and
gas wells are located in the same producing area as the Norse and Huffman
acquisitions.
As noted above, in addition to acquiring interests in oil and gas
properties, the Company acquired a cumulative 55% interest in the Sycamore
System in connection with the Norse, Huffman and Evergreen acquisitions. A
portion of the purchase price paid in connection with each of these acquisitions
was allocated to the Sycamore System based on the relative discounted future
cash flows of the Sycamore System to be derived from the gas system operations
throughput, in relation to the discounted future cash flows of the oil and gas
properties acquired in each of these acquisitions. The Sycamore System is
accounted for in the Company's financial statements under the proportionate
consolidation method of accounting because the minority owner has control over
the management of the system. Under the proportionate consolidation method of
accounting, the Company recognizes its proportionate share of the assets,
liabilities, revenue and expense.
NOTE 3. FINANCING ACTIVITIES
LONG-TERM DEBT
On February 17, 1997, the Company and Bank One, Texas, N.A. ("Bank One"),
entered into a Restated Loan Agreement (the "Credit Facility") which currently
enables the Company to borrow, from time to time and, subject to meeting certain
borrowing base requirements and other conditions, a maximum aggregate of
$75,000,000. As of June 30, 1997, the aggregate available to be borrowed under
the Credit Facility is comprised of a $35,100,000 borrowing availability (the
"borrowing base") based on the Company's oil and gas reserves, a $10,000,000
special advance facility (the "Special Advance Facility") and a $2,000,000
special drilling facility (the "Special Drilling Facility").
On February 18, 1997, the Company drew down the borrowing base and the
Special Advance Facility for a total of $41,668,000. These funds were used to
repay all existing Bank One debt outstanding in the amount of $21,264,000, to
partially finance the February 18, 1997
8
<PAGE>
NOTE 3. FINANCING ACTIVITIES (CONTINUED)
Huffman, Norse and Horizon acquisitions in the amount of $19,404,000 and to pay
a $1,000,000 loan fee to Bank One. On May 15, 1997 the Company drew down an
additional $3,100,000 to finance a portion of the Fina Acquisition. Also, on
May 23, 1997, and on June 25, 1997, the Company drew down $585,563 and $896,749,
respectively, under the Special Drilling Facility. These funds were used to
finance drilling costs on four wells and completion costs on two of these wells.
The terms of the Credit Facility currently provide for payments at the rate
of $240,000 on March 1, 1997 and increasing to $475,000 per month commencing
April 1, 1997, with all outstanding principal and interest due and payable on
January 30, 1999. The Special Advance Facility of $10,000,000 is due on
September 1, 1997. Interest on the borrowing base loan is payable, at the option
of the Company, either at the rate of 1% over the lending bank's base rate
(9.50% at June 30, 1997) or up to 3.75% (based on the principal balance
outstanding) over the rate for borrowed dollars by the lending bank in the
London Interbank market. Interest on the Special Advance Facility is payable at
the rate of 3% over the lending bank's base rate. The indebtedness is
collateralized by first liens on all of the Company's oil and gas properties.
The Credit Facility includes various affirmative and negative covenants,
including, among others, the requirements that the Company (i), maintain a ratio
of current assets to current liabilities, as defined, of no less than 1.0 to
1.0, (ii) maintain a debt service coverage ratio of net cash flow per quarter to
required quarterly reduction of indebtedness of not less than 1.10 to 1.0, (iii)
maintain minimum tangible net worth at the end of each fiscal quarter of
$10,250,000, plus certain percentages of net income and proceeds received from
the sale of securities, (iv) maintain selling, general and administrative
expenses per quarter not in excess of 25% of consolidated net revenues for the
quarter ended March 31, 1997 and 20% of consolidated net revenues for all
subsequent quarters and (v) to arrange for hedges covering not less than 75% of
the Company's proved developed production of oil and natural gas for a period of
not less than twelve months with minimum floor prices to be mutually agreed upon
by the Company and Bank One. Material breaches of these or other covenants which
are not cured or waived could result in a default under the Credit Facility
resulting in the indebtedness becoming immediately due and payable and
empowering the lender to foreclose against the collateral for the loan. The
Company has asked for and received a waiver from Bank One for the 1.0 to 1.0
current ratio covenant and for the 1.1 to 1.0 debt coverage ratio as the Company
was not in compliance with these covenants at June 30, 1997.
NOTES PAYABLE
In order to provide the funds necessary to complete the Norse, Huffman, and
Horizon acquisitions, on February 18, 1997 two accredited investors, as defined
under the Securities Act of 1933, loaned to the Company the aggregate sum of
$4,500,000 represented by the Company's promissory notes ("Bridge Financing").
Of the aggregate amount, $2,500,000 bears interest at 5% per annum and matured
on April 18, 1997, however, the lender has extended the maturity date to
September 30, 1997 for additional consideration of 200,000 shares of the
Company's common stock. The remaining $2,000,000 bears interest at 12% per
annum and matures on October 31, 1997. In the event the principal and accrued
interest is not paid when due, such amount is automatically converted into a
number of shares of the Company's Common Stock determined by dividing such
amount by a sum equal to 75% of the closing bid price for the Company's Common
Stock on the five (5) days prior to the maturity date, with respect to the
$2,500,000 obligation, and on the maturity date with respect to the $2,000,000
obligation. As additional consideration for making the loan, the investors also
purchased at a price of $.01 per share a total of 250,000 shares of the
Company's common stock when the fair market value of the Company's common stock
was $2.63 per share. As consideration for extending the maturity
9
<PAGE>
NOTE 3. FINANCING ACTIVITIES (CONTINUED)
date of the $2,500,000 loan, on May 13, 1997, and on July 31, 1997, the Company
agreed to issue an additional 100,000 shares (200,000 total) of common stock
for $.01 per share when the fair value of the Company's common stock was $2.25
and $1.81 per share, respectively. Also, the Company paid a $250,000 fee for
the $2,500,000 advance on the Bridge Financing.
It is the Company's intention to pay these notes prior to their maturity
dates, using proceeds from the Credit Facility or other debt or equity
financing, however, should the notes not be paid prior to maturity they would
convert into approximately 3,294,000 shares of the Company's common stock based
on the trading price of the stock on June 30, 1997. In addition, if the Company
is unable to repay the Bridge Financing Notes, a premium attributable to the
conversion discount will be recognized as additional interest expense of
approximately $1,500,000 based on the June 30, 1997 market price. Management
currently believes that funds will be obtained to repay the Bridge Financing
Notes prior to conversion, and accordingly, the contingent loan discount has not
been recorded in the June 30, 1997 financial statements.
NOTE 4. STOCKHOLDERS' EQUITY
During the six months ending June 30, 1997, the Company issued an aggregate
of 535,654 shares of its common stock upon conversion of 1,050 shares of its 7
1/2% Cummulative Convertible Preferred Stock by four preferred shareholders.
After conversion of these preferred shares, there remained 4,490 shares of
preferred stock outstanding.
During the six months ending June 30, 1997, the Company also issued 325,000
shares of its common stock upon conversion of outstanding warrants. The warrants
entitled the holders to purchase an aggregate of 325,000 shares of the Company's
common stock at a price of $1.00 per share.
NOTE 5. SUBSEQUENT EVENTS
On June 30, 1997, the Company entered into an agreement with two affiliates
of HS Resources, Inc. ("HS") to acquire various working interests in 101 oil and
gas wells located in Eddy and Chavez Counties, New Mexico and 150 wells in
various counties throughout the Anadarko Basin of Western Oklahoma. The
purchase price of the acquisition is $27.5 million. Additionally, the Company
will assign to Horizon certain of its non-strategic properties located in the
Arkoma Basin in Southeastern Oklahoma with a value of approximately $1.0
million. The Company will assume operations of 142 of these wells. In
connection with the HS acquisition, the Company issued 1,500,000 shares of
common stock, with a market value of $1.80 per share, as a deposit toward the
purchase price. The Company will re-acquire and retire the shares upon closing
of the HS acquisition. Funding for the HS acquisition and repayment of all
currently outstanding debt is expected to be available from a $100 million
Senior Debt Offering which is expected to be consummated in late August, 1997.
On August 11, 1997, the Company acquired from Kerr-McGee Corporation
various working and royalty interests in 162 wells located in Canadian and Grady
Counties, Oklahoma, for $3.6 million. The Company is the operator of 16 of
these wells.
10
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders:
We have reviewed the accompanying consolidated balance sheet of Gothic
Energy Corporation and Subsidiaries as of June 30, 1997 and the related
consolidated statements of operations for the three and six months ended June
30, 1997, and the consolidated statement of cash flows for the six-month period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 24, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1996 is fairly stated
in all material respects in relation to the consolidated balance sheet form
which it has been derived.
COOPERS & LYBRAND, L.L.P.
Tulsa, Oklahoma
August 12, 1997
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is management's discussion and analysis of certain
significant factors which have affected the Company's earnings, financial
condition and liquidity during the periods included in the accompanying
Consolidated Financial Statements.
RESULTS OF OPERATIONS
- ---------------------
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Revenues were $10,854,992 for the six months ended June 30, 1997, as
compared to $4,858,633 for the six months ended June 30, 1996. Oil and gas sales
for the six months ended June 30, 1997 increased to $8,024,836, with $1,637,728
from oil sales, $6,186,095 from gas sales and $201,013 from the settlement of a
gas imbalance, as compared to oil and gas sales of $4,343,126 for the six months
ended June 30, 1996, with $1,576,120 from oil sales and $2,766,006 from gas
sales. Of this $3,681,710 increase in oil and gas sales, approximately
$3,106,000 related to increases in volumes of gas sold, and $192,000 and
$528,000 related to increases in the average prices of oil and gas sold,
respectively, partially offset by $144,000 related to decreases in volumes of
oil sold. The increase in volumes of gas sold resulted primarily from the 1997
acquisitions of Norse, Horizon, Huffman, Evergreen and Fina. Oil sales for the
six month period ending June 30, 1997 were based on the sale of 75,856 barrels
at an average price of $21.59 per barrel as compared to 82,726 barrels at an
average price of $19.06 per barrel for the comparable period in 1996. Gas sales
for the six month period ending June 30,1997 were based on the sale of 2,932,498
mcf at an average price of $2.11 per mcf compared to 1,399,688 mcf at an average
price of $1.98 per mcf for the comparable period in 1996. Also included in the
Company's revenue total for the six month period ending June 30, 1997 is
$2,178,844 related to sales of natural gas and related products from the
Company's interest in the Sycamore System, an Oklahoma gathering system,
processing plant and storage facility acquired effective January 1, 1997.
The Company incurred lease operating expenses for the six months ended June
30, 1997 of $3,221,523 compared with lease operating expenses of $2,059,735 for
the six months ended June 30, 1996. Lease operating expenses include
approximately $516,000 and $304,000 in production taxes which the Company
incurred from its share of production in the first six months of 1997 and 1996,
respectively. The increase in lease operating expenses is a result of the
Norse, Huffman, Horizon, Evergreen and Fina acquisitions during 1997. Lease
operating expenses as a percentage of oil and gas sales were 40% for the six
months ended June 30, 1997 as compared to 47% for the same period in 1996. The
Company also incurred $1,742,334 in operating costs associated with the Sycamore
System during the six months ended June 30, 1997.
Depreciation, depletion and amortization expense was $2,673,200 for the six
months ended June 30, 1997 as compared to $1,586,782 for the six months ended
June 30, 1996. The increase resulted primarily from the increased production
associated with the Norse, Huffman, Horizon, Evergreen and Fina acquisitions
during 1997 and depreciation on the Company's interest in the Sycamore System
acquired in January 1997.
General and administrative costs were $1,040,788 for the six months ended
June 30, 1997, as compared to $818,324 for the six months ended June 30, 1996.
This increase was primarily the result of legal and accounting costs associated
with the Company's public reporting requirements increasing by approximately
$76,000, outside consulting costs of approximately $58,000 associated with the
Norse, Horizon and Huffman properties, salary and employee benefit costs
increasing by approximately $50,000 and an approximate $39,000 increase in other
costs associated with the growth of the Company.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
During the first quarter of 1996, the Company recorded a $5,050,000 pre-tax
provision for impairment of oil and gas properties, primarily related to
properties acquired in the Buttonwood Acquisition. Such provision resulted from
a full cost ceiling write-down as of March 31, 1996 and was reflected in the
balance sheet as a reduction of the cost of oil and gas properties. As a result
of the $5,050,000 impairment provision and an aggregate of $2,850,000 of
acquisition deposits written off, the Company recorded a tax benefit of
$2,992,547 which offset the deferred tax liability related to the acquired
Buttonwood oil and gas properties. The Company also recorded an extraordinary
loss of $1,432,973 on the early extinguishment of debt during the quarter ended
March 31, 1996.
Interest and financing costs were $2,926,137 for the six months ended June
30, 1997 as compared to $648,261 for the six months ended June 30, 1996. The
increase was primarily the result of the Company's amending and restating its
debt with Bank One during the first quarter of 1997. The Company incurred
interest costs of $1,832,034 with Bank One, $132,000 related to the Bridge
Financing, $953,592 as amortization of loan discount costs and $8,511 with other
parties.
During the six months ended June 30, 1997, the Company spent $1,406,287 on
capital enhancements and $27,963,733 on acquiring additional producing
properties, as compared to $347,423 and $25,555,308 spent on capital
enhancements and property acquisitions, respectively, during 1996. The 1997
amounts were primarily related to the Norse, Horizon, Huffman, Evergreen and
Fina Acquisitions, and expanded development activity by the Company. The
Company also incurred $195,785 in preferred dividends on its 7-1/2% Cumulative
Convertible Preferred Stock during the six months ended June 30, 1997, as
compared to $532,865 incurred during the same period in 1996. Included in the
1996 amount was an imputed dividend of $359,740 related to the issuance in
January 1996 of preferred stock which is convertible into the Company's common
stock at a discount from market.
THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THREE MONTHS ENDED JUNE 30,
1996.
Revenues were $4,555,478 for the three months ended June 30, 1997, as
compared to $3,088,047 for the three months ended June 30, 1996. Oil and gas
sales for the three months ended June 30, 1997 increased to $3,318,018 with
$756,833 from oil sales, $2,360,172 from gas sales and $201,013 from the
settlement of a gas imbalance, as compared to oil and gas sales of $2,734,910
for the three months ended June 30, 1996, with $900,570 from oil sales and
$1,834,340 from gas sales. Oil sales for the second quarter of 1997 were based
on the sale of 38,923 barrels at an average price of $19.44 per barrel as
compared to 46,919 barrels at an average price of $19.19 per barrel in the
second quarter of 1996. Gas sales in the second quarter of 1997 were based on
the sale of 1,522,567 mcf at an average price of $1.55 per mcf compared to
905,287 mcf at an average price of $2.03 per mcf in the second quarter of 1996.
Also included in the Company's revenue total for the quarter ended June 30, 1997
is $909,844 related to sales of natural gas and related products from the
Company's interest in the Sycamore System.
The Company incurred lease operating expenses for the three months ended
June 30, 1997 of $1,521,393 compared with lease operating expenses of $1,176,638
for the three months ended June 30, 1996. Lease operating expenses include
approximately $216,000 and $191,000 in production taxes which the Company
incurred from its share of production in the second quarter of 1997 and 1996,
respectively. The increase in lease operating expenses is a result of the
Norse, Huffman, Horizon, Evergreen and Fina acquisitions during 1997. Lease
operating expenses as a percentage of oil and gas sales were 46% in the second
quarter of 1997 as
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
compared to 43% in the second quarter of 1996. The Company also incurred
$639,334 in operating costs associated with the Sycamore System during the
quarter ended June 30, 1997.
Depreciation, depletion and amortization expense was $1,438,000 for the
three months ended June 30, 1997 as compared to $960,415 for the three months
ended June 30, 1996. The increase resulted primarily from the increased
production associated with the Norse, Huffman, Horizon, Evergreen and Fina
acquisitions during 1997 and depreciation on the Company's interest in the
Sycamore System acquired in January 1997.
General and administrative costs were $493,170 for the three months ended
June 30, 1997, as compared to $412,017 for the three months ended June 30, 1996.
This increase was primarily the result of an increase in salary and employee
benefit costs, an increase in legal and accounting costs associated with the
Company's public reporting requirements, and other costs associated with the
Company's growth.
Interest and financing costs were $1,740,240 for the three months ended
June 30, 1997 as compared to $326,716 for the three months ended June 30, 1996.
The increase was primarily the result of the Company's amending and restating
its debt with Bank One during the first quarter of 1997. The Company incurred
interest costs of $1,073,968 with Bank One, $91,000 related to the Bridge
Financing, $573,633 as amortization of loan discount costs and $1,639 with other
parties.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
GENERAL
- -------
On January 30, 1996, the Company completed the following transactions: (i)
it completed the Buttonwood Acquisition; (ii) it borrowed approximately $11
million pursuant to a Credit Facility; (iii) it completed the Public Offering
yielding net proceeds, including net proceeds from a subsequently exercised
over-allotment option, of approximately $12,966,000; and (iv) it completed the
Preferred Stock Financing for aggregate consideration of $5,540,000 inclusive of
$1,290,000 principal amount of a note of the Company exchanged for such shares.
Herein, the Buttonwood Acquisition, the Credit Facility, the Public Offering and
the Preferred Stock Financing are referred to as the "January 1996
Transactions."
Thereafter, throughout 1996, the Company completed the acquisition of
various working interests in additional producing oil and gas properties. On
May 16, 1996, the Company completed the Comstock Acquisition which included
various working interests in 145 producing oil and gas properties for
consideration of $6,430,195 and on May 20, 1996 it completed the Stratum
Acquisition including the 7% overriding royalty interest in the Johnson Ranch
Acquisition properties for $800,000. It expended $3,270,000 for the acquisition
of various working interests in approximately 120 wells from various sellers on
August 5, 1996 and on December 27, 1996 it completed the Athena Acquisition for
$4,200,000. Herein, the foregoing acquisitions completed in 1996 (including the
January 1996 Transactions) are referred to as the "1996 Acquisitions."
ACQUISITION FINANCING
- ---------------------
Financing for the acquisitions completed subsequent to the January 1996
Transactions was provided under the terms of the Credit Facility, as amended.
On December 11, 1996, the Company entered into a purchase and sale
agreement with Norse Exploration, Inc., and Norse Pipeline, Inc. (collectively,
"Norse"), to acquire various working interests in 11 oil and gas producing
properties and a 40.09% interest in the related Sycamore Gas System (the
"Sycamore System"), an Oklahoma gathering system, processing
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
plant and storage facility. The oil and gas wells and the gathering system are
located in the Springer Field in Carter County, Oklahoma. The total purchase
price was $10,750,000, plus two-year warrants to purchase 200,000 shares of the
Company's Common Stock at a per share exercise price of $2.50. The estimated
fair value of such warrants at the date of acquisition was approximately
$254,000. The Company paid a deposit of $1,075,000 toward the purchase price in
December 1996.
On December 13, 1996, the Company entered into a purchase and sale
agreement with H. Huffman & Company ("Huffman"), an Oklahoma limited
partnership, to acquire various working interests in 13 oil and gas producing
properties and an additional 10.97% interest in the Sycamore System. The oil
and gas wells are located in the same producing area as the properties acquired
from Norse. The total purchase price for the assets acquired was $3,950,000, of
which the Company paid a deposit of $287,500 toward the purchase price in
December 1996.
On January 22, 1997, the Company also entered into a purchase and sale
agreement with Horizon Gas Partners, L.P. and HSRTW, Inc. (collectively,
"Horizon"), to acquire various working and royalty interests in approximately
100 oil and gas producing properties. The producing properties are located in
Major and Blaine counties of Oklahoma. The purchase price was $10,000,000.
All three transactions were effective January 1, 1997 with the formal
closing of the transactions occurring on February 18, 1997.
Of the deposits paid to the sellers under these agreements, aggregating
$1,362,500, $1,291,295, were paid out of the proceeds from borrowings in
December 1996 from Bank One, Texas, N.A., and the financing to complete these
transactions was provided by the Credit Facility and the bridge financing
described below.
On May 15, 1997, the Company acquired from Fina Oil and Chemical Company
various working interests in 20 producing gas wells located in Beaver County,
Oklahoma and Clarke County, Kansas. The purchase price was $3,350,000 after
reflecting closing adjustments. The Company operates all 20 producing wells.
Of the purchase price, $3,100,000 was provided through the Bank One Credit
Facility with the remaining funds coming from the Company's working capital.
On February 17, 1997, the Company and Bank One, Texas, N.A., entered into a
Restated Loan Agreement (the "Credit Facility") which currently enables the
Company to borrow, from time to time and, subject to meeting certain borrowing
base requirements and other conditions, a maximum aggregate of $75,000,000. As
of June 30, 1997, the aggregate available to be borrowed under the Credit
Facility is comprised of a $35,100,000 borrowing availability (the "borrowing
base") based on the Company's oil and gas reserves, a $10,000,000 special
advance facility (the "Special Advance Facility") and a $2,000,000 special
drilling facility (the "Special Drilling Facility").
On February 18, 1997, the Company drew down the borrowing base and the
Special Advance Facility for a total of $41,668,000. These funds were used to
repay all existing Bank One debt outstanding in the amount of $21,264,000, to
partially finance the February 18, 1997 Huffman, Norse and Horizon acquisitions
in the amount of $19,404,000 and to pay a $1,000,000 loan fee to Bank One. On
May 15, 1997 the Company drew down an additional $3,100,000 from the borrowing
base. These funds were used to finance a portion of the Fina Acquisition. Also,
on May 23, 1997, and on June 25, 1997, the Company drew down $585,563 and
$896,749,
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
respectively, from the Special Drilling Facility. These funds were used to
finance drilling costs on four wells and completion costs on two of these wells.
The terms of the Credit Facility currently provide for payments at the rate
of $240,000 on March 1, 1997 and increasing to $475,000 per month commencing
April 1, 1997, with all outstanding principal and interest due and payable on
January 30, 1999. The Special Advance Facility of $10,000,000 is due on
September 1, 1997. Interest on the borrowing base loan is payable, at the option
of the Company, either at the rate of 1% over the lending bank's base rate
(9.50% at June 30, 1997) or up to 3.75% (based on the principal balance
outstanding) over the rate for borrowed dollars by the lending bank in the
London Interbank market. Interest on the Special Advance Facility is payable at
the rate of 3% over the lending bank's base rate. The indebtedness is
collateralized by first liens on all of the Company's oil and gas properties.
The Credit Facility includes various affirmative and negative covenants,
including, among others, the requirements that the Company (i), maintain a ratio
of current assets to current liabilities, as defined, of no less than 1.0 to
1.0, (ii) maintain a debt service coverage ratio of net cash flow per quarter to
required quarterly reduction of indebtedness of not less than 1.10 to 1.0, (iii)
maintain minimum tangible net worth at the end of each fiscal quarter of
$10,250,000, plus certain percentages of net income and proceeds received from
the sale of securities, (iv) maintain selling, general and administrative
expenses per quarter not in excess of 25% of consolidated net revenues for the
quarter ended March 31, 1997 and 20% of consolidated net revenues for all
subsequent quarters and (v) to arrange for hedges covering not less than 75% of
the Company's proved developed production of oil and natural gas for a period of
not less than twelve months with minimum floor prices to be mutually agreed upon
by the Company and Bank One. Material breaches of these or other covenants which
are not cured or waived could result in a default under the Credit Facility
resulting in the indebtedness becoming immediately due and payable and
empowering the lender to foreclose against the collateral for the loan. The
Company has asked for and received a waiver from Bank One for the 1.0 to 1.0
current ratio covenant and for the 1.1 to 1.0 debt coverage ratio as the Company
was not in compliance with these covenants at June 30, 1997.
Under the terms of the Credit Facility, the Company is prohibited from
paying dividends on its Common Stock. In addition, so long as 3,145 shares of
7-1/2% Cumulative Preferred Stock are outstanding, the Company is restricted
from paying any dividends on its Common Stock.
In order to provide the funds necessary to complete the Norse, Huffman, and
Horizon acquisitions, on February 18, 1997 two accredited investors, as defined
under the Securities Act of 1933, loaned to the Company the aggregate sum of
$4,500,000 represented by the Company's promissory notes ("Bridge Financing").
Of the aggregate amount, $2,500,000 bears interest at 5% per annum and matured
on April 18, 1997, however, the lender has extended the maturity date to
September 30, 1997 for additional consideration of 200,000 shares of the
Company's common stock. The remaining $2,000,000 bears interest at 12% per
annum and matures on October 31, 1997. In the event the principal and accrued
interest is not paid when due, such amount is automatically converted into a
number of shares of the Company's Common Stock determined by dividing such
amount by a sum equal to 75% of the closing bid price for the Company's Common
Stock on the five (5) days prior to the maturity date, with respect to the
$2,500,000 obligation, and on the maturity date with respect to the $2,000,000
obligation. As additional consideration for making the loan, the investors also
purchased at a price of $.01 per share a total of 250,000 shares of the
Company's common stock when the fair market value of the Company's common stock
was $2.63 per share. As consideration for extending the maturity date of the
$2,500,000 loan, on May 13, 1997, and on July 31, 1997, the Company agreed to
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
issue an additional 100,000 shares (200,000 total) of common stock for $.01 per
share when the fair value of the Company's common stock was $2.25 and $1.81 per
share, respectively. Also, the Company paid a $250,000 fee for the $2,500,000
advance on the Bridge Financing.
It is the Company's intention to pay these notes prior to their maturity
dates, using proceeds from the Credit Facility or other debt or equity
financing, however, should the notes not be paid prior to maturity they would
convert into approximately 3,294,000 shares of the Company's common stock based
on the trading price of the stock on June 30, 1997. In addition, if the Company
is unable to repay the Bridge Financing Notes, a premium attributable to the
conversion discount will be recognized as additional interest expense of
approximately $1,500,000 based on the June 30, 1997 market price. Management
currently believes that funds will be obtained to repay the Bridge Financing
Notes prior to conversion, and accordingly, the contingent loan discount has not
been recorded in the June 30, 1997 financial statements.
On June 30, 1997, the Company entered into an agreement with two affiliates
of HS Resources, Inc. ("HS") to acquire various working interests in 101 oil and
gas wells located in Eddy and Chavez Counties, New Mexico and 150 wells in
various counties throughout the Anadarko Basin of Western Oklahoma. The
purchase price of the acquisition is $27.5 million. Additionally, the Company
will assign to Horizon certain of its non-strategic properties located in the
Arkoma Basin in Southeastern Oklahoma with a value of approximately $1.0
million. The Company will assume operations of 142 of these wells. In
connection with the HS acquisition, the Company issued 1,500,000 shares of
common stock, with a market value of $1.80 per share, as a deposit toward the
purchase price. The Company will re-acquire and retire the shares upon closing
of the HS acquisition. Funding for the acquisition and repayment of all
currently outstanding debt is expected to be available from a $100 million
Senior Debt Offering which is expected to be consummated in late August, 1997.
At June 30, 1997, the Company had total current assets of $3,510,774
including cash of $303,657 and total current liabilities of $23,527,926
including notes payable and current portion of long-term debt of $19,260,209. As
a result of amending the Credit Facility in February 1997, the Company's debt
service requirements under the Credit Facility and related Special Advance
Facility, for the period July, 1997 through June, 1998 will be $15,700,000.
Further, the $2,500,000 and $2,000,000 Bridge Notes will convert to common stock
if not repaid by September 30, 1997 and October 31, 1997, respectively. While
management expects the acquisitions in late 1996 and in early 1997 to increase
cash flows from oil and gas production, such cash flows are not expected to be
adequate to meet debt service requirements and to pay other current obligations.
Accordingly, the Company will be required to either modify the terms of the
restated Credit Facility or obtain other financing.
The Company's capital requirements relate to the acquisition, exploration,
enhancement, development and operation of oil and gas producing properties. In
general, because the oil and gas reserves the Company has acquired and intends
to acquire are depleted by production over time, the success of its business
strategy is dependent upon a continuous acquisition, exploitation, enhancement,
development and operation program. In order to achieve continuing profitability
and generate cash flow, the Company will be dependent upon acquiring or
developing additional oil and gas properties or entering into joint oil and gas
well development arrangements. The Company will continue to require access to
debt and equity capital or the availability of joint venture development
arrangements, among other possible sources, to pursue its business strategy of
additional property acquisition and development. The Company has no present
arrangements to raise additional capital from the sale of its securities or to
enter into joint development arrangements and no assurance can be given that the
Company will be able to obtain additional capital or enter into joint venture
development arrangements on satisfactory
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
terms to implement the Company's business strategy. The Company has funded its
recent capital needs through the issuance of capital stock and borrowings,
principally under the Credit Facility. Without raising additional capital or
entering into joint oil and gas well development arrangements, the Company will
be unable to acquire additional producing oil and gas properties and its ability
to develop its existing oil and gas properties will be limited to the extent of
the available cash flow. No assurance can be given as to the availability or
terms of any such additional capital or joint development arrangements or that
such terms as are available may not be dilutive to the interests of the
Company's stockholders.
CASH FLOW
- ---------
Net cash provided by operations increased to $2,937,455 for the six months
ended June 30, 1997 as compared to net cash used of $407,412 for the same period
in 1996, primarily due to the cash flows generated from the 1996 and 1997
Acquisitions. The improved operating cash flows for the six month period ending
June 30, 1997 relate primarily to a reduction in net loss from $3,744,895 in
1996 to 748,990 in 1997 adjusted for non-cash charges.
The Company used $29,065,208 of net cash in investing activities for the
six months ended June 30, 1997 compared to net cash used of $25,388,492 for the
same period in 1996. This was primarily due to the acquisitions of Norse,
Horizon, Huffman, and Evergreen for $24,119,320, the Fina Acquisition for
3,348,000 and oil and gas property enhancements in the amount of $1,406,287.
Net cash provided by financing activities for the six months ended June 30,
1997 was $26,224,762 compared to $25,781,156 provided in 1996. The June 30, 1997
amount includes proceeds from short and long-term debt of $50,750,312, less
repayments of $23,411,451 on long-term debt and the payment of $1,368,933 in
loan costs.
CAUTIONARY STATEMENT - Reference is made to the Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation
Reform Act of 1995 contained in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996, which Cautionary Statement is incorporated
herein by reference.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holder
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
15 - Letter Regarding Unaudited Interim Financial
Information
27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended June 30, 1997, the Company filed
a Current Report on Form 8-K dated April 16, 1997 in
response to Item 5 thereof.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOTHIC ENERGY CORPORATION
DATE: AUGUST 13, 1997 BY: /S/ MICHAEL PAULK
-----------------------------------
MICHAEL PAULK,
PRESIDENT, CHIEF EXECUTIVE OFFICER
DATE: AUGUST 13, 1997 BY: /S/ ANDREW MCGUIRE
------------------------------------
ANDREW MCGUIRE,
CONTROLLER
20
<PAGE>
EXHIBIT 15
Gothic Energy Corporation and Subsidiaries
Letter Regarding Unaudited Interim Financial Information
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Gothic Energy Corporation and Subsidiaries
Registration on Form S-3
We are aware that our report dated August 12, 1997 on our review of the interim
financial information of Gothic Energy Corporation for the period ended June 30,
1997 and included in this Form 10-QSB is incorporated by reference in the
Company's registration statement on Form S-3 (File No. 0-19753). Pursuant to
Rule 436 (c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND, L.L.P.
Tulsa, Oklahoma
August 12, 1997
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