UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 0-19766
THE HOME-STAKE OIL & GAS COMPANY
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-0288030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
(Address of principal executive offices)
(918) 583-0178
(Registrant's telephone number)
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 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
The number of shares outstanding of the Registrants' common stock, all
of which comprise a single class with $ .01 par value, as of May 13, 1998, the
latest practicable date, was 4,517,363.
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THE HOME-STAKE OIL & GAS COMPANY
FORM 10-QSB
MARCH 31, 1998
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 1998
and December 31, 1997................................... 4
Condensed Statements of Income and Retained
Earnings - three months ended March 31, 1998 and 1997 .. 5
Condensed Statements of Cash Flows -
three months ended March 31, 1998 and 1997 ............. 6
Notes to Condensed Financial Statements .................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations .................................. 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 12
Item 2. Changes in Securities and Use of Proceeds ................ 12
Item 3. Defaults upon Senior Securities .......................... 12
Item 4. Submission of Matters to a Vote of Security Holders ...... 12
Item 5. Other Information ........................................ 12
Item 6. Exhibits and Reports on Form 8-K ......................... 12
SIGNATURES ....................................................... 13
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1998 1997
---- ----
Current assets:
Cash and cash equivalents......................... $ 1,404,767 $ 1,507,782
Accounts receivable............................... 1,019,545 1,730,114
Prepaid expenses.................................. 451,507 188,461
----------- -----------
Total current assets....................... 2,875,819 3,426,357
Property and equipment, at cost:.................... 47,769,000 40,624,204
Less accumulated depreciation,
depletion and amortization..................... 16,269,959 15,613,520
----------- -----------
Net property and equipment................. 31,499,041 25,010,684
Other assets........................................ 274,872 246,918
----------- -----------
$34,649,732 $28,683,959
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......... $ 929,365 $ 1,517,932
Income taxes payable.............................. 24,560 92,822
Current notes payable (Note 3).................... 1,320,000 -
----------- -----------
Total current liabilities.................. 2,273,925 1,610,754
Long-term notes payable (Note 3).................... 5,280,000 -
Deferred income taxes............................... 5,230,874 5,207,548
Stockholders' equity:
Preferred stock, $1 par value -
2,000,000 shares authorized;
none issued Common stock,
$ .01 par value -
12,000,000 shares authorized,
4,517,363 shares issued......................... 45,174 45,174
Additional paid-in capital........................ 15,460,621 15,460,621
Retained earnings................................. 6,359,138 6,359,862
----------- -----------
Total stockholders' equity................. 21,864,933 21,865,657
---------- -----------
$34,649,732 $28,683,959
=========== ===========
See accompanying notes.
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THE HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Revenues:
Oil and gas sales................................. $ 2,324,919 $ 2,238,019
Gain on sales of assets........................... - 99,708
Income from equity affiliates..................... - 190,300
Other income...................................... 95,988 81,762
----------- -----------
2,420,907 2,609,789
Costs and expenses:
Production........................................ 913,133 635,946
Exploration....................................... 23,559 215,300
General and administrative........................ 636,569 258,744
Depreciation, depletion and amortization.......... 677,000 338,083
Interest.......................................... 1,587 26,733
Property and other taxes.......................... 50,822 32,443
----------- -----------
2,302,670 1,507,249
----------- -----------
Income before provision for income taxes............ 118,237 1,102,540
Provision for income taxes:
Current........................................... 5,288 156,045
Deferred.......................................... 23,326 179,026
----------- -----------
28,614 335,071
----------- -----------
Net income.......................................... 89,623 767,469
Retained earnings at beginning of year.............. 6,359,862 4,385,862
Cash dividends ($ .02 per share).................... (90,347) (62,827)
----------- -----------
Retained earnings at end of period.................. $ 6,359,138 $ 5,090,504
=========== ===========
Weighted average number of common shares
outstanding:
Basic............................................. 4,517,363 3,396,857
=========== =========
Diluted........................................... 4,772,613 n/a
===========
Net income per common share:
Basic............................................. $ .02 $ .23
===== =====
Diluted........................................... $ .02 n/a
=====
See accompanying notes.
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THE HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Operating activities:
Oil and gas sales, net of production taxes........ $ 2,357,367 $ 2,106,683
Other............................................. 95,988 81,762
----------- -----------
2,453,355 2,188,445
Cash paid to suppliers and employees.............. 1,435,231 725,131
Interest paid..................................... 1,587 26,733
Property and other taxes.......................... 50,822 32,443
Income taxes paid................................. 199,983 51,700
----------- -----------
1,687,623 836,007
----------- -----------
Net cash provided by operating activities....... 765,732 1,352,438
Investing activities:
Proceeds from sales of property and equipment..... 19,548 228,488
Acquisition of property and equipment............. (7,405,273) (486,972)
Dividends from equity affiliate................... - 15,169
----------- -----------
Net cash used in investing activities........... (7,385,725) (243,315)
Financing activities:
Loan proceeds..................................... 6,600,000 -
Note payments..................................... - (964,260)
Cash dividends paid............................... (83,022) (62,800)
----------- ----------
Net cash provided by (used in)
financing activities....................... 6,516,978 (1,027,060)
----------- ----------
Net increase (decrease) in cash..................... (103,015) 82,063
Cash at beginning of year........................... 1,507,782 626,867
----------- -----------
Cash at end of period............................... $ 1,404,767 $ 708,930
=========== ===========
See accompanying notes.
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THE HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Description of business
The Home-Stake Oil & Gas Company ("HSOG" or the "Company") is an independent oil
and gas producer actively engaged in the acquisition, exploration, development
and production of oil and gas properties. Oil and gas exploration and production
activities are subject to numerous risks inherent in the business. These include
the volatility of oil and gas prices, environmental concerns and governmental
regulations, general business risks and hazards involving the acquisition and
operation of oil and gas properties, the ability to continue to find new
reserves to replace those being depleted and the highly competitive nature of
the business. Its principal geographic operating areas lie within the states of
Oklahoma, Montana and Texas.
Note 1 - General
The unaudited financial information provided in this report includes all normal
recurring adjustments which are, in the opinion of management, necessary to
fairly present the financial position, results of operations and cash flows of
the Company. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. The Company believes that the
disclosures herein are adequate to make the information presented not
misleading; however, these financial statements should be read in conjunction
with the audited financial statements and related notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2 - Merger and Pro Forma Financial Information
On December 31, 1997, The Home-Stake Royalty Corporation ("HSRC") was merged
with and into the Company. This transaction was accounted for by the purchase
method of accounting for business combinations. The merged companies adopted the
name of HSOG, which was deemed to be the purchased entity for accounting
purposes since the former HSRC stockholders received approximately 61% of the
merged entity's common stock. Accordingly, the condensed statement of income and
retained earnings and statement of cash flows for the period ended March 31,
1997, have been restated to reflect the historical operations of HSRC prior to
the merger. The balance sheets at March 31, 1998 and December 31, 1997, reflect
the assets and liabilities of the merged entities. All references to the number
of shares and per share amounts reflect the historical shares of HSRC, adjusted
for the 48.66 exchange ratio.
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THE HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Merger and Pro Forma Financial Information (continued)
Since the merger of the Company and HSRC was accounted for by the purchase
method of accounting, the accompanying 1997 statement of income and retained
earnings does not include any revenues or expenses of the former HSOG. Following
is summarized pro forma 1997 information for the quarter ended March 31, 1997,
assuming the acquisition had occurred on January 1, 1997. This pro forma
information reflects the combined historical amounts for the two companies,
adjusted to eliminate the income and amortization of each company related to its
ownership in the other, and the increases in depreciation, depletion and
amortization and income taxes related to the merger. Such pro forma information
is not intended to be indicative of the actual results of operations had the
transaction occurred on the date indicated.
Revenues:
Oil and gas sales.................................. $ 4,374,732
Other.............................................. 350,951
-----------
4,725,683
Costs and expenses:
Production........................................ 1,267,223
Exploration....................................... 358,675
General and administrative........................ 516,110
Depreciation, depletion and amortization.......... 688,789
Interest.......................................... 108,718
Property and other taxes.......................... 63,695
-----------
3,003,210
Income before income tax.......................... 1,722,473
Income tax expense................................ 596,948
-----------
Net income.............................................. $ 1,125,525
===========
Weighted average number of shares outstanding........... 4,517,363
===========
Basic net income per share.............................. $ .47
=====
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THE HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Note payable
The note payable at March 31, 1998, represents the amounts due under the
Company's financing agreement which is due May 1, 2000 and provides for monthly
maturities of $110,000, plus interest at bank prime less 1/2 %. In addition, the
Company has a line of credit in the amount of $5,000,000 available until May 1,
1999 which provides for monthly payments of interest on the outstanding
borrowings at bank prime less 1%. In connection with this line of credit, the
Company pays a commitment fee of one-half of one per cent (1/2%) per annum on
the unused portion of the line.
This note and the line of credit described above are collateralized by certain
of the Company's producing properties.
Note 4 - Stock options and net income per share
On February 12, 1998, the Board of Directors granted qualified stock options in
varying amounts to all employees totaling 155,250 shares. Such options vest over
a 5-year period. In addition, there were non-qualified options issued to all
outside directors in the aggregate amount of 100,000 shares that are currently
exercisable. The options have an exercise price of $4.50 per share which
approximated the fair value of the Company's stock at the date of grant.
In accordance with Statement of Financial Accounting Standards No. 128, "Earning
per Share", net income per common share is computed using two calculations;
basic net income per share and diluted income per share. Basic net income per
common share is calculated based on the weighted average shares outstanding
during the period. Diluted net income per common share includes in average
common shares outstanding stock options which are dilutive.
Note 5 - Contingencies
The Company is involved in various legal actions arising in the normal course of
business. In the opinion of management, the Company's liabilities, if any, in
these matters will not have a material effect on the Company's financial
position, results of operations or cash flows.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
As further described in Note 2 to the unaudited condensed financial statements,
on December 31, 1997, The Home-Stake Royalty Corporation ("HSRC") was merged
with and into the Company. This transaction was accounted for by the purchase
method of accounting for business combinations, with the merged entity adopting
the name of The Home-Stake Oil & Gas Company, which was deemed to be the
purchased entity for accounting purposes. Accordingly, the condensed statements
of income included herein reflect the historical results of operations of HSRC
for 1997 and the results of operations of the merged entities for 1998.
Results of Operations - First quarter 1998 compared with first quarter 1997
Net income for the first quarter decreased $677,846 from $767,469 in 1997 to
$89,623 in 1998. The principal reasons for this decrease are as follows:
Oil sales decreased $105,411 (8%), despite an increase in production from 60,729
barrels in 1997 to 86,732 barrels in 1998. This increase was more than offset by
a decrease in the average oil price from $21.45 per barrel in 1997 to $13.80 per
barrel in 1998. The increased production volume is attributable to the merger
with HSRC.
Gas sales increased 18% ($168,750), primarily due to the increase in sales
volumes. Gas production increased from 299,888 mcf in 1997 to 540,604 mcf in
1998 as a result of the merger. This increase however, was partially offset by
lower average gas prices which decreased from $3.12 in 1997 to $2.04 in 1998.
Gain on sales of assets was $99,708 in 1997 following the Company's sale of its
interest in the N.E. Alden Field. There were no comparable sales in 1998.
Income from equity affiliates decreased $190,300. As described above, on
December 31, 1997, HSRC was merged with and into HSOG. Consequently, there is no
comparable 1998 amount.
Production expenses increased $277,187, due primarily to the $282,482 increase
in lease operating expenses following the merger. This increase was partially
offset by a decrease in production taxes.
Exploration costs decreased $191,741 in 1998. Dry hole costs decreased $178,440
in 1998 due to a lower incidence of dry holes. Condemned and abandoned property
expenses were also lower in 1998.
General and administrative expenses increased $377,825, from $258,744 in 1997 to
$636,569 in 1998. The primary reason for this increase is the merger. 1998
expense also includes approximately $33,000 attributable to the merger (no
comparable amounts in the first quarter of 1997) and higher personnel costs.
Depreciation, depletion and amortization increased $338,917. This increase is
directly attributable to the increase in property and equipment following the
merger.
Interest expense decreased $25,146 in 1998. 1997 expense included interest
attributable to certain outstanding bank debt retired during the first quarter
of 1997. There were no outstanding loans in 1998 until March 31, 1998, when the
Company borrowed $6.6 million to finance the purchase of certain producing gas
properties from Sid R. Bass, Inc. et al.
Financial Condition and Liquidity
The Company's operating activities have traditionally been self-financed through
internally generated cash flows. The principal use of cash flows has generally
been to fund the Company's exploration and production activities and for the
payment of dividends to stockholders. The use of borrowed funds has generally
been limited to the acquisition of producing oil and gas properties where future
revenues from such purchases are expected to fund the debt.
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As a result of the depressed product prices, the Company has reduced its capital
budget for 1998 to $2 million. During the first quarter the Company had capital
expenditures of approximately $610,000 and has current drilling commitments of
approximately $2.3 million, extending into 1999. In addition, during the first
quarter the Company acquired certain producing gas properties at a cost of $6.6
million. The Company is continuing to actively pursue other opportunities for
the acquisition of producing properties whenever possible.
Product prices have remained depressed during the first quarter. Despite this
situation, the Company expects to finance its budgeted 1998 operations and
drilling through internally generated cash flows. In addition, the Company has a
$5 million line of credit is available until 1999. There are currently no
advances under this line.
The Company has substantially completed addressing its "Year 2000" problem.
There was no disruption of operations or business activities while addressing
the situation and the Company did not incur any significant expenses in this
regard. Due to the nature of the Year 2000 problem, however, no assurance can be
given that all issues have been or will be identified and that all third-parties
that affect the Company's business will be Year 2000 compliant.
Forward-Looking Statements
Certain statements included in this report which are not historical facts are
"forward-looking statements", including statements with respect to oil and gas
reserves, the number and anticipated costs of wells to be drilled, future
capital expenditures (including the amount and nature thereof), anticipated date
of repayment of bank debt and other such matters. These forward-looking
statements are based on current expectations, estimates, assumptions and beliefs
of management; and words such as "expects", "believes", "anticipates",
"intends", "plans" and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements involve risks and
uncertainties, including, but not limited to: dependence upon the prices for oil
and natural gas which prices are subject to significant fluctuations in response
to relatively minor changes in supply and demand for such products, market
uncertainty, political conditions in oil producing regions, domestic and foreign
government regulations, the price and availability of alternative fuels and a
variety of other factors; competition in the acquisition of oil and gas
properties and the development, production and marketing of oil and natural gas;
operating hazards typically associated with the exploration, development,
production and transportation of oil and natural gas; federal, state and local
laws relating to the exploration, development, production and marketing of oil
and natural gas, including environmental and safety matters; changes in laws and
regulations; and other factors, most of which are beyond the control of the
Company. Accordingly, actual results and developments may differ materially from
those expressed in the forward-looking statements. The Company assumes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
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Part II. Other Information
Item 1. Legal Proceedings.
There is a complete discussion of legal proceedings included in the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1997. Since the date of that report there have been no material
changes in the status of such matters.
Item 2. Changes in Securities and Use of Proceeds.
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) Exhibits.
The following documents are included as exhibits to this Form 10-QSB.
Exhibit
Number Description
------- -----------
2 Purchase and Sale Agreement between Sid R. Bass, Inc. et al
and The Home-Stake Oil & Gas Company, effective as of
January 1, 1998. (Filed as Exhibit 2 to the Company's
Current Report on Form 8-K, dated March 31, 1998).
10 Amended and Restated Loan Agreement dated March 31, 1998
between the Company and NationsBank, N.A.1998. (Filed as
Exhibit 10 to the Company's Current Report on Form 8-K,
dated March 31, 1998).
27 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K, dated December 31, 1997, was filed during
the quarter ended March 31, 1998, reporting the merger of The
Home-Stake Royalty Corporation with and into the Company under
Items 2 and 7. The required financial statements and pro forma
financial information were filed in connection with the
Company's Registration Statement on Form S-4, dated October 21,
1997.
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Signatures
In accordance with the requirements of the Exchange Act , the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Home-Stake Oil & Gas Company
(Registrant)
Date: May 14, 1998 By: /s/ Robert C. Simpson
-------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.
and President
Date: May 14, 1998 By: /s/ Chris K. Corcoran
-------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
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<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,404,767
<SECURITIES> 0
<RECEIVABLES> 1,019,545
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,875,819
<PP&E> 47,769,000
<DEPRECIATION> 16,269,959
<TOTAL-ASSETS> 34,649,732
<CURRENT-LIABILITIES> 2,273,925
<BONDS> 5,280,000
0
0
<COMMON> 45,174
<OTHER-SE> 15,460,621
<TOTAL-LIABILITY-AND-EQUITY> 34,649,732
<SALES> 2,324,919
<TOTAL-REVENUES> 2,420,907
<CGS> 0
<TOTAL-COSTS> 913,133
<OTHER-EXPENSES> 23,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,587
<INCOME-PRETAX> 118,237
<INCOME-TAX> 28,614
<INCOME-CONTINUING> 89,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,623
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
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