<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to _______
Commission File No. 0-21702
MIDDLE BAY OIL COMPANY, INC.
(Exact name of small business issuer as specified in its charter)
ALABAMA 63-1081013
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
115 SOUTH DEARBORN STREET
MOBILE, ALABAMA 36602
(Address of principal executive offices)
(334) 432-7540
(Issuer's telephone number)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of Exchange Act 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 [ ]
Number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
Common stock, $.02 par value
2,547,254 shares as of April 30, 1997
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE> 2
MIDDLE BAY OIL COMPANY, INC.
INDEX
Page
No.
PART I. CONSOLIDATED FINANCIAL INFORMATION ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
March 31, 1997 and December 31, 1996................ 1
Consolidated Statements of Operations-
Three months ended March 31, 1997 and 1996.......... 2
Consolidated Statements of Cash Flows-
Three months ended March 31, 1997 and 1996.......... 3
Notes to Consolidated Financial Statements............. 4
Item 2. Management's Discussion and Analysis
or Plan of Operation................................... 17
<PAGE> 3
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
MIDDLE BAY OIL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
MARCH 31 DECEMBER 31
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $628,484 $556,026
NOTES AND ACCOUNTS RECEIVABLE- TRADE 1,586,214 1,129,417
OTHER CURRENT ASSETS 217,202 58,137
----------- -----------
TOTAL CURRENT ASSETS 2,431,900 1,743,580
NON-CURRENT ASSETS
NOTES RECEIVABLE- STOCKHOLDER 160,872 159,215
----------- -----------
160,872 159,215
PROPERTY (AT COST)
OIL AND GAS (SUCCESSFUL EFFORTS METHOD) 27,685,568 16,252,576
FURNITURE, FIXTURES AND OTHER 876,940 354,603
----------- -----------
28,562,508 16,607,179
ACCUMULATED DEPRECIATION AND DEPLETION (5,811,563) (5,332,517)
----------- -----------
22,750,945 11,274,662
OTHER ASSETS 11,439 7,523
TOTAL ASSETS $25,355,156 $13,184,980
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITY OF LONG-TERM DEBT $338,880 $554,601
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,107,709 402,796
TOTAL CURRENT LIABILITIES 1,446,589 957,397
LONG-TERM DEBT 5,289,586 5,158,477
DEFERRED INCOME TAXES 2,759,964 610,785
REDEEMABLE COMMON STOCK 421,179 421,179
STOCKHOLDERS' EQUITY
CUMULATIVE CONVERTIBLE 8% PREFERRED STOCK, $6.00 STATED
VALUE, 1,666,667 DESIGNATED, 1,166,667 AND 166,667 SHARES
ISSUED AND OUTSTANDING AT MARCH 31, 1997 AND
DECEMBER 31, 1996, RESPECTIVELY. $7,000,000 AGGREGATE
LIQUIDATION PREFERENCE AT MARCH 31, 1997 7,000,000 1,000,000
COMMON STOCK, $.02 PAR VALUE, 5,000,000 AUTHORIZED,
2,568,639 AND 1,880,917 SHARES ISSUED AND OUTSTANDING AT
MARCH 31, 1997 AND DECEMBER 31, 1996, RESPECTIVELY 51,373 37,618
PAID-IN-CAPITAL 9,728,857 6,049,442
LESS REDEEMABLE COMMON STOCK (421,179) (421,179)
UNEARNED STOCK COMPENSATION (270,001) -
DEFICIT (583,171) (560,699)
LESS COST OF TREASURY STOCK;
21,773 SHARES AT MARCH 31, 1997 AND DECEMBER 31, 1996 (68,040) (68,040)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 15,437,839 6,037,142
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND EQUITY $25,355,156 $13,184,980
=========== ===========
</TABLE>
See accompanying notes.
1
<PAGE> 4
MIDDLE BAY OIL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 MARCH 31
1997 1996
---------- ----------
<S> <C> <C>
REVENUE
OIL AND GAS PRODUCTION AND PLANT INCOME $1,875,847 $1,016,276
INTEREST 4,739 3,421
OTHER 20,792 26,902
WELL OPERATING INCOME 53,768 -
GAIN ON SALE OF PROPERTY - 3,031
---------- ----------
TOTAL REVENUE 1,955,146 1,049,630
---------- ----------
COSTS AND EXPENSES
WELL OPERATING $696,616 $403,798
DEPRECIATION, DEPLETION AND
AMORTIZATION 479,045 269,815
ABANDONMENT 181,338 -
INTEREST 135,875 120,174
GENERAL AND ADMINISTRATIVE 421,854 171,271
---------- ----------
TOTAL EXPENSES 1,914,727 965,058
INCOME BEFORE INCOME TAXES 40,419 84,572
INCOME TAXES - -
---------- ----------
NET INCOME 40,419 84,572
DIVIDENDS TO PREFERRED STOCKHOLDERS 62,889 -
---------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS ($22,470) $84,572
========== ==========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,498,645 1,318,917
========== ==========
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE ($0.01) $0.06
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE> 5
MIDDLE BAY OIL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $40,419 $84,572
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPLETION, DEPRECIATION AND AMORTIZATION 479,045 269,815
CHANGES IN CURRENT ASSETS AND LIABILITIES EXCLUDING
EFFECTS OF BUSINESS ACQUISITIONS:
ACCOUNTS RECEIVABLE 20,050 450,682
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (25,644) (515,972)
GAIN ON SALE OF PROPERTIES - (3,031)
OTHER CHARGES (CREDITS) 535 (2,553)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 514,404 283,513
INVESTING ACTIVITIES
PROCEEDS FROM SALES OF PROPERTIES 1,445,890 25,000
ADDITIONS TO OIL AND GAS PROPERTIES (648,335) (121,473)
PURCHASE OF EQUIPMENT (29,704) -
ACQUISITION OF BISON ENERGY CORPORATION, NET OF
CASH ACQUIRED OF $994,367 (7,139,914) -
FURNITURE, FIXTURES AND OTHER ASSETS (13,335) (2,666)
RECEIPTS FROM (ADVANCES TO) STOCKHOLDER (1,657) (1,657)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (6,387,055) (100,796)
FINANCING ACTIVITIES
PROCEEDS FROM COMMON STOCK ISSUED 92,610
PROCEEDS FROM PREFERRED STOCK ISSUED 6,000,000 -
PRINCIPAL PAYMENTS ON DEBT (84,612) (202,680)
PREFERRED STOCK DIVIDENDS (62,889) -
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,945,109 (202,680)
NET INCREASE (DECREASE) IN CASH 72,458 (19,963)
CASH- BEGINNING 556,026 80,791
---------- ----------
CASH- ENDING $628,484 $60,828
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID IN CASH $135,875 $120,174
COMMON STOCK ISSUED IN ACQUISITION OF ========== ==========
BISON ENERGY CORPORATION $3,330,559 -
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 6
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Middle Bay Oil Company, Inc. (the Company), was incorporated under the
laws of the State of Alabama on November 30, 1992. The Company and its
wholly-owned subsidiary (collectively referred to as the Company) are engaged
in the acquisition, development and production of oil and gas in the contiguous
United States.
Basis of Presentation
In management's opinion, the accompanying consolidated financial
statements contain all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the consolidated financial position of
the Company as of March 31, 1997 and the consolidated results of operations and
consolidated cash flows for the three months ended March 31, 1997 and 1996.
The accompanying consolidated financial statements have not been audited
by an independent accountant. Certain information and disclosures normally
included in annual audited financial statements prepared in accordance with
generally accepted accounting principles have been omitted, although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These consolidated financial statements should be
read in conjunction with the Company's financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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 these estimates.
4
<PAGE> 7
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company.
Significant intercompany accounts and transactions are eliminated in
consolidation.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company classifies all
cash investments with original maturities of three months or less as cash.
Accounts Receivable
The Company sells crude oil and natural gas to various customers. In
addition, the Company participates with other parties in the operation of crude
oil and natural gas wells. Substantially all of the Company's accounts
receivable are due from either purchasers of crude oil and natural gas or
participants in crude oil and natural gas wells for which the Company serves as
the operator. Generally, operators of crude oil and natural gas properties
have the right to offset future revenues against unpaid charges related to
operated wells. Crude oil and natural gas sales are generally unsecured.
Properties
The Company follows the "successful efforts" method of accounting for its
oil and gas properties. Under the successful efforts method, costs of
acquiring undeveloped oil and gas leasehold acreage, including lease bonuses,
brokers' fees and other related costs are capitalized. Provisions for
impairment of undeveloped oil and gas leases are based on periodic evaluations.
Annual lease rentals and exploration expenses, including geological and
geophysical expenses and exploratory dry hole costs, are charged against income
as incurred. Costs of drilling and equipping productive wells, including
developmental dry holes and related production facilities are capitalized.
5
<PAGE> 8
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Depletion, depreciation and amortization of capitalized costs are computed
separately for each property based on the unit-of-production method using only
proved oil and gas reserves. In arriving at such rates, commercially
recoverable reserves have been estimated by an independent petroleum
engineering firm. If the capitalized costs of total proved properties exceed
the sum of undiscounted estimated future net revenues before income taxes from
total proved reserves (determined on a field-by-field basis), such excess is
charged to expense in the period in which it occurs and is not reinstated.
With respect to normal dispositions, the cost of properties retired or
otherwise disposed of, and the applicable accumulated depreciation, depletion
and amortization are removed from the accounts, and the resulting profit or
loss, if any, is reflected in current operations.
Site Restoration, Dismantlement & Abandonment Costs
Site restoration, dismantlement and abandonment costs (P&A costs) include
costs associated with dismantling and disposing of the facilities and equipment
required to operate a well and restoring the well site to specified conditions.
The Company develops specific estimates of its P&A costs based on
consultations with its engineers and reevaluates such estimates annually.
Estimated future P&A costs are accrued on a unit-of-production method based on
proved reserves. As of March 31, 1997 and December 31, 1996, the P&A costs
accrued were immaterial.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS #121) was issued in March 1995 and was adopted by the Company in the
fourth quarter of 1996. This statement requires that long-lived assets be
reviewed for impairment when events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable. This review consists
of a comparison of the carrying value of the asset
6
<PAGE> 9
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
with the asset's expected future undiscounted cash flows without interest
costs. The asset's expected future undiscounted cash flows are determined by
Lee Keeling & Associates (Keeling), an independent engineering firm. To
determine the expected future cash flows of each property, Keeling estimated
each property's oil and gas reserves, relied on certain information supplied by
the Company regarding the oil and gas reserves, applied certain assumptions
regarding price and cost escalations, and applied certain discount factors for
risk, location, type of ownership interest, category of reserves, operational
characteristics, and other factors.
Estimates of expected future cash flows are to represent management's best
estimate based on reasonable and supportable assumptions and projections. If
the expected future cash flows exceed the carrying value of the asset, no
impairment is recognized. If the carrying value of the asset exceeds the
expected future cash flows, an impairment exists and is measured by the excess
of the carrying value over the estimated fair value of the asset. Any
impairment provisions recognized in accordance with SFAS #121 are permanent and
may not be restored in the future.
Property and Equipment
Property and equipment are stated at cost and depreciated on the
accelerated method over the appropriate life of the property.
Income Taxes
The Company provides for income taxes using the asset and liability method
under which deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The effect on deferred
taxes of a change in tax laws or tax rates is recognized in income in the
period that includes the enactment date.
7
<PAGE> 10
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Stock-based Compensation
In October 1996, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which establishes financial
accounting and reporting standards for stock-based compensation plans.
Effective for fiscal years beginning after December 15, 1996, the statement
provides the option to continue under the accounting provisions of APB Opinion
25, while requiring pro forma footnote disclosures of the effects on net income
and earnings per share, calculated as if the new method had been implemented.
The Company has adopted the financial reporting provisions of SFAS No. 123 for
1996, but will continue under the accounting provisions of APB Opinion 25.
Under APB 25, if the exercise price of an employee's stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Earnings (Loss) Per Share
Primary earnings (loss) per share equals net earnings (loss) divided by
the weighted average number of common shares outstanding during the period.
Shares issuable upon exercise of options are included in the computation of
earnings per common and common equivalent share to the extent that they are
dilutive. For the first quarter of 1997, neither the common equivalent shares
nor the assumed conversion of the preferred stock had a dilutive effect on the
loss per share calculations. Accordingly, the loss per share calculation for
such period is based on the weighted average number of common shares
outstanding. For the first quarter of 1996, there were no common stock
equivalents or other potentially dilutive securities outstanding. Accordingly,
the earnings per share calculation for such period is based on the weighted
average number of common shares outstanding.
8
<PAGE> 11
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(2) ACQUISITIONS
On December 31, 1996, the Company completed the acquisition of NPC Energy
Corporation ("NPC"). The transaction consisted of a merger (the "NPC Merger")
of NPC into the Company and its separate corporate existence ceased.
The NPC Merger was accounted for as a purchase of NPC by MBOC and as a
result of the purchase method of accounting, MBOC's cost of acquiring NPC was
allocated to the assets and liabilities acquired based on estimated fair
values.
The cost of acquiring NPC was approximately $3.20 million, consisting of
the following (in thousands):
Estimated fair value of 562,000 shares
of MBOC Common Stock issued ................. $1,967
Estimated fair value of 166,667 shares
of MBOC Series A Preferred Stock ............ 1,000
Cash on hand.................................. 226
Legal and accounting expenses ................ 35
------
$3,228
======
The fair value of the securities issued in connection with the NPC Merger
was calculated assuming the price of the Company's common stock was $3.50 per
share.
The Company's purchase price has been allocated to the assets and
liabilities of NPC based on preliminary estimates of the fair values with the
remaining purchase price allocated to proved oil and gas properties. No
goodwill has been recorded in this transaction.
The preliminary allocation of the purchase price is summarized as follows:
(in thousands)
Working capital .............................. $ 785
Oil and gas properties:
Proved ..................................... 4,029
Debt assumed ................................. (468)
Deferred income taxes ........................ (1,118)
-------
$ 3,228
=======
9
<PAGE> 12
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(2) ACQUISITIONS (continued)
On February 28, 1997, the Company completed the acquisition of Bison
Energy Corporation ("BEC"). The transaction consisted of a merger (the
"Merger") of BEC into Bison Energy Corporation-Alabama, a wholly-owned
subsidiary of the Company. On February 28, 1997, Bison Energy
Corporation-Alabama merged into BEC and its separate corporate existence
ceased. BEC continues as a wholly-owned subsidiary of the Company.
The merger was accounted for as a purchase of BEC by MBOC and as a result
of the purchase method of accounting, MBOC's cost of acquiring BEC was
allocated to the assets and liabilities acquired based on estimated fair
values.
The cost of acquiring BEC was approximately $10 million, consisting of the
following (in thousands):
Estimated fair value of 605,556 shares
of MBOC Common Stock issued .......................... $ 3,330
Estimated fair value of 1,000,000 shares
of MBOC Series A Preferred Stock...................... 6,000
Cash on hand........................................... 654
Other legal and accounting expenses.................... 35
-------
$10,019
=======
The fair value of the securities issued in connection with the merger was
calculated using the price of the Company's common stock at the time the Merger
was announced to the public of $5.50 per share.
The Company's purchase price has been allocated to the consolidated assets
and liabilities of BEC based on preliminary estimates of the fair values with
the remaining purchase price allocated to proved oil and gas properties. No
goodwill has been recorded in this transaction.
The preliminary allocation of the purchase price is summarized as follows:
(in thousands)
Working capital ....................................... $ 694
Oil and gas properties:
Proved .............................................. 10,954
Yard Inventory and equipment .......................... 525
Deferred income taxes ................................. (2,154)
-------
$10,019
=======
10
<PAGE> 13
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(2) ACQUISITIONS (continued)
The price paid for BEC and the allocation of the purchase price, both
detailed above, excludes the $1,445,890 allocated to non-oil and gas assets
that were purchased in the merger and sold on March 3, 1997 for $1,445,890.
The following pro forma data presents the results of the Company for the
quarters ended March 31, 1996 and 1997, as if the acquisitions of NPC and BEC
had occurred on January 1, 1996. The pro forma results are presented for
comparative purposes only and are not necessarily indicative of the results
which would have been obtained had the acquisitions been consummated as
presented. The following data reflect pro forma adjustments for oil and gas
revenues, production costs, depreciation and depletion related to the
properties and businesses acquired, preferred stock dividends on preferred
stock issued, and the related income tax effects (in thousands, except per
share amounts).
Pro Forma
Quarter ended
March 31,
1996 1997
(Unaudited)
Total Revenues .................... $2,017 $1,955
Loss............................... $ (154) $ (22)
Loss per share .................... $(0.06) $(0.01)
(3) RELATED PARTY TRANSACTIONS
The Company has a receivable, including accrued interest, from Bay City
Energy Group, Inc. (BCEG), a significant stockholder, as of March 31, 1997 and
December 31, 1996 in the amount of $160,872 and $159,215, respectively. The
note is secured by 75,000 shares of Company common stock with principal and
accrued interest at 5% per annum due in full on January 1, 2001. During the
three months ended March 31, 1997 and 1996, BCEG did not make any payments and
was not advanced any funds. Interest of $21,867 was accrued on the note at
March 31, 1997.
11
<PAGE> 14
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(4) LONG-TERM DEBT
March 31 December 31
1997 1996
---- ----
Convertible Loan of $15,000,000 due March 31, 1998,
secured by oil and gas properties, monthly
payments of interest only at prime,
convertible into a 72 month term
note on March 31, 1998 5,186,596 --
Convertible Loan of $6,000,000 due September 30, 1997,
secured by oil and gas properties, monthly
payments of interest only at 1.5% over prime,
convertible into a 72 month term
note on September 30, 1997 -- 5,186,596
Term note due August 31, 1998, secured by
oil and gas properties, repayable in
monthly installments of $27,590 plus
interest at 9.5% 302,319 385,089
Note, due 1/1/99, secured by office building,
repayable in monthly installments
of $1,511 including interest
at 7 3/4% 139,551 141,393
---------- ----------
Total $5,628,466 $5,713,078
Less current maturities 338,880 554,601
---------- ----------
Long-term debt excluding current
maturities $5,289,586 $5,158,477
========== ==========
The $15,000,000 convertible loan contains certain restrictive provisions, the
most significant of which restricts additional borrowings, either directly or
indirectly, and payment of dividends. At March 31, 1997, the Company was in
compliance with all covenants specified in the convertible loan agreement
12
<PAGE> 15
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(5) STOCKHOLDERS' EQUITY
On September 4, 1996, the Company signed a stock purchase agreement with
Kaiser Francis Oil Company ("the Agreement"). Kaiser-Francis has agreed to
purchase 1,666,667 shares of Series A Preferred Stock ("Preferred") at $6.00
per share, for a total investment of $10,000,000. The parties have agreed to a
five-year purchase period, effective September 4, 1996, with minimum
incremental investments of $500,000 each. Each issuance of Preferred is
subject to approval by Kaiser-Francis of the use of proceeds. The Preferred is
nonvoting and accrues dividends at 8% per annum, payable quarterly in cash.
The Preferred is convertible at any time after issuance into shares of common
stock at the rate of two shares of common stock for each share of Preferred
before January 1, 1998. The conversion rate decreases thereafter at 8% per
annum. The Company will pay the costs of registration of the Preferred or the
underlying common stock under the Securities Act of 1933 upon request of
Kaiser-Francis. The Company may redeem the Preferred in whole or in part, at
any time after January 1, 2007 at a price of $6.00 per share. As of March 31,
1997, 1,166,667 shares of the Preferred had been issued.
On April 1, 1996, the Board of Directors authorized the repurchase of up
to $100,000 of Company common stock at a price per share not to exceed $3.25,
exclusive of brokerage costs. As of March 31, 1997 the Company had purchased
21,772.75 shares of common stock at a cost of $68,040.
On February 13, 1997, the Company awarded the President, Vice-President
Chief Financial Officer and Vice-President Engineering stock options to acquire
100,000, 62,500 and 62,500 shares of common stock, respectively, at an exercise
price of $5.50 per share. All of the options vested on the date of grant. The
exercise price was equal to the fair market value of common stock on the date
of grant. On the same date, the Company awarded to the President,
Vice-President Chief Financial Officer and Vice-President Engineering, 25,909,
11,591 and 11,591 shares of restricted stock of the Company, respectively. The
restricted stock awards are contingent on the performance of services to the
Company in the future with 50% of the restricted shares being earned over the
six month period July 1, 1997 to December 31, 1997 and 50% over the six month
period January 1, 1998 to June 30, 1998.
13
<PAGE> 16
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(5) STOCKHOLDERS' EQUITY (continued)
On February 6, 1997, the Board of Directors granted options to acquire
210,000 shares of Company common stock under the 1995 Stock Option and Stock
Appreciation Rights Plan to key employees and non-employee directors. All of
the options vested on the grant date of February 6, 1997 with an exercise price
of $6.00 per share, which was equal to the fair market value of common stock on
the date of grant. The options expire ten years from the date of grant if not
exercised. On May 31, 1996, the Board of Directors granted options to acquire
125,000 shares of Company common stock under the 1995 Stock Option and Stock
Appreciation Rights Plan to key employees and non-employee directors. All of
the options vested on the grant date of May 31, 1996 with an exercise price of
$2.50 per share, which was equal to the fair market value of common stock on
the date of grant. The options expire ten years from the date of grant if not
exercised.
The Company has a contingent obligation to repurchase 142,107 common
shares issued in the Janex Acquisition, upon written notice delivered to the
Company, beginning five years after the closing date and continuing for thirty
days thereafter, at a price of $6.00 per share. This obligation shall
terminate if the Company's stock trades at a share price of $8.00 or greater
for twenty consecutive trading days during the thirty-six month period ending
November 1, 1998. As of March 31, 1997, the Company's ask price for its stock
had equaled or exceeded $8.00 per share for fifteen (15) consecutive days. As
of March 31, 1997, 54,076.25 shares of the original 142,107 shares of Company
common stock subject to the repurchase obligation have been sold, of which
21,772.75 shares were purchased by the Company.
(6) INCOME TAXES
The Company's income tax expense (benefit) for continuing operations
consists of the following:
Three months Ended
March 31 March 31
1997 1996
---- ----
Current $ - $ -
Deferred - -
------ ------
Total $ - $ -
====== ======
14
<PAGE> 17
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(6) INCOME TAXES (continued)
The Company's net deferred tax liability at March 31, 1997 and December
31, 1996 are as follows:
March 31 December 31
1997 1996
---- ----
Deferred tax liability
Oil and gas properties $ 2,966,888 $ 817,079
Deferred tax asset
Net operating losses (206,924) (206,924)
Valuation allowance - -
----------- ---------
Net deferred tax liability $ 2,759,964 $ 610,785
=========== =========
As of December 31, 1996, the Company had approximately $1,295,000 of
operating loss carryforwards, with $432,000 expiring in 2009 and $418,000
expiring in 2010 and $445,000 in 2011. As of December 31, 1996 the Company had
$36,482 of AMT credit carryforwards and $22,000 of Section 29 tax credit
carryforwards.
(7) COMMITMENTS AND CONTINGENCIES
The Company's obligations under the terms of certain operating leases for
office equipment is immaterial. The Company is leasing 3,000 square foot of
office space for Bison Energy's headquarters in Wichita, Kansas for $3,000 per
month for three years.
On April 3, 1996, the Company entered into a Joint Expense and
Participation Agreement with Brigham Oil and Gas, L.P. which allows the Company
to participate in the drilling of eighty-seven (87) onshore wells in Texas and
Oklahoma over the twelve month period beginning April 1, 1996. The Company is
committed to fund $1,500,000 in drilling costs over this twelve month period.
As of March 31, 1997, the Company had advanced $1,683,500 in drilling and
completion costs to Brigham Oil and Gas, L.P.
The Company is a defendant in various legal proceedings which are
considered routine litigation incidental to the Company's business, the
disposition of which management believes will not have a material effect on the
financial position or results of operations of the Company.
15
<PAGE> 18
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(8) SUBSEQUENT EVENT
At the close of trading on April 7, 1997, the Company's common stock had
traded at an ask price that was equal to, or exceeded, $8.00 per share for
twenty consecutive trading days. Under the terms of the purchase and sale
agreement of the Janex Acquisition, the contingent obligation to repurchase
142,107 common shares at $6.00 per share shall terminate if the Company's stock
trades at an ask price of $8.00 or greater for twenty consecutive days during
the thirty-six month period ending November 1, 1998. Therefore, the redeemable
common stock balance at March 31, 1997 of $421,179 will be reclassified to
additional paid-in capital effective April 7, 1997.
16
<PAGE> 19
Item 2. Management's Discussion and Analysis or Plan of Operations.
Liquidity and Capital Resources
Cash flow from operating activities for the three months ended March 31,
1997 of $514,404 increased $230,982 over the comparable 1996 period. The
increase was due primarily to higher oil and gas production. Oil and gas prices
increased 27% and 30%, respectively, while oil production increased 55% and gas
production increased 25%. In addition to income from the sale of oil and
natural gas, income from gas processing at the plant located at the Spivey
Grabs Field in Kansas generated revenues of $101,143. This revenue is derived
principally from gas processing and the sale of natural gas liquids (ie.
propane and butane). The change in working capital increased cash flow by
$62,874 over the comparable 1996 period. The change in working capital was
caused principally by timing differences in the payment of expenses and receipt
of revenues. Cash flow from operations before working capital changes of
$519,464 increased $168,108 over the comparable 1996 period. Additions to oil
and gas properties were higher than the comparable period in 1996 due to the
Bison Energy Corporation Merger (the Bison Merger) which closed February 28,
1997 and no material acquisitions and drilling in the 1996 comparable period.
The decrease in the amount of cash used for debt payments was due primarily to
only regular principal payments through March 31, 1996 and no principal
payments from April 1, 1996 to March 31, 1997 on the Company's convertible term
note. The increase in proceeds from issuance of preferred stock was due to
the preferred stock issued to finance a portion of the Bison Merger.
The Company's operating activities provided net cash of $514,404 for the
three month period ended March 31, 1997. During this period, net cash from
operations was used principally for exploratory and developmental drilling of
$450,000, workovers of $135,000 and proved property acquisitions of $245,000.
Approximately $230,000 of the $450,000 spent on exploratory and developmental
drilling was for completed wells and wells in progress. The majority of the
remaining funds were spent on the recompletion of the A.J. Danner well in the
Pistol Ridge Field and the drilling of the Stephens #2A, a developmental well
in the Spivey Grabs Field. The Pistol Ridge Field and Spivey Grabs Field are
major properties of the Company. The Company incurred $182,000 in dry hole
costs attributable to wells drilled in the Brigham Agreement. Of the $135,000
spent on workovers, approximately $55,000 was spent on workovers at Wild Fork
Creek Field and approximately $48,000 was spent on a workover in the Spivey
Grabs Field. The remaining $32,000 was spent on several different properties.
The Company spent $7,139,914 on the Bison Merger. This includes the
$1,445,890 in non-oil and gas assets which were subsequently sold for the
amount paid. Amounts spent on debt retirement consisted principally of monthly
principal payments on the $385,089 term note assumed in the NPC Merger. The
principal payments on the $5.6 million term note were suspended when the
Company converted the term note to a revolving line-of-credit on April 3,
1996.
On April 3, 1996, the Bank converted its $5.6 million term note into a
$6.0 million, one-year, revolving line-of-credit (the "Revolver"), effective
17
<PAGE> 20
April 1, 1996. The Revolver required monthly payments of interest only at prime
plus 1.5% and converted into a term note payable in seventy-one consecutive
equal monthly principal and interest payments at prime plus 1.5%, with the
remaining principal and interest payment due on March 31, 2003. Effective,
March 31, 1997, the Company refinanced the Revolver at its current principal
balance of $5,186,596. The refinanced Revolver requires monthly payments of
interest only at prime for one year and converts into a term note payable in
seventy-one consecutive equal monthly principal and interest payments at prime,
with the remaining principal and interest payment due on March 31, 2004. The
refinanced Revolver also requires payment of a commitment fee equal to an
annual rate of three-eighths percent of the excess of the Borrowing Base over
the principal balance of the convertible note; as of March 31, 1997, this
difference was approximately $3.4 million.
Under the terms of the refinanced Revolver, the Company can be advanced a
maximum of $8.6 million through March 31, 1997 until the first redetermination
of the Borrowing Base on September 30, 1997. Depending upon the value of
reserves purchased and discovered, the Company can borrow a maximum of $15
million under the refinanced Revolver. The Borrowing Base is based on the
Bank's engineer's or any other independent engineer's calculation of the value
of the Company's oil and gas reserves, using the Bank's pricing and discount
factors and the future net revenue expected to be produced from the Company's
oil and gas reserves. The Borrowing Base is redetermined on September 30 and
March 31 of each year. On May 9, 1997 the Bank advanced the Company $275,775
under the refinanced Revolver to retire the principal balance and accrued
interest on the term note assumed in the NPC Merger. On May 9, 1997 the Bank
advanced the Company $385,000 under the refinanced Revolver for lease
acquisition, and 3-D seismic shooting and analysis on the prospect in Kansas.
The Company had current assets of $2,431,900 and current liabilities of
$1,446,589 which resulted in working capital of $985,311 as of March 31, 1997.
This was an increase of $199,128 from the working capital of $786,183 as of
December 31, 1996. Working capital increased primarily due to cash acquired in
the Bison Merger, increased cash flow from oil and gas production and no
monthly principal payments on the Revolver offset partially by amounts spent on
exploratory and developmental drilling and proved property acquisitions. The
Company's current ratio of 2.19, calculated under the terms of the Credit
Agreement which excludes stockholder receivables and debt due under the Credit
Agreement, was in excess of the 0.90 to 1.00 required.
At March 31, 1997 fifty-nine wells had been spudded under the Brigham
Agreement. Of these fifty-nine wells, thirty-four were completed, twenty-two
were dry holes and two were under analysis. The total funds advanced to Brigham
for the three month period ended March 31, 1997 was $229,324. The Company's
obligation under the Brigham Agreement expired April 1, 1997 and the Company is
no longer required to advance Brigham any additional money under the Brigham
Agreement.
18
<PAGE> 21
In general, because the Company's principal natural gas and oil reserves
are depleted by production, its success is dependent upon the results of its
development, acquisition and exploration activities. The Company's strategy is
to enhance and exploit its existing properties for reserves, to invest in
exploratory and developmental drilling prospects and to acquire reserves. The
Company expects to incur a total of approximately $1,200,000 in capital
expenditures over the next nine months to drill eight developmental wells in
the Spivey Grabs Field. The Company also expects to invest $100,000 in an
exploratory well prospect in Tyler County, Texas and $475,000 in a 3-D seismic
and drilling project in Kansas. These projects will be funded by
internally-generated cash flows, proceeds from property sales and bank debt.
As of March 31, 1997, the Company had a contingent obligation to repurchase
70,196 common shares issued in the Janex Acquisition, upon written notice
delivered to the Company, beginning five years after the closing date and
continuing for thirty days thereafter, at a price of $6.00 per share. This
obligation shall terminate if the Company's stock trades at a share price of
$8.00 or greater for twenty consecutive trading days during the thirty-six
month period ending November 1, 1998. As of March 31, 1997, the Company's ask
price for its stock had equaled or exceeded $8.00 per share for fifteen (15)
consecutive days. At the close of trading on April 7, 1997, the Company's
common stock had traded at an ask price that was equal to, or exceeded, $8.00
per share for twenty consecutive trading days. In accordance with the
agreement, the redeemable common stock balance at March 31, 1997 of $421,179
will be reclassified to additional paid-in capital effective April 7, 1997.
On March 4, 1996, the Company signed a stock purchase agreement with
Kaiser Francis Oil Company ("the Agreement"). Kaiser-Francis has agreed to
purchase 1,666,667 shares of Series A Preferred Stock ("Preferred") at $6.00
per share, for a total investment of $10,000,000. The parties have agreed to a
five-year purchase period, effective September 4, 1996, with minimum
incremental investments of $500,000 each. Each issuance of Preferred is
subject to approval by Kaiser-Francis of the use of proceeds. The Preferred is
nonvoting and accrues dividends at 8% per annum, payable quarterly in cash.
The Preferred is convertible at any time after issuance into shares of common
stock at the rate of two shares of common stock for each share of Preferred
before January 1, 1998. The conversion rate decreases thereafter at 8% per
annum. The Company will pay the costs of registration of the Preferred or the
underlying common stock under the Securities Act of 1933 upon request of
Kaiser-Francis. The Company may redeem the Preferred in whole or in part, at
any time after January 1, 2007 at a price of $6.00 per share. As of March 31,
1997 1,166,667 shares of the Preferred had been issued. Management expects to
use the preferred stock to acquire direct interests in producing properties
with exploitation potential or as financing for mergers with exploration and
production companies.
The Company's liquidity position and current and anticipated cash flows
from operations remain adequate for its general requirements. However, because
future cash flows and the availability of financing are subject to a number of
variables, such as the level of production and prices received for
19
<PAGE> 22
gas and oil, there can be no assurance that the Company's capital resources
will be sufficient to maintain planned levels of capital expenditures.
Current Activities
At May 5, 1997, no exploratory or developmental wells were drilling.
Results of Operations
Three Months March 31, 1997 and 1996
Total revenues for the three months ended March 31, 1997 of $1,955,146
were $905,516 higher than the same period in 1996. The increase in total
revenues was due principally to higher oil and gas revenues of $859,571. The
increase in oil and gas revenues consisted primarily of a $464,232 increase in
oil revenues and a $323,263 increase in gas revenues. Also contributing to the
revenue increase was $101,143 in revenue from gas processing at the gas plant
located at the Spivey Grabs Field in Harper County, Kansas. The gas processing
plant was acquired in the Bison Merger which was effective February 28, 1997.
The increase in oil and gas revenues was primarily the result of higher oil and
gas production. Production of oil increased 55% and production of gas increased
25%, over the comparable 1996 period. The oil production increase consisted of
a 15,388 barrel increase from the NPC and Bison mergers, a 1,191 barrel
increase from the successful wells drilled in the Brigham Agreement and a 1,195
barrel decrease in existing properties' production. The gas production increase
consisted of a 88,613 Mcf increase from the NPC and Bison mergers, a 2,648 Mcf
increase from the successful wells drilled in the Brigham Agreement and a
30,236 decrease in existing properties' production. During the three month
period ended March 31, 1997, the Company sold 43,119 barrels of oil and 302,522
Mcf of gas, as compared to 27,735 barrels and 241,497 Mcf for the comparable
1996 period. The price received on the gas sold in 1997 of $2.77 per Mcf was
higher than the $2.13 per Mcf received in the comparable 1996 period. Oil
prices in 1997 of $21.70 per barrel were higher than the $17.01 per barrel
received in 1996.
Total expenses increased by $949,669 over the comparable 1996 period. Due
to the growth of the Company over the last twelve months, all categories of
expenses increased. The increase in dry hole costs of $181,338 was due to dry
hole costs associated with the Brigham Agreement in 1997 versus no dry hole
costs in the comparable 1996 period. Depletion expense increased by $211,909,
while depreciation expense decreased by $1,331. Depletion was higher due to
depletion on properties acquired in the NPC and Bison mergers and higher
depletion on existing properties. Depreciation was lower due to minimal asset
additions and lower depreciation on lease and well equipment and corporate
office furniture and fixtures which are depreciated on the accelerated method
which declines over the useful life of the asset. General and administrative
expenses ("G&A") increased by $250,583, consisting of a $67,375 increase due to
G&A expenses incurred by the companies acquired in the Bison Merger and a
$183,208 increase in the Company's G&A. The increase in the Company's G&A
consists primarily of a
20
<PAGE> 23
$75,000 increase in the Company's SEP contribution and cash bonuses, an
increase of $43,000 in geological and accounting expenses and a $25,000
increase in officers' salaries. There was no SEP contribution or cash bonuses
paid in the 1996 comparable period. Interest expense decreased by $15,701, due
primarily to lower rates. Lease operating expenses increased by $292,818 due
principally to higher expenses of $257,351 on properties acquired in the NPC
and Bison mergers. Lease operating expenses on existing properties increased
$29,718.
The Company reported operating of $40,419 for the three months ended March
31, 1997 versus operating income of $84,572 for the comparable period.
The Company reported net income of $40,419 for the three months ended
March 31, 1997 versus net income of $84,572 for the comparable 1996 period.
After considering the preferred stock dividend requirement of $62,889, the
Company, reported a net loss available to common stockholders of $22,470.
There was no preferred stock dividend requirement in the comparable 1996
period.
21
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - The Company filed a Report on Form 8-K on
February 25, 1997, reporting the acquisition via a merger
agreement of Bison Energy Corporation as a wholly-owned
subsidiary. The Form 8-K was amended on April 25, 1997, on Form
8-K/A to provide audited financial statements for the years ended
March 31, 1995 and 1996 and unaudited interim statements for the
nine month periods ended December 31, 1995 and 1996 for the
acquired company, as well as unaudited proforma combined financial
information as of December 31, 1996.
22
<PAGE> 25
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIDDLE BAY OIL COMPANY, INC.
(Registrant)
Date: May 7, 1997 By: /s/ John J. Bassett
-------------------------------
John J. Bassett
President and
Chief Executive Officer
Date: May 7, 1997 By: /s/ Frank C. Turner II
-------------------------------
Frank C. Turner II
Vice-President and
Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS - BALANCE SHEETS AT MARCH 31, 1997 (UNAUDITED) AND THE
STATEMENTS OF OPERATIONS AT MARCH 31, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 628,484
<SECURITIES> 0
<RECEIVABLES> 1,586,214
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,431,900
<PP&E> 28,562,508
<DEPRECIATION> (5,811,563)
<TOTAL-ASSETS> 25,355,156
<CURRENT-LIABILITIES> 1,446,589
<BONDS> 5,289,586
7,000,000
0
<COMMON> 51,373
<OTHER-SE> 9,728,857
<TOTAL-LIABILITY-AND-EQUITY> 25,355,156
<SALES> 1,875,847
<TOTAL-REVENUES> 1,955,146
<CGS> 696,616
<TOTAL-COSTS> 696,616
<OTHER-EXPENSES> 660,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,875
<INCOME-PRETAX> 40,419
<INCOME-TAX> 0
<INCOME-CONTINUING> 40,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,470)
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
