==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
-------- --------
---------------
Commission File Number
----------------
ENERGY SEARCH, INCORPORATED
TENNESSEE 62-1423071
280 FORT SANDERS WEST BLVD., SUITE 200, KNOXVILLE, TENNESSEE 37922
(800) 551-5810
Check mark whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and 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 [ ]
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,013,280 (June 30, 1997)
---------
Traditional Small Business Disclosure Format (check one):
Yes [X] No [ ]
==============================================================================
ENERGY SEARCH, INCORPORATED
PART I
FINANCIAL INFORMATION PAGE
ITEM 1 FINANCIAL STATEMENTS
BALANCE SHEETS AT JUNE 30, 1997 AND DECEMBER 31, 1996 2
STATEMENTS OF OPERATIONS SIX-MONTH PERIODS ENDED
JUNE 30, 1997 AND JUNE 30, 1996 4
STATEMENTS OF CASH FLOWS SIX-MONTH PERIODS ENDED
JUNE 30, 1997 AND JUNE 30, 1996 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 10
ITEM 2 CHANGES IN SECURITIES 10
ITEMS 3, 4, 5 AND 6 ARE NOT APPLICABLE AND HAVE BEEN OMITTED
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
ENERGY SEARCH, INCORPORATED
June 30, December 31,
1997 1996*
(Unaudited)
-----------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,607,186 $ 51,067
Accounts receivable 87,809 111,376
Due from related partnerships, net 718,749 621,865
Other current assets 123,754 121,067
----------- -----------
Total current assets 3,537,498 905,375
OIL AND GAS PROPERTIES, USING
SUCCESSFUL EFFORTS ACCOUNTING
Proved properties 556,359 420,040
Unproved properties 192,327 186,159
Intangible drilling costs 1,186,766
Wells and related equipment 6,164,479 5,591,760
Less accumulated depreciation,
depletion and amortization
----------- -----------
(2,861,212) (2,751,099)
----------- -----------
Net oil and gas properties 5,238,719 3,446,860
OTHER ASSETS
Other property and equipment, net 254,544 194,668
Investments in related partnerships 1,440,309 1,363,423
Deferred tax asset 532,198 413,000
Other assets 65,124 345,046
----------- -----------
Total other assets 2,292,175 2,316,137
Total assets 11,068,392 $ 6,668,372
=========== ===========
* Condensed from audited financial statements
2
June 30, December 31,
1997 1996*
(Unaudited)
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 650,683 $ 902,456
Current portion of long-term debt 79,804 69,729
Accounts payable and accrued
expenses 691,054 1,033,463
Drilling advances 53,720 1,335,124
---------- ----------
Total current liabilities 1,475,261 3,340,772
LONG-TERM DEBT, less current portion 110,878 154,794
SHAREHOLDERS' EQUITY
Class A Convertible Preferred Stock (no
par value; 5% cumulative; 216,945
shares authorized, 207,700 shares
issued and outstanding at $10 per
share stated value) - 2,049,307
Class B Convertible Preferred Stock (no
par value; no dividend preference,
450,000 shares authorized 242,300
shares issued and outstanding at $10
per share stated value) - 2,196,853
Common stock (no stated value,
10,000,000 shares authorized;
3,013,280 and 1,100,000 shares issued
and outstanding as of June 30, 1997
and December 31, 1996, respectively) 10,799,125 1,200
Retained earnings (deficit) (1,316,872) (1,074,554)
----------- -----------
Total shareholders' equity 9,482,253 3,172,806
----------- ------------
Total liabilities and
shareholders' equity $11,068,392 $ 6,668,372
=========== ===========
* Condensed from audited financial statements
3
STATEMENTS OF OPERATIONS (Unaudited) Six months Six months Three months Three months
ENERGY SEARCH INCORPORATED Ended Ended Ended Ended
June 30,1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- --------------- -------------
REVENUE
Net turnkey revenue $ 599,616 $(147,211) $(131,758) $(159,798)
Oil & Gas Revenue 139,564 128,182 48,761 55,939
Management fees 157,176 99,250 74,893 55,650
Other Revenue 139,890 38,130 80,887 (6,101)
---------- ---------- --------- ---------
Total revenue 1,036,246 118,351 72,783 (54,310)
OPERATING EXPENSES
Production expenses 121,141 84,102 77,216 31,508
Exploration expenses 43,754 39,595 (52,066) (81,179)
Depreciation, depletion & amortization 257,433 185,052 156,920 99,437
Interest 42,526 135,307 21,876 86,640
General and administrative 852,449 471,443 490,499 267,538
---------- ---------- --------- ---------
Total operating expenses 1,317,303 915,499 694,445 403,944
NET (LOSS) FROM OPERATIONS (281,057) (797,148) (621,662) (458,254)
OTHER INCOME (EXPENSE)
Program reimbursement (23,673) (108,804) ( 14,824) (53,061)
Stock issuance expense - (83,080) - (83,080)
Gain on sale of assets 2,963 54,348 - 54,348
---------- --------- --------- --------
Total other (expense) (20,710) (137,536) ( 14,824) (81,793)
NET (LOSS) BEFORE INCOME TAX
AND EXTRAORDINARY ITEM (301,767) (934,684) (636,486) $(540,047)
INCOME TAX BENEFIT 119,198 318,200 234,198 162,318
---------- ---------- --------- ---------
NET (LOSS) BEFORE EXTRAORDINARY ITEM $ (182,569) $(616,484) $(402,288) $(377,729)
EXTRAORDINARY ITEM-LOSS ON EARLY
EXTINGUISHMENT OF DEBT (NET OF INCOME
TAX BENEFIT OF $51,000) - (78,920) - (78,920)
---------- ---------- --------- ---------
NET (LOSS) $ (182,569) $(695,404) $(402,288) $(456,649)
Earnings per common and common
equivalent share (.07) (.63) (.14) (.41)
4
STATEMENTS OF CASH FLOWS
ENERGY SEARCH, INCORPORATED (UNAUDITED)
Six months ended June 30
1997 1996
(Unaudited) (Unaudited)
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (182,569) $ (695,404)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation, depletion and 257,433 185,052
amortization expense
Dryholes and abandonments of previously
capitalized oil and gas properties - 97,360
Loss on early extinguishment of debt - 129,920
(Gain) on sale of assets (2,963) (54,348)
(Increase) in deferred tax asset (119,198) (369,200)
(Increase) decrease in other assets
Accounts receivable and due from (73,317) 952,343
partnerships
Other current assets (2,687) (13,267)
Other assets 266,104 3,600
Increase (decrease) in liabilities
Accounts payable and accrued (342,409) (258,832)
liabilities
Drilling advances (1,281,404) (439,196)
----------- ----------
Net cash used in operating activities (1,481,010) (461,972)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of proven properties (136,319) -
Proceeds from sale of other property 8,548 31,500
and equipment
Purchase of oil and gas properties and
other property and equipment (1,858,046) (319,291)
Net investment in affiliated (177,288) (116,351)
partnerships
Purchase of oil and gas leases (6,168) (24,252)
----------- ----------
Net cash used in investing activities (2,169,273) (428,394)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common
stock 6,551,765 -
Net proceeds from issuance of preferred
stock - 1,362,920
Payment of dividends on preferred stock (59,749) -
Payments on long-term debt (285,614) (288,807)
Payments of loan issue costs - (4,164)
----------- ----------
Net cash provided (used) in financing
activities 6,206,402 1,069,949
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,556,119 179,583
CASH AND CASH EQUIVALENTS - Beginning
of year 51,067 105,978
----------- ----------
CASH AND CASH EQUIVALENTS - End of
period $ 2,607,186 $ 285,561
=========== ==========
See notes to financial statements
5
ENERGY SEARCH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997 and 1996
BASIS OF PRESENTATION
The condensed Balance sheets as of June 30, 1997 and December 31, 1996,
Statements of Operations for the six-month periods ended June 30, 1997 and
1996, and Statements of Condensed Cash Flows for the six-month periods ended
June 30, 1997 and June 30, 1996 have been prepared by the Company.
In the opinion of management all adjustments, (which include
reclassifications and normal recurring adjustments,) necessary to present fairly
the financial position, results of operations and cash flows at June 30, 1997,
and for all periods presented, have been made. Preparing financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses. Actual results may
differ from these estimates. Interim results are not necessarily indicative of
results for a full year.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the 1996 audited
financial statements and notes thereto included in the exhibits of this filing.
EARNINGS PER SHARE
Earnings (loss) per share of common and common equivalent stock are based
on the weighted average common shares outstanding and are retroactively adjusted
for stock splits. The convertible preferred stock is considered to be the
equivalent of common stock from the time of its issuance in 1996.
EQUITY FINANCIAL CORPORATION ACQUISITION
On May 1, 1997, the Company acquired Equity Financial Corporation ("EFC"),
a Tennessee corporation and an NASD member broker-dealer. EFC acts as
placement agent for each of the Company's drilling programs and received sales
commissions in connections with each of these offerings and various other
securities business. EFC was owned by two of the Company's officers. The
purchase price was $190,000 plus 7% of the gross commissions generated by EFC
(not to exceed 50% of the net income of EFC,) for 3 years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is an independent oil and gas development and production
company focusing primarily on developmental drilling and production of natural
gas reserves in the Appalachian Basin and elsewhere in the mid-continent region
of the United States. The Company historically developed oil and gas properties
primarily by drilling natural gas wells in joint ventures with Tennessee limited
partnerships for which the Company served as managing general partner (the
"Affiliated Drilling Partnerships") and in which the Company retained a working
interest. The Company has now changed its focus.
The Company has transitioned from being primarily a driller-operator for
syndicated Affiliated Drilling Partnerships to an energy company developing
reserves for its own account. The Company in 1996 reduced its debt by converting
$2,077,000 of its variable rate subordinated debentures (the "Debentures" or
"Debenture Issue") to 207,700 shares of Class A Preferred Stock and raised
$2,423,000 in cash by the sale in private placements of 242,300 shares of Class
B Preferred Stock. The proceeds of Class A and Class B Preferred Stock were
used to eliminate substantially all long term debt of the Company. In January
of 1997, all Class A and B shares of Preferred Stock were converted to common
stock, on a one-share-for-one-share basis, as a part of the Company's initial
6
public offering of common stock.
In January of 1997, the Company completed the initial public offering
("IPO") of common stock and common stock purchase warrants in the Company by
which it raised approximately $6,551,765 net of expenses. With these proceeds
the Company has now shifted its primary operational focus to the development of
wells wholly owned by the Company. While the Company anticipates the continued
sponsoring of Affiliated Drilling Partnerships on a limited basis, management
believes the new focus will allow the Company to more expeditiously develop its
own reserves, cash flow from oil and gas revenues, and thus value for the newly
public company.
In July 1996, the Company negotiated its largest acreage acquisition to
date, expanding its operations into southern West Virginia. This area,
management believes, contains the potential for higher reserves per well and
less production cost per cubic foot of gas recovered than the Company's previous
areas of operation in southeastern Ohio and western West Virginia. The Company
leased in excess of 17,000 acres from Beaver Coal Company, Ltd. (the "Beaver
Lease") on which management believes there exists substantial developmental
drilling locations (qualified under SEC guidelines as proved undeveloped
reserves, "PUDS") offsetting producing wells. Current drilling of 17 wells on
this acreage supports the Company's estimates of both reserves and costs. As
planned, the Company has utilized a portion of the net proceeds raised in the
initial public offering to begin to develop the Beaver Lease. The Company's
present strategy is to continue to use the balance of the proceeds of the IPO
and current cashflows from operations to develop the Beaver Lease and
surrounding areas, as well as other acreage held, or to be acquired by the
Company.
SIX MONTHS ENDED JUNE 30, 1997
Financial Condition
Total assets increased $4,400,020 or 66.0% from December 31, 1996, to June
30, 1997, primarily due to an increase in current assets of $2,632,123, or
290.7%, and a net increase in oil and gas properties of $1,791,859 or 52.0% and
a decrease in other assets of $23,962 or 1.0%.
Current assets increased primarily as a result of the Company's receipt of
proceeds from its initial public offering which closed on January 30, 1997. The
Company has raised to date approximately $6,551,765 net of underwriter fees,
professional fees, and various other costs associated with the stock offering.
Pending use, the Company invests the proceeds in short-term, investment grade
obligations.
Oil and gas properties increased primarily as a result of a significant
increase in drilling activity in the first six months of 1997 and the
acquisition by the Company of oil and gas lease interest in proved properties.
Due to the increased drilling activity, the Company increased capital
expenditures for drilling in well related equipment from December 31, 1996 to
June 30, 1997 in the amount of $572,719 and has recognized intangible drilling
costs of $1,186,766 in the first six months due to the Company drilled wells.
The Company also acquired a farm-out of oil and gas leases as well as a joint
venture working interest in a developmental well during the first six months of
1997 at a total cost of approximately $38,000.
Other assets decreased primarily due to the prepaid stock offering costs of
$265,948 being charged against the common stock account. An offsetting increase
in other assets was primarily due to an increase in other property and equipment
of $59,876 or 30.8%, an increase in the investments in related partnerships of
$76,886 or 5.6%, due to contributions made to Affiliated Drilling Partnerships
and the net income (loss) recognized during the period, and an increase in the
deferred tax assets of $119,198.
Total current and long term debt decreased $1,909,427, or 54.6% from
December 31, 1996, to June 30, 1997, due to a decrease in current liabilities of
$1,865,511, or 55.8% and a decrease in long term debt of $43,916, or 28.4%.
Current liabilities decreased primarily due to a decrease in drilling
advances of $1,281,404. Drilling advances decrease (and revenues are recognized)
with the Company's drilling of Affiliated Drilling Partnership wells. The
drilling advance decrease represents the Company's drilling of all wells
required to be drilled at
7
December 31, 1996 for Affiliated Drilling Partnerships by March 31, 1997.
Accounts payable and accrued expenses decreased $342,409 or 33.1%, and payment
by the Company of notes payable due to officers in the amount of $251,773. It is
important to note that Drilling activity for Affiliated Drilling Programs varies
quarter to quarter. The Company drilled two wells for the 1997 Affiliated
Drilling Program through June 30, 1997.
Results of Operations
During the six months ended June 30, 1997, the Company had a net loss of
$182,569 compared to a net loss of $695,404 for the six months ended June 30,
1996. The decrease in the year to date loss is primarily the result of an
increase in turnkey revenues of $746,827 between these two periods. The Company
drilled to total depth 11 wells in the first quarter of 1997. Of these, 7 gross
wells were attributable to Affiliated Drilling Partnerships for which turnkey
revenues were recognized. This is an increase of 4 gross wells over the first
quarter of 1996. In the second quarter, the Company drilled to total depth 2
wells for the 1997 Affiliated Drilling Program to only one well in the second
quarter of 1996. The Company's turnkey drilling activity typically declines in
the second quarter as noted below.
Turnkey revenues of the Company have historically been a major portion of
total revenues. These fluctuate quarter to quarter. Since all turnkey
drilling for all Affiliated Drilling Partnerships was accomplished in the first
quarter of 1997, little turnkey revenues were expected by management in the
second quarter of 1997. The Company commenced the 1997 drilling program in May
1997 and drilled two wells to total depth by June 30, 1997. Management expects
some level of turnkey revenues attributable to the 1997 program to be realized
in the third quarter of 1997. To date the Company has raised $600,000 in the
1997 Drilling Partnership. There can be no assurance, however, that the Company
will raise any particular level of funds. As a result, there is no assurance
that any increased revenues will result.
To a lesser degree the increase in earnings is due to an increase in oil
and gas revenue, management fees and other revenue of 8.9%, 58.4% and 266.9%
respectively, for a total of $171,068. The increase in other revenue is
primarily due to the interest earned on the IPO investment account and
approximately $28,000 of net commission revenue earned by Equity Financial
Corporation, a wholly owned subsidiary.
Total operating expenses increased $401,804 or 43.9% for the six month
period ending June 30, 1997 over the six month period ending June 30, 1996,
primarily due to an increase in general and administrative expenses of $381,006,
or 80.8%. The increase in general and administrative expenses is due primarily
to an increase in total wages of the Company of which officer's salaries for
Messrs. Torrey, Remine and Cooper comprise $202,479. This results from the
fact that the Company now has two additional officers on the payroll of the
Company. Messrs. Torrey and Remine were, prior to the IPO on the payroll of
Equity Financial Corporation, an affiliate. EFC has been acquired by the
Company as of May 1, 1997 and Messrs. Torrey and Remine no longer receive a
salary from EFC. As a direct result of the Company's public status, general
and administrative costs have increased in marketing, printing and production,
and professional fees. Interest expense decreased $92,781 or 68.6% due to the
Company's decrease in debt as discussed above.
Other income and expense decreased $116,826 or 84.9% resulting from a
decrease in program reimbursements of $85,131, or 78.2%, a result of improved
performance of Programs resulting from higher natural gas prices and improved
production.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of funds for the six months ended June 30, 1997
continues to be from the issuance of common stock to the public. The Company
has raised to date approximately $6,551,765, net of costs. It is currently
anticipated that the remaining proceeds of the IPO will be spent primarily on
developing the Beaver Lease as well as other developmental drilling activities
located generally in the southeastern Ohio and West Virginia areas. Management
eventually expects to see positive cash flow from operating activities in 1997
and beyond primarily due to the increased drilling activity for its own account.
Pending use of the remaining balance of the IPO proceeds, the Company has
invested these funds in short-term, investment grade obligations.
8
The Company anticipates additional cash flow from turnkey profits earned on
turnkey drilling contracts with future Affiliated Drilling Partnerships in the
third and fourth quarter of 1997. However, there can be no assurance of how
much, if any, additional cash flow will, in fact, occur. The Company has
currently raised $600,000 in the 1997 Affiliated Drilling Partnerships, $486,280
of which was recognized as turnkey revenue for wells drilled to total depth as
of June 30, 1997. If additional funds are not raised or if actual drilling
costs related to the drilling of Affiliated Drilling Partnership wells exceed
the fixed turnkey contract amount, then no additional cash flow from turnkey
drilling would be experienced.
The Company maintains a line of credit (the "Bank One Credit Facility")
with Bank One, Texas, N.A. (the "Bank"). The Bank One Credit Facility is
secured by all oil and gas assets of the Company. Pending renewal, interest
only is payable on the amounts drawn and outstanding. The interest rate
applicable is based on a floating rate equal to the Bank's base rate, published
from time to time, plus, one and three-fourths percent. Effective July 1, 1997,
this line of credit has been increased to $1,020,000. The credit limit reduces
by $20,000 per month pending reevaluation at the end of the annual credit
period. The Bank has advised the Company that the personal guarantees of
current guarantors have been eliminated. This is primarily due to the improved
capitalization of the Company resulting from the initial public offering.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company, its properties, nor any of its directors or officers
is involved in any material litigation or administrative proceedings, nor do any
of them have any knowledge that any such litigation or proceeding may be
contemplated.
ITEM 2. CHANGES IN SECURITIES
Following is information required by Item 701 of Regulation S-B as to all
equity securities of the registrant sold by the registrant during the period
covered by this report. No such securities were registered under the Securities
Act of 1933.
(a) Issuance of Common Stock
By board of directors action as of June 1, 1997, Jim Harry, an employee of
the Company, was issued 800 shares of unregistered Common Stock of the Company
in consideration for services rendered pursuant to his employment contract. The
issuance of these securities was exempt pursuant to Section 4(2) of the
Securities Act of 1933 and Rule 701 promulgated thereunder.
(b) Issuance of Common Stock Purchase Warrants
Prior to the Company's January 24, 1997 initial public offering ("IPO"),
the Company authorized certain common stock purchase warrants which were to be
issued to key employees and other agents of the Company for services. Each
common stock purchase warrant entitled the holder to purchase one (1) share of
common stock at an exercise price of $10.00 per share, which was reduced to
$5.00 per share as a result of the post-IPO two for one common stock split (the
"Exercise Price"). The only exceptions to these Exercise Prices were the 4,000
warrants issued each to Derry M. Thompson and James T. McKay, which had an
Exercise Price of $0.01 per share. The common stock purchase warrants were to be
exercisable within 90 days after completion of the IPO.
10
OFFERING SECURITIES ACT OR SEC
DATE (1) AMOUNT ISSUED (2) ISSUED TO CONSIDERATION RULE EXEMPTION (3)
- ------- ----------------- --------- ------------- ---------------------
7-1-96 400 Brenda B Suttles services* 4(2); Rule 701
7-1-96 1,000 David L. Tuttle services* 4(2); Rule 701
7-1-96 1,000 Roy A. Lemasters services* 4(2); Rule 701
7-1-96 600 Timothy A. Boggess services* 4(2); Rule 701
7-1-96 400 Debra A. Martin services* 4(2); Rule 701
7-1-96 400 Andrew S. Pakes services* 4(2); Rule 701
7-1-96 1,960 James T. McKay services 4(2)
7-1-96 3,396 Derry M. Thompson services 4(2)
7-1-96 480 Palm States Equities services 4(2)
7-1-96 80 World Invest Corporation services 4(2)
7-1-96 60 Gaines C. Walker services 4(2)
7-1-96 1,238 Robert L. Remine services* 4(2)
7-1-96 1,238 Charles P. Torrey, Jr. services* 4(2); Rule 701
7-1-96 1,238 Richard S. Cooper services* 4(2); Rule 701
7-1-96 4,000 Derry M. Thompson services 4(2)
7-1-96 4,000 James T. McKay services 4(2)
10-1-96 480 James T. McKay services 4(2)
10-1-96 2,400 Derry M. Thompson services 4(2)
10-1-96 1,260 Robert L. Remine services* 4(2); Rule 701
10-1-96 1,260 Charles P. Torrey Jr. services* 4(2); Rule 701
10-1-96 1,260 Richard S. Cooper services* 4(2); Rule 701
2-28-97 480 Derry M. Thompson services 4(2)
2-28-97 480 Robert L. Remine services* 4(2); Rule 701
2-28-97 480 Charles P. Torrey, Jr. services* 4(2); Rule 701
2-28-97 480 Richard S. Cooper services* 4(2); Rule 701
2-28-97 200 Mitzi Kopotic services* 4(2); Rule 701
(1) Represents the date the issuance of the common stock purchase warrants was
approved by the board of directors of the Company.
(2) Represents the number of common shares the holder may purchase pursuant to
the warrants issued. These numbers are after the post-IPO two for one common
stock split.
(3) The common stock purchase warrants were issued by the Company in
transactions not involving a public offering exclusively to persons with pre-
existing employment, or other business relationships with the Company, as a
result of employment services (designated by *), or marketing and related
services rendered in connection with the Company's year-end private placement,
direct participation drilling program known as Energy Search Natural Gas 1996-A
L.P.
In addition to the foregoing, by board of directors' action effective June
1, 1997, Daniel S. Edmunds was issued 25,000 common stock purchase warrants to
purchase one share of common stock of the Company per warrant at an exercise
price of $6.50 per share on or before an exercise date of January 30, 2002. Mr.
Edmunds is an employee of Equity Financial Corporation, a wholly-owned
subsidiary of the Company, and was issued such warrants in consideration for his
services. The issuance of such warrants to Mr. Edmunds was exempt from
registration under Section 4(2) of the Securities Act of 1933 and Rule 701
promulgated thereunder.
11
(c) Exercise of Common Stock Purchase Warrants
All of the following shares of common stock of the Company were issued to
persons who exercised common stock purchase warrants previously issued to them
in connection with employment or consulting services rendered by them,
respectively, to the Company. There were no underwriting commissions or
discounts paid with respect to the exercise of such common stock purchase
warrants or the issuance of shares of common stock resulting therefrom.
NUMBER OF
DATE OF ISSUE SHARES ISSUED OFFERING PRICE SECURITIES ACT OR
(1) SECURITIES (2) ISSUED TO (3) SEC RULE EXEMPTION
- ------------- ---------- ------------- ------------- -------------- ------------------
6-1-97 Common Stock 400 Brenda B. Suttles $ 2,000 Section 4(2); Rule 701(4)
6-1-97 Common Stock 200 Mitzi Kopotic $ 1,000 Section 4(2); Rule 701(4)
6-1-97 Common Stock 1,000 David L. Tuttle $ 5,000 Section 4(2); Rule 701(4)
6-1-97 Common Stock 1,000 Roy A. Lemasters $ 5,000 Section 4(2); Rule 701(4)
6-1-97 Common Stock 600 Timothy A. Boggess $ 3,000 Section 4(2); Rule 701(4)
6-1-97 Common Stock 400 Debra A. Martin $ 2,000 Section 4(2); Rule 701(4)
6-1-97 Common Stock 400 Andrew S. Pakes $ 2,000 Section 4(2); Rule 701(4)
6-1-97 Common Stock 4,000 Derry M. Thompson $ 20 Section 4(2)(5)
6-1-97 Common Stock 4,000 James T. McKay $ 20 Section 4(2)(5)
6-1-97 Common Stock 1,960 James T. McKay $ 9,800 Section 4(2)(5)
6-1-97 Common Stock 3,396 Derry M. Thompson $16,980 Section 4(2)(5)
6-1-97 Common Stock 480 Palm States Equities $ 2,400 Section 4(2)
6-1-97 Common Stock 80 World Invest Corporation $ 400 Section 4(2)
6-1-97 Common Stock 1,238 Robert L. Remine $ 6,190 Section 4(2); Rule 701(4)
6-1-97 Common Stock 1,238 Richard S. Cooper $ 6,190 Section 4(2); Rule 701(4)
6-1-97 Common Stock 1,238 Charles P. Torrey, Jr $ 6,190 Section 4(2); Rule 701(4)
6-1-97 Common Stock 60 Gaines C. Walker $ 300 Section 4(2)(5)
6-1-97 Common Stock 480 James T. McKay $ 2,400 Section 4(2)(5)
6-1-97 Common Stock 2,400 Derry M. Thompson $12,000 Section 4(2)(5)
6-1-97 Common Stock 1,260 Robert L. Remine $ 6,300 Section 4(2); Rule 701(4)
6-1-97 Common Stock 1,260 Richard S. Cooper $ 6,300 Section 4(2); Rule 701(4)
6-1-97 Common Stock 1,260 Charles P. Torrey, Jr $ 6,300 Section 4(2); Rule 701(4)
12
(1) Represents the effective date that the issuance of the shares of common
stock was approved by the board of directors of the Company.
(2) All shares of common stock were issued pursuant to the exercise of common
stock purchase warrants held by the holders.
(3) Represents the aggregate exercise price of the holders' common stock
purchase warrants.
(4) All of these shares of common stock of the Company were issued as a result
of exercise common stock purchase warrants previously issued in a private
transaction to the holders by the Company, all of which holders were either
existing employees or consultants of the Company at the time of receipt of the
common stock purchase warrants. The common stock purchase warrants were issued
as a form of compensation or benefit to the holders. The exercise price of the
common stock purchase warrants were determined by the Company, in its
discretion.
(5) All of these shares of common stock were issued as a result of common stock
purchase warrants previously issued in a private transaction to the holders by
the Company. The common stock purchase warrants were issued in a private
transaction to persons with whom the Company had a substantial pre-existing
relationship. These persons have for several years, as associated persons of
Equity Financial Corporation ("EFC") an NASD broker-dealer and affiliate of the
Company, marketed the Company's private placement direct participation drilling
programs. The common stock purchase warrants were issued to the holders as
consideration for company loyalty and services.
(d) Issuance Of New Common Stock Purchase Warrants In Exchange For
Outstanding Common Stock Purchase Warrants Of Certain Management Persons And
Certain Key Marketing Persons.
Effective April 7, 1997, the board of directors of the Company authorized
the issuance of certain common stock purchase warrants to individuals identified
below who are management or key marketing personnel of the Company (the
"Holders"). These individuals were previously the owners of certain common
stock purchase warrants (the "Pre-IPO Warrants") issued prior to the January 24,
1997 initial public offering of the Company's common stock, and series A common
stock purchase warrants. According to their terms, the Pre-IPO Warrants
entitled the holder to one share of common stock per Pre-IPO Warrant. The
exercise price was $5.00 per share; and the Pre-IPO Warrants were required to be
exercised by April 24, 1997.
The listed "ask" price on the NASDAQ Small-Cap Stock Market of the
Company's Units (comprised of one share of common stock and one Series A common
stock purchase warrant each,) as of close of the market on April 7, 1997 was
$6.125. The Holders indicated that they would agree to not exercise their Pre-
IPO Warrants at $5.00 per share as of April 24, 1997, if the Company would agree
to issue new common stock purchase warrants (the "New Warrants") in exchange for
the Pre-IPO Warrants that would entitle the Holders to purchase the same number
of shares of common stock as under the Pre-IPO Warrants, at an exercise price of
$6.50 per share; and subject to an exercise date of no later than January 30,
2002. The Holders agreed to exchange their Pre-IPO Warrants for New Warrants
as evidence of their belief in the ability of management to enhance the stock
value of the Issuer over time. Of course, there can be no assurance that the
stock value of the Company will appreciate over any particular period of time,
or at all. The board of directors determined that it was in the best interest
of the Company and the holders of common stock of the Company to issue the New
Warrants to the Holders in exchange for the Pre-IPO Warrants.
Pursuant to the April 7, 1997 board of directors authorizing resolution, as
of June 1, 1997, the board of directors issued the following common stock
purchase warrants (the "New Warrants") to the Holders in exchange for surrender
by the Holders of their Pre-IPO Warrants, as indicated below. All of the
following transactions are exempt from registration pursuant to the Securities
Act of 1933 under Section 4(2) of such Act.
13
NAME OF WARRANT HOLDER NO. OF PRE-IPO WARRANTS NO. OF NEW WARRANTS
Charles P. Torrey, Jr. 2,978 2,978
Robert L. Remine 2,978 2,978
Richard S. Cooper 2,978 2,978
Derry M. Thompson 6,276 6,276
James T. McKay 2,440 2,440
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.
Energy Search, Incorporated
--------------------------------
(Company)
Date: August 12, 1997 /s/ Richard S. Cooper, President
--------------- --------------------------------
Richard S. Cooper
14