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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14334
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Venus Exploration, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3299127
- ----------------------------------------------- ----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
700 North St. Mary's Street, Suite 1900, San Antonio, Texas 78205
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(Address of principal executive offices)
(210) 222-9481
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 1, 1997
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Common Stock $.01 par value 9,716,815 shares
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VENUS EXPLORATION, INC. AND SUBSIDIARIES
INDEX
PAGE
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PART I. - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of June
30, 1997, and December 31, 1996 3
(b) Consolidated Statements of Operations for
the three-month periods ended June 30,
1997, and June 30, 1996 4
(c) Consolidated Statements of Operations for
the six-month periods ended June 30, 1997,
and June 30, 1996 5
(d) Consolidated Statements of Cash Flows for
the six-month periods ended June 30, 1997,
and June 30, 1996 6
(e) Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosure
About Market Risk - See Note 7 of Notes to
Consolidated Financial Statements
PART II. - OTHER INFORMATION 15
Item 1 - Legal Proceedings 15
Item 2 - Change in Securities 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
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VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1997 1996
-------- ------------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,167 $ 1,304
Accounts receivable and other 1,254 815
-------- --------
TOTAL CURRENT ASSETS 4,421 2,119
OIL AND GAS PROPERTIES AND EQUIPMENT (successful
efforts method), at cost 8,798 2,575
Less-accumulated depreciation, depletion,
amortization and impairment (1,104) (895)
-------- --------
7,694 1,680
DEFERRED FINANCING COSTS 367 372
INVESTMENT IN EQUITY SECURITIES 55 -
OTHER ASSETS 461 172
-------- --------
TOTAL ASSETS $ 12,998 $ 4,343
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,383 $ 1,074
Advances from interest owners - 345
Accrued liabilities
Suspended revenues and settlements 168 -
Other 90 -
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TOTAL CURRENT LIABILITIES 1,641 1,419
LONG-TERM NOTES PAYABLE 1,329 -
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DEFERRED INCOME TAXES 1 -
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TOTAL LIABILITIES 2,971 1,419
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share--
authorized 15,000,000 shares; 10,275,317
shares issued; 9,716,815 and 5,626,473
shares outstanding as of June 30, 1997
and December 31, 1996, respectively 103 56
Additional paid-in capital 16,106 6,234
Accumulated deficit (5,065) (3,366)
-------- --------
11,144 2,924
Less cost of Common Stock in treasury--558,502
shares at June 30, 1997 (1,117) -
-------- --------
TOTAL STOCKHOLDERS' EQUITY 10,027 2,924
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,998 $ 4,343
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
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(In thousands, except per share data)
REVENUES
Oil and gas sales $ 608 $ 151
Oil field operation fees 161 -
Management fees 18 146
Gain on sale of properties
and investments (2) 259
Interest income and other 19 5
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Total Revenues 804 561
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EXPENSES
Operations and maintenance 172 79
Exploration costs 102 11
Depreciation, depletion and amortization 191 25
General and administrative 878 364
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Total Expenses 1,343 479
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OTHER EXPENSE
Interest 40 2
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Loss before income taxes (579) 80
PROVISION FOR INCOME TAXES - -
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Net income (loss) $ (579) $ 80
============= =============
Net income (loss) per common share and
common share equivalents $ (.08) $ .01
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,422 5,626
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
(In thousands, except per share data)
REVENUES
Oil and gas sales $ 754 $ 319
Oil field operation fees 161 -
Management fees 202 298
Gain on sale of properties
and investments - 239
Interest income and other 23 14
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Total Revenues 1,140 870
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EXPENSES
Operations and maintenance 227 162
Exploration costs 601 16
Depreciation, depletion and amortization 236 51
General and administrative 1,701 796
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Total Expenses 2,765 1,025
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OTHER EXPENSE
Interest 74 3
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Loss before income taxes (1,699) (158)
PROVISION FOR INCOME TAXES - -
------------- -------------
Net loss $ (1,699) $ (158)
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Net loss per common share and common
share equivalents $ (.26) $ (.03)
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,529 5,626
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
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(In thousands)
OPERATING ACTIVITIES
Net loss $ (1,699) $ (158)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 236 51
Impairments, abandoned leases and
dry hole costs 485 -
Gain on sale of oil and gas properties - (101)
Gain on investment activities - (138)
Compensation expense for stock options 252 -
Change in operating assets and liabilities:
Decrease (increase) in accounts
receivable and other (439) (227)
Increase (decrease) in accounts payable (37) 219
Increase in accrued liabilities 259 -
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Net cash used in operating activities (943) (354)
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INVESTING ACTIVITIES
Property acquisition (5,540) -
Net proceeds from the sale of property - 327
Capital expenditures (1,271) (324)
Proceeds from sale of investment securities - 189
Investments acquired in acquisitions and other (213) -
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Net cash provided by (used in)
investing activities (7,024) 192
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FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 1,411 150
Repayment of long-term debt (131) (65)
Deferred financing cost - (37)
Issuance of stock 8,550 1,352
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Net cash provided by financing activities 9,830 1,400
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INCREASE IN CASH AND CASH EQUIVALENTS 1,863 1,238
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,304 573
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,167 $ 1,811
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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VENUS EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three and Six Months Ended June 30, 1997 and 1996
1. Business Combination
On May 21, 1997, Registrant, then known as Xplor Corporation
("Xplor"), acquired substantially all of the assets and liabilities of The
New Venus Exploration, Inc. ("New Venus"), a Texas corporation, in exchange
for 5,626,473 shares of Registrant's previously authorized and unissued
shares of Common Stock and warrants to purchase 272,353 additional shares of
Common Stock. Simultaneously, Registrant acquired certain oil and gas
properties of two wholly-owned affiliates of Lomak Petroleum, Inc., Lomak
Production I L.P., a Texas limited partnership, and Lomak Resources LLC, an
Oklahoma limited liability company (together, "Lomak"), in exchange for
2,037,171 shares of Registrant's previously authorized and unissued shares
of Common Stock and warrants to purchase 272,353 additional shares of Common
Stock. On June 4, 1997 Xplor changed its name to Venus Exploration, Inc.
(the "Company").
2. Basis of Presentation
For financial reporting purposes, the transactions described in Note 1
have been accounted for as a reverse acquisition whereby New Venus is deemed
to be the acquirer. Accordingly, the historical financial statements of New
Venus and predecessor entities are presented as the historical financial
statements of the Company and the assets acquired and liabilities assumed
from Xplor and Lomak have been recorded at fair value as of the date of the
combination as required under purchase accounting. For purposes of
determining the costs of the acquisitions, management has valued the shares
and warrants issued to Lomak and the shares, options and warrants held by
Xplor shareholders based on the estimated fair values of the assets acquired
and liabilities assumed, rather than the current market price of Xplor
shares. Management believes that using the estimated fair values of the
assets acquired and liabilities assumed to determine the costs of the
acquisitions rather than the market price of the Xplor shares is appropriate
because (1) there is limited trading activity in the shares, (2) the stock
issued to effect the combination contains restrictions that limit its
marketability, and (3) the number of shares issued to effect the combination
substantially exceeds the current trading volume of the shares in the
marketplace and substantially exceeds the number of Xplor shares outstanding
prior to the combination.
For all periods presented, except for the period of May 21, 1997
through June 30, 1997, the revenues and expenses are the historical revenues
and expenses of New Venus and predecessor entities.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated
financial statements presented should be read in connection with the 1996
audited financial statements of New Venus and Lomak included in the
Company's report on Form 8-K/A dated August 4, 1997, Xplor's 1996 Annual
Report on Form 10-K, and Xplor's March 31, 1997 Quarterly Report on Form
10-Q.
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the Company as
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of June 30, 1997 and the results of its operations for the six and three
months ended June 30, 1997 and 1996.
The results of operations for the six and three month periods ended
June 30, 1997 are not necessarily indicative of the results to be expected
for the full year and are significantly impacted by the accounting for the
combination transactions as discussed above.
3. Summary of Significant Accounting Policies
For a description of the accounting policies followed by the
Company, refer to the notes to the 1996 financial statements of New Venus
included in the Company's report on Form 8-K/A dated August 4, 1997.
4. Earnings (loss) Per Share
Earnings (loss) per share for the three months and six months
ended June 30, 1997, are calculated based on 7,421,788 and 6,529,090
weighted average shares outstanding. Weighted average shares were computed
assuming the following shares outstanding for the periods indicated:
December 31, 1996 to May 21, 1997 5,626,473
May 21, 1997 to June 5, 1997 9,700,815
June 5, 1997 to June 30, 1997 9,716,815
The 5,626,473 shares were the total number of shares issued to New
Venus by Xplor on May 21, 1997. However, because the business combination
was accounted for as a reverse acquisition, these shares are deemed
outstanding, for periods prior to May 21, 1997, for New Venus historical
financial information as presented. The 9,700,815 shares reflect the
increase due to the issuance of shares to Lomak and the deemed issuance of
shares to Xplor to effect the business combination. On June 5, 1997, 16,000
shares were issued in connection with the exercise of options.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("FAS") No. 128, "Earnings Per
Share", which establishes standards for computing and presenting earnings
per share. This Standard, effective for financial statements issued for
periods ending after December 15, 1997, replaces the presentation of primary
earnings per share with a presentation of basic earnings per share. The
Company's basic and diluted earnings per share computed using the
requirements of FAS No. 128 are the same as the Company's currently disclosed
net income (loss) per common share.
5. Long-Term Debt
The Company has a loan agreement establishing a $20 million line
of credit with a bank. The agreement provides for a total borrowing base
determined every six months by the bank based on the Company's oil and gas
reserves which are used as security for the loan. Interest on amounts
borrowed under the loan agreement is based on the bank's prime rate plus one
percent. Interest is payable monthly and principal payments are required
only when the balance outstanding exceeds or is projected to exceed, prior
to the next borrowing base redetermination date, the borrowing base. The
amount drawn by the Company as of June 30, 1997 was $500,000.
In October 1996, the Company entered into a Term Loan and Security
Agreement with a lender to finance the acquisition and development of oil
and gas properties. Under the agreement, the Company may borrow up to
approximately $17.4 million to finance the acquisition and development of
new properties, subject to limitations based on the value of the Company's
proved reserves attributable to properties the Company has agreed to include
as security for such loan. The amount drawn by the Company as of June 30,
1997 was $829,000.
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6. Accounting for Income Taxes
There is no income tax provision because: (1) revenues and
expenses through June 30, 1996, are attributable to a New Venus predecessor
entity which was an S Corporation for tax reporting purposes resulting in
the individual shareholders of the entity being responsible for any taxes
due or benefits from any net operating losses and (2) of the uncertainty of
the ultimate realization of a tax benefit from the 1997 loss.
7. Hedging Transaction
The Company enters into commodity derivative contracts for
non-trading purposes as a hedging strategy to manage commodity prices
associated with certain oil and gas sales and to reduce the impact of price
fluctuations. The Company primarily uses price swaps for production on
properties pledged under the Term Loan agreement discussed in Note 5.
The Company utilizes the hedge or deferral method of accounting
for commodity derivative financial instruments whereby gains and losses on
these hedging instruments are recognized and recorded as revenues on the
statement of operations when the related natural gas or oil production has
been produced, purchased or delivered. As a result, gains and losses on
commodity financial instruments are generally offset by similar changes in
the realized prices of natural gas and crude oil. To qualify as hedging
instruments, these instruments must be highly correlated to anticipated
future sales such that the Company's exposure to the risks of commodity
price changes is reduced. While commodity financial instruments are
intended to reduce the Company's exposure to declines in the market price of
natural gas and crude oil, the commodity financial instruments may also
limit the Company's gain from increases in the market price of natural gas
and crude oil.
On December 2, 1996, the Company entered into a financial swap, as
required under the Term Loan agreement discussed in Note 5 above, whereby
the counterparty agrees to pay the Company the difference between the
floating price and the fixed price for certain volumes of production in
future months (commencing with January 1997 production) should the floating
price fall below the negotiated fixed price of $2.0497 per mmbtu for natural
gas or $19.045 per barrel for oil, respectively. Should the floating price
exceed the fixed price for natural gas or oil, the Company is required to
remit the difference to the counterparty. As of June 30, 1997, quantities
hedged are 93,814 mmbtu's of natural gas and 33,744 barrels of oil. As of
June 30, 1997, the estimated fair value of the Company's swap positions was
a net receivable of approximately $1,000 based upon an estimate of what the
Company would receive if the contracts were liquidated.
8. Xplor and Lomak Assets and Liabilities Acquired
On May 21, 1997, the Company recorded the combination transactions
described in Note 1 which effect was primarily the recording of the assets
and liabilities of Xplor and Lomak at their fair value. The combined
amounts for Lomak and Xplor were as follows:
(In thousands)
--------------
Cash $2,607
Oil and Gas properties 5,540
Accounts receivable 131
Equity securities and investments 301
Accounts Payable 396
Deferred income taxes 1
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9. Pro Forma Financial Information (In thousands, except per share data)
Selected results of operations on a pro forma basis as if the
combination transactions described in Note 1 had occurred on January 1, 1996
are as follows:
For the six months ended
June 30,
------------------------
1997 1996
--------- ---------
Revenues $ 2,021 $ 1,930
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Net income (loss) (1,209) 179
======= ===
Income (loss) per common share (.12) .02
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Shares (see Note 4) 9,717 9,701
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Item 2. VENUS EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background of Business Combination and Basis of Presentation
On May 21, 1997, Registrant, then known as Xplor Corporation
("Xplor"), acquired substantially all of the assets and liabilities of The
New Venus Exploration, Inc. ("New Venus"), a Texas corporation, in exchange
for 5,626,473 shares of Registrant's previously authorized and unissued
shares of Common Stock and warrants to purchase 272,353 additional shares of
Common Stock. Simultaneously, Registrant acquired certain oil and gas
properties of two wholly-owned affiliates of Lomak Petroleum, Inc., Lomak
Production I L.P., a Texas limited partnership, and Lomak Resources LLC, an
Oklahoma limited liability company (together, "Lomak"), in exchange for
2,037,171 shares of Registrant's previously authorized and unissued shares
of Common Stock and warrants to purchase 272,353 additional shares of Common
Stock. On June 4, 1997 Xplor changed its name to Venus Exploration, Inc.
(the "Company").
For financial reporting purposes, the transactions have been
accounted for as a reverse acquisition whereby New Venus is deemed to be the
acquirer. Accordingly, the historical financial statements of New Venus and
predecessor entities are presented as the historical financial statements of
the Company and the assets acquired and liabilities assumed from Xplor and
Lomak have been recorded at fair value as of the date of the combination as
required under purchase accounting. For purposes of determining the costs
of the acquisitions, management has valued the shares and warrants issued to
Lomak and the shares, options and warrants held by Xplor shareholders based
on the estimated fair values of the assets acquired and liabilities assumed,
rather than the current market price of Xplor shares. Management believes
that using the estimated fair values of the assets acquired and liabilities
assumed to determine the costs of the acquisitions rather than the market
price of the Xplor shares is appropriate because (1) there is limited
trading activity in the shares, (2) the stock issued to effect the
combination contains restrictions that limit its marketability, and (3) the
number of shares issued to effect the combination substantially exceeds the
current trading volume of the shares in the marketplace and substantially
exceeds the number of Xplor shares outstanding prior to the combination.
For all periods presented, except for the period of May 21, 1997
through June 30, 1997, the revenues and expenses are the historical revenues
and expenses of New Venus and predecessor entities. As a result, comparison
of the current and prior period financial statements presented is
significantly impacted by the combination transactions.
Liquidity and Capital Resources
(a) Liquidity
At June 30, 1997, the Company had working capital of $2,780,000
compared with $700,000 at December 31, 1996, an increase of $2,080,000.
This increase is primarily attributable to cash and temporary cash
investments acquired through the business combination. The ratio of current
assets to current liabilities at June 30, 1997, was 2.7 to 1 as compared
with 1.5 to 1 at December 31, 1996.
Net cash used in operating activities during the six months ending
June 30, 1997, was $943,000, whereas $354,000 was used in operating
activities for the same six month period in 1996. During the first half of
1997, the Company
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realized a net loss of $1,699,000. This compares with a net loss of
$158,000 for the first half of 1996. The first six months of 1997 includes
exploration and dry hole costs of $485,000, recognized prior to the business
combination and compensation expense on stock options of $252,000. Accounts
receivable increased by $439,000 primarily due to the increase in oil and
gas sales and the business combination. The increase of $259,000 in accrued
liabilities primarily resulted from the business combination. For the six
month period ended June 30, 1996 the Company realized gains on sales of
properties and investment securities of $239,000.
For the six months ended June 30, 1997, $7,024,000 was used in
investing activities. This compares to $192,000 provided by investing
activities during the six month period ended June 30, 1996. On May 21, 1997
the Company acquired oil and gas properties of $5,540,000 through the
business combination. During the first six months of 1997 the Company also
incurred capital expenditures on new wells drilled and acreage purchased of
$1,271,000. During the same period in 1996, the Company received proceeds
for the sale of property and investment securities of $516,000 and had
capital expenditures of $324,000.
For the six months ended June 30, 1997, $9,830,000 was provided by
financing activities. This includes $8,550,000 of Common Stock deemed
issued in the business combination and proceeds from long-term debt of
$1,411,000. This compares with $1,400,000 provided by financing activities
for the six month period ended June 30, 1996. Of this amount $1,352,000 was
provided from the issuance of stock.
(b) Capital Resources
Capital expenditures for the last six months of 1997 are budgeted
at approximately $4 million. The Company plans to finance such expenditures
from existing working capital and bank borrowings secured by existing proved
oil and gas reserves. The Company's capital expenditure budget is continually
reviewed, and revised as necessary, based on perceived opportunities and
business conditions.
(c) Results of Operations
As noted above, the statement of operations for the three and six
month periods ended June 30, 1996 reflects the operations of New Venus only,
whereas the statement of operations for the same periods ended June 30, 1997
reflects the operations of New Venus prior to the combination date (May 21,
1997) and the operations of the combined entities subsequent to the
combination date. Variances are addressed in the following paragraphs by
significant operating captions.
Revenues and expenses were higher during 1997 due to the inclusion
of the combined entities subsequent to May 21, 1997 and new completed wells
in 1997. As reflected in the following table, both volumes and average
prices increased in 1997 compared to like periods in 1996.
1997 1996
----------------- ----------------
Sales Average Sales Average
Volume Prices Volume Prices
------- ------- ------ -------
Six Months Ended June 30
Gas (MCF) 138,574 $ 2.42 49,256 $ 1.80
Oil (BBLS) 23,299 $19.19 12,701 $17.71
Three Months Ended June 30
Gas (MCF) 112,342 $ 2.51 18,397 $ 1.68
Oil (BBLS) 18,188 $18.35 6,866 $17.14
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Three Months Ended June 30, 1997 and 1996
-----------------------------------------
The Company's net loss of $579,000 for the quarter ended June 30,
1997 compares to last year's net income of $80,000 for the same period.
This $659,000 variance is primarily attributable to a $91,000 increase in
exploration costs and a $514,000 increase in general and administrative
expense.
During the second quarter of 1997, total revenue increased by
$243,000. Oil and gas revenues increased by $457,000 primarily as a result
of six producing wells being completed in 1997 and the additional revenue
recorded from the properties acquired in the business combination of May
21, 1997. Oil field operation and management fees increased by $33,000 and
interest income and other increased by $14,000 primarily as a result of
the business combination.
Operations and maintenance of $172,000 for the quarter ended June 30,
1997, increased by $93,000 as a result of completing six producing wells
during 1997 and the operating expenses associated with the wells acquired
in the business combination. Operations and maintenance relative to oil
and gas revenues decreased to 28% compared with 52% for the quarter ended
June 30, 1996 as a result of initial deliveries from six new wells during
1997 with production levels significantly higher than operations and
maintenance expense on an equivalent unit basis as compared to the
Company's producing wells in 1996.
The Company's exploration costs of $102,000 for the quarter ended
June 30, 1997 increased $91,000 over the exploration costs of $11,000 for
the quarter ended June 30, 1996. This is due to the increase in
exploration activity in 1997 as compared to 1996.
For the quarters ended June 30, 1997 and 1996, general and
administrative expenses were $878,000 and $364,000, respectively. The
increase is due to the significant increase in exploration activity and
the Xplor and Lomak acquisitions. The 1997 exploration activities led to
the creation of nine new employee positions and the use of third party
engineering services and other professional consultants. The 1997 amount
also includes compensation expense related to stock options granted to a
director and costs in connection with the business combination.
Interest expense of $40,000 for the quarter ended June 30, 1997
compares with $2,000 for the quarter ended June 30, 1996. The increase is
due to the borrowing incurred during 1997 to fund drilling, completion and
exploration expenditures.
Six Months Ended June 30, 1997 and 1996
---------------------------------------
The Company's net loss of $1,699,000 for the six month period ended
June 30, 1997 compares with last year's net loss of $158,000 for the same
period. This $1,541,000 variance is primarily attributable to a $585,000
increase in exploration costs and a $905,000 increase in general and
administrative expense.
During the first six months of 1997, total revenue increased by
$270,000. Oil and gas revenues increased by $435,000 primarily as a result
of six wells being completed and producing in 1997 and the additional
revenue recorded from the properties acquired in the business combination
of May 21, 1997. Oil field operation and management fees increased by
$65,000 and interest income and other increased by $9,000 primarily as a
result of the business combination.
Operations and maintenance of $227,000 for the six months ended June
30, 1997 increased by $65,000 as a result of completing six producing
wells during 1997 and the operating expenses associated with the wells
acquired in the business combination. Operations and maintenance relative
to oil and gas revenues decreased to 30% compared with 51% for the six
month period ended June 30, 1996 as a result of initial deliveries from
six new wells during 1997 with production levels significantly higher than
operations and maintenance expense on an
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equivalent unit basis as compared to the Company's producing wells in 1996.
The Company's exploration costs of $601,000 for the six months ended
June 30, 1997 increased $585,000 over the exploration costs of $16,000 for
the six months ended June 30, 1996. This is due to exploration costs
totaling $470,000 and increased geological and geophysical costs related
to significantly increased exploration activity in 1997 as compared with
1996.
General and administrative expenses were $1,701,000 and $796,000 for
the six month periods ended June 30, 1997 and 1996, respectively. The
increase of $905,000 is due to the significant increase in exploration
activity plus the Xplor and Lomak acquisitions. The 1997 exploration
activities led to the creation of nine new employee positions and the use
of third party engineering services and other professional consultants.
The 1997 amount also includes compensation expense related to stock
options granted to a director and costs in connection with the business
combination.
Interest expense of $74,000 for the six month period ended June 30,
1997 compares with $3,000 for same period in 1996. The increase is due to
increased borrowings incurred during 1997 to fund drilling, completion and
exploration expenditures.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued FAS
No. 128, "Earnings Per Share", which establishes standards for computing
and presenting earnings per share. This Standard, effective for financial
statements issued for periods ending after December 15, 1997, replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share. The Company's basic and diluted earnings per share
computed using the requirements of FAS No. 128 are the same as the
Company's currently disclosed net income (loss) per common share.
Information Regarding Forward Looking Statements
The information contained in this Form 10-Q includes certain
forward-looking statements. When used in this document, such words as
"expect", "believes", "potential", and similar expressions are intended to
identify forward- looking statements. Although the Company believes that
its expectations are based on reasonable assumptions, it is important to
note that actual results could differ materially from those projected by
such forward-looking statements. Important factors that could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to, the timing and extent of changes in
commodity prices for oil and gas, the need to develop and replace
reserves, environmental risk, the substantial capital expenditures
required to fund its operations, drilling and operating risks, risks
related to exploration and development, uncertainties about the estimates
of reserves, competition, government regulation and the ability of the
Company to implement its business strategy.
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15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material litigation.
Item 2. Change in Securities
As described in Note 1 of Notes to Consolidated Financial Statements
included in Part I hereof, on May 21, 1997 the Company (then known as
Xplor Corporation) acquired certain assets and liabilities in exchange for
an aggregate of 7,663,644 shares of Common Stock and warrants to purchase
an additional 544,706 shares, exercisable until October 23, 2000, at $3.00
per share. Such shares and warrants were issued without registration under
the Securities Act of 1933 in reliance on the exemption provided under
Section 4(2) of such Act and Commission Regulation D. All such securities
were issued with restrictive legends to accredited investors who
represented that they were acquiring them for investment and not with a
view to the distribution thereof.
The bank loan agreement, filed as Exhibit 10-2 herewith, prohibits
the payment of dividends without the consent of the bank and requires the
Company to maintain a ratio of current assets to current liabilities of at
least 1.5 to 1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.2 Form of Warrant issued as partial consideration in
acquisition of the assets of The New Venus Exploration,
Inc. and the Lomak entities.(1)
10.1 Term Loan and Security Master Agreement between Venus
Development, Inc. and Stratum Group Energy Partners, L.P.
dated as of October 8, 1996, filed herewith.
10.2 Amended and Restated Loan Agreement between the Company and
Wells Fargo Bank as amended effective as of June 5, 1997,
filed herewith.
11.1 Statement re: computation of per share earnings for the six
months ended June 30, 1997 and 1996 (see Note 4 of Notes to
Consolidated Financial Statements).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
Current report on Form 8-K, dated June 5, 1997 and Form 8K/A
dated August 4, 1997, relating to the combination described in
Note 1 to the unaudited Consolidated Financial Statements
included herein.
_________________________
(1) Incorporated by reference from report on Form 8-K dated June 5, 1997.
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S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENUS EXPLORATION, INC.
Dated: August 19, 1997 BY: /s/ Eugene L. Ames, Jr.
-----------------------------------
Eugene L. Ames, Jr.
(Chief Executive Officer)
Dated: August 19, 1997 BY: /s/ Patrick A. Garcia
-----------------------------------
Patrick A. Garcia
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- ---------------------------------------------------------------
4.2 Form of Warrant issued as partial consideration in acquisition
of the assets of The New Venus Exploration, Inc. and the Lomak
entities.(1)
10.1 Term Loan and Security Master Agreement between Venus
Development, Inc. and Stratum Group Energy Partners, L.P. dated
as of October 8, 1996, filed herewith.
10.2 Amended and Restated Loan Agreement between the Company and
Wells Fargo Bank as amended effective as of June 5, 1997, filed
herewith.
11.1 Statement re: computation of per share earnings for the six
months ended June 30, 1997 and 1996 (see Note 4 of Notes to
Consolidated Financial Statements).
27.1 Financial Data Schedule.
_________________________
(1) Incorporated by reference from report on Form 8-K dated June 5, 1997.
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