1
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 March 31, 1998
-----------------------------
OR
[ ] 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 0-14334
-------------------------------------------
Venus Exploration, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3299127
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209
---------------------------------------------------------
(Address of principal executive offices)
(210) 930-4900
----------------------------------------------------
(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 May 14, 1998
----- ---------------------------
Common Stock $.01 par value 9,844,950 shares
1
2
VENUS EXPLORATION, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of 3
March 31, 1998 and December 31, 1997
(b) Consolidated Statements of Operations for 4
the three-month periods ended March 31,
1998, and March 31, 1997
(c) Consolidated Statements of Cash Flows 5
for the three-month periods ended
March 31, 1998, and March 31, 1997
(d) Notes to Consolidated Financial Statements 6
Item 2. - Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. - Quantitative and Qualitative Disclosures About 14
Market Risk
PART II. - OTHER INFORMATION
Item 2. - Changes in Securities 15
Item 6. - Exhibits and Reports on Form 8-K 15
Signatures 16
2
3
VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
------------ ------------
(UNAUDITED)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,709 $ 682
Trade accounts receivable and other 1,489 2,374
------------ ------------
TOTAL CURRENT ASSETS 3,198 3,056
OIL AND GAS PROPERTIES AND EQUIPMENT,
net (successful efforts method), at cost 9,198 9,101
OTHER PROPERTY AND EQUIPMENT, net 278 274
DEFERRED FINANCING COSTS,
at cost less accumulated amortization 370 377
DEFERRED COMPENSATION COSTS, net 328 --
OTHER ASSETS, at cost less accumulated amortization 121 123
------------ ------------
TOTAL ASSETS $ 13,493 $ 12,931
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 2,606 $ 3,080
Advances from interest owners 26 18
Other liabilities 160 227
Current maturities of long-term debt 900 500
------------ ------------
TOTAL CURRENT LIABILITIES 3,692 3,825
LONG-TERM DEBT 3,330 1,505
OTHER LONG-TERM LIABILITIES 25 27
------------ ------------
TOTAL LIABILITIES 7,047 5,357
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, par value of $.01;
5,000,000 shares authorized; none issued
and outstanding as of March 31, 1998
and December 31, 1997, respectively -- --
Common stock, par value of $.01;
30,000,000 shares authorized;
9,836,815 and 9,736,815
shares issued and outstanding as of
March 31, 1998 and December 31, 1997,
respectively 98 97
Additional paid-in capital 15,347 15,010
Retained earnings (deficit) (8,999) (7,533)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 6,446 7,574
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,493 $ 12,931
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
4
VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
(In thousands, except per share data)
OIL AND GAS REVENUES $ 941 $ 145
---------- ----------
EXPENSES
Production expense 441 54
Exploration expense, including dry holes 140 86
Impairment of oil and gas properties 715 432
Depreciation, depletion and amortization 341 29
General and administrative 701 636
---------- ----------
Total expenses 2,338 1,237
---------- ----------
Operating profit (loss) (1,397) (1,092)
---------- ----------
OTHER INCOME (EXPENSE)
Interest expense (82) (34)
Gain on sale of assets -- 1
Interest and other income 13 4
---------- ----------
(69) (29)
---------- ----------
Net earnings (loss) $ (1,466) $ (1,121)
========== ==========
Earnings (loss) per share,
Basic and diluted $ (.15) $ (.34)
========== ==========
Common shares and equivalents outstanding,
Basic and diluted 9,771 3,322
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
5
VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
(In thousands)
OPERATING ACTIVITIES
Net earnings (loss) $ (1,466) $ (1,121)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 397 79
Impairments, abandoned leases and
dry hole costs 715 470
Gain (loss) on sale of property and equipment -- (1)
Compensation expense for restricted stock and
stock options 9 151
Change in operating assets and liabilities:
Decrease (increase) in trade accounts
receivable and other 885 (115)
Increase (decrease) in trade accounts payable (474) 155
Increase (decrease) in advances from
interest owners 8 (254)
Decrease in other liabilities (67) --
----------- -----------
Net cash provided by (used in) operating activities 7 (636)
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (1,185) (806)
Net proceeds from sales of property and equipment -- 37
----------- -----------
Net cash used in investing activities (1,185) (769)
----------- -----------
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt
and revolving credit agreement 2,253 740
Principal payments on long-term debt (28) (32)
Deferred financing costs (20) --
----------- -----------
Net cash provided by financing activities 2,205 708
----------- -----------
INCREASE IN CASH AND EQUIVALENTS 1,027 (697)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 682 1,304
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,709 $ 607
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
6
VENUS EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended March 31, 1998 and 1997
1. Organization and Business Combination
Venus Exploration, Inc. (the "Company") is primarily engaged in the business
of exploring for, acquiring, developing and operating onshore oil and gas
properties in the United States. The Company's major areas of activity are
Texas, Oklahoma, Utah and West Virginia.
On May 21, 1997, the Company, 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. Simultaneously, the
Company acquired certain oil and gas properties of two wholly-owned affiliates
of Lomak Petroleum, Inc. ("Lomak"). In June 1997, Xplor changed its name to
Venus Exploration, Inc.
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. The consolidated financial statements
reflect the operations solely of the New Venus and predecessor entities for the
periods prior to May 21, 1997, whereas such financial statements reflect the
operations of the combined entities for the period subsequent to May 21, 1997.
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 1997 consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (the "Form 10-K").
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 of March 31, 1998 and the results of its operations for the three
months ended March 31, 1998 and 1997.
The results of operations for the three month period ended March 31, 1998
are not necessarily indicative of the results to be expected for the full year.
Certain amounts for the prior period have been reclassified in the
consolidated financial statements to conform to the current presentation.
6
7
3. Summary of Significant Accounting Policies
For a description of the accounting policies followed by the Company, refer
to the notes to the 1997 consolidated financial statements included in the
Company's report on Form 10-K.
4. Earnings (loss) Per Share
Basic net earnings (loss) per common share is computed by dividing net loss
by the weighted average number of common shares outstanding. Diluted earnings
(loss) per share is computed by assuming the issuance of common shares for all
dilutive potential common shares outstanding.
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" which changed the calculation and financial statement
presentation of earnings per share. Prior year earnings per share amounts have
been restated.
Earnings (loss) per share for the three month periods ended March 31, 1998
and 1997 are calculated based on 9,771,259 and 3,322,121 weighted average
shares outstanding, respectively.
The common stock issued in 1996 by Venus Energy PLC to capitalize Venus
Exploration, Inc. has been treated as outstanding to May 21, 1997 for purposes
of calculating earnings per share.
5. Long-Term Debt
Long-term debt consists of the following:
March 31, December 31,
1998 1997
--------- ------------
(In thousands)
Revolving credit due on June 30, 2000 $ 2,571 $ 500*
Subsidiary term loan due October 8, 2005 1,659** 1,505
-------- --------
$ 4,230 $ 2,005
======== ========
* Classified as a current liability.
** $900,000 is classified as a current liability.
Revolving Credit
In May 1997, the Company entered into a loan agreement establishing a
$20,000,000 revolving line of credit. In December 1997 this agreement was
restated and amended to increase the credit facility to $50,000,000 subject to
a borrowing base determined every six months by the bank based on the
Company's oil and gas reserves that secure the loan. Interest on related
borrowings is based on either of two methods at the option of the Company:
the bank's prime lending rate or LIBOR plus 1.75%. For balances
outstanding at March 31, 1998 the Company chose the bank's prime lending rate
(8.5% at March 31, 1998).
7
8
A commitment fee of 3/8 of one percent of the undrawn balance of the
borrowing base is payable quarterly. 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. As of March 31, 1998, the borrowing base was $5,250,000, and
the amount drawn by the Company was $2,571,000 resulting in an unused borrowing
base of $2,679,000.
Under the terms of the credit facility, the Company is required to maintain
specified levels of current ratio and tangible net worth. Among other matters,
the credit facility contains covenants which limit the incurrence of additional
indebtedness and restrict payments of dividends. At March 31, 1998, the
Company was either in compliance with, or had obtained waivers with respect to,
these covenants. In May 1998, the credit facility was amended whereby the
tangible net worth requirement was reduced from $7,500,000 to $5,250,000.
Subsidiary Term Loan
In October 1996, Venus Development, Inc. ("Development"), a wholly-owned
subsidiary, 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, Development could have borrowed up to approximately $2.6 million to
finance the development of specified oil and gas properties. Such borrowings
are subject to limitations based on the value of the proved reserves of the
properties. The borrowings are to be repaid over a period not to exceed five
years from the date of closing of the agreement.
Payments on borrowings under the agreement are based on 85 or 90 percent of
the net revenue, as defined in the agreement, from the secured properties,
depending on the value of the proved reserves of the secured properties
relative to the outstanding loan balance.
Under the agreement, Development is required to assign to the lender an
overriding royalty interest in the secured properties. Development also
granted warrants to the lender, subject to certain limitations. The estimated
fair values of the assigned royalty interests and the estimated fair value of
the warrants issued have been recorded as deferred financing costs and are
amortized as additional interest over the term of the agreement.
The lender has the right to purchase at competitive market prices all crude
oil or natural gas produced from or allocable to the secured properties
including, without limitation, all of the production attributable to
Development's net revenue interest in the secured properties, subject to the
rights of other working interest and royalty interest owners. The term of the
purchase and sale agreement extends seven years with three additional one-year
options.
Under the terms of the agreement, the loan cannot be prepaid prior to
October 1999 without the lender's approval. Presently the Company is
negotiating with the lender to terminate the term loan agreement. The Company
plans to fund part of the amount due the lender from its existing bank
revolving line of credit as it has the capability of adding the properties
presently pledged under the agreement to its collateral base under the line of
credit. Accordingly, $756,000 continues to be classified as a long term
liability at March 31, 1998. The balance of the amount due lender, $900,000,
has been classified as a current
8
9
liability pending final settlement with lender and developing further plans for
longer term financing.
The loan agreement requires, among other matters, maintenance of a minimum
working capital amount and collateral value to loan value coverage ratios.
Development was not in compliance with these requirements at March 31, 1998,
but the lender has waived these requirements to May 31, 1998.
6. Shareholders' Equity
Effective March 1, 1998 the Company awarded, under its existing incentive
plan, qualified stock options and restricted stock grants that vest over a
three-year period. The qualified stock options were issued to all employees.
The restricted stock grants (100,000 shares) were issued at no charge to two
key technical employees who are not officers of the Company. The Company will
recognize compensation expense for the value of the restricted stock grants
over the vesting period.
7. Accounting for Income Taxes
No provision for income taxes has been recorded for the periods ended March
31, 1998 and 1997 due to the losses recorded by the Company.
8. Hedging Transaction
The Company uses price swaps for production on properties pledged under the
term loan agreement discussed in Note 5 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 records gains and losses on these hedging instruments as
revenues when the related natural gas or oil production is recorded as revenue.
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. The commodity financial instruments not
only reduce the Company's exposure to declines in the market price of natural
gas and crude oil but 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 thousand British thermal units 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 March 31, 1998, quantities
hedged are 75,432 mmbtu's of natural gas and 26,379 barrels of oil. As of
March 31, 1998, the estimated fair value of the Company's swap positions was a
net receivable of approximately $51,000 based upon an estimate of what the
Company would receive if the contracts were liquidated. This financial swap
agreement expires December 31, 2001.
9
10
9. Commitments and Contingencies
The Company is involved in various claims and legal actions in the ordinary
course of business. Management believes the ultimate disposition of these
matters will not have a material effect on the financial statements.
10
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background of Business Combination and Basis of Presentation
On May 21, 1997, Venus Exploration, Inc. (the "Company"), 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. Simultaneously, the Company acquired certain oil and gas
properties of two wholly-owned affiliates of Lomak Petroleum, Inc. ("Lomak").
In June 1997, Xplor changed its name to Venus Exploration, Inc.
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. The consolidated financial statements reflect the
operations solely of New Venus and predecessor entities for the periods prior
to May 21, 1997, whereas such financial statements reflect the operations of
the combined entities for the period subsequent to May 21, 1997.
Liquidity and Capital Resources
(a) Liquidity
At March 31, 1998, the Company had a working capital deficit of $494,000
compared with a deficit of $769,000 at December 31, 1997, an increase in
working capital of $275,000. This increase is primarily attributable to an
increase in cash and equivalents due to an increase in long-term debt and a
decrease in accounts payable partially offset by a decrease in accounts
receivable and an increase in current maturities of long-term debt.
Net cash provided by operating activities during the three months ended
March 31, 1998, was $7,000, whereas $636,000 was used in operating activities
for the same three month period in 1997. During the first three months of
1998, the Company realized a net loss of $1,466,000. This compares with a net
loss of $1,121,000 for the first three months of 1997. These losses include
non cash expenses (impairments, depreciation, depletion and amortization, and
compensation expense for restricted stock and stock options) totaling
$1,121,000 for 1998 and $700,000 for 1997. Accounts receivable decreased in
the first three months of 1998 by $885,000 primarily due to the receipt of
monies for oil and gas sales.
During the first three months of 1998 the Company incurred capital
expenditures on oil and gas properties of $1,154,000 and $31,000 on other fixed
assets. During the same period in 1997, the Company had capital expenditures
of $806,000 and received proceeds for the sale of property and equipment of
$37,000.
For the three months ended March 31, 1998, $2,205,000 was provided by
financing activities consisting of $2,253,000 of proceeds from long-term debt
11
12
issued less $48,000 of repayments and deferred financing costs. This compares
with $708,000 provided by financing activities for the three month period ended
March 31, 1997. Of this amount, $740,000 was provided from the issuance of
long-term debt offset by repayments of $32,000.
(b) Capital Resources
Capital expenditures for the remainder of 1998 are budgeted at approximately
$5.9 million. The Company plans to finance such expenditures from bank
borrowings secured by existing proved oil and gas reserves and from additional
capital it plans to seek in 1998 through a placement of equity or debt in the
public or private markets. The Company's capital expenditure budget is
continually reviewed, and revised as necessary, based on perceived
opportunities and business conditions. Under the existing revolving credit
facility, the Company currently has a borrowing base of $5,250,000. As of May
15, 1998, the amount drawn by the Company was $3,226,000 resulting in an unused
borrowing base of $2,024,000.
On April 23, 1998, the Company received a proposal from Anadarko Petroleum
Corporation ("Anadarko") to drill a development well to be operated by Anadarko
in Freestone County, Texas, on a 704 acre unit in which the Company owns a
25.0% working interest. The Company's estimated share of drilling or dry hole
costs is $180,100 and its estimated share of completed well costs is $348,475.
Anadarko has recently completed a nearby gas well and is currently drilling a
second well nearby. If the proposed well is successful, Anadarko may propose
subsequent development wells to be drilled in 1998 on the Company's acreage.
The Company is currently evaluating the economics of the proposed development
program prior to making an election whether or not to participate.
(c) Results of Operations
As noted above, the consolidated statement of operations for the three month
period ended March 31, 1997 reflects the operations of New Venus only, whereas
the consolidated statement of operations for the same period ended March 31,
1998 reflects 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 1998 due to the inclusion of the
combined entities subsequent to May 21, 1997 and wells completed during the
last 12 months. As reflected in the following table, oil and gas volumes and
average gas prices increased while average oil prices decreased in 1998
compared with like periods in 1997.
Three Months Ended March 31,
-----------------------------------------------
1998 1997
--------------------- ---------------------
Sales Average Sales Average
Volume Prices Volume Prices
-------- -------- -------- --------
Gas (MCF) 144,580 $ 2.39 26,232 $ 1.85
Oil (BBLS) 37,161 $ 15.55 5,417 $ 18.04
12
13
The average oil and gas prices reflect the effect of price hedging. The
Company only hedges oil and gas volumes as required under its term loan
agreement (see Note 5 of Notes to Consolidated Financial Statements).
Accordingly, the Company has not entered into any new hedging contracts since
December 1996. Because production volumes have increased significantly over
the past twelve months, the effect of hedges maturing during the first quarter
of 1997, which negatively impacted prices, was significantly higher relative to
volumes reported during that period than the effect of the hedges maturing
during the first quarter 1998. In 1997 approximately 55% of the oil volumes
and 22% of the gas volumes were hedged. In 1998 approximately 6% of the oil
volumes and 5% of the gas volumes were hedged. In 1997, as a result of the
hedge, oil prices were lower by approximately $3 per barrel and gas prices were
lower by approximately $0.20 per thousand cubic feet. In 1998, as a result of
the hedge, oil prices were higher by approximately $0.20 per barrel and gas
prices were unaffected.
First quarter 1998 was significantly impacted by lower oil prices because
most of the Company's significant increase in volumes were subject to current
market prices which averaged approximately $5.60 per barrel lower than first
quarter 1997 market prices. This was partially offset by an increase in
average gas prices of approximately $0.30 per thousand cubic feet. The net
impact on revenue during the first quarter 1998 was a decrease of approximately
$140,000.
Three Months Ended March 31, 1998 and 1997
The Company's net loss of $1,466,000 for the quarter ended March 31, 1998
compares with last year's net loss of $1,121,000 for the same period. This
$345,000 variance is primarily attributable to an increase in oil and gas sales
which was more than offset by increases in expenses.
For the first quarter of 1998, oil and gas revenues increased by $796,000
primarily as a result of nine producing wells completed and brought on stream
after March 31, 1997 and the additional revenue recorded from the properties
acquired in the business combination of May 21, 1997. Oil and gas sales for
the three months ended March 31, 1998 include a $6,000 gain on hedging
instruments.
Production expenses of $441,000 for the quarter ended March 31, 1998,
increased by $387,000 as a result of nine producing wells completed and brought
on stream during the past twelve months and the operating expenses associated
with the wells acquired in the business combination. Direct operating expenses
relative to oil and gas revenues increased to 47% compared with 37% for the
quarter ended March 31, 1997 primarily as a result of lower product prices.
Also contributing to this increase is the relatively higher operating cost
associated with mature, nonoperated properties acquired in the business
combination. This was partially offset by deliveries from the nine new wells
which have higher production levels and lower operations and maintenance
expense on an equivalent unit basis as compared with the Company's producing
wells in 1997.
Impairment of oil and gas properties increased from $432,000 for the first
three months of 1997 to $715,000 for the same period of 1998. The Company
recognized increased impairments in 1998 due in part to the significant
decrease in oil prices. In addition, the Company experienced a revision in
reserves on one of its fields based on the results of a recently completed
well.
13
14
Depreciation, depletion and amortization expense for the three months ended
March 31, 1998 was $341,000, an increase of $312,000 over the same period in
1997 as the result of wells acquired in the business combination and new wells
completed over the past 12 months.
For the three month periods ended March 31, 1998 and 1997 the Company
recognized $9,000 and $151,000 of compensation expense for restricted stock and
stock options, respectively.
Recent Accounting Pronouncements
On January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and displaying
of comprehensive income and its components. This statement requires a separate
statement to report the components of comprehensive income for each period
reported. The provisions of this statement are effective for fiscal years
beginning after December 15, 1997. Adoption of FAS No. 130 did not have an
impact on the Company's financial presentation of income.
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 and to raise the necessary capital for such
implementation. See Item 1 "Business - Forward Looking Statements" and "- Risk
Factors" in the Form 10-K for additional information about the Company's risks.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Excluded as provided by Item 305(e) of Regulation S-K.
14
15
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Effective March 1, 1998, the Compensation Committee of the Board of
Directors of the Company approved the issuance of 100,000 shares of
the Company's Common Stock and 202,500 options to acquire shares of
the Company's Common Stock. Those securities were issued pursuant to
the Company's 1997 Incentive Plan that was previously approved by the
Company's shareholders. The shares of Common Stock were granted
to two senior non-executive employees of the Company. The options
were granted to substantially all of the Company's officers,
employees and consultants.
The securities were issued as compensation to the various
recipients, all of whom provide important services to the Company.
The Company considers these issuances of securities to be private
placements and exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) of the Act.
All the securities are subject to a 3-year vesting period and the
continued employment with, or services to, the Company. A third of
the securities issued to each of the recipients vests at the end of
each of the three years following the effective date of issuance.
With certain exceptions, the exercise price for the options is
$3.375, and the term of the options is ten years. The exceptions
apply to 72,000 options granted to E.L. Ames, Jr., John Y. Ames, and
Eugene L. Ames III, and the exercise price for their options is $3.75,
and their term is five years.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re: computation of per share earnings for the three
months ended March 31, 1998 and 1997 (see Note 4 of Notes to
Consolidated Financial Statements).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
16
SIGNATURES
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: May 20, 1998 BY: /s/ Eugene L. Ames, Jr.
---------------------------------
Eugene L. Ames, Jr.
(Chief Executive Officer)
Dated: May 20, 1998 BY: /s/ Patrick A. Garcia
------------------------------------
Patrick A. Garcia
(Principal Accounting Officer)
16
17
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------------------------------------------------------------------------------
11.1 Statement re: computation of per share earnings for the three months ended March 31,
1998 and 1997 (see Note 4 of Notes to Consolidated Financial Statements).
27.1 Financial Data Schedule
17