1
FORM 8-K/A
AMENDMENT NO. 1
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 20, 1997
----------------------
MIDDLE BAY OIL COMPANY, INC.
(Exact name of registrant as specified in its charter)
FILE NO. 0-21702
(Commission File Number)
ALABAMA 63-1081013
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
115 SOUTH DEARBORN STREET, MOBILE, AL 36602
(Address of principal executive offices)
(334) 432-7540
(Registrant's telephone number, including area code)
N/A
-------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
This Form 8-K/A amends the Current Report on Form 8-K of Middle Bay Oil Company,
Inc. (the "Registrant") filed with the Securities and Exchange Commission on
June 20, 1997 to provide financial statements and financial information with
respect to the merged corporation.
2
ITEM 7- FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements of Business Acquired
Annual Financial Statements:
Report of Independent Auditors
Audited Consolidated Balance Sheets as of December 31, 1995 and 1996
Audited Consolidated Statements of Operations for the Years
Ended December 31, 1995 and 1996
Audited Consolidated Statements of Changes in Stockholders
Equity for the Years Ended December 31, 1995 and 1996
Audited Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995 and 1996
Notes to Audited Consolidated Financial Statements
Interim Financial Statements (unaudited):
Consolidated Balance Sheet as of June 30, 1997
Consolidated Statements of Operations for the six months
and three months ended June 30, 1996 and 1997
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1997
Notes to Consolidated Financial Statements
(b) Unaudited Pro Forma Financial Information
Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1996
Pro Forma Combined Statement of Operations for the
Six Months Ended June 30, 1997
Notes to Pro Forma Combined Financial Statements
(c) Exhibits
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.2 Consent of De Golyer and MacNaughton, Independent Petroleum
Engineers
23.3 Consent of Ryder Scott Company, Independent Petroleum Engineers
3
[KPMG LOGO]
SHORE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITOR'S
REPORT THEREON)
4
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Report
The Board of Directors
Shore Oil Company:
We have audited the accompanying consolidated balance sheets of Shore Oil
Company and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Shore Oil Company
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG PEAT WARWICK LLP
Houston, Texas
April 18, 1997
(except as to note 12,
which is as of August 26, 1997)
5
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
Assets 1996 1995
----------- ----------
Current assets:
Cash and cash equivalents $ 1,272,047 751,438
Accounts receivable:
Trade 921,341 672,189
Other 286,426 221,353
Production imbalances 102,433 27,840
Income taxes receivable 75,000 100,000
Prepaid expenses and other 178,038 9,182
----------- ----------
Total current assets 2,835,285 1,782,002
----------- ----------
Property and equipment:
Oil and gas properties, full cost method 9,012,341 8,269,138
Other property and equipment 38,576 32,906
Less accumulated depreciation, depletion and amortization (4,895,226) (3,902,269)
----------- ----------
Net property and equipment 4,155,691 4,399,775
Investment in Strand SE Share Partners, Ltd. 174,141 -
Deferred financing costs, net of accumulated
amortization of $33,983 and $13,729 at December 31, 1996 and 1995 25,318 45,573
Other assets 78,561 192,033
----------- ----------
$ 7,268,996 6,419,383
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 1,008,970 1,078,777
Current installments of long-term debt - 840,000
----------- ----------
Total current liabilities 1,008,970 1,918,777
Notes payable, stockholders 2,333,303 2,333,303
Long-term debt, excluding current installments 2,105,000 2,000,000
Deferred taxes 438,410 -
----------- ----------
Total liabilities 5,885,683 6,252,080
----------- ----------
Stockholders' equity:
Common stock, $1 par value. Authorized 100,000 shares;
8,172 shares issued and outstanding at December 31, 1996,
8,472 shares issued and outstanding at December 31, 1995 8,172 8,472
Preferred stock, $.01 par value. Authorized 5,100,000 shares;
5,075,556 shares issued and outstanding at December 31,
1996 and 1995 50,756 50,756
Additional paid-in capital 9,172,362 9,222,062
Accumulated deficit (7,847,977) (9,113,987)
----------- ----------
Total stockholders' equity 1,383,313 167,303
Commitments and contingencies
----------- ----------
$ 7,268,996 6,419,383
=========== ==========
See accompanying notes to consolidated financial statements.
6
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1995
1996 1995
----------- ----------
Revenues:
Oil and gas sales $ 4,956,067 3,066,692
Lease bonus and delay rental income 666,237 525,409
----------- ----------
Total revenues 5,622,304 3,592,101
----------- ----------
Costs and expenses:
Production costs 1,686,060 1,313,765
General and administrative 641,560 671,342
Depreciation, depletion and amortization 1,018,024 811,395
----------- ----------
Total costs and expenses 3,345,644 2,796,502
----------- ----------
Other income (expense):
Interest expense (345,477) (343,478)
Other income 156,544 184,238
----------- ----------
Total other income (expense) (188,933) (159,240)
----------- ----------
Income before taxes 2,087,727 636,359
Income tax expense:
Current 383,307 142,802
Deferred 438,410 --
----------- ----------
821,717 142,802
----------- ----------
Net income $ 1,266,010 493,557
=========== ==========
See accompanying notes to consolidated financial statements.
7
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
years ended december 31, 1996 and 1995
Additional Total
Common stock Preferred stock paid-in Accumulated stockholders'
Shares Amount Shares Amount capital deficit equity
------ ------- --------- ------- ----------- ----------- -----------
Balances at December 31, 1994 8,750 $ 8,750 4,568,000 $45,680 $ 8,995,528 $(9,607,544) $ (557,586)
Issuance of common stock 972 972 -- -- -- -- 972
Exchange of stockholder debt
and common stock (1,250) (1,250) -- -- 226,534 -- 225,284
Issuance of preferred stock -- -- 507,556 5,076 -- -- 5,076
Net income -- -- -- -- -- 493,557 493,557
------ ------- --------- ------- ----------- ----------- -----------
Balances at December 31, 1995 8,472 8,472 5,075,556 50,756 9,222,062 (9,113,987) 167,303
Redemption of common stock (300) (300) -- -- (49,700) -- (50,000)
Net income -- -- -- -- -- 1,266,010 1,266,010
------ ------- --------- ------- ----------- ----------- -----------
Balances at December 31, 1996 8,172 $ 8,172 5,075,556 $50,756 $ 9,172,362 $(7,847,977) $ 1,383,313
====== ======= ========= ======= =========== =========== ===========
See accompanying notes to consolidated financial statements.
8
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
1996 1995
----------- ----------
Cash flows from operating activities:
Net income $ 1,266,010 493,557
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,018,024 811,395
Provision for deferred income taxes 438,410 --
Change in assets and liabilities:
Increase in accounts receivable (314,225) (615,214)
Increase in production imbalances receivable (74,593) (87,840)
Decrease (increase) in income taxes receivable 25,000 (216,056)
(Increase) decrease in prepaid expenses and other (168,856) 47,831
Decrease (increase) in other assets 113,472 (163,620)
(Decrease) increase in accounts payable and accrued expenses (69,807) 616,520
Decrease in income taxes payable -- (113,807)
Other -- 17,388
----------- ----------
Net cash provided by operating activities 2,233,435 790,154
----------- ----------
Cash flows from investing activities:
Additions to oil and gas properties (994,414) (3,703,922)
Additions to other property and equipment (5,670) --
Investment in Strand SE Share Partners Ltd. (174,141) --
Proceeds from sale of oil and gas properties 246,399 7,478
----------- ----------
Net cash used in investing activities (927,826) (3,696,444)
----------- ----------
Cash flows from financing activities:
Payments on notes payable, stockholders -- (260,000)
Payments on long-term debt (735,000) (660,000)
Proceeds from long-term debt -- 3,500,000
Stock repurchase (50,000) --
Payments for deferred financing costs -- (59,302)
----------- ----------
Net cash (used in) provided by financing activities (785,000) 2,520,698
----------- ----------
Net increase (decrease) in cash and cash equivalents 520,609 (385,592)
Cash and cash equivalents at beginning of year 751,438 1,137,030
----------- ----------
Cash and cash equivalents at end of year $ 1,272,047 751,438
=========== ==========
Supplemental information on noncash investing and financing
activities (see note 3)
See accompanying notes to consolidated financial statements.
9
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
(1) ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Shore Oil Company (the Company or Shore) is an independent energy company
engaged in the exploration for and acquisition, development and
production of oil and gas. The Company's principal areas of activity
include Louisiana, Texas, Alabama and Mississippi.
Effective July 10, 1990, Monticello Acquisition Corp. (MAC) entered into
a merger agreement (the Merger) with Monticello Energy, Inc., Paramount
Petroleum Co., Inc. (Paramount Petroleum) and the stockholders of
Paramount Petroleum to acquire substantially all of the assets and
operations of the corporations and the investment of the Managing
Venturer (as defined) status, owned by the stockholders of Paramount
Petroleum in a joint venture known as Paramount Petroleum Co., Joint
Venture II. Upon the closing of the Merger and effective December 10,
1990, MAC changed its name to Paramount Petroleum Co., Inc. (the
surviving company). Pursuant to a management reorganization and sale of
assets effective February 1, 1992, Paramount Petroleum Co., Inc. changed
its name to Shore Oil Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
OIL AND GAS PROPERTIES
The Company uses the full-cost method of accounting for exploration and
development activities. Under this method of accounting, the costs for
unsuccessful as well as successful exploration and development activities
are capitalized as property and equipment. The cost of oil and gas
properties plus estimated future development costs are amortized using
the unit-of-production method based on the ratio of current production to
proved oil and gas reserves as estimated by independent petroleum
engineers.
Dispositions of oil and gas properties are recorded as adjustments to
capitalized costs, with gains or losses recognized only when such
adjustments would significantly alter the relationship between
capitalized costs and proved oil and gas reserves. To the extent that
capitalized costs of oil and gas properties, net of accumulated
depreciation, depletion and amortization, exceed the estimated after-tax
present value of future net cash flows of proved oil and gas reserves
plus the lower of cost or estimated fair market value of unevaluated
properties, such excess costs would be charged to current expense. No
such write-downs were necessary in 1996 or 1995.
OTHER PROPERTY AND EQUIPMENT
Other property and equipment is recorded at cost and consists of
furniture, fixtures, computer equipment and purchased software.
Depreciation and amortization are provided over useful lives of three to
five years.
(Continued)
10
2
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company follows the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company files a U.S. consolidated federal income tax return which
reflects all entities included in the consolidated financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
PRODUCTION IMBALANCES
The Company uses the entitlement method for recording sales of natural
gas. Under the entitlement method of accounting, revenue is recorded
based on the Company's net revenue interest in production. Deliveries of
natural gas in excess of the Company's net revenue interest are recorded
as liabilities and under-deliveries are recorded as assets. Production
imbalances are recorded at the lower of the sales price in effect at the
time of production or the current market value. At December 31, 1996 and
1995, the Company had a receivable due to gas sales less than its
entitled share of $102,433 and $27,840, respectively. Such amounts are
anticipated to be primarily settled with production in future periods.
DEFERRED FINANCING COSTS
The costs related to the issuance of debt are capitalized and amortized
using the straight-line method over the terms of the related debt.
INVESTMENT IN STRAND SE SHARE PARTNERS, LTD.
In April 1996, the Company entered into a Joint Venture Program (the
Program) with Strand Energy, L.C. (Strand) to participate in property
acquisition/exploitation projects developed by Strand in West and South
Texas. The Company will fund 10% of Strand's general and administrative
expenses, subject to certain limitations, in exchange for an option to
participate on a nonpromoted basis for at least 10% of all projects for a
two-year period ending March 31, 1998. During the year ended December 31,
1996, the Company funded $36,051 of Strand's general and administrative
expenses under the Program, which were capitalized to Oil and Gas
Properties on the Company's balance sheet.
(Continued)
11
3
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 20, 1996, the Company executed an agreement with Dolomite
Resources, Inc. (Dolomite) (an affiliate of Strand) whereby the Company,
through one of its subsidiaries, agreed to participate with Strand,
Dolomite and certain other third parties in the acquisition and
development of the Southeast Share Waterflood Project, Ochiltree County,
Texas. The Company, through its participation in the Program, will have a
40% interest in a limited partnership (Strand SE Share Partners, Ltd.)
which will own a 50% general partner interest in a limited partnership
(SE Share, L.P.) which will hold title to the property. Financing for a
substantial portion of the project will be provided by an affiliate of
EnCap Investments, L.C., which will be a Limited Partner in SE Share,
L.P. The EnCap financing is secured by the Southeast Share Waterflood
Project property and is nonrecourse to the Company. At December 31, 1996,
the Company's investment in Strand SE Share Partners, Ltd. was $174,141,
and is accounted for under the equity method of accounting.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities, and oil and gas reserve information
which affects the depletion calculation as well as the computation of the
full cost ceiling limitation, to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications of prior period statements have been made to
conform with current reporting practices.
(3) SUPPLEMENTAL INFORMATION ON NONCASH
INVESTING AND FINANCING ACTIVITIES
INCLUDING RELATED PARTY TRANSACTIONS
During April 1995, a stockholder released the Company from two notes
totaling $590,000 plus accrued interest and returned 1,250 shares of
common stock to the Company for payment of $260,000. Additional paid-in
capital of $342,590, net of income taxes of $116,056, was recorded which
included interest of approximately $12,590.
On April 26, 1995, the Company entered into bonus agreements with its
president and vice-president (the Management) whereby Shore agreed to pay
to Management an amount equal to 5% each of all amounts of principal
and/or interest paid on the stockholders' notes at the same time as any
such payment on the stockholders' notes is made. Management shall not be
entitled to any payments unless and until the Company makes a payment of
principal and/or interest under any stockholders' notes.
In 1995, the Company also issued to each its president and vice president
486 shares of Shore's common stock and 253,778 shares of the Company's
Series A preferred stock. As a result, the Management members each hold
5% of the preferred stock and 5.95% of the common stock of Shore.
(Continued)
12
4
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1996, the Company purchased and retired 300 shares of its own
common stock from a stockholder. The total purchase price of $50,000 was
recorded as a reduction in common stock and additional paid-in capital.
1996 1995
--------- -------
Additional supplemental disclosures:
Interest paid $ 497,372 192,416
========= =======
Income taxes paid $ 558,690 406,619
========= =======
(4) LONG-TERM DEBT
In April 1995, the Company entered into a credit facility with Wells
Fargo Bank, N.A. (the Bank). The Wells Fargo Credit Facility, dated April
27, 1995 is a $20,000,000 revolving credit commitment (the Commitment)
extended for the purpose of financing producing property acquisitions. In
an amendment to the Commitment dated November 15, 1996, the Company and
the Bank made the following changes to the Commitment: the borrowing base
under the Commitment was increased to $4,650,000, the interest payable
date was changed to quarterly installments due on the last day of March,
June, September and December, the bank granted a one time waiver allowing
the repurchase of a stockholder stock (see note 3), and the bank granted
a one time waiver allowing the Company to pay accrued interest as of
December 31, 1996, totaling $291,893, on the stockholder notes payable
(see note 5). The Commitment matures on April 1, 1998 and interest is
payable at .75% over the Bank's prime rate (9% at December 31, 1996).
Current maturities of the Wells Fargo Credit Facility at December 31,
1996 and 1995 amount to $-0- and $840,000, respectively.
Collateral for the Wells Fargo Credit Facility consists of substantially
all of Shore's oil and gas producing properties, including the properties
acquired in the transaction discussed in note 9. Under the Wells Fargo
Credit Facility, the Company is subject to certain financial covenants
and restrictions on stockholders' note payments, dividends, additional
debt financing and asset dispositions. The Company was in compliance with
financial covenants at December 31, 1996.
The aggregate amounts of long-term debt and stockholder notes payable
(see note 5) maturing for the next two years are as follows:
1997 $ --
1998 4,438,303
----------------
Total $ 4,438,303
================
(5) NOTES PAYABLE, STOCKHOLDERS
During April 1995, the Company reached an agreement with a stockholder
whereby the stockholder would release the Company from two notes totaling
$590,000 plus accrued interest and return 1,250 shares of stock to the
Company for payment of $260,000. The debt forgiveness was recorded as an
increase to additional paid-in capital of $226,534, net of income taxes
of $116,056, and included interest of approximately $12,590.
(Continued)
13
5
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective December 1, 1994, the Company restructured stockholder notes of
$6,901,303 through an exchange of preferred stock and issuance of new
notes. Total stockholder debt of $4,568,000 was exchanged for 4,568,000
shares of $.01 par value preferred stock, for an exchange price of $1.00
per share. The preferred stockholders have no voting rights and dividends
are paid at the sole discretion of the board of directors of the Company.
In addition, the Company issued the stockholders new notes in the amount
of $2,333,303. The due date of the notes was originally December 31, 1995
provided that the stockholders give the Company 60 days written notice
that the notes will be called. If 60 days written notice is not given,
the notes automatically renew and the due dates extend for one year. At
December 31, 1996, this notice had not been given, and the notes extended
to December 31, 1997. The interest rate on the notes is 6%. In connection
with the Wells Fargo Credit Facility, the stockholders' notes (including
accrued interest) cannot be repaid prior to the retirement of all
obligations under the Wells Fargo Credit Facility; therefore, at December
31, 1996, the stockholder notes are classified as long-term.
(6) INCOME TAXES
Income tax expense for the years ended December 31, 1996 and 1995
consists of the following:
1996 1995
-------- -------
Federal:
Current $360,219 20,271
Deferred 382,203 --
-------- -------
742,422 20,271
-------- -------
State:
Current 23,088 122,531
Deferred 56,207 --
-------- -------
79,295 122,531
-------- -------
Total income tax expense $821,717 142,802
======== =======
For the year ended December 31, 1996, differences between income tax
expense computed at the federal statutory rate of 34% and the effective
tax rate for financial reporting purposes of 39% were attributable to tax
depletion in excess of basis and state income taxes.
For the year ended December 31, 1995, differences between income tax
expense computed at the federal statutory rate of 34% and the effective
rate for financial reporting purposes of 22%, were attributable to tax
depletion in excess of basis, state income taxes and the change in the
valuation allowance on deferred tax assets.
(Continued)
14
6
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 1996 are
presented below.
Deferred tax liabilities:
Oil and gas property and equipment, principally
due to differences in depletion, depreciation
and amortization and intangible drilling costs $ 419,019
Gas imbalances 10,858
Other 8,533
---------
Total deferred tax liabilities $ 438,410
=========
The net change in the total valuation allowance for the years ended
December 31, 1996 and 1995 was a decrease of $-0- and $423,805,
respectively.
(7) COMMITMENTS AND CONTINGENCIES
At December 31, 1996, future minimum rental payments for operating leases
with noncancelable lease terms in excess of one year were as follows:
1997 $ 39,476
1998 20,035
1999 3,186
--------
Total minimum lease payments $ 62,697
========
Operating lease net rental expense was approximately $42,573 and $37,176
for the years ended December 31, 1996 and 1995, respectively.
(8) OTHER RELATED PARTY TRANSACTIONS
During 1995, the Company entered into participation agreements with three
affiliates (the Company's president, vice president and an independent
landman contractor) of the Company. Although no formal note documents
exist, payment terms of the receivables related to the participation
agreements mirror the terms of the Wells Fargo Credit Facility discussed
in note 4. A receivable balance of $96,508 and $96,750 is recorded in
accounts receivable-other representing the current portion at December
31, 1996 and 1995, respectively, and $76,468 and $161,527 is recorded in
other assets representing the long-term portion at December 31, 1996 and
1995, respectively.
(Continued)
15
7
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective December 31, 1996, Shore Exploration and Production Co. (SEPCO,
a wholly-owned subsidiary of the Company), acting as general partner and
with the approval of the limited partners, dissolved Paramount
Exploration 1990, L.P. (the 1990 L.P.), which was carried as an equity
investment on the Company's financial statements. In connection with the
dissolution, the assets of the 1990 L.P. were sold to various third
parties for total proceeds, net of adjustments and selling expenses, of
approximately $401,000. Subsequent to the sale, and after payment of all
liabilities, the remaining cash was distributed to the partners on
December 23, 1996. The net distribution received by the Company in
connection with the dissolution was $6,111, which was netted against the
Company's investment in the 1990 L.P. The balance of the Company's
remaining investment in the 1990 L.P., which totaled $17,489, was charged
against Other Income on the Company's consolidated statement of
operations. Prior to December 31, 1996, SEPCO held a 1% general partner
interest in and directed the activities of the 1990 L.P. SEPCO's
investment in the 1990 L.P. was accounted for under the equity method and
was included in Other Assets on the Company's consolidated balance sheet.
(9) PURCHASE AND SALE OF PROPERTIES AND
RELATED TRANSACTIONS
On April 28, 1995, effective July 1, 1994, the Company closed the
purchase of working interests in certain producing properties in
Louisiana and Mississippi for total consideration of $3,481,091.
Financing for the acquisition was through the Wells Fargo Credit Facility
(see note 4).
On November 8, 1995, effective September 1, 1995, the Company closed the
purchase of a 45% working interest in the East Lake Arthur Field,
Jefferson Davis Parish, Louisiana for total consideration of $82,100. The
acquisition was funded from the Company's existing cash reserves.
(10) FUTURE OPERATIONS OF THE COMPANY
Future activities of Shore will be concentrated on new growth oriented
business activities; that growth is being accomplished by (1) pursuing
producing property acquisitions with a focus on the Gulf Coast area, (2)
managing the company's south Louisiana mineral acreage with a specific
focus on generating 3-D seismic activity, (3) continuing to manage
Shore's existing properties with an emphasis on additional development
activities and high grading the reserve base through selected property
sales, and (4) participation in selected moderate risk, lower cost
exploration and development drilling.
(Continued)
16
8
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) CREDIT RISK
The Company has a concentration of trade receivables due from major
integrated and independent oil and gas companies, and to a lesser extent
interstate pipeline companies. These concentrations of customers may
affect the Company's overall credit risk in that certain customers may be
similarly affected by changes in economic, regulatory, or other factors.
Trade receivables are generally not collateralized; however, the Company
analyzes customers' credit position prior to extending credit.
(12) SUBSEQUENT EVENTS
On June 30, 1997, the Company was acquired by a subsidiary of Middle Bay
Oil Company, Inc. (Middle Bay) for a purchase price of $19.1 million. The
$19.1 million purchase price was comprised of the following: 1,833,333
shares of Middle Bay Common Stock, with a fair value totaling
approximately $12,976,000; 266,667 shares of Middle Bay Series B
Preferred Stock, with a fair value of approximately $3,627,000; 388,833
shares of Middle Bay Series A Preferred Stock, with a fair value of
approximately $2,333,000; and cash consideration totaling $200,000.
(13) SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES (UNAUDITED)
The following is historical revenue and cost information relating to the
Company's oil and gas operations located in Louisiana, Texas, Alabama,
Arkansas, and Mississippi:
Capitalized Costs Related to Oil and Gas Producing Activities
1996 1995
---------- ----------
Proved Properties $8,568,652 $8,119,592
Accumulated depreciation, depletion and
amortization (4,866,740) (3,876,438)
---------- ----------
Proved properties, net $3,701,912 $4,243,154
========== ==========
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION AND DEVELOPMENT
ACTIVITIES
1996 1995
---------- ----------
Acquisition $ - $3,028,517
Development 695,457 593,405
========== ==========
Total $ 695,457 $3,621,922
========== ==========
(Continued)
17
9
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The following schedule sets forth the revenues and expenses related to
the production and sale of oil and gas. The income tax expense is
calculated by applying the current statutory tax rates to the revenues
after deducting costs, which include depreciation, depletion and
amortization allowances. The results of operations exclude general office
overhead and interest expense attributable to oil and gas production.
1996 1995
---------- ----------
Revenues $4,956,067 $3,066,692
Production Costs 1,686,060 1,313,765
Depletion 990,306 794,431
---------- ----------
2,279,701 958,496
Income tax expense 775,098 325,889
---------- ----------
Results of operations from
producing activities $1,504,603 $ 632,607
========== ==========
OIL AND GAS RESERVES
The following table presents estimated volumes of proved and proved
developed oil and gas reserves, prepared by independent reserve
engineers, Ryder Scott Company and DeGolyer and MacNaughton, as of
December 31, 1996 and 1995 and changes in proved reserves during the last
two years, assuming continuation of economic conditions prevailing at the
end of each year. Volumes for oil are stated in barrels, volumes for
natural gas are stated in thousands of cubic feet (mcf), and volumes for
natural gas liquids are included in oil volumes and stated in barrels.
The weighted average prices at December 31, 1996 used for reserve report
purposes are $24.03 and $3.99 for oil and gas reserves, respectively,
which have subsequently declined.
The Company emphasizes that the volumes of reserves shown below are
estimates which, by their nature, are subject to revision. The estimates
are made using all available geological and reservoir data, as well as
production performance data. Those estimates are reviewed annually and
revised, either upward or downward, as warranted by additional
performance data.
1996 1995
---------------------- ----------------------
Oil Gas Oil Gas
-------- ---------- -------- ----------
Proved Reserves:
Beginning of the year 797,822 2,282,434 542,783 882,187
Purchase of oil and gas
reserves in place -- -- 283,861 1,281,000
Extensions, discoveries
and other additions -- -- 43,383 38,000
Revisions of prior
reserve estimates 27,385 2,625,687 55,846 598,277
Current production (152,898) (640,790) (128,051) (517,030)
-------- ---------- -------- ----------
End of the year 672,309 4,267,331 797,822 2,282,434
======== ========== ======== ==========
Proved developed reserves 637,189 1,740,806 797,822 2,282,434
======== ========== ======== ==========
(Continued)
18
10
SHORE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DISCOUNTED FUTURE NET CASH FLOWS
Estimates of future net cash flows from proved oil and gas reserves were
made in accordance with Statement of Financial Accounting Standards No.
69, "Disclosures about Oil and Gas Producing Activities." The following
tables present the estimated future cash flows, and changes therein, from
the Company's proved oil and gas reserves as of December 31, 1996 and
1995, assuming continuation of economic conditions prevailing at the end
of each year.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES
1996 1995
------------ ------------
Future cash inflows 33,327,430 $ 18,422,613
Future development costs (1,121,420) (245,494)
Future production costs (6,599,767) (6,926,844)
Future production taxes (1,743,192) (1,514,694)
------------ ------------
Future net cash flows before
income taxes 23,863,051 9,735,581
10% annual discount for estimated timing
of cash flows (5,965,988) (2,272,283)
------------ ------------
Discounted future net cash flows 17,897,063 7,463,298
Future income taxes, net of 10%
annualized discount (5,040,794) (1,103,469)
------------ ------------
Standardized measure of discounted future
net cash flows $ 12,856,269 $ 6,359,829
============ ============
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
1996 1995
----------- -----------
Sales and transfers of oil and gas
produced, net of production costs $(3,270,007) $(1,752,927)
Net changes in prices and development
and production costs 7,222,118 735,372
Acquisitions of oil and gas reserves
in place, less related production costs -- 3,997,502
Revisions of previous quantity estimates,
less related production costs 6,437,297 534,874
Extensions, discoveries and improved
recovery, less related production costs -- 527,152
Accretion of discount 746,330 289,295
Net change in income taxes (3,937,325) (725,139)
Other (701,973) 239,082
----------- -----------
Total change in standardized measure of
discounted future net cash flows $ 6,496,440 $ 3,845,211
=========== ===========
19
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1997 1996
ASSETS (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 2,057,467 $ 1,272,047
Accounts Receivable- Oil and Gas 470,430 921,341
Accounts Receivable- Other 266,824 463,859
Prepayments and Other 48,984 178,038
----------- -----------
Total Current Assets 2,843,705 2,835,285
Property and Equipment, at cost:
Oil and Gas Properties (Full Cost Method) 9,870,356 9,012,341
Furniture, Fixtures, and Other 38,576 38,576
Less Accumulated Depletion, Depreciation, and Amortization (5,442,603) (4,895,226)
----------- -----------
Net Property, Plant, and Equipment 4,466,328 4,155,691
Investment in SE Share Partnership 183,141 174,141
Other Assets 17,284 103,879
----------- -----------
Total Assets $ 7,510,458 $ 7,268,996
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 403,761 $ 620,201
Interest Payable - -
Other Payables 138,843 253,620
Taxes Payable - -
Accrued Liabilities 12,452 135,149
Current Portion of Long-Term Debt - -
----------- -----------
Total Current Liabilities 555,056 1,008,970
Long-Term Debt:
Wells Fargo Bank 2,105,000 2,105,000
Shareholders Notes 2,333,303 2,333,303
----------- -----------
Total Long-Term Debt 4,438,303 4,438,303
Deferred Taxes 483,984 438,410
Stockholders' Equity:
Common stock, $1.00 par value, 100,000 shares authorized,
8,172 shares issued and outstanding at June 30, 1997
and December 31, 1996 8,172 8,172
Preferred stock, $0.01 par value, 5,100,000 shares authorized,
5,075,556 shares issued and outstanding 50,756 50,756
Additional Paid-In-Capital 9,172,362 9,172,362
Accumulated Deficit-Prior Years (7,847,977) (9,113,987)
Current Year Income 649,802 1,266,010
----------- -----------
Total Stockholders' Equity 2,033,115 1,383,313
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,510,458 $ 7,268,996
=========== ===========
See accompanying Notes to Financial Statements.
20
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
----------- -----------
REVENUES:
Oil and Gas Sales $ 2,182,294 $ 2,256,774
Lease Bonus and Delay Rental Income 585,630 149,299
----------- -----------
Operating Revenues 2,767,924 2,406,073
COSTS AND EXPENSES:
Production Costs 779,652 809,264
General and Administrative Expenses 442,464 328,878
Depreciation, Depletion, and Amortization 557,505 467,239
----------- -----------
Operating Costs and Expenses 1,779,621 1,605,381
OTHER INCOME (EXPENSES):
Interest Expense (160,275) (180,569)
Interest and Other Income 65,234 151,091
----------- -----------
Total Other Income (Expense) (95,041) (29,478)
Income (Loss) before Taxes 893,262 771,214
Income Tax Expense:
Current 197,886 170,000
Deferred 45,574 47,611
----------- -----------
243,460 217,611
Net Income $ 649,802 $ 553,603
=========== ===========
See accompanying Notes to Financial Statements.
21
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, June 30,
1997 1996
----------- -----------
REVENUES:
Oil and Gas Sales $ 937,224 $ 1,144,298
Lease Bonus and Delay Rental Income 75,130 149,299
----------- -----------
Operating Revenues 1,012,354 1,293,597
COSTS AND EXPENSES:
Production Costs 360,687 367,325
General and Administrative Expenses 243,274 146,542
Depreciation, Depletion, and Amortization 280,056 243,678
----------- -----------
Operating Costs and Expenses 884,017 757,545
OTHER INCOME (EXPENSES):
Interest Expense (81,505) (88,152)
Interest and Other Income 38,583 96,271
----------- -----------
Total Other Income (Expense) (42,922) 8,119
Income before Taxes 85,415 544,171
Income Tax Expense:
Current 136,866 78,000
Deferred (184,251) 17,560
----------- -----------
(47,385) 95,560
Net Income $ 132,800 $ 448,611
=========== ===========
See accompanying Notes to Financial Statements.
22
SHORE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
----------- ---------
Cash Flows Provided by (Used in) Operating Activities
Net Income $ 649,802 $ 553,604
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, depletion, and amortization 557,505 467,239
Provision for deferred taxes 45,574 -
Changes in assets and liabilities:
Accounts receivable 647,946 (167,457)
Prepayments and other 129,053 (30,157)
Other assets 76,468 38,663
Investment in SE Share Partnership (9,000) (189,500)
Accounts payable (216,440) (150,981)
Taxes payable - -
Other payables (114,777) 91,833
Accrued liabilities (122,697) (211,114)
Interest on notes payable - 68,923
----------- ---------
Net Cash Provided by (Used in) Operating Activities 1,643,435 471,053
Cash Flows Provided by (Used in) Investing Activities:
Net additions to oil and gas properties (908,915) (228,436)
Proceeds from sales of oil and gas properties 50,900 132,412
----------- ---------
Net Cash Provided by (Used in) Investing Activities (858,015) (96,024)
Cash Flows Provided by (Used In) Financing Activities:
Repayments of bank loan - (435,000)
----------- ---------
Net Cash Provided by (Used in) Financing Activities - (435,000)
Net Increase (Decrease) in Cash and Cash Equivalents 785,420 (59,971)
Cash and Cash Equivalents at Beginning of Period 1,272,047 751,438
----------- ---------
Cash and Cash Equivalents at End of Period $ 2,057,467 $ 691,467
=========== =========
See accompanying Notes to Financial Statements.
23
SHORE ENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 and 1997
Basis of Presentation
In management's opinion, the accompanying financial statements contain all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial position of the Company as of June 30, 1997 and the
results of operations and cash flows for the six months ended June 30, 1997 and
1996.
An independent accountant has not audited the accompanying financial
statements. Certain information and disclosures normally included in annual
audited financial statements prepared in accordance with generally accepted
accounting principles have been omitted, although the Company believes that the
disclosures made are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the Company's
financial statements and notes thereto included in the Company's Annual Report
for the year ended December 31, 1996.
24
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The accompanying pro forma combined condensed financial statements (the "pro
forma financial statements") assume the merger between Middle Bay Oil Company,
Inc. and Shore Oil Company and subsidiaries (SHORE), (the "Merger") was
accounted for using the purchase method of accounting. The pro forma financial
statements are based on the historical financial statements of MBOC and SHORE.
The pro forma financial statements are also based, in part, on the historical
financial statements of NPC Energy Corp. (NPC), which merged into MBOC effective
December 31, 1996 and was accounted for as a purchase (the "NPC Merger") and the
historical financial statements of Bison Energy Corp (BEC), which merged into
and exists as a wholly-owned subsidiary of MBOC effective February 28, 1997 and
was accounted for as a purchase (the "BEC Merger"). Such historical financial
statements for the NPC Merger are included in the 8-K/A Amendment No. 1 filed by
MBOC on January 14, 1997. Such historical financial statements for the BEC
Merger are included in the 8-K/A Amendment No. 1 filed by MBOC on April 25,
1997.
The Pro Forma Combined Condensed Statements of Operations for the six months
ended June 30, 1997 and the year ended December 31, 1996 have been prepared
assuming the merger had been consummated on January 1, 1996.
The pro forma adjustments are based upon available financial information and
assumptions that management of MBOC believe are reasonable. The pro forma
financial statements do not purport to represent the financial position or
results of operations which would have occurred had such transactions been
consummated on the dates indicated or MBOC's financial position or results of
operations for any future date or period. These pro forma financial statements
and note thereto should be read in conjunction with the historical financial
statements and notes thereto described above.
25
MIDDLE BAY OIL COMPANY, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Twelve months ended December 31, 1996
Pro Forma
MBOC NPC BISON Adjustments
Historical Historical Historical for NPC Merger
---------------------------------------------------------
Revenues:
Oil and gas sales $4,474,786 $ 1,456,121 2,128,573
Gain on sale of properties 37,815 103,995 (95,507)
Overhead income 545,124
Management income 176,000
Lease bonus and delay rental income - - -
Other income 373,820 29,603 149,253
---------------------------------------------------------
4,886,421 1,589,719 2,903,443
Costs and expenses:
Lease operating and
production taxes 1,516,011 868,879 866,291
Depletion, depreciation and amortization 1,462,196 161,000 159,733 212,925 (1)
Abandonment expense 428,598 - 100,862
Interest expense 504,945 54,488 242
General and administrative 694,300 172,132 1,025,775
---------------------------------------------------------
4,606,050 1,256,499 2,152,903 212,925
Income (loss) before income taxes
and investee earnings 280,371 333,220 750,540 (212,925)
Provision for income taxes (benefit) 74,871 71,000 145,009 (68,300)(3)
Equity in net earnings of equity investees - - 213,044
---------------------------------------------------------
Net income (loss) 205,500 262,220 818,575 (144,625)
Preferred stock dividend - - - 80,000 (2)
---------------------------------------------------------
Net income (loss) applicable to common stock 205,500 262,220 818,575 (224,625)
=========================================================
Income (loss) per share-Primary $ 0.15 $ 0.33 $ 1,637.15
=========================================================
Income (loss) per share-Fully diluted $ 0.15 $ 0.33 $ 1,637.15
=========================================================
Weighted average common shares outstanding
562,000
Primary 1,332,141 800,000 500 (800,000)(4)
=========================================================
Fully diluted 1,358,662 800,000 500 (800,000)(4)
=========================================================
Pro Forma
Adjustments MDOC SHORE Adjustments Pro Forma
for BISON Merger Pro Forma Historical for the Merger Combined
--------------------------------------------------------------------------------
Revenues:
Oil and gas sales $ 8,059,480 4,956,067 13,015,547
Gain on sale of properties 46,303 - 46,303
Overhead income 545,124 - 545,124
Management income (176,000)(10) - - -
Lease bonus and delay rental income - 666,237 666,237
Other income 552,676 156,544 709,220
--------------------------------------------------------------------------------
(176,000) 9,203,583 5,778,848 14,982,431
Costs and expenses:
Lease operating and
production taxes 3,251,181 1,686,060 4,937,241
Depletion, depreciation and amortization 848,600(5) 2,844,454 1,018,024 2,494,854 (11) 6,357,332
Abandonment expense 529,460 - 529,460
Interest expense 559,675 345,477 (139,998)(13) 765,154
General and administrative (126,000)(10) 1,766,207 641,560 2,407,767
--------------------------------------------------------------------------------
722,600 8,950,977 3,691,121 2,354,856 14,996,954
Income (loss) before income taxes
and investee earnings (898,600) 252,606 2,087,727 (2,354,856) (14,523)
Provision for income taxes (benefit) (331,328)(7) (108,748) 821,717 (821,717)(14) (108,748)
Equity in net earnings of equity investees (213,044)(9) - - - -
--------------------------------------------------------------------------------
Net income (loss) (780,316) 361,354 1,266,010 (1,533,139) 94,225
Preferred stock dividend 480,000(6) 560,000 - 186,664(12) 746,664
--------------------------------------------------------------------------------
Net income (loss) applicable to common stock (1,260,316) (198,646) 1,266,010 (1,719,803) (652,439)
================================================================================
Income (loss) per share-Primary $ (0.08) $ 0.25 $ (0.15)
================================================================================
Income (loss) per share-Fully diluted $ (0.08) $ 0.25 $ (0.14)
================================================================================
Weighted average common shares outstanding 605,556 (5,075,556)
Primary (500)(8) 2,499,697 5,075,556 1,883,333(15) 4,383,030
================================================================================
605,556 (5,075,556)
Fully diluted (500)(8) 2,526,218 5,075,556 2,150,000(15) 4,676,218
================================================================================
See accompanying notes to pro forma combined condensed financial statements.
26
MIDDLE BAY OIL COMPANY, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Six months ended June 30, 1997
Pro Forma
MBOC BISON Adjustments MBOC
Historical Historical for BISON Merger Pro Forma
--------------------------------------------------------
Revenues:
Oil and gas sales $ 3,694,098 337,305 $ 4,031,403
Gain on sale of properties 3,867 38,241 42,108
Overhead income 200,002 93,083 293,085
Management income - 25,778 (25,778)(10) (0)
Lease bonus and delay rental income - - -
Other income 54,821 18,069 72,890
--------------------------------------------------------
3,952,788 512,476 (25,778) 4,439,486
Costs and expenses:
Lease operating and
production taxes 1,516,683 153,115 1,669,798
Depletion, depreciation and amortization 1,054,817 24,109 83,976(5) 1,162,902
Exploration expenses 115,191 - 115,191
Abandonment expense 235,719 1,805 237,524
Interest expense 259,743 - 259,743
General and administrative 953,700 160,935 (21,000)(10) 1,093,635
--------------------------------------------------------
4,135,853 339,964 62,976 4,538,793
Income (loss) before income taxes
and investee earnings (183,065) 172,513 (88,754) (99,307)
Provision for income taxes (benefit) - 58,654 (58,654)(7) (0)
Equity in net earnings of equity investees - 36,564 (36,564)(9) (0)
--------------------------------------------------------
Net income (loss) (183,065) 150,422 (66,664) (99,307)
Preferred stock dividend 204,445 - 80,000(6) 284,445
--------------------------------------------------------
Net income (loss) applicable to common stock (387,510) 150,422 (146,664) (383,752)
========================================================
Income (loss) per share-Primary $ (0.17) $ (0.17)
========================================================
Income (loss) per share-Fully Diluted $ (0.17) $ (0.17)
========================================================
Weighted average common shares outstanding
Primary 2,321,088 2,321,088
========================================================
Fully Diluted 2,321,088 2,321,088
========================================================
Pro Forma
SHORE Adjustments Pro Forma
Historical for the Merger Combined
---------------------------------------------
Revenues:
Oil and gas sales 2,182,294 6,213,697
Gain on sale of properties - 42,108
Overhead income - 293,085
Management income - (0)
Lease bonus and delay rental income 585,630 585,630
Other income 65,234 138,124
---------------------------------------------
2,833,158 -- 7,272,644
Costs and expenses:
Lease operating and
production taxes 779,652 2,449,450
Depletion, depreciation and amortization 557,505 1,079,025 (11) 2,799,432
Exploration expenses - 115,191
Abandonment expense - 237,524
Interest expense 160,275 (69,999)(13) 350,019
General and administrative 442,464 1,536,099
----------------------------------------------
1,939,896 1,009,025 7,487,714
Income (loss) before income taxes
and investee earnings 893,262 (1,009,025) (215,070)
Provision for income taxes (benefit) 243,460 (243,460)(14) (0)
Equity in net earnings of equity investees - (0)
----------------------------------------------
Net income (loss) 649,802 (765,565) (215,069)
Preferred stock dividend - 93,332 (12) 377,777
----------------------------------------------
Net income (loss) applicable to common stock 649,802 (858,898) (592,846)
==============================================
Income (loss) per share-Primary $ 0.13 $ (0.14)
==============================================
Income (loss) per share-Fully Diluted $ 0.13 $ (0.13)
==============================================
Weighted average common shares outstanding
(5,075,556)
Primary 5,075,556 1,883,333 (15) 4,204,421
==============================================
(5,075,556)
Fully Diluted 5,075,556 2,150,000 (15) 4,471,088
==============================================
See accompanying notes to pro forma combined condensed financial statements.
27
MIDDLE BAY OIL COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A- Pro Forma Adjustments for the NPC Merger
On December 18, 1996, MBOC and NPC entered into the Merger Agreement whereby NPC
was merged into MBOC effective December 31, 1996. The merger was accounted for
using the purchase method of accounting. In completing the merger, MBOC issued
562,000 shares of MBOC common stock and paid $1,226,400 in cash in exchange for
all of the issued and outstanding NPC common stock.
The merger was accounted for as a purchase of NPC by MBOC and as a result of
the purchase method of accounting, MBOC's cost of acquiring NPC was allocated to
the assets and liabilities acquired based on estimated fair values.
MBOC incurred approximately $35,000 in legal and accounting expenses related
to the merger. The direct costs of the merger was accrued and included as a cost
of the merger.
The accompanying Pro Forma Combined Condensed Statements of Operations for the
year ended December 31, 1996 and the six months ended June 30, 1997 have been
prepared as if the NPC Merger had occurred on January 1, 1996 and reflect the
following adjustments:
(1) To adjust depletion, depreciation and amortization to reflect MBOC's
purchase price allocated to the property and equipment using the unit of
production method utilized by MBOC.
(2) To record the preferred stock dividends paid on the preferred stock
issued for the cash portion of the purchase price.
(3) To adjust the provision for income taxes for the change in financial
taxable income as a result of the entries (1) and (2).
(4) To reflect the issuance of 166,667 shares of Series A Preferred Stock
and 562,000 shares of MBOC Common Stock. Pro forma net income (loss) per common
share information is computed by dividing net income (loss), adjusted for the
preferred stock dividend requirement of $80,000 for the year ended December 31,
1996 by the pro forma weighted average common and common equivalent shares
outstanding. Shares issuable upon exercise of options and upon the conversion of
preferred stock are included in the computations of the pro forma income per
common and common equivalent share if the effect is dilutive.
28
MIDDLE BAY OIL COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note B- Pro Forma Adjustments for the Merger
On February 10, 1997, MBOC and BEC entered into the Merger Agreement whereby
BEC was merged into and continues to exist as a wholly-owned subsidiary of MBOC,
effective February 28, 1997. The merger was accounted for using the purchase
method of accounting. In completing the merger, MBOC issued 605,556 shares of
MBOC common stock and paid $6,654,114 in cash in exchange for all of the issued
and outstanding BEC common stock.
The merger was accounted for as a purchase of BEC by MBOC and as a result of
the purchase method of accounting, MBOC's cost of acquiring BEC was allocated to
the assets and liabilities acquired based on estimated fair values.
MBOC incurred approximately $35,000 in legal and accounting expenses related
to the merger and were included as a cost of the merger.
The accompanying Pro Forma Combined Condensed Statements of Operations for the
year ended December 31, 1996 and the six months ended June 30, 1997 have been
prepared as if the BEC Merger had occurred on January 1, 1996 and reflect the
following adjustments:
(5) To adjust depletion, depreciation and amortization to reflect MBOC's
purchase price allocated to the property and equipment using the unit of
production method utilized by MBOC.
(6) To record the preferred stock dividends paid on the preferred stock
issued for the cash portion of the purchase price.
(7) To adjust the provision for income taxes for the change in financial
taxable income as a result of the entries (1) and (2).
(8) To reflect the issuance of 1,000,000 shares of Series A Preferred
Stock and 605,556 shares of MBOC Common Stock. Pro forma net income (loss) per
common share information is computed by dividing net income (loss), adjusted for
the preferred stock dividend requirement of $480,000 for the year ended December
31, 1996 by the pro forma weighted average common and common equivalent shares
outstanding. Shares issuable upon exercise of options and upon the conversion of
preferred stock are included in the computations of the pro forma income per
common and common equivalent share if the effect is dilutive.
(9) To remove equity in net earnings of equity investees that were not
purchased and to remove BEC's share of NPC's net earnings.
29
(10) To remove management income for accounting and administrative
functions performed by BEC for other entities and for NPC. Management income for
services performed for NPC amounted to $10,500 per month or $126,000 annually
and is recorded on NPC's financial statements as general and administrative
expenses. Subsequent to the Merger, BEC will no longer perform such accounting
and administrative functions.
Note C- Pro Forma Adjustments for the Merger
On June 20, 1997, MBOC and SHORE entered into the Merger Agreement whereby
SHORE was merged into and continues to exist as a wholly-owned subsidiary of
MBOC, effective June 30, 1997. The merger was accounted for using the purchase
method of accounting. In completing the merger, MBOC issued 1,883,333 shares of
MBOC common stock, 266,667 shares of MBOC Series B convertible preferred stock
and paid $200,000 in cash in exchange for all of the issued and outstanding
SHORE common stock. MBOC also paid Shore's indebtedness to its shareholders of
$2,333,303 and assumed bank debt of Shore amounting to $2,105,000.
In connection with the merger with Shore Oil Company, effective June 30,
1997, the Company issued 266,667 shares of Series B Preferred Stock ("Series
B"). The Series B is nonvoting and pays no dividends. The Series B has a
liquidation value of $7.50 per share and is junior to the Series A Preferred.
For a period of sixty-six months subsequent to June 30, 1997 any holder of the
Series B may convert all or any portion of Series B shares into Company Common
Stock ("Common") at a ratio of one share of Common for each Series B share or at
any time on or after January 1, 1998, the holders may convert pursuant to the
Alternative Conversion Method based on Cumulative Value. Upon expiration of the
conversion period, unless the Company has given notice to redeem the Series B,
all of the shares of Series B shall be automatically converted. In no event
shall the aggregate total number of shares of Common into which the Series B are
converted be less than 266,667 shares or exceed 1,333,333 shares, unless further
increased for any anti-dilution provisions.
The Alternative Conversion Method shall be computed as of December 31 of each
year following the merger date of June 30, 1997, by determining the incremental
amounts by which the Cumulative Value increases over the prior year's
computation. Each incremental increase in the Cumulative Value, when computed,
shall be divided by $8,000,000, with the resulting quotient (the "Alternative
Conversion Factor") multiplied by 266,667 to determine the number of Series B
shares which would be converted. The number of Common shares into which the
Series B would be converted shall be determined by multiplying 1,066,666 times
the then applicable Alternative Conversion Factor. The procedure shall be
repeated as of each December 31, with the applicable number of Series B shares
converted into Common shares. If on December 31 of any year during the
conversion period the aggregate Cumulative Value equals or exceeds $10,000,000,
then the remaining Series B shares will be convertible into a number of Common
shares equal to 1,333,333 shares less the aggregate number of Common shares
previously issued upon conversion.
The Cumulative Value means the value attributable to the approximately 40,000
acres of mineral interest owned by Shore in Terrebone, LaFourche and
30
St. Mary Parishes, Louisiana (the "Louisiana Acreage"). The Cumulative Value
shall initially be equal to $2,000,000 and shall not exceed $10,000,000. The
Cumulative Value shall be recomputed on an incremental basis as of December 31
of each year following the merger date of June 30, 1997 based: (1) on values
computed for newly-discovered, reworked or recompleted wells with a minimum of
six months' production history; plus (2) lease bonus payments and delay rental
payments, seismic option payments, seismic permit payments, any other payments
and proceeds from the sale of properties or oil and gas interests on the
Louisiana Acreage received by the Company during the evaluation period if such
properties or oil and gas interests have not been previously included in the
computation of Cumulative Value. The Cumulative Value shall be reduced on each
recomputation date by the amount of any extraordinary claim or liability
asserted against or paid by the Company and relating to the Louisiana Acreage
during such evaluation period.
In connection with the Shore Merger, MBOC purchased additional oil and gas
interests in a separate agreement which are not reflected in the pro forma
financial statements because the amounts are insignificant.
The merger was accounted for as a purchase of SHORE by MBOC and as a result of
the purchase method of accounting, MBOC's cost of acquiring SHORE will be
allocated to the assets and liabilities acquired based on estimated fair values.
MBOC incurred approximately $38,000 in legal and accounting expenses related
to the merger and were included as a cost of the merger.
The accompanying Pro Forma Combined Condensed Statements of Operations for the
year ended December 31, 1996 and the six months ended June 30, 1997 have been
prepared as if the Shore Merger had occurred on January 1, 1996 and reflect the
following adjustments:
(11) To adjust depletion, depreciation and amortization to reflect MBOC's
purchase price allocated to the property and equipment using the unit of
production method utilized by MBOC.
(12) To record the preferred stock dividends paid on the preferred stock
issued for the cash portion of the purchase price.
(13) To record the reduction in interest expense on the debt retired.
(14) To adjust the provision for income taxes for the change in financial
taxable income as a result of the entries (11), (12) and (13).
(15) To reflect the issuance of 388,884 shares of Series A Preferred
Stock, 266,667 shares of Series B Preferred Stock and, 1,883,333 shares
of MBOC Common Stock. Pro forma net income (loss) per common share information
is computed by dividing net income (loss), adjusted for the preferred stock
dividend requirement of $186,664 for the year ended December 31, 1996 and
$93,332 for the six months ended June 30, 1997 by the pro forma weighted
average common and common equivalent shares outstanding. Shares issuable upon
exercise of options and upon the conversion of preferred stock are included in
the computations of the pro forma income per common and common equivalent share
if the effect is dilutive.
31
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.
MIDDLE BAY OIL COMPANY, INC.
(Registrant)
Date: September 3, 1997 By: /s/ Frank C. Turner II
-----------------------------
Frank C. Turner II
Vice President and
Chief Financial Officer