UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 0-18836
MIDLAND RESOURCES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Texas 75-2286814
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
550 West Texas Ave., Ste. 700
Midland, Texas 79701
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(915) 570-5045
(ISSUER'S TELEPHONE NUMBER)
616 F.M 1960 West, Ste. 600, Houston, Texas 77090
(FORMER ADDRESS)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, $.001 par value: 4,467,699 shares outstanding at June 30,
1998
MIDLAND RESOURCES, INC.
Table of Contents
Page
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PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and December 31, 1997 3
Unaudited Consolidated Statements of Operations
for the three and six month periods ended
June 30, 1998 and June 30, 1997 5
Unaudited Consolidated Statements of Cash Flows
for the three and six month periods ended
June 30, 1998 and June 30, 1997 7
Note to Unaudited Financial Statements 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 14
SIGNATURES 15
PAGE 2
PART I - FINANCIAL INFORMATION
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------ ------------
Unaudited
ASSETS
Current assets:
Cash $ 56,673 $ 150,890
Accounts receivable:
Oil and gas sales 417,062 670,093
Related parties - 60,822
Sales of properties - 563,757
Property operations and other 271,234 296,052
Property and equipment held for sale - 200,000
Reimbursable merger costs and other 356,616 57,531
Deferred tax asset 37,000 37,000
------------ ------------
Total current assets 1,138,585 2,036,145
Property and equipment, at cost, partially pledged:
Oil and gas properties and equipment,
using successful efforts method 29,147,170 28,623,500
Transportation equipment 198,810 215,749
Computer equipment and software 244,996 244,138
Office furniture and equipment 98,019 96,732
Land, building and leasehold improvements 15,347 15,347
Wells in progress 82,933 15,233
Less accumulated depreciation, depletion
and amortization (16,613,114) (15,975,838)
------------ ------------
Property and equipment, net 13,174,161 13,234,861
Other assets:
Deferred tax asset 1,302,684 1,011,193
Goodwill, net of amortization 707,240 720,584
Contracts and leases, net of amortization 188,422 199,116
Note receivable 294,387 302,490
Other 101,553 116,094
------------ ------------
Total assets $ 16,907,032 $ 17,620,483
------------ ------------
------------ ------------
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 3
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
----------- ------------
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 900,000 $ 583,481
Accounts payable and accrued expenses 726,529 981,202
----------- -----------
Total current liabilities 1,626,529 1,564,683
Long-term debt 8,856,319 9,115,370
Payable for the purchase of subsidiary 205,554 221,404
----------- -----------
Total liabilities 10,688,402 10,901,457
Stockholders' equity:
Preferred stock, par value $0.01 per share;
20,000,000 shares authorized; none issued - -
Common stock, par value $0.001 per share;
80,000,000 shares authorized; 4,467,699
shares issued at June 30, 1998, and
4,463,499 shares at December 31, 1997 4,468 4,463
Additional paid in capital 8,497,772 8,487,801
Unearned compensation (109,119) (164,516)
Retained earnings (deficit) (2,174,491) (1,608,722)
----------- -----------
Total stockholders' equity 6,218,630 6,719,026
----------- -----------
Total liabilities and stockholders' equity $16,907,032 $17,620,483
----------- -----------
----------- -----------
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 4
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30,
---------------------------
1998 1997
---------- ----------
Unaudited Unaudited
Operating revenue:
Oil and gas sales $1,027,332 $1,518,560
Property operator fees 25,135 24,071
Partnership income - 99,007
Other 6,552 5,850
---------- ----------
Total operating revenue 1,059,019 1,647,488
---------- ----------
Operating costs and expenses:
Oil and gas production 686,261 712,040
Exploration costs, including exploratory dry holes 1,583 351,729
Impairment losses - 356,000
Abandonments 5,722 -
Depreciation, depletion and amortization 362,396 319,452
General and administrative 342,822 483,334
---------- ----------
Total operating costs and expenses 1,398,784 2,222,555
---------- ----------
(339,765) (575,067)
Other income and (expenses):
Gain on sale of property and equipment 10,048 25,426
Interest and other income 6,741 8,199
Interest expense (211,488) (198,195)
---------- ----------
Net other income and expenses (194,699) (164,570)
---------- ----------
Loss before income taxes (534,464) (739,637)
Deferred federal income tax benefit (181,743) (251,416)
---------- ----------
Net loss $ (352,721) $ (488,221)
---------- ----------
---------- ----------
Net loss per share:
Basic $ (0.08) $ (0.11)
---------- ----------
---------- ----------
Diluted $ (0.08) $ (0.11)
---------- ----------
---------- ----------
Weighted average shares outstanding 4,466,299 4,426,658
---------- ----------
---------- ----------
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 5
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30,
---------------------------
1998 1997
--------- ---------
Unaudited Unaudited
Operating revenue:
Oil and gas sales $2,182,394 $3,346,815
Property operator fees 51,855 51,150
Partnership income - 99,007
Other 15,497 8,655
---------- ----------
Total operating revenue 2,249,746 3,505,627
Operating costs and expenses:
Oil and gas production 1,416,724 1,449,529
Exploration costs, including exploratory dry holes 4,709 360,284
Abandonments 39,808 -
Impairment losses - 356,000
Depreciation, depletion and amortization 678,255 634,233
General and administrative 574,837 817,183
---------- ----------
Total operating costs and expenses 2,714,333 3,617,229
---------- ----------
(464,587) (111,602)
Other income and (expenses):
Gain on sale of property and equipment 10,048 376,505
Interest and other income 14,038 18,155
Interest expense (416,759) (410,832)
---------- ----------
Net other income and expenses (392,673) (16,172)
---------- ----------
Loss before income taxes (857,260) (127,774)
Deferred federal income tax benefit (291,491) (45,291)
---------- ----------
Net loss $ (565,769) $ (82,483)
---------- ----------
---------- ----------
Net loss per share:
Basic $ (0.13) $ (0.02)
---------- ----------
---------- ----------
Diluted $ (0.13) $ (0.02)
---------- ----------
---------- ----------
Weighted average shares outstanding 4,464,822 4,416,345
---------- ----------
---------- ----------
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 6
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30,
---------------------------
1998 1997
--------- -----------
Unaudited Unaudited
Cash flows from operating activities:
Net loss $(352,721) $ (488,221)
Deferred federal income tax benefit (181,743) (251,416)
Depreciation, depletion and amortization 362,396 319,452
Impairment losses - 356,000
Gain on sale of property and equipment (10,048) (23,575)
Non-cash stock based compensation 27,699 73,969
Decrease in accounts receivable 314,556 26,101
Increase in accounts payable (616,772) 98,816
Increase (decrease) in other current assets 10,607 76,600
Other 15,665 12,764
--------- -----------
Net cash provided (used) by operating activities (430,361) 200,490
--------- -----------
Cash flows from investing activities:
Proceeds from sales of property and equipment 239,048 23,575
Additions to property and equipment (153,521) (244,976)
Summit stock tenders (8,085) (7,767)
Business acquisition costs and other (241,238) -
Investment in limited partnership - (963,619)
--------- -----------
Net cash used in investing activities (163,796) (1,192,787)
--------- -----------
Cash flows from financing activities:
Exercise of warrants and options 9,975 82,114
Collection on note receivable 3,778 3,489
Long-term borrowings 520,000 650,000
Principal payments on long-term debt (4,869) (5,421)
Drilling advances - 457,121
Reduction in drilling advances - (457,121)
--------- -----------
Net cash provided by financing activities 528,884 730,182
--------- -----------
Net decrease in cash (65,273) (262,115)
Cash, beginning of the period 121,946 342,495
--------- -----------
Cash, end of period $ 56,673 $ 80,380
--------- -----------
--------- -----------
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 7
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
-------------------------
1998 1997
--------- ---------
Unaudited Unaudited
Cash flows from operating activities:
Net loss $(565,769) $ (82,483)
Deferred federal income tax benefit (291,491) (45,291)
Depreciation, depletion and amortization 678,255 634,233
Impairment losses - 356,000
Gain on sale of property and equipment (10,048) (374,654)
Non-cash stock based compensation 55,398 117,047
Decrease in accounts receivable 338,671 111,302
Increase (decrease) in accounts payable (254,673) 711,451
(Increase) decrease in other current assets (2,753) 20,277
Other 27,922 20,774
--------- -----------
Net cash provided (used) by operating activities (24,488) 1,468,656
--------- -----------
Cash flows from investing activities:
Proceeds from sales of property and equipment 802,805 1,672,982
Additions to property and equipment (622,515) (1,225,268)
Summit stock tenders (15,850) (104,792)
Business acquisition cost and other (309,093) -
Investment in limited partnership - (1,566,151)
Cost reimbursement from limited partnership - 360,479
--------- -----------
Net cash used in investing activities (144,653) (862,750)
--------- -----------
Cash flows from financing activities:
Exercise of warrants and options 9,975 114,927
Collection on note receivable 7,481 6,909
Long-term borrowings 720,000 1,056,250
Principal payments on long-term debt (662,532) (1,677,035)
Drilling advances - 457,121
Reduction in drilling advances - (850,375)
--------- -----------
Net cash provided by (used in) financing activities 74,924 (892,203)
--------- -----------
Net decrease in cash (94,217) (286,297)
Cash, beginning of the period 150,890 366,677
--------- -----------
Cash, end of period $ 56,673 $ 80,380
--------- -----------
--------- -----------
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 8
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Midland Resources, Inc. ("Company") was organized in 1990 with the
issuance of common stock and warrants in exchange for oil and gas partnership
interests. The Company and its wholly owned subsidiaries are headquartered in
Midland, Texas. The Company is involved in the acquisition, exploration,
development and production of oil and gas and owns producing properties and
undeveloped acreage in Texas, Colorado and Illinois. The majority of its
activities are centered in the Permian Basin of West Texas. Midland Resources
Operating Company, Inc. ("MRO"), a wholly owned subsidiary, is in the business
of oil and gas property operations. Summit Petroleum Corporation ("Summit") is
a wholly owned subsidiary engaged in oil and gas acquisition, exploration,
development and production.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheets include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company and its wholly owned subsidiaries as of June
30, 1998, the results of operations and cash flows for the three month and six
month periods ended June 30, 1998 and 1997. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for a full year. The accounting policies followed by the Company are set forth
in more detail in Note A of the "Notes to Consolidated Financial Statements" in
the Company's annual report on Form 10-KSB filed with the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this Form 10-QSB
pursuant to the rules and regulations of the Securities and Exchange
Commission. However, the disclosures herein are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Form 10-KSB.
LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of shares
outstanding during the periods presented. Common stock equivalents (options
and warrants) are excluded since their inclusion would have an antidilutive
effect on loss per share.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share" which
requires changes in the computation and reporting of earnings per share. This
pronouncement, which becomes effective for periods ending after December 15,
1997, provides for the presentation of basic earnings per share, computed
without regard to options, warrants, and other stock equivalents, and diluted
earnings per share, which gives effect to these potential dilutive common
shares when they have a dilutive effect on earnings (loss) per share.
PAGE 9
MIDLAND RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MDA") contains "forward-looking statements" within the meaning of
Section 27-A of the Securities Act of 1933, as amended (the Securities Act"),
and Section 218 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact
included in MD&A, including statements regarding the Company's operating
strategy, plans, objectives and beliefs of management for future operations,
planned capital expenditures and acquisitions are forward-looking statements.
Although the Company believes that the assumptions upon which such forward-
looking statements are based are reasonable, it can give no assurance that such
assumptions will prove to be correct.
PLAN OF OPERATION
During 1996 and 1997 the Company's exploration efforts consumed most of its
available resources. While the Company believes its exploratory efforts have
identified possible future drilling opportunities, its ability to actively
pursue these efforts as well as to actively exploit existing developed
properties is dependent upon securing additional capital.
Beginning in early 1997 the Company determined that it should explore
strategic alternatives to raising capital through sales of equity. To assist
the Company it engaged in an investment banking firm. During 1997 and
continuing into 1998 the Company considered various alternative transactions,
primarily consisting of sale of all or substantially all of its assets,
acquisitions of another smaller company, merging with a company of equal size
and merging with a larger company. The company terminated its contract with
its investment banking firm in December 1997.
On April 9, 1998, the Company announced it was pursuing a merger transaction
with Vista Resources Partners, L.P. (Vista), a privately held oil and gas
exploration and production company located in Midland, Texas. On May 22,
1998, the Company entered into an agreement and plan of merger with Vista
which provides for a business combination to be consummated, subject to
stockholder approval. If the transaction with Vista is not consummated,
the Company expects to restrict its operations, including future development,
to a level that its current operations can support, and continue to seek a
strategic transaction as well as consider the sale of equity.
CAPITAL RESOURCES AND LIQUIDITY
The Company's initial capitalization was through the acquisition of
interests of the seven public oil and gas income limited partnerships in
exchange for common stock and warrants of the Company. There were 2,265,522
shares of common stock issued and, for each share of common stock issued, two
warrants were issued entitling the holder to purchase one share of common
stock at $2.50 and one share at $4.00 during the period of November 1990 to
November 2002. In October, 1995, the Company called for redemption its
$2.50 warrants. Holders received a redemption payment of $0.05 per warrant
for aggregate payments of $63,373, which was charged to additional paid in
capital. 997,009 of the $2.50 warrants were exercised, resulting in net
proceeds of approximately $1,831,000. As of June 30, 1998, 11,428 of the
$4.00 warrants had been exercised.
Historically, the Company's sources of liquidity have been from both bank
debt financing and operations. However, low product prices in recent months,
coupled with the costs of the Company's exploration program in 1996 and 1997
have had severe adverse effects on the Company's liquidity. The Company
PAGE 10
presently has no readily available sources of additional capital resources
and no commitments for capital expenditures, and intends to incur only those
costs required to maintain necessary business operations and production from
its properties.
In the first half of 1998, cash flow was a negative $94,217. Cash flows from
operations was a negative $24,488 which includes the positive effects of a
decrease in accounts receivable of $338,671 and the negative effects of a net
decrease in accounts payable of $254,673. Lower oil prices have had a
significant adverse impact on operating cash flows. Investing activities
required the use of $144,653 in cash due primarily to merger costs of
$296,332 in connection with the proposed Vista transaction discussed above,
partially offset by proceeds from sales of properties in excess of capital
additions. Financing activities resulted in a net increase in cash of $74,924
due primarily to bank borrowings of $720,000 which were used to fund capital
expenditures and merger costs. Repayments of bank debt of $651,615 were
funded primarily from the proceeds of a December, 1997 property sale.
At June 30, 1998, the Company had negative working capital of approximately
$488,000 compared to positive working capital of approximately $471,000 at
December 31, 1997, for a net decrease of $959,000. This is due primarily to
the adverse impact on revenue of lower oil prices during the first half of
1998, and an increase in current debt maturities under the Company's
revolving credit agreement with its bank resulting from a reduction in
borrowing base which was also due to current low oil prices.
The Company has a revolving credit agreement with Compass Bank (Bank) which
provides for a credit facility of $30,000,000 and an initial borrowing base
of $10,500,000. Effective June 1, 1998, the borrowing base was reduced to
$9,800,000 with scheduled monthly reductions of $80,000 per month beginning
August 1, 1998. The borrowing base is subject to redetermination in November
and May of each year. Amounts borrowed under this agreement are
collateralized by a first lien on substantially all of the Company's oil and
gas properties. Interest under this agreement is payable monthly at an
annual rate which, at the Company's option, is equal to (a) the Bank's index
lending rate (8.5% at June 30, 1998), or (b) the London Interbank Offered
Rate (LIBOR), plus 2.5%. In addition, a commitment fee equal to 1/2% per
annum on the unused portion of the borrowing base is required. This
agreement also requires that the Company maintain certain financial ratios
and generally restricts the Company's ability to incur debt, sell assets,
materially change the nature of the Company's business structure or pay
dividends. As of June 30, 1998, the balance due under this agreement was
$9,720,000 and at August 13, 1998 was $9,640,000.
The prices of crude oil have fluctuated significantly in recent years as well
as in recent months. As of June 30, 1997, the Company was receiving $18.60
per bbl as compared to $25.00 at January 1, 1997. At June 30, 1998 the
Company was receiving approximately $12.00 per bbl as compared to $16.52 at
January 1, 1998. Fluctuations in price have a significant impact on the
Company's financial condition and liquidity.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Net loss decreased from a loss of $488,221 for the three months ended June 30,
1997, to a net loss of $352,721 for the same period in 1998, a decrease of
$135,500. Individual categories of income and expense are discussed below.
Oil and gas sales decreased from $1,518,560 in the second quarter of 1997 to
$1,027,332 in the same period of 1998. This decrease of $491,228 or 32%
resulted from decreased oil and gas prices and decreased gas production. Oil
and gas production quantities were 46,923 bbls and 216,636 mcf for the second
quarter of 1998 and 47,366 bbls and 264,909 mcf in 1997, a decrease of 443
bbls or 1% and a decrease of 48,273 mcf, or 18%. Average gas prices decreased
from $2.25 per mcf in 1997 to $1.91 per mcf in 1998, while average oil prices
decreased from $19.38 per bbl in 1997 to $13.10 per bbl in 1998.
In the second quarter of 1997, the Company's share of net income from a limited
partnership was $99,007, including $115,875 oil revenue from 6,195 bbls of
production. There was no similar item in 1998.
PAGE 11
Production costs decreased from $712,040 in the second quarter of 1997 to
$686,261 for the same period of 1998, a decrease of $25,779, or 4%. This
decrease was attributable to cost reduction measures as well as to the sale in
December 1997 of operated properties in Colorado and other non-operated
property interests.
In the second quarter of 1997, the Company incurred exploratory dry hole costs
of $332,194. There was no similar item in the second quarter of 1998.
General and administrative expenses ("G&A") were $342,822 in the second quarter
of 1998 and $483,334 in the second quarter of 1997, a decrease of $140,512, or
29%. This was due primarily to continued cost curtailment measures which began
in the fourth quarter of 1997.
Depreciation, depletion and amortization ("DD&A") based on production and
other methods increased from $319,452 in the second quarter of 1997 to
$362,396 in the same period of 1998, an increase of $42,944 or 12%, due
primarily to lower reserve estimates on most properties. Lower product prices
had a significant adverse impact on the determination of reserve quantity
estimates.
In the second quarter of 1997, the Company provided for property impairment
losses of $356,000 on two of its wells. There was no similar item in the
second quarter of 1998.
RESULTS OF OPERATIONS-SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net loss increased from $82,483 in the first half of 1997 to $565,769 in the
first half of 1998. Individual categories of income and expenses are discussed
below.
Oil and gas sales decreased from $3,346,815 in the first six months of 1997 to
$2,182,394 in the same period of 1998. This decrease of $1,164,421 or 35%
resulted from decreased oil and gas prices and gas production. Oil and gas
production quantities were 94,791 bbls and 515,982 mcf in 1997 and 94,714 bbls
and 435,522 mcf in 1998, a decrease of 77 bbls and a decrease of 80,460 mcf or
16 %. Average gas prices decreased from $2.62 per mcf in 1997 to $2.01 per mcf
in 1998, while average oil prices decreased from $20.91 per bbl in 1997 to
$13.78 per bbl in 1998.
In the first six months of 1997, the Company's share of net income from an oil
and gas limited partnership was $99,007 which included oil revenue of $115,875
from 6,195 bbls of production. There was no similar item in 1998.
Production costs decreased from $1,449,529 in the first six months of 1997 to
$1,416,724 for the same period of 1998, an decrease of $32,805 or 2%.
In the first half of 1997, exploration costs were $360,284, which included
$332,194 in exploratory dry hole costs. In the first half of 1998, exploration
costs were $4,709.
G&A decreased from $817,183 in the first six months of 1997 to $574,837 in the
same period of 1998, a decrease of $242,346 or 42%. These totals included non-
cash stock based compensation charges of $117,047 in 1997 and $55,398 in 1998.
Other reductions resulted from cost curtailment measures instituted in the
fourth quarter of 1997.
PAGE 12
DD&A based on production and other methods increased from $634,233 in the first
six months of 1997 to $678,255 in the same period of 1998, an increase of
$44,022 or 7%, due primarily to lower reserve quantity estimates.
At June 30, 1997, the Company provided for impairment losses on its oil and gas
properties of $356,000. There was no similar item in 1998.
In the first half of 1997, the Company reported gains from sales of property of
$376,505 of which $349,079 was from the sale of the Redfish Bay property in
February of 1997. The gain from asset sales in the first half of 1998 was
$10,048.
PAGE 13
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
The Company entered into an Agreement and Plan of Merger dated May 22, 1998,
as it may be amended, supplemented or modified from time to time (the "Merger
Agreement") with Vista Resources Partners, L.P., a Texas limited partnership,
Vista Resources, Inc., a Delaware corporation and a direct wholly owned
subsidiary of the Vista Partnership ("Vista"), and Midland Merger Co., a
Texas corporation and direct wholly owned subsidiary of Vista ("Merger Sub"),
pursuant to which Merger Sub will be merged into the Company. Consummation of
this merger is subject to approval of the Company's stockholders.
Concurrent with the execution of this Merger Agreement, the Company and its
former president, Deas H. Warley III, entered into an agreement in settlement
of Mr. Warley's employment contract. This agreement generally provides that
(i) from March 27, 1998, through either the consummation or termination of the
Merger Agreement, the Company will pay Mr. Warley the sum of $11,390 per month;
(ii) on the effective date of the merger, the Company will pay Mr. Warley the
sum of $1,300,000 (reduced by a payment of $100,000 to Marilyn D. Wade),
payable in monthly installments of $20,000 per month over 60 months, provided
that, after one year, either the Company or Mr. Warley may elect to have such
amount paid as a lump sum (using a discount factor of 6%); (iii) Mr. Warley's
stock options for 15,000 shares shall expire on the 120th day following the
effective date of the merger; (iv) Mr. Warley agrees to support the merger
and take or refrain from taking actions as contemplated by the Merger
Agreement; and (v) the Company and Mr. Warley mutually release one another
from all claims.
Effective June 1, 1998, the Company's wholly owned operating subsidiary,
Midland Resources Operating Co., Inc., and Vista entered into a Contract
Operating Agreement which generally provides that Vista will provide various
contract operating services for the Company with respect to its oil and gas
properties, including engineering, geological, land, legal and other property
operating services, at a rate of $400 per day. This agreement is in effect
through October 31, 1998 and on month-to-month basis thereafter unless
terminated by either party. General and administrative services are also
furnished at agreed upon rates.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a: Exhibits:
2.1 Agreement and Plan of Merger, dated May 22, 1998,
between Midland Resources, Inc. and Vista Resources
Partners, L.P.
10.1 Contract Operating Agreement, effective June 1, 1998
between Vista Resources, Inc. and Midland Resources
Operating Company, Inc.
10.2 Warley Settlement Agreement dated May 22, 1998,
between Midland Resources, Inc. and Deas H. Warley III.
27 Article 5 Financial Data Schedule for second quarter
10-QSB (only filed electronically)
b: None
PAGE 14
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
MIDLAND RESOURCES, INC.
(Registrant)
Date: August 13, 1998 By: /s/ Robert R. Donnelly
----------------------------------------
Robert R. Donnelly, President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following person on behalf of the
Registrant and in the capacity and on the date indicated.
Date: August 13, 1998 By: /s/ Howard E. Ehler
----------------------------------------
Howard E. Ehler, Chief Financial Officer
PAGE 15