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: September 30, 2003
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ..................to ...................
Commission File Number: 0-15905
BLUE DOLPHIN ENERGY COMPANY
(Exact name of small business issuer as specified in its charter)
Delaware 73-1268729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 Travis, Suite 2100, Houston, Texas 77002
(Address of principal executive offices)
(713) 227-7660
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
6,657,845 shares of the registrants' common stock, par value $.01 per share,
--------------------------------------------------------------------------------
were outstanding at November 12, 2003.
--------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Blue Dolphin Energy Company
and subsidiaries (the "Company" or "Blue Dolphin") included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and, in the opinion of
management, reflect all adjustments necessary to present a fair statement of
operations, financial position and cash flows. The Company follows the full-cost
method of accounting for oil and gas properties, wherein costs incurred in the
acquisition, exploration and development of oil and gas reserves are
capitalized. The Company believes that the disclosures are adequate and the
information presented is not misleading, although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
The accompanying condensed consolidated financial statements of the Company
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2002.
2
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED
SEPTEMBER 30, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 3,064,246
Accounts receivable 715,076
Prepaid expenses and other assets 158,983
------------
TOTAL CURRENT ASSETS 3,938,305
Property and Equipment at cost:
Oil and Gas properties, including $109,018
of unproved leasehold cost (full-cost method) 398,349
Pipelines 4,545,212
Onshore separation and handling facilities 1,664,128
Land 860,275
Other property and equipment 295,446
------------
7,763,410
Less: Accumulated depletion, depreciation and amortization 1,864,922
------------
5,898,488
Deferred federal income tax 244,444
Investment in New Avoca 652,464
Other assets 73,976
------------
TOTAL ASSETS $ 10,807,677
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,540,225
Accrued expenses and other liabilities 150,172
------------
TOTAL CURRENT LIABILITIES 2,690,397
Note payable 750,000
Asset retirement obligations 1,515,879
Common Stock, ($.01 par value, 10,000,000 shares authorized,
6,657,845 shares issued and outstanding) 66,578
Additional Paid-in Capital 26,267,308
Accumulated Deficit (20,482,485)
------------
5,851,401
TOTAL LIABILITES AND
STOCKHOLDERS' EQUITY $ 10,807,677
============
See accompanying notes to the condensed consolidated financial statements.
3
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended September 30,
2003 2002
----------- -----------
Revenue from operations:
Pipeline operations $ 212,644 $ 273,373
Oil and gas sales 449,416 481,128
----------- -----------
662,060 754,501
----------- -----------
Cost of operations:
Pipeline operating expenses 296,022 210,935
Lease operating expenses 46,465 206,389
Depletion, depreciation, amortization and abandonment 116,989 185,255
Impairment -- --
General and administrative 415,928 415,582
Accretion expense 17,444 --
----------- -----------
892,848 1,018,161
----------- -----------
LOSS FROM OPERATIONS (230,788) (263,660)
Other income (expense):
Interest and other expense (11,343) (5,041)
Interest and other income 225,385 181,516
Gain on sale of assets -- 1,438,518
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (16,746) 1,351,333
Income taxes -- --
----------- -----------
Net income (loss) $ (16,746) $ 1,351,333
=========== ===========
Income (loss) per common share
- basic $ 0.00 $ 0.21
=========== ===========
- diluted $ 0.00 $ 0.21
=========== ===========
Weighted average number of common shares outstanding
- basic 6,653,660 6,381,285
=========== ===========
- diluted 6,653,660 6,381,285
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
4
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Nine Months
Ended September 30,
2003 2002
----------- -----------
Revenue from operations:
Pipeline operations $ 716,243 $ 960,126
Oil and gas sales 1,268,733 1,748,880
----------- -----------
1,984,976 2,709,006
----------- -----------
Cost of operations:
Pipeline operating expenses 763,841 498,370
Lease operating expenses 76,743 599,249
Depletion, depreciation, amortization and abandonment 305,458 738,012
Impairment of assets -- 339,984
General and administrative 1,293,251 1,791,737
Accretion expense 58,340 --
----------- -----------
2,497,633 3,967,352
----------- -----------
LOSS FROM OPERATIONS (512,657) (1,258,346)
Other income (expense):
Interest and other expense (54,641) (50,607)
Interest and other income 665,073 235,641
Bad debt expense -- (197,500)
Gain on sale of assets -- 1,438,518
----------- -----------
INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 97,775 167,706
Minority interest -- (55,746)
Income taxes -- --
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 97,775 111,960
Cumulative effect of a change in accounting principle
for asset retirement obligations (40,455) --
----------- -----------
Net income $ 57,320 $ 111,960
=========== ===========
Income (loss) per common share - basic
Income before accounting change $ 0.02 $ 0.02
=========== ===========
Cumulative effect of a change in accounting principle $ (0.01) $ --
=========== ===========
Net income $ 0.01 $ 0.02
=========== ===========
Income (loss) per common share - diluted
Income before accounting change $ 0.02 $ 0.02
=========== ===========
Cumulative effect of a change in accounting principle $ (0.01) $ --
=========== ===========
Net income $ 0.01 $ 0.02
=========== ===========
Weighted average number of common shares outstanding
- basic 6,634,346 6,322,646
=========== ===========
- diluted 6,802,923 6,322,646
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
5
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months
Ended September 30,
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net income $ 57,320 $ 111,960
Adjustments to reconcile net income to net cash used in operating activities:
Depletion, depreciation, amortization, abandonment 305,458 738,012
Gain from change in estimate of abandonment costs (488,653) --
Change in accounting principle 40,455 --
Accretion of asset retirement obligations 58,340 --
Minority interest -- 55,746
Gain on sale of assets -- (1,438,518)
Impairment of assets -- 339,984
Increase in equity of affiliate -- (61,886)
Bad debt expense -- 197,500
Common stock issued for services 28,722 21,002
Other -- (111,492)
Changes in operating assets and liabilities:
Accounts receivable (199,784) 239,686
Prepaid expenses and other assets 135,209 (208,475)
Abandonment costs incurred (3,273,825) --
Trade accounts payable and accrued expenses 2,231,377 (1,947,493)
----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES (1,105,381) (2,063,974)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment, and other assets (39,723) (142,641)
Exploration and development costs (73,136) (693,268)
Net proceeds from sale of assets -- 2,300,000
Purchase of minority interest from subsidiary -- (355,828)
Development costs - New Avoca (66,835) (62,248)
Other (37,637) --
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (217,331) 1,046,015
----------- -----------
FINANCING ACTIVITIES
Other (18,718) --
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,341,430) (1,017,959)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,405,676 3,343,560
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,064,246 $ 2,325,601
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property and equipment financed with debt $ -- $ 750,000
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
6
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2003
1. Liquidity and Going Concern
At September 30, 2003, the Company's working capital was approximately $1.2
million. The Company began to receive payments from its working interest in the
High Island Block A-7 field which provided revenues net of operating expenses
and capital expenditures of approximately $1.1 million during the nine months
ended September 30, 2003. Revenues from the High Island Block A-7 Field have
declined significantly and are expected to cease by mid-2004. In order to
satisfy its working capital and capital expenditure requirements for the next
twelve months, the Company believes that it may need to raise approximately $0.5
to $1.0 million of capital. The Company will need to arrange external financing
and/or sell assets to raise the necessary capital. Historically, the Company has
relied on the proceeds from the sale of assets and capital raised from the
issuance of debt and equity securities to individual investors and related
parties to sustain its operations. There can be no assurance that the Company
will be able to obtain financing or sell assets on commercially acceptable terms
to meet its capital requirements. The Company's inability to raise capital may
have a material adverse effect on its financial condition, ability to meet its
obligations and operating needs, and results of operations. The financial
statements contained herein have been prepared assuming that the Company will
continue as a going concern. The Company's capital requirements raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
2. Related Party Transactions
The Company currently owns a 12.8% common stock ownership interest in Drillmar,
Inc. ("Drillmar"). However, the Company's ownership will be reduced to less than
1% if Drillmar's convertible notes are converted. Ivar Siem, Chairman of the
Company, and Harris A. Kaffie and James M. Trimble, Directors of the Company,
are owners of 30.3%, 30.6% and 6.6%, respectively, of Drillmar's common stock,
and they would be the owners of 25.0%, 30.9% and 2.4%, respectively, of Drillmar
common stock if the convertible notes are converted. Messrs. Siem and Kaffie are
both Directors, and Mr. Siem is Chairman and President of Drillmar.
In February 2003, the Company and Drillmar entered into an agreement effective
as of February 1, 2003, whereby the Company provides office space to Drillmar
for $1,500 per month. The Company also provides professional, accounting and
administrative services to Drillmar based on hourly rates based on the Company's
cost. The agreement can be terminated upon 30 days notice or by the mutual
agreement of the parties.
Effective April 1, 2003, the Company entered into a sublease agreement expiring
December 31, 2006 for certain of its office space with Tri-Union Development
Corporation. The Company's 2003 receipts from this sublease will be
approximately $55,600, and thereafter will be approximately $78,500 annually,
which represents the Company's actual rental cost for the subleased space. Mr.
James M. Trimble, a Director of the Company, is the Chairman and Chief Executive
Officer of Tri-Union.
3. Change in Accounting Principle
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting
7
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2003
for Asset Retirement Obligations", which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or normal use of the asset.
SFAS 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The fair value of the liability is added to
the carrying amount of the associated asset and this additional carrying amount
is depreciated over the life of the asset. If the obligation is settled for
other than the carrying amount of the liability, the Company will recognize a
gain or loss on settlement.
SFAS 143 amended Statement of Financial Accounting Standards No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies" ("SFAS 19") to
require that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. Under the provisions of SFAS 143, asset retirement
obligations are capitalized as part of the carrying value of the long-lived
asset. Under the provisions of SFAS 19, asset retirement obligations were
recognized using a cost-accumulation approach. Prior to the adoption of SFAS
143, the Company recorded asset retirement obligations through the
unit-of-production method for oil and gas properties, and the straight line
method for pipelines and related facilities.
The adoption of SFAS 143 resulted in a January 1, 2003 cumulative effect
adjustment to record (i) a $1.0 million increase in the carrying value of
pipelines, (ii) a $0 .4 million decrease in accumulated depreciation, depletion,
and amortization of property, plant and equipment, and (iii) a $1.4 million
increase in non-current abandonment liabilities. The net impact of items (i)
through (iii) was to record an expense of $40 thousand, net of tax, as a
cumulative effect adjustment of a change in accounting principle in the
Company's consolidated statement of operations upon adoption on January 1, 2003.
The following pro forma data summarizes the Company's net income (loss) and net
income (loss) per share as if the Company had adopted the provisions of SFAS 143
on January 1, 2002, including an associated pro forma asset retirement
obligation on that date of $1.0 million:
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(in thousands, except (in thousands, except
per share amounts) per share amounts)
Net income (loss), as reported ............. $ (17) $ 1,351 $ 57 $ 112
Pro forma adjustments to reflect retroactive
adoption of SFAS 143 ....................... -- (15) -- (25)
------------ ------------ ------------ ------------
Pro forma net income (loss) ................ $ (17) $ 1,336 $ 57 $ 87
============ ============ ============ ============
Net income (loss) per share:
Basic - as reported ..................... $ .00 $ .21 $ .01 $ 02
============ ============ ============ ============
Basic - pro forma ....................... $ .00 $ .21 $ .01 $ .01
============ ============ ============ ============
Diluted - as reported ................... $ .00 $ .21 $ .01 $ .02
============ ============ ============ ============
Diluted - pro forma ..................... $ .00 $ .21 $ .01 $ .01
============ ============ ============ ============
8
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2003
4. Asset Retirement Obligations
The Company has asset retirement obligations associated with its Buccaneer Field
offshore platforms, the future abandonment of pipelines and related facilities
and an offshore oil and gas property. The following table summarizes the
Company's asset retirement obligation transactions recorded in accordance with
the provisions of SFAS 143 during the three months and nine months ended
September 30, 2003, and in accordance with the provisions of SFAS 19 during the
three months and nine months ended September 30, 2002.
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
2003 2002 2003 2002
(in thousands) (in thousands)
Beginning asset retirement obligations ...... $ 4,882 $ 4,600 $ 3,800 $ 4,600
Cumulative effect adjustment ................ -- -- 401 --
Liabilities incurred during period .......... -- -- 1,045 --
Liabilities settled during period ........... (3,147) -- (3,273) --
Gain from adjustment to estimated obligations (210) -- (489) --
Accretion expense ........................... 17 -- 58 --
------- ------- ------- -------
Ending asset retirement obligations .......... $ 1,542 $ 4,600 $ 1,542 $ 4,600
======= ======= ======= =======
During the operations to remove the Buccaneer Field platform complexes in 2001,
discussions were initiated with the Texas Parks and Wildlife Department ("TPW")
in an effort to leave certain of the underwater portions of the platform
complexes in place as artificial reefs. On January 3, 2003, the Company and TPW
executed deeds of donation for both of the Company's platform complexes in the
Buccaneer Field, whereby the Company will leave certain portions of the
platforms in place as artificial reefs and donate them to the TPW, along with
cash of $390,000, of which $350,000 represents half of the cost for the site
clearance work that was eliminated (which payment the TPW required) and $40,000
represents the cost of buoys to mark the reef sites. The Company requested and
received an extension from the United States Minerals Management Service ("MMS")
until August 31, 2003 to complete the abandonment/reefing operations. The work
to complete the abandonment/reefing began in July 2003 and was completed in late
August 2003. Abandonment/reefing operations incurred during 2003 total
approximately $3.3 million. Additionally, the Company reduced its provision for
the Buccaneer Field abandonment costs resulting in a gain of approximately
$490,000 for the nine months ended September 30, 2003.
5. Earnings Per Share
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings Per Share." SFAS 128 requires the
presentation of basic earnings per share ("EPS") which excludes dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted-average number of shares of common stock outstanding for the period.
9
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2003
SFAS 128 requires dual presentation of basic EPS and diluted EPS on the face of
the income statement and requires a reconciliation of the numerators and
denominators of basic EPS and diluted EPS.
Weighted-
Average Number
of Common Shares
Outstanding
and Potential Per
Net Income Dilutive Share
(Loss) Common Shares Amount
---------------- ---------------- ----------------
Nine Months ended September 30, 2003
Basic earnings per share $ 57,320 6,634,346 $ 0.01
Effect of dilutive stock options 168,577
---------------- ---------------- ----------------
Diluted earnings per share $ 57,320 6,802,923 $ 0.01
================ ================ ================
Nine Months ended September 30, 2002
Basic and diluted earnings per share $ 111,960 6,322,646 $ 0.02
================ ================ ================
Quarter ended September 30, 2003
Basic and dilutive loss per share $ (16,746) 6,653,660 $ 0.00
================ ================ ================
Quarter ended September 30, 2002
Basic and diluted earnings per share $ 1,351,333 6,381,285 $ 0.21
================ ================ ================
The employee stock options at September 30, 2003, were not included in the
computation of diluted earnings per share for the quarter ended September 30,
2003 because the effect of their assumed exercise and conversion would have an
antidilutive effect on the computation of diluted loss per share.
6. Business Segment Information
The Company's income producing operations are conducted in two principal
business segments: oil and gas exploration and production, and pipeline
operations. There were no intersegment revenues during the periods presented.
Information concerning these segments for the nine months and quarters ended
September 30, 2003 and 2002, and at September 30, 2003 are as follows:
10
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2003
Depletion,
Depreciation,
Amortization,
Operating Abandonment,
Income and
Revenues (Loss)(1) Impairment (2)
-------------- -------------- --------------
Nine months ended September 30, 2003:
Oil and gas exploration and production $ 1,268,733 563,244 47,819
Pipeline operations 716,243 (675,770) 243,309
Other -- (400,131) 14,330
-------------- -------------- --------------
Consolidated 1,984,976 (512,657) 305,458
Other income, net -------------- 610,432 --------------
--------------
Income before minority interest and income taxes 97,775
Nine months ended September 30, 2002:
Oil and gas exploration and production $ 1,748,880 (451,676) 594,974
Pipeline operations 960,126 (31,122) 127,055
Other -- (775,548) 355,967
-------------- -------------- --------------
Consolidated 2,709,006 (1,258,346) 1,077,996
Other income, net -------------- 1,426,052 --------------
--------------
Income before minority interest and income taxes 167,706
Quarter ended September 30, 2003:
Oil and gas exploration and production $ 449,416 166,117 31,678
Pipeline operations 212,644 (281,694) 81,103
Other -- (115,211) 4,208
-------------- -------------- --------------
Consolidated 662,060 (230,788) 116,989
Other income, net -------------- 214,042 --------------
--------------
Loss before income taxes (16,746)
Quarter ended September 30, 2002:
Oil and gas exploration and production $ 481,128 (47,189) 137,439
Pipeline operations 273,373 (84,933) 42,544
Other -- (131,538) 5,272
-------------- -------------- --------------
Consolidated 754,501 (263,660) 185,255
Other income, net -------------- 1,614,993 --------------
--------------
Income before income taxes 1,351,333
September 30,
2003
--------------
Identifiable assets:
Oil and gas exploration and production $ 850,216
Pipeline operations 5,884,952
Other 4,072,509
--------------
Consolidated $ 10,807,677
==============
11
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2003
(1) Consolidated income from operations includes $385,801 and $419,581 in
unallocated general and administrative expenses, and unallocated
depletion, depreciation and amortization of $14,330 and $355,967 for
the nine months ended September 30, 2003 and 2002, respectively.
Consolidated income (loss) from operations includes $111,003 and
$126,266 in unallocated general and administrative expenses, and
unallocated depletion, depreciation and amortization of $4,208 and
$5,272 for the quarters ended September 30, 2003 and 2002,
respectively.
(2) The Company recorded an impairment expense of $339,984 for the nine
months ended September 30, 2002, of its investment in Drillmar.
7. Stock Based Compensation
The Company accounts for stock-based compensation granted under its long-term
incentive plans using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Stock-based compensation expenses associated with
option grants were not recognized in the net income (loss) of the Company in the
nine months and three months ended September 30, 2003 and 2002, as all options
granted had exercise prices equal to the market value of the underlying common
stock on the dates of grant. The following table illustrates the effect on net
income (loss) and income (loss) per share if the Company had applied the fair
value recognition provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" to stock-based employee
compensation:
Three months ended Nine months ended
September 30, September 30,
----------------------- ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
(in thousands, except (in thousands, except
per share amounts) per share amounts)
Net income (loss), as reported ..................... $ (17) $ 1,351 $ 57 $ 112
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects -- -- (30) (123)
---------- ---------- ---------- ----------
Pro forma net income (loss) ........................ $ (17) $ 1,351 $ 27 $ (11)
========== ========== ========== ==========
Net income (loss) per share:
Basic - as reported .............................. $ .00 $ .21 $ .01 $ 0.02
========== ========== ========== ==========
Basic - pro forma $ .00 $ .21 $ .00 $ 0.00
========== ========== ========== ==========
Diluted - as reported ............................ $ .00 $ .21 $ .01 $ 0.02
========== ========== ========== ==========
Diluted - pro forma .............................. $ .00 $ .21 $ .00 $ 0.00
========== ========== ========== ==========
12
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2003
8. Recently Issued Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". This interpretation provides
guidance on the identification of, and financial reporting for, variable
interest entities. Variable interest entities are entities that lack the
characteristics of a controlling financial interest or lack sufficient equity to
finance its activities without additional subordinated financial support. FIN 46
requires a company to consolidate a variable interest entity if that company is
obligated to absorb the majority of the entity's expected losses or entitled to
receive the majority of the entity's residual returns, or both. FIN 46 also
requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. FIN
46 is applicable immediately to variable interest entities created after January
31, 2003. For all variable interest entities created prior to February 1, 2003,
FIN 46 is applicable to periods beginning after June 15, 2003. Application of
FIN 46 did not have an impact on the Company's consolidated financial
statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments
with Characteristics of Both Liabilities and Equity", ("SFAS 150") which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
150 requires that an issuer classify a financial instrument that is within its
scope, which may have previously been reported as equity, as a liability (or an
asset in some circumstances). This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003 for public companies. Adoption of SFAS 150 did not have a significant
impact on the Company's financial statements.
13
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Forward Looking Statements. Certain of the statements included in this quarterly
report on Form 10-QSB, including those regarding future financial performance or
results or that are not historical facts, are "forward-looking" statements as
that term is defined in Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"expect", "plan", "believe", "anticipate", "project", "estimate", and similar
expressions are intended to identify forward-looking statements. The Company
cautions readers that any such statements are not guarantees of future
performance or events and such statements involve risks and uncertainties that
may cause actual results and outcomes to differ materially from those indicated
in the forward-looking statements. Some of the important factors, risks and
uncertainties that could cause actual results to vary from the forward-looking
statements include:
o the risks associated with exploration;
o the level of production from oil and gas properties;
o gas and oil price volatility;
o uncertainties in the estimation of proved reserves and in the
projection of future rates of production and timing of
development expenditures;
o the level of utilization of the Company's pipelines;
o availability and cost of capital;
o actions or inactions of third party operators for properties
where the Company has an interest;
o regulatory developments; and
o general economic conditions.
Additional factors that could cause actual results to differ materially from
those indicated in the forward-looking statements are discussed under the
caption "Risk Factors" in the Company's Form 10-KSB for the fiscal year ended
December 31, 2002. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no duty to update these forward-looking statements. Readers are urged
to carefully review and consider the various disclosures made by the Company
which attempt to advise interested parties of the additional factors which may
affect the Company's business, including the disclosures made under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report.
LIQUIDITY AND CAPITAL RESOURCES
The Company's future cash flows are subject to a number of variables, primarily
oil and gas production volumes from the High Island Block A-7 field, utilization
of its pipeline systems and commodity prices among others. Approximately 65% of
our revenues from the nine months ended September 30, 2003 were from sales of
oil and gas production from the High Island A-7 field. Oil and gas production
from the High Island Block A-7 field has recently declined significantly. As a
result of this decline in production, the Company expects that its revenues from
oil and gas sales will decline significantly and it will need to raise
approximately $0.5 to $1.0 million of capital. In order to satisfy its working
capital and capital expenditure requirements for the next twelve months, the
Company will need to arrange external financing and/or sell assets to raise the
necessary capital. Historically, the Company has relied on the proceeds from the
sale of assets and capital raised from the issuance of debt and equity
securities to individual investors and related parties to sustain its
operations.
14
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
There can be no assurance that the Company will be able to obtain financing or
sell assets on commercially reasonable terms to meet its capital requirements.
The Company's inability to raise capital may have a material adverse effect on
its financial condition, ability to meet its obligations and operating needs,
and results of operations. The financial statements contained herein have been
prepared assuming that the Company will continue as a going concern. The
Company's capital requirements raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
The net cash used in operating, investing and financing activities is summarized
for the periods indicated below (amounts in thousands):
Nine Months Ended September 30,
2003 2002
------- -------
Net cash used in:
Operating activities $(1,105) $(2,064)
Investing activities (217) (1,046)
Financing activities (19) --
------- -------
Net decrease in cash $(1,341) $(1,018)
======= =======
During 2002, the Company sold substantially all of its interests in its proved
oil and gas properties for approximately $5.0 million. The properties sold
generated all of the Company's oil and gas sales revenues in 2002. From October
2002 to late April 2003, the Company had no interest in any producing oil and
gas properties. In late April 2003, the Company began to receive revenue from
its 8.9% reversionary working interest in the High Island Area Block A-7 field,
in the Gulf of Mexico, as a result of "payout" occurring. Payout occurred when
all of the other working interest owners recovered their costs and expenses
associated with developing the field from sales of gas and oil production from
the field. Oil and gas production from this field comes from two wells that
currently produce at a combined gross average rate of 9 MMcf/day. During June
2003, one of the wells was recompleted at a cost of approximately $41,000 net to
the Company's interest, and the other well was recompleted in September 2003, at
an estimated cost of approximately $25,000 net to the Company's interest. During
the nine months ended September 30, 2003, the Company recorded revenues from oil
and gas sales of approximately $1,194,000, and associated operating expenses of
approximately $64,000.
15
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
The following table summarizes certain of the Company's contractual obligations
and other commercial commitments at September 30, 2003 (amounts in thousands).
Payments Due by Period
----------------------
Contractual Less than After
Obligations Total 1 year 2-3 years 4-5 years 5 years
----------- --------- --------- --------- --------- ---------
Accounts Payable-Tetra $ 2,138 2,138 -- -- --
Long-Term Debt 826 -- -- 826 --
Operating Leases, net of sublease 380 117 234 29 --
--------- --------- --------- --------- ---------
Total Contractual
Obligations $ 3,344 2,255 234 855 --
========= ========= ========= ========= =========
Amount of Commitment Expiration Per Period
------------------------------------------
Other Commercial Less than After
Commitments Total 1 year 2-3 years 4-5 years 5 years
----------- --------- --------- --------- --------- ---------
Abandonment - Costs* $ 1,516 -- 182 -- 1,334
--------- --------- --------- --------- ---------
Total Commercial
Obligations $ 1,516 -- 182 -- 1,334
========= ========= ========= ========= =========
* Commitments expected to be incurred in 2-3 years are associated with
the High Island A-7 Field and commitments expected to be incurred after
five years are associated with the Company's pipelines.
The following table summarizes the Company's financial position for the
periods indicated (amounts in thousands):
September 30, December 31,
2003 2002
---- ----
Amount % Amount %
------ ------ ------ ------
Working Capital $1,248 15 $2,243 29
Property and equipment, net 5,898 73 4,687 60
Other noncurrent assets 971 12 845 11
------ ------ ------ ------
Total $8,117 100 $7,775 100
====== ====== ====== ======
Long-term Liabilities $2,266 28 $2,010 26
Stockholders' equity 5,851 72 5,765 74
------ ------ ------ ------
Total $8,117 100 $7,775 100
====== ====== ====== ======
16
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
The change in the Company's financial position from December 31, 2002 to
September 30, 2003, was primarily due to the adoption of SFAS No. 143 (see Note
3. Change in Accounting Principle, in Part I, Item 1.)
In November 2000, the Company elected to abandon the Buccaneer Field due to
adverse developments in the field. In August 2001, the Company reached an
agreement with Tetra Applied Technologies, Inc. ("Tetra") to remove the
Buccaneer Field platforms for a cost of approximately $2.6 million. Pursuant to
the agreement, Tetra and the Company agreed to extended payment terms, whereby
the Company will pay 20% upon completion of the abandonment operations and 5%
per month for twelve months, with the remaining balance due in the thirteenth
month. To provide security for the extended payment terms, the Company provided
Tetra with a first lien on a 50% interest in the Blue Dolphin Pipeline System.
Operations to remove the platforms commenced in August 2001 and were suspended
in December 2001, while the Company continued discussions with and was awaiting
a decision from the Texas Parks and Wildlife Department ("TPW") to leave the
underwater portion of the platforms in place as artificial reefs. Approval by
the TPW was granted and Deeds of Donation executed by TPW and the Company in
January 2003. Pursuant to the Deeds of Donation with TPW, the Company agreed to
pay TPW $390,000, of which $350,000 represents half of the site clearance work
that was eliminated (which payment the TPW required) and $40,000 represents the
cost of buoys to mark the reef sites. While the scope of work with Tetra was
changed, due to reefing rather than complete removal as originally contemplated,
the contract price and payment terms remain unchanged. The Company requested and
received an extension from the Minerals Management Service until August 31, 2003
to complete operations needed to convert the platform complexes into artificial
reefs. Tetra resumed operations in July 2003, and completed operations in late
August 2003. As of September 30, 2003, the Company paid $390,000 to TPW,
$534,400 to Tetra (representing 20% of the total due Tetra) and other costs of
approximately $20,000. At September 30, 2003, accounts payable includes
$2,137,600 due to Tetra payable as described above. The Company reduced its
provision for the Buccaneer Field abandonment costs resulting in a gain of
approximately $210,000 for the three months ended September 30, 2003, and a gain
of $490,000 for the nine months ended at September 30, 2003.
In February 2002, the Company acquired an additional 1/3 interest in the Blue
Dolphin Pipeline System and the inactive Omega Pipeline from MCNIC Pipeline and
Processing Company ("MCNIC"). Pursuant to the terms of the purchase and sales
agreement, Blue Dolphin Pipe Line Company issued MCNIC a $750,000 promissory
note due December 31, 2006, with required monthly payments to be made out of 90%
of the net revenues of the interest acquired. The note bears interest at the
rate of 6% per annum and is secured by the interest acquired. Additionally,
contingent payments of up to $750,000 will be made, if the promissory note is
retired before its maturity date, payable annually after the promissory note is
retired until December 31, 2006, out of 50% of the net revenues from the
interest acquired. The maturity date, December 31, 2006, will be extended by one
additional year, up to a maximum of two years, for years in which non-recurring,
extraordinary expenditures, attributable to the interest acquired, exceeds
$200,000, in the aggregate, during any year. Net revenues from the interest
acquired have not been sufficient to make any payments on this promissory note
and as of September 30, 2003, the amount owed MCNIC is $750,000 plus accrued
interest of approximately $76,000.
On March 25, 2003, the Company, and WBI Pipeline & Storage Group, Inc. ("WBI"),
executed a non-binding Letter of Intent ("LOI") to sell 100% of the assets of
New Avoca Gas Storage, LLC ("New Avoca") to Gotham Energy Partners, LLC
("Gotham"). The Company holds a 25% equity interest and is
17
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
the manager of New Avoca, and WBI holds a 75% equity interest. The term of the
LOI expired on June 15, 2003, but both New Avoca and Gotham verbally agreed to
extend the terms of the LOI on a month to month basis. However, the terms of the
LOI were not extended after August 31, 2003. Currently, the Company and WBI are
evaluating alternatives, including a possible sale of New Avoca to others.
In October 2003, the Company was awarded a lease on Galveston Area Block 287 in
the Gulf of Mexico. The Company was the joint high bidder on this lease at the
August 20, 2003 OCS Western Gulf of Mexico lease sale. The Company owns a 50%
working interest in the block with the remaining 50% held by Fidelity
Exploration and Production Company. The net cost of this lease to the Company
was approximately $90,000. The Company intends to sell its interest and retain a
reversionary working interest in this lease block. The Blue Dolphin Pipeline
traverses this lease block.
RESULTS OF OPERATIONS
---------------------
The Company reported net income for the nine months ended September 30, 2003,
("current period") of $57,320, compared to net income of $111,960 reported for
the nine months ended September 30, 2002 ("previous period"), and a net loss for
the three months ended September 30, 2003 ("current quarter"), of $16,746,
compared to net income of $1,351,333 for the three months ended September 30,
2002 ("previous quarter").
Revenues:
Nine Months 2003 vs. Nine Months 2002. Current period revenues from pipeline
operations decreased by $243,883 or 25% from the previous period to $716,243.
The decrease is primarily due to a 34% decrease in throughput on the Blue
Dolphin Pipeline System in the current period, partially offset by a 73%
increase in throughput on the GA 350 System.
Current period revenues from oil and gas sales decreased by $480,147, from those
of the previous period to $1,268,733. The decrease was due to the sale of oil
and gas properties in the second half of 2002. The properties sold represented
all of the Company's previous period oil and gas sales. Current period oil and
gas revenues include approximately $1,194,000 in sales from the Company's
interest in the High Island Block A-7 field which interest was received in late
April 2003, and approximately $74,000 for adjustments for periods prior to the
sale of the oil and gas properties in 2002.
Third Quarter 2003 vs. Third Quarter 2002. Current quarter revenues from
pipeline operations decreased by $60,729 from the previous quarter to $212,644.
The decrease is primarily due to a 32% decrease in throughput on the Blue
Dolphin Pipeline System in the current quarter, partially offset by a 38%
increase in throughput on the GA 350 System.
Current quarter revenues from oil and gas sales decreased by $31,712 from the
previous quarter to $449,416. Current quarter revenues represent sales from the
Company's interest in oil and gas production from the High Island Block A-7
field which interest was received in late April 2003. Previous quarter oil and
gas revenues represent sales from the Company's oil and gas properties that were
sold in the second half of 2002.
18
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
Costs and Expenses:
Nine Months 2003 vs. Nine Months 2002. Current period pipeline operating expense
increased by $265,471 or 53% from the previous period to $763,841. The increase
was due to increased insurance premiums of approximately $135,000, legal costs
of approximately $57,000, transportation costs of approximately $25,000,
personnel costs of approximately $17,000 and repairs and maintenance of
approximately $29,000.
Current period lease operating expense decreased by $522,506 from the previous
period to $76,743. The decrease was due to the sale of oil and gas properties in
the second half of 2002. The properties sold represented all of the Company's
previous period lease operating expenses. Current period lease operating
expenses include approximately $64,000 in expenses attributable to the Company's
interest in the High Island Block A-7 field which interest was received in late
April 2003 and approximately $13,000 for adjustments for periods prior to the
sale of the oil and gas properties in 2002.
Current period depletion, depreciation and amortization decreased $432,554 from
the previous period to $305,458. In the previous period the Company recorded
depletion of approximately $592,000 associated with the oil and gas properties
sold in the second half of 2002 compared to depletion of approximately $21,000
recorded in the current period. Pipeline depreciation expense increased by
approximately $116,000 in the current period.
In the previous period, the Company elected to record a full impairment of its
investment in Drillmar of $339,984 and a full reserve for the accounts
receivable amount owed from Drillmar of $197,500 due to Drillmar's working
capital deficiency and delays in securing capital funding.
General and administrative expenses for the current period decreased $498,486
from the previous period to $1,293,251. The decrease is primarily due to a cost
reduction program initiated in 2002 that resulted in a reduction in personnel
and related costs of approximately $292,000 and elimination of legal costs
associated with litigation that was settled in the previous period of
approximately $234,000.
In the current period, as a result of the Company adopting SFAS No. 143 (see
Note 3. Change in Accounting Principle in Part I, Item I), the Company recorded
accretion expense of $58,340, which reflects the increase in future asset
retirement obligations, and recorded a cumulative effect adjustment at January
1, 2003 of a change in accounting principle for asset retirement obligations of
$40,455.
Interest and other income increased in the current period by $429,432 from the
previous period. The increase is due primarily to the Company's approximately
$490,000 gain from the reduction of its provision for the Buccaneer Field
abandonment costs, and fees generated for consulting services provided by the
Company in the current period associated with the evaluation of oil and gas
properties of approximately $104,000. Previous period other income included a
non-cash adjustment to the Company's purchase of the minority interest in
American Resources of approximately $100,000.
The Company recorded a gain on the sale of its interest in the South Timbalier
Block 148 field in the previous period of $1.4 million.
19
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
Third Quarter 2003 vs. Third Quarter 2002. Current quarter pipeline operating
expenses increased by $85,087 or 40% from the previous quarter to $296,022. The
increase was due to increased insurance premiums of approximately $17,000,
transportation costs of approximately $4,000, legal costs of approximately
$23,000 and repairs and maintenance costs of approximately $29,000.
Current quarter lease operating expenses decreased by $159,924 from the previous
quarter to $46,465. The decrease was due to the sale of oil and gas properties
in the second half of 2002. The properties sold represented all of the Company's
previous quarter lease operating expenses. Current quarter lease operating
expenses represent expenses from the Company's interest in the High Island Block
A-7 field.
Current quarter depletion, depreciation and amortization decreased $68,266 from
the previous quarter to $116,989. In the previous quarter the Company recorded
depletion of approximately $137,000 associated with the oil and gas properties
sold in the second half of 2002, compared to depletion of approximately $16,000
recorded in the current quarter. Pipeline depreciation expense increased by
approximately $39,000 in the current quarter.
In the current quarter, the Company recorded accretion expense of $17,444 as a
result of its adoption of SFAS No. 143, which reflects the increase in future
asset retirement obligations.
Interest and other income increased in the current quarter by $43,869 from the
previous quarter. The increase is due primarily to the Company's approximately
$210,000 gain from the reduction to its provision for the Buccaneer Field
abandonment costs. Previous quarter other income included a non-cash adjustment
to the Company's purchase of the minority interest in American Resources of
approximately $110,000 and fees generated from services provided of
approximately $50,000.
The Company recorded a gain on the sale of its interest in the South Timbalier
Block 148 field in the previous quarter of $1.4 million.
20
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET PRICE
The Company is exposed to market risk, including adverse changes in commodity
prices and interest rates as discussed below.
Commodity Price Risk- The Company sells natural gas, crude oil and natural gas
liquids. As a result, the Company's financial results can be significantly
affected if commodity prices fluctuate widely in response to changing market
forces. The Company does not use derivative products to manage commodity price
risk.
Interest Rate Risk- The Company currently has no short-term or long-term debt
with floating interest rates, and thus currently is not subject to risk of
interest rate changes.
ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of the Company's Chief Executive Officer and Primary Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15
(e) under the Securities Exchange Act of 1934) as of September 30, 2003. Based
upon that evaluation, the Chief Executive Officer and Primary Financial Officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
21
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
31.1 Michael J. Jacobson Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 G. Brian Lloyd Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Michael J. Jacobson Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 G. Brian Lloyd Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002.
B) Reports on Form 8-K
On July 18, 2003, the Company filed a current report on Form
8-K dated July 16, 2003, reporting that NASDAQ granted an
extension of time until October 8, 2003 for the Company to be
in compliance with its minimum bid price of $1.00 per share.
The item in such current report was Item 5 (Other Events).
On August 14, 2003, the Company filed a current report on Form
8-K dated August 14, 2003, reporting the Company's second
quarter 2003 earnings. The item in such current report was
Item 12 (Results of Operations and Financial Condition).
On August 28, 2003, the Company filed a current report on Form
8-K dated August 27, 2003, reporting that it received notice
from NASDAQ that it has regained compliance with the listing
requirements as a result of the bid price of its common stock
closing above $1.00 for 10 consecutive trading days. The item
in such current report was Item 5 (Other Events).
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: BLUE DOLPHIN ENERGY COMPANY
Date: November 12, 2003 /s/ Michael J. Jacobson
--------------------------------------------
Michael J. Jacobson
President and Chief Executive Officer
/s/ G. Brian Lloyd
--------------------------------------------
G. Brian Lloyd
Vice President, Treasurer
(Principal Accounting and Financial Officer)