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Basic earnings per common share has been
computed by dividing net income by the weighted average number of
shares of Common Stock outstanding during the periods. Diluted earnings
per common share is based on the weighted average number of common
shares and all dilutive potential common shares outstanding during
the period. The Company had outstanding 149,000, 79,500 and 172,333
stock options at December 31, 2000, 2001 and 2002, respectively,
that were antidilutive. The Company had outstanding 252,632 warrants
at December 31, 2002 that were antidilutive. These antidilutive
stock options and warrants were not included in the calculation
because the exercise price of these instruments exceeded the underlying
market value of the options and warrants as of the dates presented.
The Company had 1,145,515 convertible preferred shares at December
31, 2002 that were antidilutive and were not included in the calculation.
CONTINGENCIES
Liabilities and other contingencies are recognized
upon determination of an exposure, which when analyzed indicates
that it is both probable that an asset has been impaired or that
a liability has been incurred and that the amount of such loss is
reasonably estimable.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards
Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations".
This Statement is effective for fiscal years beginning after June
15, 2002, and the Company will adopt the Statement effective January
1, 2003. On January 1, 2003, the Company recorded $0.4 million as
proved properties and $0.5 million as a liability for its plugging
and abandonment expenses.
The Company has adopted the disclosure
requirements of SFAS No. 148, "Accounting for Stock Based Compensation
- Transition and Disclosure", issued in December 2002, effective
with its December 31, 2002 consolidated financial statements and
related footnotes.
3. INVESTMENT IN MICHAEL PETROLEUM CORPORATION:
In 2000 the Company received a finder's fee
valued at $1.5 million from affiliates of Donaldson, Lufkin & Jenrette
("DLJ") in connection with their purchase of a significant minority
shareholder interest in Michael Petroleum Corporation ("MPC"). MPC
is a privately held exploration and production company which focuses
on the prolific natural gas producing Lobo Trend in South Texas.
The minority shareholder interest in MPC was purchased by entities
affiliated with DLJ. The Company elected to receive the fee in the
form of 18,947 shares of common stock, 1.9% of the outstanding common
shares of MPC, which, until its sale in 2001, was accounted for
as a cost basis investment. Steven A. Webster, who is the Chairman
of the Board of the Company, and a Managing Director of Global Energy
Partners Ltd., a merchant banking affiliate of DLJ which makes investments
in energy companies, joined the Board of Directors of MPC in connection
with the transaction.
In 2001, the Company agreed to sell its
interest in MPC pursuant to an agreement between MPC and its shareholders
for the sale of a majority interest in MPC to Calpine Natural Gas
Company. The Company received total cash proceeds of $5.7 million,
of which $5.5 million was paid to the Company during the third quarter
of 2001, resulting in a financial statement gain of $3.9 million
being reflected in the third quarter 2001 financial results. The
remaining amounts will be paid in 2003.
4. PROPERTY AND EQUIPMENT
At December 31, 2001 and 2002, property and
equipment consisted of the following:
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