Yuma Energy, Inc. Announces Second Quarter 2016 Financial Results

Yuma Energy, Inc. Announces Second Quarter 2016 Financial Results

Yuma Energy, Inc. (NYSE MKT: YUMA) (the “Company” or “Yuma”) today announced its financial results for the quarter ended June 30, 2016.

Financial Results

Sales and Other Operating Revenues

The following table presents the net quantities of oil, natural gas and natural gas liquids produced and sold by us for the three and six months ended June 30, 2016 and 2015, and the average sales price per unit sold.

The following table presents our revenues for the three and six months ended June 30, 2016 and 2015.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA

The following table reconciles reported net income to Adjusted EBITDA for the periods indicated:

Adjusted EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess our operating performance compared to that of other companies in our industry, without regard to financing methods, capital structure or historical costs basis. It is also used to assess our ability to incur and service debt and fund capital expenditures. Our Adjusted EBITDA should not be considered an alternative to net income (loss), operating income (loss), cash flow provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDA in the same manner.

About Yuma Energy, Inc.

Yuma Energy, Inc. is an independent Houston-based exploration and production company. We are focused on the acquisition, development, and exploration for conventional and unconventional oil and natural gas resources, primarily in the U.S. Gulf Coast and California. We have employed a 3-D seismic-based strategy to build a multi-year inventory of development and exploration prospects. Our current operations are focused on onshore assets located in central and southern Louisiana, where we are targeting the Austin Chalk, Tuscaloosa, Wilcox, Frio, Marg Tex and Hackberry formations. In addition, we have a non-operated position in the Bakken Shale in North Dakota and operated positions in Kern and Santa Barbara Counties in California. Our common stock is traded on the NYSE MKT under the trading symbol “YUMA.” Our Series A Preferred Stock is traded on the NYSE MKT under the trading symbol “YUMAprA.” For more information about Yuma Energy, Inc., please visit our website at www.yumaenergyinc.com.

Agreement and Plan of Merger and Reorganization

On February 10, 2016, the Company and privately held Davis Petroleum Acquisition Corp. (“Davis”) entered into a definitive merger agreement (the “merger agreement”) for an all-stock transaction. The merger agreement is subject to the approval of the shareholders of both companies, as well as other customary conditions and approvals, including authorization to list the newly issued shares on the NYSE MKT. Upon completion of the transaction, we will reincorporate in Delaware, implement a one-for-ten reverse split of our common stock, and convert each share of our existing Series A Preferred Stock into 35 shares of common stock prior to giving effect for the reverse split (3.5 shares post reverse split). In addition, approximately 3.3 million shares of a new Series D preferred stock will be issued to existing Davis preferred stockholders, which will have a liquidation preference of approximately $19.0 million and is estimated to have a conversion price of approximately $5.70 per share, after giving effect for the reverse split. Upon closing, there is expected to be an aggregate of approximately 23.7 million shares of common stock outstanding, with approximately 61.1% being owned by the current common stockholders of Davis. The transaction is expected to qualify as a tax-deferred reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”) and is expected to close in the third or fourth quarter of 2016.

Davis is a Houston-based oil and gas company. Over 90% of the common stock of Davis is owned by entities controlled by or co-investing with Evercore Capital Partners, Red Mountain Capital Partners, and Sankaty Advisors.

On June 6, 2016 and effective as of May 31, 2016, we entered into the Waiver and Tenth Amendment (the “Amendment”) to our Credit Agreement (the “credit agreement”) with Société Générale (the “Bank”) as administrative agent and issuing bank, and each of the lenders and guarantors party thereto. The Amendment maintains our borrowing base at $29.8 million and automatically reduces our borrowing base to $20.0 million on the earliest of (i) August 15, 2016, if the registration statement on Form S-4 (the “Form S-4”) filed with the Securities and Exchange Commission (“SEC”) pursuant to the pending merger agreement has not been declared effective by such date; (ii) the date that is forty-seven days after the date the Form S-4 has been declared effective by the SEC; (iii) September 30, 2016; and (iv) in the event of the termination of the merger agreement. In the event that the SEC does not declare the Form S-4 effective by August 15, 2016, we expect to enter into discussions with our lenders participating in our credit facility, and enter into a new amendment to the credit facility that will extend the waiver of these breaches until the closing of the merger. The credit agreement is secured by a first lien on substantially all of our assets. A breach of any of the terms and conditions or the financial covenants contained in the credit agreement could result in acceleration of our indebtedness, in which case the debt would become immediately due and payable. As a result, we have classified the outstanding balance under our credit facility as current.

Receipt of Audit Opinion with Going Concern Qualification

The audit opinion provided by the Company’s independent public auditing firm relating to the Company’s audited consolidated financial statements for the year ended December 31, 2015 included a going concern qualification. The Company’s audited consolidated financial statements were included in its Annual Report on Form 10-K/A for the year ended December 31, 2015, which was filed with the SEC on May 23, 2016. Generally, due to net losses incurred and borrowing base deficiencies under the credit agreement as discussed above, the Company’s independent registered public accounting firm indicated in its opinion that these conditions raise a substantial doubt about the Company’s ability to continue as a going concern.

As discussed above, on February 10, 2016, the Company entered into the merger agreement for an all-stock transaction. Upon completion of the transaction, which is subject to shareholder and bank approval as well as other customary conditions and approvals, and in the absence of significant reduction in commodity prices, the Company believes it will be able to satisfy its lenders and eliminate any borrowing base deficiency. Further, the Company believes that its auditors may withdraw the going concern qualification. While Management believes that the merger is likely to occur, it can provide no assurance of the completion of the merger with Davis or any elimination of its borrowing base deficiency or any amendment to the credit agreement. Further, the Company can provide no assurance that its auditors will withdraw their going concern qualification.

Please refer to our annual report on Form 10-K/A for the year ended December 31, 2015, our Form 10-Q for the quarterly periods ended March 31, 2016 and June 30, 2016, and all our filings with the SEC for further information. 

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as “expects,” “believes,” “intends,” “anticipates,” “plans,” “estimates,” “potential,” “possible,” or “probable” or statements that certain actions, events or results “may,” “will,” “should,” or “could” be taken, occur or be achieved. The forward-looking statements include statements about future operations, estimates of reserve and production volumes, the anticipated timing for closing the proposed merger and the ability of the Company to enter into an amendment to its credit agreement. Forward-looking statements are based on current expectations and assumptions and analyses made by Yuma and Davis in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform with expectations is subject to a number of risks and uncertainties, including but not limited to: the possibility that the companies may be unable to obtain stockholder approval or satisfy the other conditions to closing; the possibility that the combined company may be unable to obtain an acceptable reserve-based credit facility; that problems may arise in the integration of the businesses of the two companies; that the acquisition may involve unexpected costs; the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas); risks and uncertainties involving geology of oil and gas deposits; the uncertainty of reserve estimates; revisions to reserve estimates as a result of changes in commodity prices; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather; further declines in oil and gas prices; inability of management to execute its plans to meet its goals, shortages of drilling equipment, oil field personnel and services, unavailability of gathering systems, pipelines and processing facilities and the possibility that government policies may change. Yuma’s annual report on Form 10-K/A for the year ended December 31, 2015, quarterly reports on Form 10-Q, recent current reports on Form 8-K, and other SEC filings discuss some of the important risk factors identified that may affect its business, results of operations, and financial condition. Yuma and Davis undertake no obligation to revise or update publicly any forward-looking statements, except as required by law.

Additional Information about the Transaction

In connection with the proposed transaction, Yuma Delaware Merger Subsidiary, Inc., a wholly owned subsidiary of Yuma (“Yuma Delaware”), filed with the SEC a registration statement on Form S-4 that includes a proxy statement of Yuma that also constitutes a prospectus of Yuma Delaware relating to Yuma Delaware common stock to be exchanged for Yuma common stock and preferred stock in the reincorporation, Yuma Delaware common stock to be issued upon conversion of the shares of Davis common stock in the merger, Yuma Delaware preferred stock to be issued upon conversion of the Davis preferred stock in the merger, and Yuma Delaware common stock to be issued upon conversion of the Yuma Delaware preferred stock. The proxy statement/prospectus includes important information about both Yuma and Davis. Yuma and Yuma Delaware also plan to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE REGISTRATION STATEMENT, THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT YUMA, DAVIS AND THE PROPOSED TRANSACTION. Investors and security holders may obtain these documents when available free of charge at the SEC’s website atwww.sec.gov. In addition, the documents filed with the SEC by Yuma and Yuma Delaware can be obtained free of charge from Yuma’s website at www.yumaenergyinc.com.

Participants in Solicitation

Yuma and its executive officers and directors may be deemed to be participants in the solicitation of proxies from the shareholders of Yuma in respect of the proposed transaction. Information regarding Yuma’s directors and executive officers is available in its annual report on Form 10-K/A for the year ended December 31, 2015, which was filed with the SEC on May 23, 2016. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the definitive proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

This document shall not constitute an offer to sell or the solicitation of any offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of the Securities Act.