U.S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
Annual Report Under Section 13 or 15(d)
of the
Securities Exchange Act of 1934
for the quarterly period ended
September 30, 1995
Commission File Number: 1-10425
WICHITA RIVER OIL CORPORATION
(Name of Small Business Issuer in its Charter)
Delaware 13-3544163
(State of Incorporation) (IRS Employer Identification Number)
3500 N. Causeway Blvd., Suite 410
Metairie, Louisiana 70002
(Address of Principle Executive Office) (Zip Code)
(504)-831-0381
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of The Exchange Act:
Title of Each Class Name of Exchange on which Registered
Common Stock $0.01 par value American Stock Exchange
Securities registered under Section 12(g) of The Exchange Act: None
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 .
Check if Transitional Small Business Format: Yes No x .
Applicable Only To Corporate Issuers
State the number of shares outstanding of each of the issuer's
classes of equity.
As of November 8, 1995, approximately 7,974,000 shares of Common Stock, $0.01
par value per share, were issued and outstanding.
Wichita River Oil Corporation and Subsidiary
Condensed Consolidated Balance Sheets
Unaudited
September 30, December 31,
1995 1994
Assets
Current Assets:
Cash and cash equivalents $50,000 $196,000
Accounts receivable 925,000 821,000
Total Current Assets 975,000 1,017,000
Property and Equipment:
Oil and gas properties
(full cost method) 53,468,000 52,597,000
Less - Accumulated depletion and
writedown of oil and gas
properties (28,423,000) (27,219,000)
Net Property and Equipment 25,045,000 25,378,000
Other Assets:
Debt issuance costs,
net of amortization 276,000 368,000
Deferred income tax asset 520,000 - -
Total Assets $ 26,861,000 $ 26,763,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $1,060,000 $ 818,000
Undistributed production
receipts 1,871,000 1,570,000
Accrued liabilities 915,000 743,000
Accrued interest 733,000 181,000
Current maturities of
long-term debt 6,000,000 2,000,000
Total Current Liabilities 10,579,000 5,312,000
Long-Term Debt 15,350,000 19,350,000
Total Liabilities 25,929,000 24,662,000
Stockholders' Equity:
Common stock, voting, $.Ol
par value, shares authorized
10,000,000, shares outstanding
7,974,000 and 7,974,000,
respectively 81,000 81,000
Additional paid-in capital 12,987,000 12,987,000
Subscriptions receivable (319,000) (319,000)
Retained earnings (deficit) (11,862,000) (10,648,000)
Total Stockholders' Equity 887,000 2,101,000
Total Liabilities and
Stockholders' Equity $ 26,816,000 $26,763,000
2
Wichita River Oil Corporation and Subsidiary
Condensed Consolidated Statements of Stockholders' Equity
Unaudited
Additional Stock
Paid-in Subscript. Retained Stockholders'
Par Value Capital Rec. Earnings Equity
Bal. Dec. 31, 1994 $81,000 $12,987,000 $(319,000) $(10,648,000) $2,101,000
Net Loss -- -- -- (1,214,000) (1,214,000)
Bal. Sept. 30, 1995 $81,000 $12,987,000 $(319,000) $(11,862,000) $887,000
<F1>
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
Wichita River Oil Corporation and Subsidiary
Condensed Consolidated Statements of Operations
Unaudited
Nine-Months Period Three-Months Period
Periods Ended Sept. 30, 1995 1994 1995 1994
Revenues:
Oil and gas sales $ 2,568,000 $ 3,728,000 $735,000 $ 1,198,000
Expenses:
Production expenses 550,000 822,000 185,000 305,000
General and administrative 797,000 1,295,000 320,000 285,000
Interest expense 1,659,000 1,390,000 550,000 554,000
Depreciation, depletion
and amortization 1,296,000 1,406,000 448,000 449,000
Total expenses 4,302,000 4,913,000 1,503,000 1,593,000
Income (loss) before income
taxes (1,734,000 (1,185,000) (768,000) (395,000)
Income tax benefit 520,000 356,000 219,000 119,000
Net Income (Loss) $(1,214,000) $(829,000) $(549,000) $(276,000)
Earnings (Loss) Per Share $(0.15) $(0.12) $(0.07) $(0.04)
Weighted average number of
shares outstanding 7,974,000 7,023,000 7,974,000 7,026,000
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Wichita River Oil Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
Unaudited
Nine Months Ended Sept. 30, 1995 1994
Cash Flows from Operating Activities:
Net income (loss) $(1,214,000) $(829,000)
Adjustment to reconcile net income (loss)
to net cash from operating activities:
Depreciation, depletion and amortization 1,296,000 1,406,000
Deferred income tax benefit (520,000) (356,000)
Operating Cash Flow (Loss) (438,000) 221,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable
and other assets (104,000) (83,000)
Increase (decrease) in accounts payable
and other liabilites 1,267,000 134,000
Net cash provided by operating activities $725,000 $272,000
Cash Flows from Investing Activities:
Capital expenditures $(871,000) $(731,000)
Net cash (used in) investing activities $(871,000) $(731,000)
Cash Flows from Financing Activities:
Retirement of Debt $ - - $ (50,000)
Issuance of common stock - - 262,000
At end of period $ - - 212,000
Cash and Cash Equivalents:
At beginning of period $ 196,000 $322,000
Net increase (decrease) during period (146,000) 247,000
At end of period $50,000 $75,000
Supplemental Cash Flow Information:
Cash paid during period for interest $1,099,000 $1,356,000
Cash paid during period for income taxes $ - - $ - -
<F2>
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
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Wichita River Oil Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements for Septembere 30, 1995
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Wichita River Oil Corporation and its wholly owned subsidiary
(collectively referred to as the "Company"). The Company's wholly owned
subsidiary is Equitable Petroleum Corporation ("Equitable"). The Company is
an oil and gas exploration, development and production company. As a result
of a merger in 1991 and a sale in 1993, the composition of the Company's
subsidiary group changed in 1993 and 1991. All material intercompany accounts
and transactions are eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
Property and Equipment: Property and equipment are stated at cost. The Company
uses the "full cost" method of accounting for oil and gas properties.
Accordingly, costs incurred in the acquisition, exploration and development of
oil and gas properties are capitalized. Under the full cost method, intangible
drilling costs, dry hole costs, geologic costs and certain internal costs
related to exploration and development efforts are included as part of oil and
gas properties. Proceeds from the sale of oil and gas properties reduce
property and equipment and no gains or losses are normally recognized under
the full cost method. As the Company becomes aware of costs to be incurred for
site restoration, dismantlement and/or abandonment, it records the liability.
To date, no such liability has been recorded.
Depreciation, depletion and amortization of proved oil and gas properties is
computed using the units of production method based on total proved oil and
gas reserves. Depreciation of other fixed assets, primarily office equipment,
is determined using the straight-line method over their estimated useful lives.
Upon abandonment or disposal of depreciable assets, the cost and accumulated
allowance for depreciation are eliminated from the accounts and any gain or
loss is reflected in results of operations.
Income Taxes: Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"), which requires the Company to use an asset and liability
approach to accounting for income taxes. Deferred tax assets or liabilities are
measured by applying the provisions of enacted tax laws to differences between
the tax bases of assets and liabilities and amounts reported on the Company's
balance sheet. A valuation allowance must be established for any portion of a
deferred income tax asset, if it is more likely than not that a tax benefit
will not be realized.
5
Wichita River Oil Corporation and Subsidiary
Notes of Condensed Consolidated Financial Statement for September 30, 1995
Income Taxes - continued
The Company recognized a non-cash cumulative effect of adopting the new
standard, resulting in a charge to operations of $1.6 million primarily
because SFAS 109 does not permit recognition of statutory depletion from future
oil and gas revenues. The adoption of SFAS 109 was reflected as a cumulative
effect of accounting change in the Company's 1993 consolidated statement of
operations.
Reclassifications: Certain prior years' amounts have been reclassified to
conform with the 1995 presentation.
Earnings (Loss) Per Share: The weighted average number of shares of common
stock outstanding during the periods is used to compute earnings (loss) per
share. Stock options and warrants are considered common stock equivalents to
the extent they have a dilutive effect on earnings per share.
Long-Term Debt
On February 1, 1992, the Company entered into a long-term credit agreement
("1992 Credit Agreement") with a bank providing a borrowing capacity of
$20,000,000, which was immediately drawn. The proceeds were used primarily
to retire a $15,000,000 loan under an existing credit agreement and the
remainder of a production payable incurred in the 1991 merger. In April of
1993, the 1992 Credit Agreement was amended and outstanding borrowings were
increased to $22.5 million. Outstanding borrowings, which were reduced to
$21,350,000 as of December 31, 1994, under the loan are secured by a first
security interest in the oil and gas properties of the Company.
On December 31, 1993, the outstanding balance of the revolving credit facility
converted to a term note. In August of 1995 the credit facility was amended
to provide for the following principal reductions: $2.0 million payable
October 1, 1995, $4.0 million payable April 1, 1996, $2.0 million payable
semiannually commencing on July 1, 1996 and the balance on January 1, 1998.
The credit facility accrues interest, which is payable monthly commencing
October 1, 1995, at the lender's prime rate plus 1.5 percent (10.25% on
September 30, 1995). Interest for the period June 1, 1995 through September
30, 1995 was payable October 1, 1995.
The 1992 Credit Agreement, as amended, requires that the Company maintain
financial covenants related to tangible net worth, current ratio, coverage of
fixed charges and capital expenditures and to fund extraordinary principal
payments from any cash flows in excess of ordinary operating expenses and
interest.
6
Wichita River Oil Corporation Subsidiary
Notes to Condensed Consolidated Financial Statements for September 30, 1995
Common Stock
During 1994, the Company issued 1,258,000 shares of common stock and
stockholders' equity was increased by $1,023,000. Included were 237,729 shares
with a market value $259,000 for settlement of litigation, 250,000 shares to a
consultant to the company for a subscription receivable of $190,000, and the
balance of 770,000 shares for reducing the Company's current liabilities by
$764,000. The Company had incurred the current liabilities primarily as a
result of capital expenditures associated with production enhancement
operations.
The following table identifies the changes during the past two years for the
Company's stock purchase warrants and stock options as well as the issued and
outstanding warrants and options as of September 30, 1995.
Number Price Number Price
of Warrants Per Share of Options Per Share
Outstanding Dec. 31, 1993 567,500 $0.01 - 1.25 40,000 $1.56 - 6.25
Forfeited during 1994-net (8,000) - - - - - -
Exercised during 1994 (41,000) 1.25 - - - -
Outstanding Dec. 31, 1994: 518,500 0.01 - 1.25 40,000 1.56 - 6.25
Forfeited during 1995-net (12,000) - - (16,000) 6.25
Exercised during 1995 - - - - - - - -
Outstanding Sept. 30, 1995: 506,500 $0.01 - 1.25 24,000 $1.56 - 6.25
Consisting of: 350,000 $0.01 20,800 $1.56
156,500 $1.25 3,200 $6.25
As of September 30, 1995, a total of 550,500 shares of Company common stock were
reserved for issuance (1) under stock option plans (24,000 shares); (2) pursuant
to the 1992 and 1990 Credit Agreements for warrants exercisable by the Company's
bank (350,000 shares) and (3) under the 1991 Stock Warrant Plan (156,500
shares). There were 20,000 unissued warrants under the 1991 Stock Warrant Plan
as of September 30, 1995.
On April 4, 1995, WRO announced that the American Stock Exchange would conduct
a review of the Company's continued listing eligibility. The Company does not
meet fully all financial qualifications for continued listing of its common
stock. Discussions between the Company's management and the exchange's
delisting staff have resulted in the exchange continuing to monitor the
Company's recapitalization and/or refinancing efforts for the time being.
On October 2, 1995, trading in the Company's common stock was halted until a
public announcement regarding the recapitalization efforts could be made. As
the Company's efforts continue to be monitored, the exchange may or may not
permit the listing for the Company's common stock to continue.
7
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
On September 30, 1995, the Company had deficit working capital of $9.6 million,
including $6.0 million of principal due its bank. Under the terms of the
bank loan, the Company has utilized essentially all its capacity for secured
debt. Based upon recent experience, management also believes the Company has
also utilized essentially all its capacity for trade credit. On October 1,
1995, a $2.7 million payment ($2.0 million of principal and $0.7 million of
accured interest) was due under the Company's $21.3 million senior-secured bank
loan agreement. The Company was unable to pay the $2.7 million, and the
lender's remedies for nonpayment include acceleration of the loan and initiation
of foreclosure proceedings. Immediately prior to October 1, 1995, the original
lender transferred the Company's loan to a new lender. Subsequently, the new
lender and the Company have discussed various loan amendment ideas as well as
various recapitalization and/or refinancing alternatives. The discussions and
negotiations that have occurred to date have not resulted in formalized
conclusions. The discussions and negotiations are continuing.
A failure to bring these negotiations between the Company and the new lender to
a successful conclusion may result in foreclosure proceeding by the new lender.
Substantially all of the the Company's oil and gas properties are pledged as
security for the bank loan. In the event that foreclosure proceedings are
initiated by the new lender, such proceedings may jeopardize the Company's
ability to continue operations without availing itself the protection afforded
by federal bankruptcy laws.
Management believes that anticipated cash flows from operations will be
aequate to meet the Company's foreseeable financial obligations once the
Company's properties are fully developed. If the Company is unable to develop
its properties in the near future, there can be no assurance that the Company
will be able to meet its foreseeable financial obligations.
Net cash provided by operating activities during the first nine months of 1995
was $725,000, including an operating cash loss of $438,000. Comparable figures
for 1994 were cash provided by operating activities of $272,000, including
operating cash flow of $221,000. Net cash used in investing activities during
the first nine months of 1995 was $871,000 for capital expenditures compared to
net cash used in investing activities in 1994 of $731,000 for capital
expenditures. There were no financing activities during the first nine months
of 1995 compared to net cash provided by financing activities of $212,000
during 1994.
Wichita River Oil Corporation and the Company's subsidiary are defendants in
various lawsuits arising in the ordinary course of business. The Company
believes it has meritorious defenses to the lawsuits and will defend against
them. Based on its evaluation of such claims, as discussed with its outside
legal counsel, Company management is of the opinion that the ultimate resolution
of such matters will not have a material adverse effect on the Company's
financial position or results of operations and that such matters are not
material for an investment decision regarding the Company's securities.
8
Results of Operations
First Quarter of 1995 Compared to First Quarter of 1994. When compared to a
year earlier, oil and gas sales were 26% lower due primarily to a 16% decrease
in daily production volumes (835 BOE v. 995) and a 12% decrease in average
prices ($12.26 per BOE v. $13.93), primarily because natural gas prices
during 1995 were lower ($1.61 per mcf compared to $2.54 during 1994).
Production expenses, exclusive of production taxes, were 24% lower in 1995 when
compared to 1994. Average operating expenses per BOE in 1995 were $1.20
compared to $1.32 in 1994. Production taxes were 22% lower than in 1994,
despite higher oil prices ($15.45 per barrel compared to $12.55 in 1994),
due primarily to lower production volumes.
General and administrative expenses in 1995 were 66% lower when compared to
1994, due primarily to a $308,000 charge for settlement of litigation during
1994. Interest expense in 1995 was 43% higher due to higher interest rates of
10.3% in 1995 compared to 7.5% in 1994, which was partially offset by a reduced
amount of interest-bearing debt outstanding.
Depreciation, depletion and amortization costs were 7% lower in 1995 despite
16% lower production volumes. The average depletion rate in 1995 was $5.55 per
BOE v. $5.00 in 1994.
Second Quarter of 1995 Compared to Second Quarter of 1994. When compared to
a year earlier, oil and gas sales were 29% lower due to a 26% decrease in daily
production volumes (733 BOE v. 996) and a 3% decrease in average prices ($13.68
per BOE v. $14.16). Production expenses, exclusive of taxes, were 48% lower in
1995 when compared to 1994. Average operating expenses per BOE in 1995 were
$1.16 compared to $1.66 in 1994. Production taxes were 19% lower than in 1994
despite higher oil prices ($16.30 per barrel compared to $15.89 in 1994).
General and administrative expenses in 1995 were 27% lower when compared to
1994 due to austerity measures. Interest expense in 1995 was 24% higher due to
higher interest rates. Depreciation, depletion and amortization costs were
15% lower in 1995 despite 26% lower production volumes. The average depletion
rate in 1995 was $5.55 per BOE v. $5.00 in 1994.
First Half of 1995 Compared to First Half of 1994. When compared to a year
earlier, oil and gas sales were 28% lower due to 21 % lower daily production
volumes (783 BOE v. 995) and 8% lower prices ($12.93 per BOE v. $14.05).
Production expenses, exclusive of taxes, were 38% lower in 1995 when compared
to 1994. Average operating expenses per BOE in 1995 were $1.18 compared to
$1.49 in 1994. Production taxes in 1995 were 21% lower than in 1994 despite
higher oil prices ($15.85 per barrel compared to $14.23 in 1994).
9
General and administrative expenses in 1995 were 53% lower when compared to
1994 and 32% lower excluding a $308,000 charge for settlement of litigation
during the first quarter of 1994. Interest expense in 1995 was 33% higher
due to higher interest rates. Depreciation, depletion and amortization costs
were 11% lower in 1995 despite 21% lower production volumes. The average
depletion rate in 1995 was $5.55 per BOE v. $5.00 in 1994.
Third Quarter of 1995 Compared to Third Quarter 1994. When compared to a year
earlier, oil and gas sales were 39% lower due to a 27% decrease in daily
production volumes (698 BOE v. 961) and a 15% decrease in average prices
($11.45 per BOE v. $13.54). Production expenses, exclusive of taxes were 51%
lower in 1995 when compared to 1994. Average operating expenses per BOE in 1995
were $1.29 compared to $1.91 in 1994. Production taxes were 23% lower than in
1994, reflecting lower oil prices ($15.17 per barrel compared to $15.78 in
1994).
General and administrative expenses in 1995 were 12% higher when compared to
1994 due to costs associated with refinancing efforts. Interest expense in
1995 was unchanged from 1994 levels. Depreciation, depletion and amortization
costs were unchanged in 1995 despite 27% lower production volumes. The average
depletion rate in 1995 was $6.50 per BOE v. $5.00 in 1994.
First Nine Months of 1995 Compared to First Nine Months of 1994. When compared
to a year earlier, oil and gas sales wer 31% lower due to 23% daily production
volumes (754 BOE v. 984) and 10% lower prices ($12.47 per BOE v. $13.88).
Production expenses, exclusive of taxes, were 43% lower in 1995 when compared
to 1994. Average operating expenses per BOE in 1995 were $1.21 compared to
$1.63 in 1994. Production taxes in 1995 were 22% lower than in 1994,
reflecting lower volumes despite higher oil prices ($15.63 per barrel compared
to $15.27 in 1994).
General and administrative expenses in 1995 were 38% lower when compared to
1994 and 19% lower excluding a $308,000 charge for settlement of litigation
during the first quarter of 1994. Interest expense in 1995 was 19% higher due
to higher interest rates. Depreciation, depletion and amortization costs were
8% lower in 1995 despite 23% lower production volumes. The average depletion
rate in 1995 was $5.84 per BOE v. $5.00 in 1994.
Inflation has not had a material impact during the periods described above and
is not expected to have any material impact in the near future. The prices
received by the Company for oil and gas and the costs incurred by the Company
for operations in the recent past and for the foreseeable future have been
affected more by supply and demand factors and other general conditions than
by inflation.
Legal Proceedings
Wichita River Oil Corporation and the Company's subsidiary are defendants in
various lawsuits arising in the ordinary course of business. The Company
believes it has meritorious defenses to the lawsuits and will defend against
them. Based on its evaluation of such claims, as discussed with its outside
legal counsel, Company management is of the opinion that the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations and that such matters are
not material for an investment decision regarding the Company's securities.
Submission of Matters to a Vote of Security Holders
None.
Exhibits and Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 in New Orleans, State of
Louisiana on November 8, 1995.
Wichita River Oil Corporation
By: By:
Michael L. McDonald James P. McGinnis
(Signature) (Signature)
Chairman and President Controller
November 8, 1995
10