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
March 31, 1996
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 None
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 April 23, 1996, approximately 7,974,000 shares of Common Stock, $0.01
par value per share, were issued and outstanding.
Wichita River Oil Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
Unaudited
March 31, December 31,
1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 2,000 $ 28,000
Accounts receivable 608,000 919,000
__________ _________
Total Current Assets 610,000 947,000
Property and Equipment:
Oil and gas properties
(full cost method) 54,627,000 53,815,000
Less - Accumulated depletion and
writedown of oil and gas
properties (38,269,000) (38,019,000)
Net Property and Equipment 16,358,000 15,796,000
____________ ____________
Total Assets $ 16,968,000 $ 16,743,000
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $1,119,000 $1,323,000
Undistributed production
receipts 2,046,000 1,954,000
Accrued liabilities 1,081,000 753,000
Accrued interest 1,862,000 1,285,000
Current maturities of
long-term debt 21,350,000 21,350,000
__________ __________
Total Current Liabilities 27,458,000 26,665,000
Stockholders' Equity (Deficit):
Common stock, voting, $.01
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) (23,239,000) (22,671,000)
__________ __________
Total Stockholders' Equity
(Deficit) (10,490,000) (9,922,000)
Wichita River Oil Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
Unaudited
Additional Stock
Common Stock Paid-in Subscriptions Retained Stockholders'
Shares Amount Capital Receivable Earnings (Deficit) Equity (Deficit)
Balance Dec. 31, 1995 7,974,000 $81,000 $12,987,000 $(319,000) $(22,671,000) $(9,222,000)
Net Loss - - - - - - - - (568,000) (568,000)
_________ _______ ___________ _________ ____________ ____________
Balanace March 31, 1996 7,974,000 $81,000 $12,987,000 $(319,000) $(23,239,000) $(10,490,000)
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
2
Wichita River Oil Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
Three-Months Ended March 31, 1996 1995
Revenues:
Oil and gas sales $ 958,000 $ 921,000
Expenses:
Production expenses 205,000 184,000
General and administrative 488,000 221,000
Interest expense 583,000 549,000
Depreciation, depletion
and amortization 250,000 442,000
_________ _________
Total expenses 1,526,000 1,396,000
Income (loss) before income taxes (568,000) (314,000)
Income tax benefit - - 161,000
_________ ________
Net Income (Loss) $(568,000) $(314,000)
Earnings (Loss) Per Share $(0.07) $(0.04)
Number of shares outstanding 7,974,000 7,974,000
Wichita River Oil Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
Unaudited
Three Months Ended March 31, 1996 1995
Cash Flows from Operating Activities:
Net income (loss) $(568,000) $(314,000)
Adjustment to reconcile net income (loss)
to net cash from operating activities:
Depreciation, depletion and amortization 250,000 442,000
Deferred income tax benefit - - (161,000)
_________ _________
Operating Cash Flow (Loss) (318,000) (33,000)
Changes in assets and liabilities
Decrease (increase) in accounts receivable
and other assets 311,000 ( 52,000)
Increase (decrease) in accounts payable
and other liabilities 792,000 371,000
________ ________
Net cash provided by operating activities $785,000 $286,000
Cash Flows from Investing Activities:
Capital expenditures $(811,000) $(374,000)
Net cash (used in) investing activities $(811,000) $(374,000)
Cash Flows from Financing Activities: $ - - $ - -
Cash and Cash Equivalents:
At beginning of period $ 28,000 $ 196,000
Net increase (decrease) during period (26,000) (88,000)
_________ _________
At end of period $ 2,000 $ 108,000
Supplemental Cash Flow Information:
Cash paid during period for interest $ - - $ 534,000
Cash paid during period for income taxes $ - - $ - -
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
3
Wichita River Oil Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements for March 31, 1996
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Wichita River Oil Corporation and its wholly owned subsidiaries
(collectively referred to as the "Company"). The Company's wholly owned
subsidiary are Equitable Petroleum Corporation and WRO Operating Company. The
Company is an oil and gas exploration, development and production company.
As a result a sale in 1993, the composition of the Company's subsidiary
group changed. 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.
The Company recognized a non-cash cumulative effect of adopting the new
standard, resulting in a charge to income of $1.6 million primarily because of
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 1996 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.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4
Wichita River Oil Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements for March 31, 1996
Current Maturities of 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 the $15,000,000 loan under an existing credit agreement and the
remainder of a production payable incurred in a 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 $21.5 million in August of 1993, 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 1994, the credit facility was amended
to provide for the following principal reductions: monthly payments of $50,000
per month for three months beginning October 1, 1994, $1,850,000 on January 1,
1995, $2,000,000 each payable July 1, 1995, January 1, 1996, and January 1, 1997
and the balance on January 1, 1998.
In April of 1995, the credit facility was amended to provide for the following
principal reductions: $2.0 million payable July 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, at the original lender's prime rate plus 1.25 percent (9.5% on
March 31, 1996). 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. Also, in August of 1995,
the credit facility was amended to provide for payment on October 1, 1995 of
interest accrued during the months of June 1995 through August 1995. Payment
of interest for September 1995 had been scheduled previously for payment on
October 1, 1995.
On October 1, 1995, a $2.7 million payment ($2.0 million of principal and $0.7
million of accrued interest) was due on the Company's $21.3 million senior-
secured debt. The Company was unable to pay the $2.7 million, and the note
holder's remedies for nonpayment include acceleration of the loan and
initiation of foreclosure proceedings. Immediately prior to October 1, 1995,
the Company's original lender transferred the debt to a new note holder.
Subsequently, the note holder and the Company have discussed discussions and
negotiations that occurred did not result in formalized conclusions.
On April 11, 1996, the note holder delivered to the Company a notice of default
and declared the debt due and payable. On April 17, 1996, alleged unsecured
creditors of the Company filed an involuntary petition with the United States
Bankruptcy Court in the Eastern District of Louisiana seeking a Chapter 11
reorganization of the Company.
Management believes that anticipated cash flows from operations will be
adequate to meet the Company's foreseeable financial obligations provided
the Company's properties can be fully developed. The Company's ability to
continue the development of its properties during the near future is subject
to the determination of certain issues in bankruptcy proceedings as well as
market conditions for and availability of external capital. 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.
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.
5
Wichita River Oil Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements for March 31, 1996
Common Stock - continued
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 March 31, 1996.
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 Dec. 31, 1995: 506,500 $0.01 - 1.25 24,000 $1.56 - 6.25
Forfeited during 1996 - - - - - - - -
Exercised during 1996 - - - - - - - -
_______ ____________ ______ ____________
Outstanding March 31, 1996: 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 March 31, 1996, 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 March 31, 1996.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
On October 1, 1995, a $2.7 million payment ($2.0 million of principal and $0.7
million of accrued interest) was due on the Company's $21.3 million senior-
secured debt. The Company was unable to pay the $2.7 million, and the note
holder's remedies for nonpayment include acceleration of the loan and
initiation of foreclosure proceedings. Immediately prior to October 1,
1995, the Company's original lender transferred the debt to a new note
holder. Subsequently, the note holder and the Company have discussed various
debt amendments ideas as well as various recapitalization and/or refinancing
alternatives. The discussions and negotiations that occurred did not result
in formalized conclusions.
On April 11, 1996, the note holder delivered to the Company a notice of default
and declared the debt due and payable. On April 17, 1996, alleged unsecured
creditors of the Company filed an involuntary petition with the United States
Bankruptcy Court in the Eastern District of Louisiana seeking a Chapter 11
reorganization of the Company.
Under the present circumstances, the Company's balance sheet as of March 31,
1996, includes the entire amount of senior-secured debt in current liabilities,
resulting in deficit working capital of $26.8 million, including $21.3 million
of principal and an additional $1.9 million of accrued interest.
6
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources - continued
The Company's independent auditors, Arthur Andersen LLP, did not express an
opinion on the Company's financial statements as of December 31, 1995. The
auditors requested the note holder to return an ordinary audit debt
confirmation. The note holder refused to confirm the debt terms and
maturities. The auditors further stated that there is "substantial doubt
about the Company's ability to continue as a going concern." Consequently,
the auditors stated "we do not express an opinion on the financial
statememts..."
Management believes that anticipated cash flows from operations will be
adequate to meet the Company's foreseeable financial obligations provided the
Company's properties can be fully developed. The Company's ability to continue
the development of its properties during the near future is subject to the
determination of certain issues in bankruptcy proceedings as well as market
conditions for and availability of external capital. 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.
As of December 31, 1995, the capitalized cost of the Company's oil and gas
properties was less than the cost ceiling established by the Company's proved
reserves. However, uncertainty regarding the Company's ability to fund
development of its proved undeveloped reserves in the near future may limit
the cost ceiling to the value of the Company's proved developed reserves.
By limiting its property value to the cost ceiling established by proved
developed reserves, a writedown of $9.2 million for impairment of the Company's
stated property value was recorded during the fourth quarter of 1995.
Net cash provided by operating activities during the first three months of
1996 was $785,000, including an operating cash loss of $318,000. Comparable
figures for 1995 were cash provided by operating activities of $286,000,
including an operating cash loss of $33,000. Net cash used in investing
activities during the first three months of 1996 was $81 1,000 for capital
expenditures compared to net cash used in investing activities in 1995 of
$374,000 for capital expenditures. There were no financing activities during
the first three months of either 1996 or 1995.
Wichita River Oil Corporation and the Company's subsidiary Equitable Petroleum
Corp. 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.
Results of Operations
First Quarter of 1996 Compared to First Quarter of 1995. When compared to a
year earlier, oil and gas sales were 4% higher due primarily to a 48% increase
in average prices ($18.09 per BOE v. $12.26), primarily because natural gas
prices during 1996 were higher ($3.08 per mcf compared to $1.61 during 1995).
The higher prices were partially offset by a 30% decrease in daily production
volumes (582 BOE v. 835). Production expenses, exclusive of production
taxes, were 48% higher in 1996 when compared to 1995 were 23% lower than in
1995, despite higher oil prices ($17.61 per barrel compared to $15.45 in
1995), due primarily to lower production volumes.
General and administrative expenses in 1996 were more than double the level in
1995, due primarily to expenses associated with the Company's financial
difficulties. Interest expense in 1996 was 6% higher due to a higher amount
of interest-bearing debt outstanding. Depreciation, depletion and
amortization costs were 40% lower in 1996 due to lower production volumes.
The average depletion rate in 1996 was $4.72 per BOE v. $5.54 in 1995.
7
Legal Proceedings
On April 17, 1996, unsecured creditors of the Company filed an involuntary
petition with the United States Bankruptcy Court in the Eastern District of
Louisiana seeking a Chapter 11 reorganization of the Company.
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.
The Company is involved currently in an action styled John H. Hauberg, et al v.
Wichita River Oil Corporation, et al, No. 54,837, 23rd JDC, Ascension Parish,
La. in which the royalty owners of a lease that is operated by the Company are
seeking approximately $300,000 in unpaid royalties plus penalties and interest
and attorney's fees. The Company has acknowledged and accrued the $300,000
liability for unpaid royalties but has denied the claim for penalties, which
exceeds $600,000. The Company believes it has meritorious defeses against the
claim for penalties, including failure of certain royalty owners to prove their
royalty ownership interest.
The Company owns approximately 75% working interest in the lease in question.
Other working interest owners and royalty owners who had not been involved
directly in the case mentioned above have filed recently claims and crossclaims
and counterclaims both with and against the Company for reimbursement for any
penalties which may result from this litigation.
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 April 23, 1996.
Wichita River Oil Corporation
By: /s/ Michael L. McDonald By:/s/ James P. McGinnis
Michael L. McDonald James P. McGinnis
Chairman and President Controller
April 23, 1996