Amended Form 10-QSB -- Quarterly or Transitional Report
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission File Number 2-6806
CONCORD ENERGY INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 22-2670198
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
75 Claremont Road, Bernardsville, New Jersey 07924
(Address of principal executive offices)
908-766-1020
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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 __
At December 31, 1995, the outstanding common equity of Concord Energy
Incorporated comprised 3,346,071 shares of common stock, $.0001 par value.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements are filed as part of this report:
Pages
-----
Consolidated Balance Sheet (Unaudited),
December 31, 1995 and 1994 F-1
Consolidated Statements of Operations and
Accumulated Deficit (Unaudited)
Three and Six Months Ended December 31, 1995, and 1994 F-2
Consolidated Statements of Cash Flows (Unaudited),
Three and Six Months Ended December 31, 1995, and 1994 F-3
Notes to Consolidated Financial Statements F-4 - F-14
2
Item 2. Management's Discussion and Analysis or Plan of Operation.
General Operations
In May 1993 the Registrant consummated an Agreement and Plan of
Reorganization ("Agreement") pursuant to which it entered into the oil and gas
industry. Under the Agreement, the Registrant changed its name to Concord Energy
Incorporated (referred to herein as the "Company") and became the parent of an
entity which manages and owns interests in approximately 100 oil and gas wells
primarily located in East Texas and the Louisiana Gulf Coast. Concord's oil and
gas subsidiary was formed in June 1991 in order to effectuate a consolidation of
166 oil and gas partnerships. Following Monoclonal's acquisition of Concord, the
Company changed its fiscal year end to June 30 in order to coincide with the
fiscal year of its operating subsidiary (Concord).
In May 1995, the Company acquired KEMCO, which locates, designs,
refurbishes, and installs gas processing plants for the natural gas industry.
The effective date of the acquisition was April 1, 1995.
Results of Operations
The Company's revenues are primarily generated through the sale of oil and
gas. The Company also realizes revenue through syndication sales by its
affiliate Integrated Energy Incorporated ("Integrated") and revenue interests in
such syndications as well as through well operations. During the six months
ended December 31, 1995 the Company reported total revenues of $6,428,647.
Contract revenues during the six month period were $5,754,550. Rental income
during the six month period were $50,734. Oil sales during the six month period
were $277,078 while gas sales totaled $180,300. The Company reported revenue
3
from its share of Integrated's syndication sales in the amount of $140,000 and
well operating income of $25,985 during the six months period ended December 31,
1995. By comparison, during the six months period ended December 31, 1994 the
Company reported total income from operations of $924,282, oil sales of $418,941
and, gas sales of $249,210, revenue from syndication sales and revenue interests
of $223,950 and well operating income of $32,181.
Total revenues increased by $5,504,365 during the six months ended December
31, 1995 compared to the six months ended December 31, 1994. This increase is
primarily due to the addition of KEMCO's operations.
Total costs and operating expenses during the six months ended December 31,
1995 were $9,324,389. Cost of contract revenue during the period were
$4,204,668. Lease operating expenses accounted for $369,282, during the six
month period. Lease operating expenses as a percentage of total oil and gas
sales were approximately 81%. In comparison, during six month period ended
December 31, 1994 total costs and operating expenses were $1,483,959, lease
operating expenses were $381,396 and lease operating expenses as a percentage of
oil and gas sales were approximately 57% . Total costs and operating expenses
increased by $7,840,430, and lease operating expenses decreased by $12,114,
during the six month period ended December 31, 1995 as compared to the six month
period ended December 31, 1994, and lease operating expenses as a percentage of
total oil and gas sales increased by approximately 24% . The increases in costs
and operating expenses primarily relates to the inclusion of KEMCO's cost of
operations and the recording of a $3,043,055 inventory restatement. This was a
result of a retail market value being booked at the time of the KEMCO
4
acquisition rather than a wholesale value with the balance of the cost of
acquisition being charged to goodwill as it should have been. Management has
determined that the allocated costs were in error and chose to take a one time
adjustment to more accurately reflect the operations of the Company.
During the six month period ended December 31, 1995 general and
administrative expenses were $1,436,340. $696,000 of such expenses were incurred
under the Company's management agreement with its affiliate Integrated. Other
general and administrative expenses, which include KEMCO's administrative costs
as well as professional fees and franchise taxes, were $740,340, during the six
month period ended December 31, 1995. During the six month period ended December
31, 1994, the Company's total general and administrative expenses were $854,355.
$696,000 of such expenses were incurred under the Company's management agreement
with Integrated. The primary increase in the Company's general and
administrative costs are those additional costs associated with KEMCO.
Depreciation, depletion and amortization expenses during the six month
period ended December 31, 1995 were $271,044. During the six month period ended
December 31, 1994 these expenses were $248,208. The $22,836 increase in these
expenses primarily result from the additional depreciation related to KEMCO's
property, plant and equipment which totaled $60,000 for the six month period
ended December 31, 1995.
Interest expense for the six month period ended December 31, 1995 was
$660,143. During the six month period ended December 31, 1994 these expenses
were $134,430. The increase of $525,713 is primarily the result of the
5
additional debt obtained for KEMCO's inventory acquisitions and the financing
related to the KEMCO acquisition.
For the six months ended December 31, 1995 the Company reported net a net
loss of $3,533,888. For the six month period ended December 31, 1994 the Company
reported a net loss of $690,952. The increased net loss of $2,842,936 for the
six months ended December 31, 1995 as compared to the six months ended December
31, 1994, resulted primilary from the inventory restatement of $3,043,055
previously discussed.
Liquidity and Capital Resources
As of December 31, 1995 the Company reported working capital of $4,501,346
compared to working capital of $126,706 at December 31, 1994. Total current
assets increased by $7,830,544 which is the combination of an decrease in cash
and cash equivalents of $856,601 and an increase in receivables of $761,958 and
an increase in inventories and other current assets of $7,192,158, as compared
to December 31, 1994. Total current liabilities increased from $1,453,764 as of
December 31, 1994 to $4,909,668 as of December 31, 1995, for a net increase of
$3,455,904. The combination of the foregoing resulted in a net increase in
working capital of $4,374,640 from December 31, 1994 to December 31, 1995. This
increase is primarily related to the acquisition of KEMCO and the related long
term debt and equity financing
On July 7, and August 21, 1995 the Company issued $500,000 and $275,000,
respectively, of convertible notes to private investors. In December 1995 the
company sold 222,000 shares of common stock and realized net proceeds of
6
$500,000. On October 4, 1995 the Company completed a sale of properties for
approximately $461,250. During the six months period ending December 31, 1995
the Company made principal payments of notes payable Totaling $942,250
On January 31, 1996 the Company agreed to issue 24,000 shares of common
stock in exchange for the retirement of approximately $100,000 of debt. On
February 6, 1996 the Company sold 63,492 shares of common stock and realized net
proceeds of approximately $178,500.
Capital Expenditures and Commitments
During the six months ended December 31, 1995, the Company incurred capital
expenditures of $51,194. These capital expenditures were primarily of equipment
and the purchases of and leasehold improvements to a approximately 6,000 square
foot building by KEMCO. These leasehold improvements consisted of renovations
necessary for occupancy to the building which was acquired in November 1995. The
building, located across from KEMCO's main yard, will be used for KEMCO's
engineering department. The total cost of the building and improvements will be
approximately $75,000. The expansion of the engineering department will allow
KEMCO to consolidate the engineering staff as well as expand to meet the
anticipated future engineering work requirements.
7
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONCORD ENERGY INCORPORATED
(Registrant)
s\Deral Knight
----------------------------------------
Dated: February 7, 1997 Deral Knight
President, Chief Executive Officer
and Chairman of the Board of Directors
Dated: February 7, 1997 s\Scott Kalish
----------------------------------------
Scott Kalish
Treasurer (Principal Accounting Officer)
8
Concord Energy Incorporated and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited)
December 31 December 31
1995 1994
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 230,114 $ 1,086,715
Costs and estimated earnings in excess
of billings on uncompleted contracts 733,029 --
Accounts receivable, net of allowance for
doubtful accounts of $67,490 and $0 1,140,636 262,700
Receivable from stockholder 115,077 --
Receivable due from affiliated company -- 231,055
Inventories 7,064,331 --
Prepaid expenses and other assets 127,827 --
------------ ------------
Total current assets 9,411,014 1,580,470
Property, plant and equipment, net 8,435,573 8,662,860
Bond issuance costs, net 494,649 222,258
Other assets 50,000 1,625,000
------------ ------------
Total assets $ 18,391,236 $ 12,090,588
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable to stockholders $ 273,000 $ --
Current portion of long-term debt 895,750 1,000,000
Accounts payable 1,711,963 315,003
Accrued expenses 1,655,954 138,761
Payable due to Integrated, net 259,052 --
Federal income taxes payable 113,949 --
------------ ------------
Total current liabilities 4,909,668 1,453,764
Long term liabilities
Notes payable to stockholders --
Notes payable 5,833,300 2,500,500
Capital lease obligations 46,673 --
------------ ------------
Total Long term liabilities 5,879,973 2,500,500
------------ ------------
Commitments and Contingencies
Stockholders' equity
Preferred Stock, $.01 par value, 1,000 shares
authorized, 0 shares issued and outstanding -- --
Common stock, $.0001 par value, 20,000,000 shares
authorized, 3,346,071 and 2,222,332 shares issued and outstanding 1,552 1,111
Paid-In capital 15,435,326 11,546,768
Accumulated deficit (7,835,283) (3,411,555)
------------ ------------
Total stockholders' equity 7,601,595 8,136,324
------------ ------------
Total liabilities and stockholders' equity $ 18,391,236 $ 12,090,588
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-1
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Operations
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Quarter Ended Six-Months Quarter Ended Six-Months
December 31 December 31 December 31 December 31
1995 1995 1994 1994
----------- ----------- ----------- -----------
Revenue
Oil sales $ 121,434 $ 277,078 $ 226,349 $ 418,941
Gas sales 85,463 180,300 115,686 249,210
----------- ----------- ----------- -----------
Total oil and gas sales 206,897 457,378 342,035 668,151
Contract revenue 2,973,166 5,754,550 -- --
Share of syndication sales and revenue interests 60,000 140,000 80,000 223,950
Well operating income 11,668 25,985 16,623 32,181
Rental income 16,287 50,734 -- --
----------- ----------- ----------- -----------
Total revenue 3,268,017 6,428,647 438,658 924,282
----------- ----------- ----------- -----------
Costs and Operating Expenses
Lease operating 150,564 369,282 201,525 381,396
Cost of contract revenue 2,630,734 4,204,668 -- --
Inventory - adjustment to lower of cost or market -- 3,043,055 -- --
General and administrative:
Management agreement 348,000 696,000 348,000 696,000
Other expenses 339,982 740,340 106,175 158,355
Depreciation, depletion and amortization 130,000 271,044 132,073 248,208
----------- ----------- ----------- -----------
Total costs and operating expenses 3,599,280 9,324,389 787,773 1,483,959
----------- ----------- ----------- -----------
Income (Loss) from Operations (331,262) (2,895,742) (349,115) (559,677)
----------- ----------- ----------- -----------
Other income (expense)
Other income 15,688 21,997 1,960 3,154
Interest expense (312,046) (660,143) (96,679) (134,430)
----------- ----------- ----------- -----------
(296,358) (638,146) (94,719) (131,276)
----------- ----------- ----------- -----------
Income (Loss) before income taxes (627,620) (3,533,888) (443,833) (690,952)
----------- ----------- ----------- -----------
Income tax expense -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) $ (627,620) $(3,533,888) $ (443,833) $ (690,952)
=========== =========== =========== ===========
Accumulated deficit, beginning of period (7,207,663) (4,301,395) (2,967,721) (2,720,602)
=========== =========== =========== ===========
Accumulated deficit, end of period $(7,835,283) $(7,835,283) $(3,411,554) $(3,411,554)
=========== =========== =========== ===========
Income (Loss) per share $ (0.19) $ (1.06) $ (0.13) $ (0.21)
=========== =========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Quarter Ended Six-Months Ended Quarter Ended Six-Months Ended
December 31 December 31 December 31 December 31
1995 1995 1994 1994
----------- ----------- ----------- -----------
Cash flows from operating activities
Net Income (loss) $ (627,620) $(3,533,888) $ (443,834) $ (690,953)
Adjustments to reconcile net income/loss to net cash
(used in) provided by operating activities:
Depreciation, depletion and amortization 130,000 271,044 132,073 248,208
Other noncash transactions -- 3,043,055 -- --
Decrease (Increase) in assets:
Accounts receivable (328,738) (444,079) (7,348) 34,294
Costs and estimated earning in excess
of billings on uncompleted contracts 54,950 (174,169)
Receivable From Joint Venture (150,240) (150,240)
Receivable due from Stockholder 525 (11,458)
Receivable due from affiliated company -- 15,937 127,322 133,490
Inventories (1,221,981) (1,654,761)
Deferred taxes
Other assets and liabilities 28,350 (56,107) (152,258) (222,258)
(Decrease) Increase in liabilities
Accounts payable 515,857 853,428 (14,545) (1,812)
Accrued expenses 311,073 1,189,468 1,525 (63,833)
Federal income tax payable (22,887) (6,149)
Receivable due from/payable due to Integrated, net (169,055) (335,633)
Interest payable to Stockholders 3,375 6,750 57,996 66,496
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (1,326,152) (836,562) (449,309) (646,608)
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of propery, plant , oil and gas equipment,
well workovers and recompletions 2,489 (51,194) (66,574) (71,193)
Acquisition of business, net of cash acquired
Sale of oil and gas interests 461,250 477,332 -- 16,082
Recapitalization costs
Investment in Joint Venture (1,625,000) (1,625,000)
Other, net -- -- --
----------- ----------- ----------- -----------
Net cash (used in) provided by investing activities 463,739 426,138 (1,691,574) (1,680,111)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from bonds payable -- -- 1,750,000 2,450,500
Net proceeds from note payable 50,000 825,000
Net proceeds from issuance of common stock
Proceeds from sale of common stock 500,000 500,000 313,000 313,000
Principal payment of notes payable (248,500) (942,250) 656,251 583,333
----------- ----------- ----------- -----------
Net cash flows provided by (used in)
financing activities 301,500 382,750 2,719,251 3,346,833
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (560,913) (27,674) 578,368 1,020,114
----------- ----------- ----------- -----------
Cash and cash equivalents at beginning of period 791,027 257,788 508,347 66,601
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 230,114 $ 230,114 $ 1,086,715 $ 1,086,715
=========== =========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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1. Organization, Recapitalization, and Operations
Concord Energy Incorporated (the "Company") is an oil and gas exploration and
production company which also locates, designs, refurbishes and installs gas
plants and gas processing equipment for customers in the natural gas industry.
In addition, the Company provides rentals of gas plants and gas processing
equipment and provides services such as engineering, procurement, dismantling,
reapplication and relocation of complete gas processing facilities. The Company
is headquartered in Bernardsville, New Jersey with substantially all of its oil
and gas operations in East Texas and Louisiana Gulf Coast. The Company's
wholly-owned subsidiaries, Concord Operating, Inc. ("COI") and Knight Equipment
and Manufacturing Corporation ("KEMCO") are located in Houston, Texas and
Jourdanton, Texas, respectively.
Concord Energy, Inc., (the Company's name prior to the recapitalization
described below) was formed in June 1991 for the purpose of combining the net
assets and operations of 166 previously independent oil and gas partnerships
(the "Partnerships") and the net assets and operations of COI through an
exchange of Partnership and COI net assets for common stock in Concord Energy,
Inc. The exchange was accounted for at historical cost. Certain limited partners
in the Partnerships which did not participate in the exchange were allocated net
working interests in the properties previously held by the respective
Partnerships.
Prior to the exchange, the Partnerships were managed by Integrated Energy, Inc.
("Integrated") and Tucker Financial, Inc. ("Tucker") which were in the business
of establishing and managing oil and gas limited partnerships. Subsequent to the
exchange, Integrated continues to provide certain management and administrative
services to the Company pursuant to a management agreement between the Company
and Integrated. COI manages the production of Company-owned oil and gas
properties.
On May 19, 1993, Monoclonal International Technology, Inc. ("MITI") acquired all
of the outstanding common stock of Concord Energy, Inc., with MITI as the
acquirer (i.e. a reverse acquisition). In connection with the acquisition, MITI
later changed its name to Concord Energy Incorporated, approved a 1 for 230
reverse split of its 127,784,100 shares of common stock and issued 10,556,077
shares of its common stock in exchange for all the outstanding common stock of
Concord Energy, Inc. Historical stockholders; equity has been retroactively
restated for all periods presented in the accompanying consolidated financial
statements to account for the equivalent number of shares received in the
acquisition totaling 11,111,660 shares, after giving effect to the difference in
par value of Concord Energy, Inc. and MITI stock with the offset to
F-4
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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paid-in capital. Costs incurred in connection with the recapitalization totaling
$45,000 were recorded as a reduction in paid-in capital during 1993.
In December 1995, the company effectuated a 1 for 5 reverse split of it's
outstanding stock.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements are comprised of the Company and its
wholly-owned subsidiaries, Concord Energy, Inc., Concord Operating, Inc., and
Knight Equipment & Manufacturing Corporation and its wholly-owned subsidiary, K
& S Engineering, Inc. All significant intercompany accounts and transactions are
eliminated in consolidation.
Cash equivalents
Cash and cash equivalents include all cash and highly liquid investments with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market using the first-in
first-out method. Inventory consists principally of gas plants, compressors,
separators, supplies and repair parts utilized by the Company in conjunction
with its design and refurbishing of gas plants and gas processing equipment.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation,
depletion and amortization.
The Company accounts for its oil and gas properties under the full cost method
of accounting. Under the full cost method, all costs incurred in acquiring,
exploring and developing oil and gas reserves are capitalized to the full cost
pool. When oil and gas properties are sold, retired or otherwise disposed of,
any applicable proceeds are credited to the full cost pool, with no gain or loss
recognized, unless the sale would have a significant impact on the relationship
between capitalized costs and proved reserves. Since all of its oil and gas
operations are within the United States, the Company utilizes one cost pool to
account for its oil and gas properties. Depreciation, depletion and amortization
of oil and gas properties is computed based on the unit-of production method for
the cost pool, based on estimates of proved reserves as determined by an
independent reserve engineer.
F-5
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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Other property, plant and equipment is recorded at lost less accumulated
depreciation. Repairs and maintenance costs which do not extend the useful lives
of the assets are expenses as incurred. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets which range
from three to seven years, except for buildings and improvements which are
depreciated over estimated useful lives ranging from 20 to 30 years.
Leases
Leases which meet certain criteria evidencing substantive ownership by the
company are capitalized and the related capital lease obligations are included
in liabilities. Amortization and interest are charges to expense, with rent
payments being treated as payments of the capital lease obligation. All other
leases are accounted for as operating leases, with rent payments being charges
to expense as incurred.
Deferred financing and bond issuance costs
Costs incurred in conjunction with obtaining financing (including costs
associated with the issuance of bonds) are amortized using the straight-line
method over the term of the related financing agreement or bond.
Revenue recognition
Oil and gas sales
Revenues from oil and gas sales are accrued as earned based on joint interest
billings obtained from the well operator.
Contract revenue
Revenues from construction contracts are recognized based on the percentage of
completion method, measured on the basis of costs incurred to date to estimated
total budgeted costs for each contract. Contract costs include all direct
material and labor costs, including those indirect labor and repair costs
related to contract performance. Selling, general and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, estimated profitability and final contract
settlements are monitored on a periodic basis in order to determine if revisions
to the income and cost estimates are necessary as a result of such changes.
Revisions to the income and cost estimates, if any, are recognized in the period
in which such revisions are determined to be necessary. Costs and earning in
excess of billings on uncompleted contracts represents an asset based on
revenues recognized in excess of amounts billed to customers. Billings in excess
of costs and earnings on uncompleted contracts is recorded as a liability and
F-6
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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represents contracts for which billings to date exceed cumulative revenues
recognized based on the percentage of completion method.
Share of syndication sales
Under an agreement between the Company and Integrated (see Note 9), the Company
is entitled to receive 20% of all sales made by Integrated of syndicated retail
partnership interests. This revenue is recognized when earned.
Well operating income
The Company, through its wholly owned subsidiary COI, manages and operates
wells. The revenue generated from these services is recognized when earned.
Rental revenue
The Company leases certain gas plants and separators to customers under short
term leases which are accounted for as operating leases. At June 30, 1995, there
are no significant future minimum rentals to be received under these
noncancelable operating leases.
Income taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized based upon differences arising from the carrying amounts of the
Company's assets and liabilities for tax and financial reporting purposes using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period when the change in tax rates is
enacted.
Net income (loss) per share
Net loss per share of common stock is based upon the number of shares of common
stock outstanding (3,346,071 at December 31, 1995 and 2,222,332 at December 31,
1994 (post-split)). The Company's common stock equivalents, which consist of
outstanding warrants to purchase the Company's common stock, are not considered
in the net income (loss) per share calculation since their effect is
anti-dilutive.
3. Business Combination
On May 7, 1995, the company acquired all of the issued and outstanding shares of
commons stock of KEMCO for $7,000,000 in a business combination accounted for
under the purchase method of accounting. The acquisition was financed through
2,000,000 shares of the Company's commons stock and $4,500,000 in cash.
Financing for the cash portion of the purchase price was obtained primarily
through the net proceeds from debt financing totaling approximately $3,700,000
and the net
F-7
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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proceeds from the issuance of 1,300,000 shares of the Company's common stock
totaling approximately $800,000. The results of operations of KEMCO and its
wholly-owned subsidiary, K & S Engineering, Inc., subsequent to April 1, 1995,
the date effective control of KEMCO transferred to the Company for financial
reporting purposes, are included in these consolidated financial statements.
4. Accounts Receivable and Concentration of Credit Risk
Accounts receivable represent amounts due from customers who are in the oil and
gas business throughout North and South America. Fluctuations in market
conditions impact the credit worthiness of these customers. The Company reviews
the financial condition of purchasers and joint interest participants prior to
signing sales or joint interest agreements. Payment terms are on a short-term
basis and in accordance with industry standards.
5. Inventory - Lower of Cost or Market Adjustment
Based on a comparison of the estimated potential sales prices to the recorded
carrying costs of the inventory of plants acquired in the KEMCO acquisition,
management has determined that the recorded cost of the inventory of such plants
was in excess of the market value of the plants which would allow a reasonable
profit margin on the sale of the plants. The recorded cost of the inventory of
such plants had been determined based on an appraisal obtained and relied upon
to establish the value of the plants at the time KEMCO was aquired. Management
subsequently determined that the values assigned to the plants were the
appraiser's estimated retail slaes price of the plants rather than a wholesale
market value that would allow a reasonable profit margin on the sales of the
plants.
To adjust the carrying cost of the plants to their estimated market value, an
adjustment of $3,043,055 was charged to expense for the quarter ended September
30, 1995.
6. Property, Plant and Equipment, Net
Significant components comprising property, plant and equipment at December 31
include the following:
F-8
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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1995 1994
Oil & gas properties:
Leasehold costs $ 6,799,166 $ 7,368,416
Lease well & equipment 1,944,882 1,944,882
Intangibles 1,904,925 1,904,925
Property, plant & equipment 945,431 942,820
Other 58,551 58,551
------------ ------------
11,652,955 12,219,594
------------ ------------
Other property, plant & equipment
Land 159,913 --
Buildings & improvements 345,186 --
Machinery & equipment 186,820 --
Vehicles 218,769 --
Furniture, fixtures & software 81,710 53,016
------------ ------------
992,398 53,016
------------ ------------
Accumulated depreciation,
depletion and amortization (4,209,780) (3,609,750)
------------ ------------
Property, plant and equipment, net $ 8,435,573 $ 8,662,860
------------ ------------
Depreciation, depletion and amortization of oil and gas properties, and
depreciation of other property, plant and equipment for the periods ended
December 31 is as follows:
1995 1994
Oil and gas properties $211,044 $247,587
Other property, plant
and equipment 60,000 621
-------- --------
$271,044 $248,208
-------- --------
F-9
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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7. Debt and Capital Lease Obligations
Debt
Long-term debt includes the following at December 31:
1995
Bond payable, dated May 1995, with interest at 10%
per annum, requiring semi-annual interest payments
through maturity on May 1, 1997. The bond is
secured by the assets of KEMCO. As additional
consideration, the Company issued 450,000 shares
of common shares to the lender. $2,920,000
Secured notes payable, dated December 1994, with a
face value of $2,500,000 issued at $750,000
discount. The notes bear interest at 9% per annum
with an effective interest rate of 15% per annum.
Semi-annual interest payments of $112,500 are
required through maturity in January 2010. The
notes are secured by certain gas plants and
equipment and a guarantee of the Company. 1,760,263
Secured notes payable, dated September 1994, with
a face value of $1,400,000 issued at a $604,500
discount. The notes bear interest at 6% per annum
payable semi-annually with an effective interest
rate of 14.02% per annum. Annual principal
payments of $140,000 are required beginning in
August 2005 through maturity in August 2009. The
notes are secured by certain oil and gas property
owned by the Company. 708,787
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Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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Acquisition bridge financing evidenced by notes
payable which bear interest at 12% per annum. The
interest and related principal are due at various
maturity dates through November 1995.
Approximately $500,000 of the notes at September
30, 1995 are secured by a personal guarantee from
Jerry Swon, the Chief Executive Officer of the
Company, who is also a shareholder of the Company. 390,000
In July, 1995 issued $500,000 of 12% convertible
notes. Upon maturity, or any time prior thereto,
each $250,000 portion of the obligation is
convertible into additional shares of common
stock. The notes mature, one half each July 7,
1996 and August 7, 1996, respectively. 500,000
On August 21, 1995, the Company issued $275,000 of
12% convertible notes. Upon maturity, or any time
prior thereto, the obligation is convertible into
additional shares of common stock at $1.00 per
shares. The note matures on August 21, 1996. 275,000
Unsecured note payable, originally in the amount
of $300,000 bearing interest at 7% per annum.
Principal and interest are due at various dates
through fiscal 1996. 50,000
12% convertible notes, dated October 1994,
convertible at maturity into shares of Company's
common stock at $1 per share. During 1995,
$125,000 of these notes matured and were converted
into 125,000 shares of the Company's common stock.
Upon the conversion, an additional 15,000 shares
of the Company's common stock was issued
consideration for accrued interest expense through
the date of conversion totaling
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Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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$15,000. The remainder of the notes mature in
October 1996. The notes are secured by certain oil
and gas property owned by the Company. 125,000
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Total debt outstanding 6,729,050
Less: current portion 895,750
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Long-term debt $5,833,300
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Capital Lease Obligations
In conjunction with its acquisition of KEMCO, the Company acquired certain
leased equipment which is accounted for as capital leases. prior to the
acquisition, the leases were prepaid at inception. Capital lease obligations
recorded in the accompanying consolidated financial statements represent the
present value of the lease purchase options which are exercisable at the end of
the lease term in December 1997, discounted at an interest rate of 16%.
Capital lease obligations as of December 31, 1995 consist of the following:
Total future minimum lease payments due
in fiscal 1998 $67,106
Less: amounts representing interest 20,433
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Present value of minimum lease payments $46,673
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8. Commitments and Contingencies
Minimum Rental Commitments
The Company has several noncancelable operating leases, primarily for office
equipment, that expire over the next five years. These leases generally contain
renewal options for periods ranging from three to five years and require the
Company to pay all executory costs such as maintenance and insurance.
F-12
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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9. Transactions with Related Parties
Related Party Ownership Interests
Integrated and Tucker, which are owned by an officer and director of the
Company, own 1.81% and 1.73%, respectively, of the Company's common stock as of
December 31, 1995. Additionally, certain officers and directors of the Company,
together with Integrated own or control 26.03% of the Company's common stock as
of December 31, 1995.
Receivables from Related Parties/Affiliated Company
Integrated and the Company have an agreement by which the associated receivables
and payables may be netted. At December 31, 1995, the Company has a net payable
due to Integrated of $259,052. At December 31, 1994, the Company had a net
receivable due from Integrated of $231,055.
As part of its ongoing operations, the Company conducts business with Atascosa
Electric Services ("AES"), an entity which is owned and controlled by Deral
Knight, the president of KEMCO, who is also a stockholder of the Company. At
September 30, 1995, the receivable due from stockholder (Deral Knight) and due
from affiliated company (AES) were $115,077 and $0, respectively.
Under the provisions of the agreement whereby the Company acquired Deral
Knight's stock in KEMCO, Deral Knight has agreed to return to the Company,
Concord Energy Incorporated common stock valued at $1.25 per shares to the
extent that Deral Knight owes money to the Company at June 30, 1995.
Accordingly, in liquidation of the receivable balance, approximately 83,000
shares of Company common stock issued to Deral Knight as part of the purchase
price of his KEMCO stock will be returned to the Company.
Notes Payable to Stockholders
Notes payable to stockholders bear interest at rates ranging from 5 to 12% per
annum which are generally payable in monthly installments through maturity.
Interest expense incurred on these notes during fiscal 1995, 1994 and 1993
totals $42,661, $67,892 and $74,029, respectively. The notes mature at various
dates through August 1996. Approximately $50,000 of the notes at December 31,
1995 are secured by future production of approximately 75,000 equivalent barrels
of oil.
Management Agreement
The Company and Integrated have entered into an agreement (the "Management
Agreement") that requires Integrated to provide certain management,
administrative and accounting services to the Company and certain subsidiaries
for $116,000 per
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Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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month through June 30, 1996. The services provided by Integrated include the
receipt of cash for oil and gas sales and the payment of operating and capital
expenditures of behalf of the Company. In accordance with the original
provisions of the Management Agreement, the Company is also entitled to 10% of
all syndicated retail partnership gross sales made by Integrated. As additional
consideration for the Management Agreement, Integrated assigned to the Company,
effective June 1, 1991 through March 31, 1994, its revenue sharing in future
program syndications. Effective March 31, 1994, the Management Agreement was
modified to provide the Company with 20% of all syndicated retail partnership
gross sales made by Integrated. During fiscal 1994, the Company sold to
Integrated all of its revenue sharing interests which were earned under the
Management Agreement, aggregating $363,266. Revenue interest income earned was
also remitted to Integrated in connection with the sale. The proceeds from the
sale were recorded as reduction to the Company's full-cost oil and gas
properties pool. The period ended December 31, the Company recorded income from
Integrated as follows:
1995 1994
Share of syndication income $140,000 $219,000
Revenue interest income -- --
Management fee income -- 4,950
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$140,000 $223,950
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Other Related Party Transactions
The two automobiles held under capital lease are to be transferred to an officer
and an employee of KEMCO upon the execution of the lease purchase options at the
expiration of the lease terms.
10. Events Subsequent to Date of Balance Sheet
On January 31, 1996 the Company agreed to issue 24,000 shares of common stock in
exchange for the retirement of approximately $100,000 of debt.
On February 6, 1996 the Company sold 63,492 shares of common stock and realized
net proceeds of approximately $178,500.
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