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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 FOR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
Commission file number 0-9898
SUMMIT PETROLEUM CORPORATION
(Exact name of small business issuer as specified in its charter)
Colorado 84-0838160
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
16701 Greenspoint Park Drive, Suite 200, Houston, Texas 77060
(Address of principal executive offices)
(713) 873-4828
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, $.01 par value: 2,400,185 shares outstanding at May 22, 1996
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SUMMIT PETROLEUM CORPORATION
Table of Contents
Page
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PART I. FINANCIAL INFORMATION
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Balance Sheets as of April 30, 1996 (Unaudited) and July 31, 1995 4
Unaudited Statements of Operations for the three and nine month
periods ended April 30, 1996 and 1995 5
Unaudited Statements of Cash Flows for the three and nine month
periods ended April 30, 1996 and 1995 7
Notes to Unaudited Financial Statements 9
Management's Discussion and Analysis or Plan of Operation 10
PART II. OTHER INFORMATION
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Notes Concerning Other Information 14
SIGNATURES 15
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PART I
FINANCIAL INFORMATION
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SUMMIT PETROLEUM CORPORATION
BALANCE SHEETS
April 30, July 31,
1996 1995
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Unaudited
ASSETS
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Current assets:
Cash and cash equivalents $ 7,714 $ 12,051
Trade accounts receivable 38,046 43,866
Accrued oil and gas sales 55,350 35,486
Due from related parties 13,709 29,056
Deferred income tax benefits 77,370 77,370
Prepaid expenses and other 6,079 7,921
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Total current assets 198,268 205,750
Property and equipment at cost:
Oil and gas properties, using the full cost method 3,452,343 3,173,589
Other 31,737 31,737
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3,484,080 3,205,326
Less accumulated depreciation, depletion
and amortization 2,636,428 2,575,845
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Property and equipment, net 847,652 629,481
Deferred income tax benefits 136,312 166,773
Other 7,884 11,166
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Total assets $ 1,190,116 $ 1,013,170
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 25,107 $ 17,610
Accrued expenses 52,148 59,854
Due to related parties 130,537 -
Current portion of long-term debt 113,138 112,395
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Total current liabilities 320,930 189,859
Long-term debt 186,652 190,477
Stockholders' equity:
Preferred stock, par value $0.01; 20,000,000
shares authorized; none issued - -
Common stock, par value $0.01; 80,000,000
shares authorized; 3,325,000 shares issued 33,250 33,250
Capital in excess of par value 1,981,597 1,981,597
Treasury stock (924,816 shares), at cost (277,445) (277,445)
Accumulated deficit (1,054,868) (1,104,568)
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Total stockholders' equity 682,534 632,834
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Total liabilities and equity $ 1,190,116 $ 1,013,170
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
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SUMMIT PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Three months ended April 30,
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1996 1995
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Unaudited Unaudited
Operating revenue:
Oil and gas sales $ 117,429 $ 108,602
Property operation fees 44,945 44,692
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Total operating revenue 162,374 153,294
Operating costs and expenses:
Oil and gas production 58,199 58,809
General and administrative 35,212 49,671
Depreciation, depletion and amortization 22,313 25,301
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Total operating costs and expenses 115,724 133,781
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46,650 19,513
Other income (expense):
Interest and other income 727 1,806
Interest expense (9,367) (10,962)
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Net other income (expense) (8,640) (9,156)
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Income before income taxes 38,010 10,357
Current income taxes 3,206 5,493
Deferred income taxes 11,237 2,612
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Net income $ 23,567 $ 2,252
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Net income per common share $ 0.010 $ 0.001
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Weighted average shares outstanding 2,400,185 2,400,185
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
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SUMMIT PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Nine months ended April 30,
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1996 1995
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Unaudited Unaudited
Operating revenue:
Oil and gas sales $ 347,655 $ 341,323
Property operation fees 134,283 131,534
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Total operating revenue 481,938 472,857
Operating costs and expenses:
Oil and gas production 170,553 168,442
General and administrative 142,738 165,929
Depreciation, depletion and amortization 60,583 74,182
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Total operating costs and expenses 373,874 408,553
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108,064 64,304
Other income (expense):
Interest and other income 1,184 12,369
Interest expense (29,089) (28,087)
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Net other income (expense) (27,905) (15,718)
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Income before income taxes 80,159 48,586
Current income taxes 3,206 5,493
Deferred income taxes 27,253 16,375
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Net income $ 49,700 $ 26,718
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Net income per common share $ 0.021 $ 0.011
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Weighted average shares outstanding 2,400,185 2,400,185
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
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SUMMIT PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Three months ended April 30,
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1996 1995
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Unaudited Unaudited
Cash flows from operating activities:
Net income $ 23,567 $ 2,252
Depreciation, depletion and amortization 22,313 25,301
Deferred income taxes 11,237 2,612
Increase in trade accounts receivable (497) (2,799)
Decrease in accrued oil and gas sales 5,849 4,109
(Increase) decrease in due from related parties 7,919 (3,530)
(Increase) decrease in prepaid expenses and other (1,079) 9,589
Decrease in accounts payable relating to operations (13,069) (32,221)
Decrease in accrued expenses (17,574) (33,458)
Decrease in due to related parties (26,621) (4,561)
Other 4,453 (503)
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16,498 (33,209)
Cash flows used in investing activities:
Sales of property and equipment 2,182 -
Additions to property and equipment (54,258) (10,448)
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(52,076) (10,448)
Cash flows from financing activities:
Principal payments on notes payable (28,019) (27,000)
Borrowings from bank - -
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(28,019) (27,000)
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Decrease in cash (63,597) (70,657)
Cash, beginning of the period 71,311 110,305
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Cash, end of period $ 7,714 $ 39,648
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
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SUMMIT PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Nine months ended April 30,
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1996 1995
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Unaudited Unaudited
Cash flows from operating activities:
Net income $ 49,700 $ 26,718
Depreciation, depletion and amortization 60,583 74,182
Deferred income taxes 27,253 16,375
Decrease in trade accounts receivable 5,820 315
Increase in accrued oil and gas sales (19,864) (12,843)
Decrease in due from related parties 15,347 5,539
Decrease in prepaid expenses and other 1,842 7,310
Increase (decrease) in accounts payable relating
to operations 7,497 (35,777)
Decrease in accrued expenses (7,706) (21,021)
Increase in due to related parties 130,537 9,991
Other 6,490 (15,224)
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277,499 55,565
Cash flows used in investing activities:
Sales of property and equipment 2,182 -
Additions to property and equipment (280,936) (232,170)
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(278,754) (232,170)
Cash flows from financing activities:
Principal payments on notes payable (103,082) (438,854)
Borrowings from bank 100,000 556,214
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(3,082) 117,360
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Increase (decrease) in cash (4,337) (59,245)
Cash, beginning of the period 12,051 98,893
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Cash, end of period $ 7,714 $ 39,648
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
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SUMMIT PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note A. Organization and Basis of Presentation
Summit Petroleum Corporation ("Company") was organized on January 16,
1981, and is currently engaged in production and operation of oil and gas
properties.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of April 30, 1996, the results of operations for the
three and nine month periods ended April 30, 1996 and 1995, and cash flows for
the three and nine month periods ended April 30, 1996 and 1995. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for a full year. The accounting policies followed by
the Company are set forth in more detail in Note A of the "Notes to Financial
Statements" in the Company's Form 10-KSB filed with the Securities and Exchange
Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principals have been condensed or omitted in the Form 10-QSB pursuant to the
rules and regulations of the Securities and Exchange Commission. However, the
disclosures herein are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Form 10-KSB filing.
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SUMMIT PETROLEUM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Capital Resources and Liquidity.
On August 1, 1991, Pike Petroleum Corporation "Pike", the Company's
wholly-owned subsidiary, adopted a plan of liquidation whereby all of Pike's
assets where distributed to the Company. This allows the Company an
opportunity to utilize its net operating losses of approximately $812,000 for
fiscal years 1984 through 1987. The ability to utilize these net operating
losses reduces income tax payments and increasing cash flow, accordingly. If
not utilized, these loss carryforwards will expire in years 2000 through 2003.
Effective December 22, 1994, the Company signed a $1,500,000 credit
facility with First Union National Bank of North Carolina. The borrowing base
under this agreement is $500,000. Monthly payments under this note are $9,000
plus interest of prime rate (8.25 percent at April 30, 1996) plus 1.5 percent
until the note matures on December 12, 1997. This credit facility was used to
retire the Company's debt with Midland National Bank, Midland, Texas ("MNB").
The balance of this note at April 30, 1996 was $293,711.
Effective January 1, 1994, the Company acquired a 10 percent working
interest in the Ned Wilson lease from Midland Resources, Inc. ("MRI"), an
affiliated company, for $85,696, MRI's cost adjusted for revenues and expenses
through December 31, 1993. The successful drilling of three additional Cherry
Canyon wells during the second quarter of fiscal 1996 at a cost to the Company
of approximately $103,000, brings the total number of wells in this field to
ten. The Company expects these three well to contribute combined average net
production of approximately 9 barrels of oil per day ("BOPD") and approximately
23 thousand cubic feet of gas per day ("MCFD"), subject to normal declines.
Effective August 1, 1994, the Company acquired ten percent of MRI's
working interest in certain oil and gas properties in Coke and Howard counties,
Texas for $201,596, MRI's cost adjusted for revenues and expenses from August
1, 1994 through August 15, 1994, the closing date, and transaction costs. MRI
also acquired these properties effective August 1, 1994 and closed on August
15, 1994.
During fiscal 1995, the Company acquired a 5 percent working interest
in three 3D seismic exploration projects located in Terry and Hockley Counties,
Texas. As of April 30, 1996, the cost to the Company for these projects was
approximately $70,000. On May 8, 1996, drilling commenced on the first of at
least six planned exploration wells to be drilled. This initial well has been
determined to be nonproductive at a cost to the Company of approximately
$11,500. The Company anticipates additional drilling and seismic costs of
approximately $130,000 during the next year. Midland Resources Operating
Company, Inc. ("MRO"), MRI's wholly owned subsidiary, will operate the
properties.
Effective September 1, 1995, the Company, in participation with MRI,
acquired a four percent working interest in certain Redfish Bay Field
properties in Nueces County, Texas at a cost of approximately $82,000. In the
third quarter of 1996, a well was recompleted to another zone at a cost to the
Company of approximately $2,500. The Company expects this well to contribute
approximately 5 BOPD, subject to normal declines.
In April, 1996, a Johnson Estate field extension development well
located in Sterling County, Texas,
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was completed at a cost to the Company of approximately $19,000. Additional
Johnson Estate wells are contemplated for the future.
In the first nine months of fiscal 1996, cash flow from operations was
$277,499, as compared to $55,565 for the same period of fiscal 1995. Increases
in accounts payable due to property development and exploration accounts for
the majority of this difference. Net income was $49,700 in fiscal 1996 and
$26,718 in fiscal 1995. Included in net income is depletion, depreciation and
amortization of $60,583 and $74,182 for fiscal 1996 and 1995, respectively.
The Company's investing activities used cash of $278,754 and $232,170
in fiscal 1996 and 1995, respectively. The Company's investing activities in
1996 were primarily related to the drilling, completion, and recompletion of
development wells and exploration activities.
Net cash provided used by financing activities was $3,082 in fiscal
1996, as compared to net cash provided by financing of $117,360 in fiscal 1995.
The Company had negative working capital of approximately $123,000 at
April 30, 1996, primarily as a result of increased amounts due to MRI as a
result of property development activities. At July 31, 1995, the Company had
positive working capital of approximately $16,000.
As of April 30, 1996, the Company had total assets of approximately
$1,190,000 with approximately $321,000 in current liabilities and $187,000 in
long-term debt. Current assets were approximately 17 percent of total assets.
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The drilling of the three Ned Wilson wells and the Johnson Estate well
was initially funded through advances by MRO, as property operator, which
resulted in increased payables. The Company has a verbal commitment from its
bank to fund these three development wells and other development drilling,
subject to support of such funding by reserve estimates. Although the Company
believes reserve estimates will support such funding, there can be no assurance
such funding will occur. The Company's obligations with respect to the 3-D
projects and the Johnson Estate development wells depend to a large extent on
MRI's and/or the bank's ability and willingness to advance the Company the
necessary funds and the continued cash flow from continuing operation and the
properties under development. Any excess cash flow will be used to reduce
payables to MRI. Aside from the exploration and development projects discussed
above, the Company has no commitment for significant capital expenditures.
Except as noted above, the Company believes cash flow from operations and bank
financing will be sufficient to fund its existing cash needs. The Company
intends to expend funds as necessary for routine maintenance and limited
capital improvement to its existing oil and gas properties. The timing and
extent of such expenditures is somewhat discretionary on those properties for
which the Company acts as operator.
Results of Operations - Three months ended April 30, 1995 and 1996.
Net income increased from $2,252 the three months ended April 30, 1995
to $23,567 for the same period in fiscal 1996, an increase of $21,315.
Individual items of net income are discussed in detail below.
Oil and gas revenues increased from $108,602 for the third quarter of
fiscal 1995 to $117,429 for the third quarter of fiscal 1996, an increase of
$8,827 or 8 percent. Normal production declines were offset in part by
increased production from the Ned Wilson development wells drilled in the
second quarter of fiscal 1996. Oil and gas production quantities were 2,603
barrels and 36,143 mcf for the third quarter of fiscal 1995, and 2,991 barrels
and 31,832 mcf for the third quarter of fiscal 1996. Average oil and gas
prices were $19.71 per barrel and $1.57 per mcf for the third quarter fiscal
1995, and $19.99 per barrel and $1.83 per mcf for the third quarter of fiscal
1996.
Property operation fees and oil and gas production costs did not vary
significantly between the quarters ended April 30, 1995 and 1996.
General and administrative expenses decreased from $49,671 for the
third quarter of fiscal 1995 to $35,212 for the same period in fiscal 1996, a
decrease of $14,459 or 29 percent. This decrease is primarily the result of a
decrease in management fees charged by MRO.
Depreciation, depletion and amortization based on production and other
methods decreased from $25,301 for the third quarter of fiscal 1995 to $22,313
for the third quarter of fiscal 1996. This decrease of $2,988 or 12 percent
was primarily due to revisions in estimated property depletion and property
acquisitions and development during fiscal 1995 and 1996.
Interest expense decreased from $10,962 for the quarter ended April
30, 1995 to $9,367 for the quarter ended April 30, 1996. This decrease of
$1,595 or 15 percent was due to lower interest rates and a decreasing loan
balance.
Results of Operations - Nine months ended April 30, 1995 and 1996.
Net income increased from $26,718 for the nine months ended April 30,
1995 to $49,700 for the same period in fiscal 1996, an increase of $22,982.
Individual items of net income are discussed in detail below.
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Oil and gas revenues increased from $341,323 for the first nine months
of fiscal 1995 to $347,655 for the first nine months of fiscal 1996, an
increase of $6,332. Normal production declines offset the increased production
from the Ned Wilson developments wells drilled in the second quarter of fiscal
1996. Oil and gas production quantities were 9,409 barrels and 109,674 mcf for
the first nine months of fiscal 1995, and 9,653 barrels and 106,969 mcf for the
first nine months of fiscal 1996. Average oil and gas prices were $16.60 per
barrel and $1.67 per mcf for the first nine months of fiscal 1995, and $17.36
per barrel and $1.70 per mcf for the first nine months of fiscal 1996.
Property operation fees and oil and gas production costs did not vary
significantly between fiscal 1995 and 1996.
General and administrative expenses decreased from $165,929 for the
first nine months of fiscal 1995 to $142,738 for the same period in fiscal
1996, a decrease of $23,191 or 14 percent. This decrease is primarily a result
of a decrease in management fees charged by MRO.
Depreciation, depletion and amortization based on production and other
methods decreased from $74,182 for the first nine months of fiscal 1995 to
$60,583 for the same period in fiscal 1996. This decrease of $13,599 or 18
percent was primarily due to revisions in estimated property depletion and
property acquisitions and development during fiscal 1995 and 1996.
Interest expense did not vary significantly between fiscal 1995 and
1996.
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PART II - OTHER INFORMATION
Item 1. Legal proceedings - Not Applicable.
Item 2. Changes in securities - None.
Item 3. Defaults upon senior securities - None.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other Information - None
Item 6. Exhibits and reports on Form 8-K
a. Exhibits:
27 Financial Data Schedule for Form 10-QSB for the
quarter ended April 30, 1996 (electronic filing only)
b. Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
SUMMIT PETROLEUM CORPORATION
(Registrant)
By: /s/ Deas H. Warley III
---------------------------------------
Deas H. Warley III
President and Chief Financial Officer
DATED: May 31, 1996
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INDEX TO EXHIBITS
Exhibit
Number Description
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27 Financial Data Schedule for Form 10-QSB for the
quarter ended April 30, 1996 (electronic filing only)