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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter period ended SEPTEMBER 30, 1995 Comm. File# 0-12813
AMERICAN ATLAS RESOURCE CORPORATION
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(Formerly Wepco Energy Co.)
(Exact name of small business registrant as specified in its charter)
DELAWARE 84-0809164
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
240 WEST JESSUP STREET, BRIGHTON, COLORADO 80601
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(Address of principal executive office)
Registrant's telephone number, including area code: (303) 659-8203
Check whether the registrant (1) has filed all reports to be filed by Section
13 or 15(d) of the Securities 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
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The number of shares outstanding of each of the registrant's class of common
stock or common stock equivalents
Class Outstanding at September 30, 1995
- --------------------------------------------------------------------------------
COMMON STOCK $.01 PAR VALUE 720,430 SHARES
PREFERRED STOCK 523,903 SHARES *
* CONVERTIBLE INTO 5,239,030 COMMON SHARES
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AMERICAN ATLAS RESOURCE CORPORATION
(Formerly Wepco Energy Co.)
Form 10QSB - For the Quarter Ended September 30, 1995
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
A. Consolidated Balance Sheet - September 30, 1995 3
B. Consolidated Statements of Operations - Nine Months
and Three Months ended September 30, 1995 and 1994 4
C. Consolidated Statements of Changes in Cash Flows - Nine
Months Ended September 30, 1995 and 1994 5
D. Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
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PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash $ 12,100
Accounts Receivable (less $4,700 allowances for doubtful accounts) 103,000
Parts and Equipment Inventory 85,200
Prepayments and Other 7,000
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TOTAL CURRENT ASSETS 207,300
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PROPERTY AND EQUIPMENT:
Oil and Gas Properties, (at cost on the successful
efforts method of accounting)
Proved Properties 3,625,500
Unproved Properties 5,800
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3,631,300
Compressors 1,009,400
Land and Building 141,900
Automobiles, Trucks and Heavy Equipment 157,200
Shop Machinery, Equipment, Furniture and Fixtures 58,400
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4,998,200
Accumulated Depreciation, Depletion and Amortization (3,500,700)
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1,497,500
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OTHER ASSETS: 1,100
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TOTAL ASSETS $ 1,705,900
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 307,300
Oil and Gas Revenue Payable 226,500
Production Taxes Payable 69,200
Current Portion of Long-Term Debt 237,100
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TOTAL CURRENT LIABILITIES 840,100
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LONG-TERM DEBT AND OTHER LIABILITIES:
Long-Term Debt 159,200
Production Taxes Payable 32,600
Advances From Joint Owners and Affiliates 53,500
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245,300
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COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Serial Preferred Stock, $.01 par value;
1,000,000 shares authorized:
Series A, 462,890 shares issued and outstanding;
face value $3.82 per share 1,768,200
Series B, 61,013 shares issued and outstanding;
face value $5.00 per share 305,100
Common Stock, $.01 par value; 12,000,000
shares authorized; 720,430 shares issued and outstanding 7,200
Additional Paid-In Capital 5,312,000
Accumulated Deficit (6,772,000)
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TOTAL STOCKHOLDERS' EQUITY 620,500
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,705,900
============
The accompanying notes are an integral part of these consolidated financial
statements.
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AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
-------------------------- --------------------------
September 30 September 30
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ------------ ---------
REVENUES:
Oil and Gas Sales $ 223,700 $ 303,900 $ 50,100 $ 107,700
Compressor Rental Income 251,700 323,500 64,700 108,000
Gain (loss) on Sale of Oil and Gas Properties (Net) 52,600 120,100 48,700 (5,000)
Sales and Services of Oil Field Equipment 26,300 31,800 10,400 1,900
Management and Operator Fees 28,200 31,200 3,900 4,300
Other Income 25,900 7,700 6,800 1,500
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608,400 818,200 184,600 218,400
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COSTS AND EXPENSES:
Oil and Gas Production Costs 130,700 246,300 25,600 68,100
Compressor Operating Costs 123,000 174,700 39,000 59,800
Costs of Oil Field Equipment and Services 35,700 40,200 18,000 1,900
Dry Holes and Exploration Expense --- 44,600 --- 400
Depreciation, Depletion and Amortization 227,900 221,800 73,800 74,700
General and Administrative 177,300 295,600 56,100 84,500
Interest Expense 33,400 44,100 10,600 13,400
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728,000 1,067,300 223,100 302,800
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LOSS BEFORE INCOME TAXES (119,600) (249,100) (38,500) (84,400)
PROVISION FOR INCOME TAXES:
Income Tax Benefit --- 3,200 --- 3,200
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NET LOSS (119,600) (245,900) (38,500) (81,200)
LESS PREFERRED DIVIDENDS --- 36,400 --- 3,300
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NET LOSS TO COMMON STOCKHOLDERS $ (119,600) $ (282,300) $ (38,500) $ (84,500)
========== ========== ============ =========
NET LOSS PER COMMON SHARE $ (0.17) $ (0.39) $ (0.05) $ (0.12)
========== ========== ============ =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 720,430 720,430 720,430 720,430
========== ========== ============ =========
The accompanying notes are an integral part of these consolidated financial
statements.
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AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (119,600) $ (245,900)
Adjustments to Reconcile Net (Loss) Income to
Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 227,900 221,800
Gain on Sale of Oil and Gas Properties (52,600) (120,100)
Dry Hole and Exploration Expense --- 16,300
Bonus Interest 6,000 6,900
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61,700 (121,000)
Changes in Operating Assets/Liabilities:
Decrease in Accounts Receivable 43,200 89,200
Decrease (Increase) in Parts and Equipment Inventory 21,600 (49,200)
Decrease (Increase) in Prepayments and Other (4,400) 200
Decrease (Increase) in Other Assets --- 2,300
(Decrease)Increase in Accounts Payable
and Accrued Expenses (44,700) (22,900)
(Decrease) Increase in Undistributed Revenue (4,900) 27,900
(Decrease) Increase in Production Taxes Payable (31,400) (38,200)
(Decrease) Increase in Advances from Joint Owners --- 6,000
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NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES 41,100 (105,700)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Oil and Gas Properties (Net) 52,600 150,700
Proceeds from Sale of Compressors --- 20,700
Additions to Oil and Gas Properties (Net) (7,200) (22,200)
Additions to Compressors and Other Equipment (19,500) (136,100)
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NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 25,900 13,100
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Preferred Stock (Net) --- 293,400
Borrowings from Notes 54,000 ---
Payments on Notes (122,500) (179,400)
Payment of Preferred Stock Dividends --- (36,400)
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NET CASH PROVIDED BY (USED) FINANCING ACTIVITIES (68,500) 77,600
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NET (DECREASE) INCREASE IN CASH (1,500) (15,000)
CASH, Beginning of Year 13,600 62,400
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CASH, End of Quarter $ 12,100 $ 47,400
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SUPPLEMENTAL INFORMATION:
Cash Paid During the Quarter For Interest $ 4,500 $ 37,200
Net Book Value of Equipment Exchanged For Note Payable $ --- $ 46,800
The accompanying notes are an integral part of the consolidated financial
statements.
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AMERICAN ATLAS RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1995 and the related
consolidated statements of operations for the nine months and three months
ended September 30, 1995 and 1994, and the consolidated statements of changes
in cash flows for the periods then ended have been prepared by the Company,
without audit. In the opinion of management, the accompanying financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of September 30, 1995 and results of operation for
the periods then ended except for normal recurring year-end adjustments.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Therefore, it is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Company's 1994 Form 10-KSB. The accounting policies
utilized in the preparation of the financial statements herein presented are
the same as set forth in the Company's annual financial statements except as
modified for appropriate interim accounting policies. The operating results of
the nine months ended September 30, 1995 are not necessarily indicative of
those which the Company may experience for fiscal 1995.
Consolidation:
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, States Exploration Co. ("States"), Schreider &
Company, Inc. ("Schreider"), and American Gas Compression Services, Inc.
("AGCSI"). All significant intercompany transactions have been eliminated.
Certain reclassification's have been made to the September 30, 1994 statement
of operations to conform with the current period's presentation.
Net Loss Per Common and Common Equivalent Share:
Net loss per common share is computed on the basis of the weighted average
number of common shares outstanding during the period. Common Stock
equivalents are not included in the weighted average shares or net loss per
share calculation for the nine months and three months ended September 30, 1995
and 1994, due to their effect being antidilutive.
Stockholders Equity - The Board of Directors approved a stock split of it's
common stock effective March 31, 1995, on the basis that each share of common
stock then outstanding becomes ten shares. Also, the conversion rights and
warrants associated with the Series A and B Preferred Stock were adjusted
accordingly.
Preferred Stock - During the first quarter of 1994, the Company sold 61,013
Units of 1993 Series B Convertible Preferred Stock and Warrants to purchase
Common Stock (the "Units"). Each Unit consists of one share of 1993 Series B
Convertible Preferred Stock ("Series B Preferred Stock"), one Class A Common
Stock Purchase Warrant, and one Class B Common Stock Purchase Warrant (the
"Series B Warrants"). The Units were offered through a private placement
under a Securities and Exchange Commission Regulation D filing.
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The features of the Series B Preferred Stock include: (a) an annual cumulative
dividend payable quarterly of 7% of the face value of $5.00 per share; (b) each
Series B Preferred share is convertible to one share of Common Stock; (c) each
share is entitled to one vote on all matters brought before the Company's
shareholders; (d) the Series B Preferred Stock is redeemable for $5.00 per
share after December 31, 1995; and does not have any liquidation preference.
The exercise price and term of each Series B Warrant is as follows:
Class A Warrants Exercisable at $6.00 per share from the date
of issuance through December 31, 1995
Class B Warrants Exercisable at $7.00 per share from the date
of issuance through December 31, 1996
Additionally, the Series B Warrants will have customary antidilution
protection.
ITEM 2 - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
The Company management and employees are continuing their effort to survive the
ongoing downturn in natural gas prices which continue to have a direct adverse
effect on both it's Baca County, Colorado, gas production cash flow and the
employment of it's small horsepower natural gas compressor rental fleet which
comprises over half of it's available inventory. Since January 1, 1995
customers have elected to return a total of thirteen units through September
30, 1995. In early July 1995 two of the returned units were placed in service
with new customers.
The Company currently has 30 compressor packages on it's idle inventory list
which can be placed in service with minimal additional cash outflow. Gross
rental of these units represents monthly revenue of $33,000.
The Company is actively marketing all of it's residual inventory from
reclamation efforts including several trucks that are in excess of it's current
needs. During the second quarter two of these trucks, the Company's share of a
pumping unit and miscellaneous other inventory was liquidated.
The temporary strengthening of oil prices in the first quarter did not hold and
drilling activity remains low.
The Company has remained current on it's secured indebtedness.
Bonus Interest Notes remain delinquent in the amount of $53,800 as of September
30, 1995. General accounts payable are averaging 60 days as in the first and
second quarter with no significant change in vendor relations.
There has been no change in the Company's goals of selling inventory and
leasing its rental fleet which will insure its survival. Future prices for
natural gas are moving above the $1.50 per MCF range as the shoulder months of
fall approach. The Company is well positioned to take full advantage of
opportunities which will arise if gas and oil prices regain seasonal strength,
but as stated previously, oil and gas are commodities and the selling price
cannot be controlled or
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influenced by the actions of management.
Results of Operations:
For the nine months ended September 30, 1995, the Company had a net loss, of
$119,600 or $0.17 per share, compared to a loss of $282,300, or $0.39 per share
for the same period of 1994 (1994's loss included $36,400 in Preferred Stock
Dividends or $0.05 per share). For the three month period ended September 30,
1995 the loss was $38,500 compared to $84,500 in 1994 or $0.05 loss per share
vs. $0.12 (which included $0.005 per share of Preferred Stock Dividends) for
the respective periods.
Oil and gas sales declined 26% and 53% for the nine and three month periods
ending September 30, 1995 compared to 1994 results. The Company sold/bartered
nine oil and gas wells in Utah in lieu of trade payables with the
purchaser/operator of the wells. The payable amount was approximately $50,000
and the basis was $6,000. Future reserves on the sold nine properties
remaining at July 1, 1995 (the beginning of the transfer of possession) was
approximately $4,500, which did not include liabilities associated with the
plugging of two of the wells which were assumed by the purchaser/operator. Oil
and gas production costs declined 47% and 62% for the same periods.
The following table shows the components of these changes on a production unit
basis:
September 30,
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1995 1994
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Production:
Oil-bbl 6,300 10,100
Gas-MCF 86,900 100,200
Sale:
Oil $111,900 $ 145,700
Gas $111,800 $ 158,200
Average Price:
Oil $ 17.76 $ 14.43
Gas $ 1.29 $ 1.58
Production Costs: $130,700 $ 246,300
Equivalent Barrels: 20,783 26,800
Sales $ 10.76 $ 11.34
Cost of Sales $ 6.29 $ 9.19
Margin $ 4.47 $ 2.15
Production declines are attributed to, the sale discussed above, one oil well
with mechanical problems and one gas well with an increase in H2S content being
shut-in. The Company experienced substantial workover costs in 1994 which were
not repeated in 1995. Compressor rental income decreased by 22% and 40% for
the nine and three month periods while cost decreased 30% and 35% for the
comparable periods. Gross compressor profits were $128,700 and $25,700 for the
nine and three month periods in 1995 compared to $148,800 and $48,200 in 1994.
The compression rental business has been adversely affected by the declining
gas prices, the future gas prices as reflected in the national gas futures
market and price cutting by
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the two major rental fleet operators. The current and projected low gas
prices make the economics of the Company's small horsepower compressors
marginal or sub-economic.
The compression business segment contributed approximately 32% of the Company's
loss for the periods shown while it consumed nearly 100% of the Company's cash
flow from operating activities to service indebtedness associated with the
acquisition of the rental fleet and related assets.
During the nine months of 1994 the Company sold its interests in 19 wells
located in Oklahoma and 14 wells in Pennsylvania. The total proceeds were
$150,700 resulting in a gain of $120,100. During the same period in 1995 the
Company sold interest in fourteen wells having a net gain of $52,600.
The dry hole and exploration expense of $44,200 represents a dry hole drilled
by the Company in the first quarter of 1994. No wells have been drilled in
1995.
Depreciation, depletion and amortization is comparable between periods shown.
General and administrative expenses have remained consistent for the first two
quarters of 1995 and the decreases from 1994 levels reflects the departure of
two officers-directors, the closing of the offices in downtown Denver, and the
deferral of the audit for 1994.
The efforts of the Company's management and employees are far greater than the
results reflected in the first nine months of 1995. The goal of a profitable
operation remains elusive but attainable.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
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) Exhibit filed herewith:
27 Financial Data Schedule
b) Reports on Form 8-K:
None
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SIGNATURES
In accordance with the requirements 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.
AMERICAN ATLAS RESOURCE CORPORATION
/s/ Rudy C. Schreider, Jr. November 2, 1995
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Rudy C. Schreider, Jr. Chief Executive Officer Date
Director
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EXHIBIT INDEX
Exhibit
Number Exhibit Description Page
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27 Financial Data Schedule