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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
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For the quarter period ended JUNE 30, 1996 Comm. File# 0-12813
AMERICAN ATLAS RESOURCE CORPORATION
(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 _____
The number of shares outstanding of each of the registrant's class of common
stock or common stock equivalents
Class Outstanding at June 30, 1996
- --------------------------------------------------------------------------------
COMMON STOCK $.01 PAR VALUE 720,043 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 10-QSB - For the Quarter Ended June 30, 1996
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
A. Consolidated Balance Sheet - June 30, 1996 3
B. Consolidated Statements of Operations - Six Months
and Three Months ended June 30, 1996 and 1995 4
C. Consolidated Statements of Changes in Cash Flows - Six
Months Ended June 30, 1996 and 1995 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
JUNE 30, 1996
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash $ 47,000
Accounts Receivable (less $4,700 allowances for doubtful accounts) 90,700
Parts and Equipment Inventory 83,100
Prepayments and Other 12,200
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TOTAL CURRENT ASSETS 233,000
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PROPERTY AND EQUIPMENT:
Oil and Gas Properties, (at cost on the successful
efforts method of accounting)
Proved Properties 1,647,000
Natural Gas Compressors 1,016,100
Land and Building 141,900
Automobiles, Trucks and Heavy Equipment 113,300
Shop Machinery, Equipment, Furniture and Fixtures 57,700
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2,976,000
Accumulated Depreciation, Depletion and Amortization (1,584,000)
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1,392,000
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OTHER ASSETS: 5,000
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TOTAL ASSETS $ 1,630,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 264,700
Oil and Gas Revenue Payable 226,800
Production Taxes Payable 30,200
Current Portion of Long-Term Debt 97,200
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TOTAL CURRENT LIABILITIES 618,900
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LONG-TERM DEBT AND OTHER LIABILITIES:
Long-Term Debt 109,600
Production Taxes Payable 48,000
Advances From Joint Owners and Affiliates 39,700
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197,300
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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 (6,578,700)
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TOTAL STOCKHOLDERS' EQUITY 813,800
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,630,000
============
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)
Six Months Ended Three Months Ended
-------------------------- --------------------------
June 30 June 30
-------------------------- --------------------------
1996 1995 1996 1995
-------------------------- --------------------------
REVENUES:
Oil and Gas Sales $ 130,600 $ 173,600 $ 58,600 $ 88,400
Compressor Rental Income and Sales 121,700 187,000 51,400 86,200
Gain on Sale of Oil and Gas Properties (Net) 50,900 3,900 40,200 3,900
Sales and Services of Oil and Gas Field
Equipment 36,800 15,900 22,400 13,500
Management and Operator Fees 25,100 24,300 4,400 3,800
Other Income 100 19,100 --- 13,500
--------- ---------- --------- -----------
365,200 423,800 177,000 209,300
--------- ---------- --------- -----------
COSTS AND EXPENSES:
Oil and Gas Production Costs 48,800 105,100 16,700 51,800
Compressor Operating Costs 105,700 84,000 59,000 35,500
Costs of Oil and Gas Field Equipment
and Services 33,000 17,700 27,100 11,400
Depreciation, Depletion and Amortization 93,400 154,100 46,200 76,000
General and Administrative 94,900 121,200 44,700 62,300
Interest Expense 12,100 22,800 5,900 12,500
--------- ---------- --------- -----------
387,900 504,900 199,600 249,500
--------- ---------- --------- -----------
LOSS BEFORE INCOME TAXES (22,700) ( 81,100) (22,600) (40,200)
PROVISION FOR INCOME TAXES:
Income Tax Benefit (Expense) --- --- --- ---
--------- ---------- --------- -----------
NET LOSS (22,700) (81,100) (22,600) (40,200)
LESS PREFERRED DIVIDENDS (10,600) (10,600) (5,300) (5,300)
--------- ---------- --------- -----------
NET LOSS TO COMMON STOCKHOLDERS $ (33,300) $ ( 91,700) $ (27,900) $ (45,500)
========= ========== ========= ===========
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.01) $ (0.02) $ (0.01) $ (0.01)
========= ========== ========= ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,349,300 5,349,300 5,349,300 5,349,300
========= ========== ========= ===========
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
(Unaudited)
Six Months Ended June 30,
-------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (22,700) $ (81,100)
Adjustments to Reconcile Net (Loss) Income to
Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 93,400 154,100
Gain on Sale of Oil and Gas Properties (50,900) (3,900)
Bonus Interest 2,100 4,000
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21,900 73,100
Changes in Operating Assets/Liabilities:
Decrease (Increase) in Accounts Receivable (21,700) 4,900
Decrease (Increase) in Parts and Equipment Inventory (22,900) 16,700
Decrease (Increase) in Prepayments and Other (10,900) (8,900)
Decrease (Increase) in Other Assets --- ---
(Decrease)Increase in Accounts Payable
and Accrued Expenses (41,800) 29,900
(Decrease) Increase in Undistributed Revenue (10,600) (5,200)
(Decrease) Increase in Production Taxes Payable (30,300) (38,500)
(Decrease) Increase in Advances from Joint Owners --- ---
--------- ---------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (116,300) 72,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Oil and Gas Properties 62,000 3,900
Proceeds from Sale of Equipment 23,400 ---
Additions to Oil and Gas Properties (Net) (3,000) (5,000)
Additions to Compressors and Other Equipment (400) (2,800)
--------- ---------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 82,000 (3,900)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Notes 19,300 18,000
Payments on Notes (90,900) (86,100)
Payment of Preferred Stock Dividends --- ---
--------- ---------
NET CASH PROVIDED BY (USED) FINANCING ACTIVITIES (71,600) (68,100)
--------- ---------
NET (DECREASE) INCREASE IN CASH (105,900) ---
CASH, Beginning of Year 152,900 13,600
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CASH, End of Quarter $ 47,000 $ 13,600
========= =========
SUPPLEMENTAL INFORMATION:
Cash Paid During the Period For Interest $ 10,000 $ 12,900
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 June 30, 1996 and the related consolidated
statements of operations for the six months and three months ended June 30,
1996 and 1995, 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 June 30, 1996 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 1995 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 six months ended June 30, 1996 are not necessarily indicative of those
which the Company may experience for fiscal 1996.
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 June 30, 1995 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 six months and three months ended June 30, 1996 and
1995, due to their effect being antidilutive.
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ITEM 2 - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
The Company continues to survive the downturn in natural gas prices that
started in late 1994 and continued through most of 1995. Of the Company's
forty-four compressors, thirteen were leased and thirty-one were available for
rental or sale. Potential rental income from these available units is in
excess of $30,000 per month. The Company continues to actively market its
residual inventory of oil and gas field equipment including approximately
28,000 feet of 6 5/8 inch gas pipeline which has been recovered and available
for immediate sale.
The Company sold at auction in June, 1996, all of its non-operated oil and gas
properties not held as part of its partnership interest. Further, the Company
sold several pieces of equipment used in its pipeline recovery operations in a
June equipment auction to raise working capital.
The Company completed the repayment of its $315,000 equipment financing note in
April, 1996. The Company was current with its Bonus Interest Noteholders on
July 5, 1996, when it paid six months of principal and interest, which was
included in accounts payable and accrued expenses at June 30, 1996, of $38,100
from the proceeds of the auctioned oil and gas properties and equipment.
Approximately 70 percent of the Bonus Notes and related Bonus Interest of
$91,000 is owed to present and former officers and directors and their
relatives.
To summarize, the Company's management is holding to its course of returning
the Company to profitable operations and meeting its obligations to creditors
and shareholders.
Results of Operations:
For the six months ended June 30, 1996, the Company had a net loss of $33,300
or $0.006 per common share as compared to $91,100 or $0.017 per common share
for the June 30, 1995, period after giving effect to the 7% Series B Preferred
Stock Dividend of $10,600 for each period.
Oil and gas sales continue to decline mainly as a result of the sale of
non-operated producing properties.
On March 31, 1996, four wells were exchanged with a former officer and director
for accounts payable which resulted in a gain of $10,700 and effective June 1,
1996, the remainder of the non-operated working interest wells were sold at
auction for a gain of $40,200. At June 30, 1996, the Company's oil and gas
properties consisted of its eleven operated wells in Colorado and its
non-operated working interests associated with its partnerships' wells plus
various overriding royalty interest.
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The following table shows the results of these transactions and the effect of
price changes for the periods:
June 30,
-----------------------
1996 1995
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Production:
Oil-bbl 2,900 5,700
Gas-MCF 33,600 52,000
Sale:
Oil $ 62,500 $ 96,900
Gas $ 68,100 $ 76,600
Average Price:
Oil $ 21.25 $ 17.08
Gas $ 2.03 $ 1.47
Production Costs: $ 48,800 $ 105,100
Depletion Expense: $ 50,000 $ 100,000
Equivalent Barrels: 8,500 14,367
Sales $ 15.36 $ 12.08
Cost of Sales $ 5.76 $ 7.32
Margin $ 9.60 $ 4.76
Depletion $ 5.88 $ 6.96
The gas production declines caused by the H2S situation in the State 1-17 is
being addressed and production has been resumed at approximately 40 MCFD as
compared to 200 MCFD prior to the problem. (The Company has a 33% working
interest and a 25% net revenue interest in this well).
Oil and gas production costs have declined with the sale of the non-operated
properties and in part from the adjustment of an over accrual of advalorem
taxes on the Company operated wells. Depletion expense for the six months
ended June 30, 1996, was $50,000 as compared to $100,000 for the June 30, 1995,
period. The significant difference between the two periods is caused by
management's estimate of the period's expense versus the Independent Engineer's
analysis of remaining recoverable reserves as of January 1, of each period.
The net book value of the Company's remaining oil and gas properties is
$497,100 at June 30, 1996, which approximates the value of the Company's
remaining proved producing properties at January 1, 1996, exclusive of three
proved undeveloped locations having an undiscounted value of $890,500 at that
date.
The Company's gas compression rental and sales revenues for the six months
ended June 30, 1996, have declined by 35 percent and related costs have
increased by 25 percent. On a segment basis, the Company's compressor rental
and sales operation lost $59,300 for the six months ended June 30, 1996,
compared to $7,300 for the same period in 1995.
Continuing low gas prices in the Company's market area have caused customers to
return rental units. Of the Company's forty-four units, thirteen were under
contract at June 30, 1996. In the three months ended June 30, 1996, five units
have been overhauled (costs were expensed currently) and readied for shipment,
and the pending contracts have fallen through
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because of changed circumstances with our customers. These five units have
current gross rental rates totaling $7,200 per month. Four other compressor
packages returned during the last six months had gross monthly rentals of
$7,000.
In summary, the compressor rental and sales segment of the Company's business
has the potential to generate and sustain profitability which it is yet to
achieve. Management is striving to contain costs while still delivering the
highest quality of customer service available and be able to meet the needs and
demands of current and prospective customers. Further, management continues to
evaluate all business opportunities in its market area that would be compatible
with existing operations, including the sale of part or all of this business
segment.
The sales and service of oil and gas field equipment has been consistent
between periods. The sale of the 28,000 feet of gas pipeline has not occurred
and the cost of salvaging the pipe of $18,000 is included in current inventory.
The inventory of recovered oil and gas field equipment is being marketed by
both Company personnel and independent dealers.
General and administrative expenses for the quarter and the six months ended
June 30, 1996, are down compared to the comparable 1995 periods due to the
absence of the compressor salesman's costs that was employed during the 1995
period's amounts.
Interest expense reductions reflect the repayment of bank debt and Bonus
Interest Notes.
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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) Exhibits
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. August 7, 1996
- ---------------------------------- --------------
Rudy C. Schreider, Jr. Chief Executive Officer Date
Director
The Company is actively looking for qualified replacements for its two
directors and will fill the vacancies as soon as practical.
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
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27 FINANCIAL DATA SCHEDULE
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