UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File No. 33-26936-D
EXCEL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0460769
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 Bagby, Suite 2400
Houston, Texas 77002
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 659-5556
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (or for such shorter period that the
registrant was required to file such reports), and has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
Shares outstanding of the Registrant's common stock as of December 31,
1995: 12,023,956
PART I
Item 1. Business
Certain Definitions
As used in this Form 10-K, the terms set forth below have the following
meanings:
Mcf thousand cubic feet
Mcfd thousand cubic feet per day
MMcf million cubic feet
MMcfd million cubic feet per day
Bcf billion cubic feet
Btu British Thermal Unit
MMBtu million British Thermal Units
Tcf trillion cubic feet
NRI net revenue interest
WI working interest
General
Excel Resources, Inc., formerly named Dover Capital Corp. (together with
its direct and indirect subsidiaries, the "Registrant" or the "Company"), was
incorporated under the laws of the State of Nevada on December 1, 1988. The
Company was initially organized to identify, investigate and acquire suitable
assets, properties or other business opportunities that management believed to
have good business potential. Upon formation, the Company issued 2,875,000
shares of common stock, $.001 par value per share (the "Common Stock"),
constituting all of its then issued shares of Common Stock, to Frisco, Inc.
("Frisco"). On or about December 31, 1991, Frisco distributed all of the
Company's outstanding Common Stock to the shareholders of Frisco at no cost.
Effective July 12, 1993, in exchange for 5,100,000 shares of Common Stock, the
Company acquired all of the outstanding shares of common stock of Excel
Resources, Inc., a privately-held Texas corporation ("Excel Texas"), which is
presently a wholly- owned subsidiary of the Company. On or about this time,
the Company changed its corporate name to "Excel Resources, Inc."
Excel Texas engages primarily in production and marketing of natural gas
in the Gulf Coast region of the United States. In addition, Excel Texas is
involved in designing, installing and operating pipelines and gathering
systems.
As of December 31, 1995, the Company had ten employees, all employed in
Texas. The Company considers its relationship with its current employees to
be good.
Marketing
The natural gas marketing activities in connection with gas purchased by
Excel Gas Marketing, Inc., an affiliate of the Company, from third-party
producers, were curtailed to a minimal level in 1995. Consequently, gross
revenues and cost of goods sold have declined to $3.7 million and $1.8
million, respectively in 1995 from $35.2 million and $34.2 million in 1994.
During 1995, the Company sold its Katy Interconnect Facilities. Its
other two pipelines are not currently active. However, the Company currently
is seeking additional acquisitions of pipeline assets. See "Business-Recent
Acquisitions and Dispositions."
Except as described above, the Company does not have any patents,
trademarks, franchises or concessions the loss of which would have a material
adverse effect on the Company's financial position.
Competitive Conditions
Although supplies of natural gas have been abundant during the last ten
years, the demand and supply of natural gas became more closely aligned during
the last quarter of 1995. The lack of significant new production and
pipeline capacity constraints have prompted significant price increases during
the last quarter of 1995. The reliability of supply remains a major issue for
consumers; therefore, those major producers and marketers who are best able to
assure reliable supplies are able to charge premium prices for their natural
gas. The major producers and marketers additionally enjoy a competitive
advantage over smaller and medium-sized companies such as the Company. Their
greater financial, technical and other resources available enable them to
provide both bundled and unbundled services.
The Company has focused its reserve acquisition effort in the Gulf Coast
region, and now owns significant natural gas and oil reserves in federal
waters located offshore Texas, Louisiana, Mississippi, Alabama, and Florida.
The Company continues to pursue additional reserve acquisitions, as well as
the acquisition of other oil and gas assets including pipelines, processing
facilities and gathering systems consistent with the Company's long-term
business strategy. See "Business-Recent Acquisitions and Dispositions." In
pursuing these acquisitions, the Company frequently competes against companies
with substantially larger financial and other resources. To the extent the
Company's acquisition and production budget is lower than that of certain of
its competitors, the Company may be disadvantaged in effectively competing for
such acquisitions. Competitive factors include price, contract terms and
quality of services, including pipeline connection times and distribution
efficiencies.
The Company believes that the continuing deregulation of the natural gas
industry will allow it to compete more effectively with certain of the major
producers and marketers. See "Business-Regulation." Many of the major
companies have overhead costs to market their natural gas that are higher than
the Company's. Their margins, therefore, must be higher than the Company's,
whose considerably lower overhead costs could allow it to be profitable with
smaller margins, thus giving it a potential competitive advantage.
Regulation
Domestic Regulation of Natural Gas and Crude Oil Production. Natural gas
and crude oil production, marketing, transportation and gathering operations
are subject to various types of regulation, including regulation in the United
States by state and federal agencies.
Domestic legislation affecting the oil and gas industry is under constant
review for amendment or expansion. Also, numerous departments and agencies,
both federal and state, are authorized by statute to issue, and have issued,
rules and regulations which, among other things, require permits for the
drilling of wells, regulate the spacing of wells, prevent the waste of natural
gas and crude oil resources through proration, require drilling bonds and
regulate environmental and safety matters. The regulatory burden on the oil
and gas industry increases its cost of doing business and, consequently,
affects its profitability.
Operations conducted by the Company on federal oil and gas leases, such
as the Company's operations on the Mafla Field and Bounty Properties, must
comply with numerous statutory and regulatory restrictions. Certain
operations must be conducted pursuant to appropriate permits issued by various
government agencies and authorities.
The transportation and sale for resale of natural gas in interstate
commerce are regulated pursuant to the Natural Gas Act of 1938 (the "NGA") and
the Natural Gas Policy Act of 1978 (the "NGPA"). These statutes are
administered by the Federal Energy Regulatory Commission ("FERC"). Effective
January 1, 1993, the Natural Gas Wellhead Decontrol Act of 1989 deregulated
natural gas prices for all "first sales" of natural gas, which includes all
sales by the Company of its own production. Consequently, sales of the
Company's natural gas currently may be made at market prices, subject to
applicable contract provisions.
Since 1985, the FERC has endeavored to make natural gas transportation
more accessible to gas buyers and sellers on an open and non-discriminatory
basis. These efforts have significantly altered the marketing and pricing of
natural gas. The FERC's actions in this area have been the promulgation and
implementation of the Order No. 636 series of orders issued since April 1992,
and various other orders such as Order No. 547 and Order No. 497-E. The net
result of these orders has been to increase the competition within the natural
gas industry and to enhance the Company's ability to market and transport its
natural gas production.
The Company owns, and is considering the acquisition of, certain natural
gas pipelines that it believes meet the traditional tests the FERC has used to
establish a pipeline's status as a gatherer not subject to FERC jurisdiction
under the NGA. State regulation of gathering facilities generally includes
various safety, environmental, and in some circumstances, non-discriminatory
take requirements, but does not generally entail rate regulation. Natural gas
gathering may receive greater regulatory scrutiny at both the state and
federal levels as the pipeline restructuring is completed. The Company's
gathering operations could be adversely affected should they be become subject
in the future to the application of state or federal regulation of rates and
services.
The Company cannot predict the effect that any of the aforementioned
orders or the challenges to such orders will ultimately have on the Company's
operations. Additional proposals and proceedings that might affect the
natural gas industry are pending before Congress, the FERC and the courts.
The Company cannot predict when or whether any such proposals or proceedings
may become effective. It should also be noted that the natural gas industry
historically has been very heavily regulated; therefore, there is no assurance
that the less regulated approach currently being pursued by the FERC will
continue indefinitely.
Environmental Regulation. Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
Company's operations and costs as a result of their effect on natural gas
production, transportation, gathering and marketing operations. It is not
anticipated that the Company will be required in the near future to expend
material amounts by reason of environmental laws and regulations, but inasmuch
as such laws and regulations are frequently changed, the Company is unable to
predict the ultimate cost of compliance.
Seasonality
The Company's results of operations fluctuate from quarter to quarter,
due in part to the impact of seasonal factors on the prices and sales volumes
of natural gas. Such prices usually increase during the winter due to greater
heating requirements. Demand is also typically higher in the summer than in
the spring and fall, reflecting use by electric utilities for air
conditioning. In addition, demand related to weather conditions may vary
significantly over short periods of time if, for example, temperatures change
suddenly.
Recent Acquisitions and Dispositions
The Company did not make any significant or material acquisitions or
dispositions in 1995.
Additional Equity Financing
The Company pursued equity financing throughout 1995, with its efforts
being concentrated on the European financial markets. In the January through
April, 1995 time period, the Company successfully realized, as a result of
these efforts, a total of $2.0 million. For the remainder of 1995, another
$1.6 million was realized from these efforts, bringing the total for the year
(net of commission fees) to $3.6 million. See Management's Discussion and
Analysis of Financial Condition for more information on the Company's equity
funding efforts.
Item 2. Properties
Excel Texas entered into a ten year office lease agreement March 8, 1990,
in the Texaco Heritage Plaza building in downtown Houston, Texas. The lease
was amended effective March 1, 1993, with Excel Texas relocating to a larger
space. The new lease covers 8,866 square feet. Amended lease terms call for
annual base rent payments of approximately $69,000 for the lease-year ended
February 28, 1995, $73,000 for the next two lease-years ending February 29,
1997, and $78,000 for the following three lease-years. See "Business - Recent
Acquisitions and Dispositions" for additional information about the Company's
properties.
Item 3. Legal Proceedings
The Company and Excel Gas Marketing, Inc., an affiliate of the Company,
are either individually or jointly involved in a number of claims, as well as
litigation, for breach of contract primarily arising from the nonpayment for
natural gas purchased. Liquidity problems encountered by both the Company and
Excel Gas Marketing, Inc. during 1994 were the primary factors giving rise to
such claims. Management believes that the outcome of such litigation will not
have a material adverse effect upon the Company, since all claims, excluding
legal fees (which the Company believes will be immaterial in amount), are
properly reflected in the financial statements. The Company is continuing its
efforts to secure funding sufficient to pay all amounts for which it is
liable. The following is a listing of those legal actions:
July 6, 1994, Scana Hydrocarbons, Inc. filed suit against Excel Gas Marketing,
Inc. ( Excel Gas Marketing ) for breach of contract for nonpayment of
$252,818, plus interest and legal costs. The suit also claimed fraud on the
part of Excel Gas Marketing for failure to place gas sales contract proceeds
into an escrow account. Excel Gas Marketing and the Company have finalized a
settlement of this suit, which settlement provides for amounts remaining due
to Scana to be paid in monthly installments over a one-year period beginning
March 15, 1996. Neither the March payment nor any subsequent payment due
thereafter has been made.
July 19, 1994, Entex, a division a NorAm Energy Corporation, filed a Petition
of Interpleader in the Judicial District Court of Harris County, Texas,
against the Company and Excel Gas Marketing. The action caused a total of
$1,969,349.49 of accounts receivable due to the Company to be placed with the
clerk of the court for distribution to the appropriate parties. The
Interpleader was filed by Entex to make payments to other parties of the funds
owed to the Company and Excel Gas Marketing. These claims were made due to
the Company s and Excel Gas Marketing s failure to pay outstanding natural gas
purchases. The mediation for the Petition of Interpleader was held on July
27, 1995, with all parties to the action agreeing to the distribution of the
above mentioned funds. Two major creditors received a total of $1,700,000.
The balance of the funds were distributed on a pro-rata basis among the
remaining creditor parties to the action. In addition, in connection with the
mediation process, Cypress Operating Company obtained an agreed judgment
against Excel Gas Marketing for $117,648.56, plus interest and attorneys'
fees. Mobil Natural Gas, Inc. was granted an agreed judgment against Excel
Gas Marketing and Excel Texas in the amount of $2,911,754, plus post judgment
interest. The amounts due in connection with the judgments have not been
fully paid, but Excel Texas and Excel Gas Marketing are working with the
respective parties to satisfy same.
August 8, 1994, Gas Marketing & Transportation Co. filed suit against Excel
Gas Marketing for breach of contract due to nonpayment of gas purchases of
$290,386, plus interest and legal costs. The suit was filed in the Judicial
Court of Nueces County, Texas. This matter was settled on November 28, 1994,
between the respective parties. Under the provisions of the Mutual Release
and Settlement Agreement, Excel Gas Marketing was to pay Gas Marketing &
Transportation Co., Inc. $246,353.97 by December 28, 1994. Such required
amount was not paid by the specified date and has not been paid as of the date
hereof; however, payments have been made to reduce such amount. The amount
outstanding and unpaid at December 31, 1995, was $18,195,52.
August 11, 1994, Oxy U.S.A. filed suit against the Company in the Judicial
Court of Harris County, Texas, for breach of contract. Oxy U.S.A. seeks to
collect $171,139.36, plus interest at 18% per annum. They are also seeking
recovery of attorneys fees and court costs. This matter was settled on April
18, 1995, between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, the Company was to pay to Oxy U.S.A.
$171,139.36 by May 27, 1995. Such required amount was not paid by the
specified date and has not been paid as of the date hereof; however, payments
have been made to reduce such amount.
August 16, 1994, J. M. Huber Corporation filed suit against Excel Gas
Marketing in the Judicial Court of Harris County, Texas, for breach of
contract, seeking $346,499.12, plus interest, attorneys fees and court costs.
This matter was settled on October 31, 1994, between the respective parties.
Under the provisions of the Mutual Release and Settlement Agreement, Excel Gas
Marketing was to pay J. M. Huber Corporation $320,605.44 by December 15, 1994.
Such required amount was not fully paid by the specified date and has not been
paid as of the date hereof; however, payments have been made to reduce such
amount.
August 18, 1994, Rangeline Corporation filed suit against Excel Gas Marketing
in the County Civil Court of Law, Harris County, Texas for breach of contract.
Rangeline Corporation seeks damages of $65,100 plus interest, attorneys fees
and court costs. This matter was settled on November 29, 1994, between the
respective parties. Under the provisions of the Mutual Release and Settlement
Agreement, Excel Gas Marketing was to pay to Rangeline Corporation $67,100.00
on December 29, 1994. Such required amount was not paid by the specified
date; however, Excel Gas Marketing subsequently paid $67,100.00 to Rangeline
Corporation to satisfy this lawsuit.
August 29, 1994, H & N Gas, Limited Partnership d/b/a H & N Gas, Ltd. filed
suit against the Company in the County Civil Court of Law, Harris County,
Texas, for breach of contract. H & N Gas has sought compensation in the
amount of $26,601.06 plus interest and attorneys fees. This matter was
settled between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, the Company paid H & N Gas $29,101.19,
thereby satisfying the judgment.
September 2, 1994, Sonat Marketing Co. filed suit against the Company and
Excel Gas Marketing in the District Court of Harris County, Texas, for breach
of contract. Sonat sought $1,280,937.62, plus interest, attorneys fees and
court costs. This matter was settled on January 25, 1995, between the
respective parties. Under the provisions of the Mutual Release and Settlement
Agreement, the Company was to pay to Sonat Marketing Co. $1,247,034.72 on July
20, 1995. Such required amount was not paid by the specified date and has not
been paid as of the date hereof; however, payments have been made to reduce
such amount.
September 11, 1994, Chevron USA, Inc. filed suit against the Company for
breach of contract due to nonpayment of purchases of $365,855.46, plus
interest and legal costs. The suit was filed in the Judicial Court of Harris
County, Texas. This matter was settled on February 19, 1996, between the
respective parties. Under the provisions of the Mutual Release and Settlement
Agreement, the Company was to pay to Chevron USA, Inc. $365,855.46 on or
before March 26, 1996. Such required amount was not paid by the specified
date and has not been paid as of the date hereof.
September 16, 1994, Global Petroleum Corporation filed suit against the
Company and Excel Gas Marketing in the District Court of Harris County, Texas,
for breach of contract, breach of guaranty and negligent misrepresentation.
Global Petroleum Corporation sought damages of $358,838.58, plus interest and
attorneys fees. This matter was settled between the respective parties.
Under the provisions of the Mutual Release and Settlement Agreement, the
Company was to pay to Global Petroleum Corporation $338,875.00 by December 19,
1994. Such required amount was not paid by the specified date and has not
been paid as of the date hereof; however, payments have been made to reduce
such amount.
October 6, 1994, Anson Gas Marketing filed suit against Excel Gas Marketing in
the District Court of Caddo County, State of Oklahoma, for breach of contract.
Total amounts owed to Anson Gas Marketing are $86,265. This matter was
settled on January 24, 1995, between the respective parties. Under the
provisions of the Mutual Release and Settlement Agreement, Excel Gas Marketing
was to pay Anson Gas Marketing $86,265 by February 24, 1995. Such required
amount was not paid by the specified date and has not been paid as of the date
hereof; however, payments have been made to reduce such amount.
November 23, 1994, Phillips Petroleum Company filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$534,921.01, plus interest and legal costs. The suit was filed in the
Judicial Court of Harris County, Texas. This matter was settled on February
21, 1995, between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay to Phillips
Petroleum Company $554,251.81 by April 21, 1995. Such required amount was not
paid by the specified date and has not been paid as of the date hereof;
however, payments have been and continue to be made to reduce such amount.
December 2, 1994, Enserch Gas Company, et al. filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$97,194.28, plus interest and legal costs. The suit was filed in the Judicial
Court of Dallas County, Texas. This matter was settled on July 18, 1995,
between the respective parties. Under the provisions of the Mutual Release
and Settlement Agreement, Excel Gas Marketing was to pay to Enserch Gas
Company $97,194.28 by July 25, 1995. Such required amount was not paid by the
specified date and has not been paid as of the date hereof; however, payments
have been made to reduce such amount.
December 29, 1994, Hadson Gas Systems, Inc. filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$161,838.74, plus interest and legal costs. The suit was filed in the
Judicial Court of Harris County, Texas. This matter was settled on February
16, 1995, between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay to Hadson Gas
Systems, Inc. $161,838.74 by April 17, 1995. Such required amount was not
paid by the specified date and has not been paid as of the date hereof;
however, payments have been made to reduce such amount.
January 4, 1995, Gulf Coast Marketing Co. filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$48,486.39, plus interest and legal costs. The suit was filed in the Judicial
Court of Harris County, Texas. This matter was settled between the respective
parties. Under the provisions of the Mutual Release and Settlement Agreement,
Excel Gas Marketing was to pay to Gulf Coast Marketing Co. $48,486.39 by
February 28, 1995. Such required amount was not paid by the specified date
and has not been paid as of the date hereof; however, payments have been made
to reduce such amount.
February 10, 1995, NorAm Gas Transmission filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas transportation costs
of $274,163.51, plus interest and legal costs. This suit was filed in the
First Judicial District Court of Caddo Parish, Louisiana. This matter was
settled between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay to NorAm Gas
Transmission $252,029.66 in installments beginning July 15, 1995. The July
15, 1995, installment was paid by Excel Gas Marketing. Subsequent required
installment amounts have not been paid by the specified dates and have not
been paid as of the date hereof.
March 10, 1995, American Exploration Gas System Corporation filed a suit
against Excel Gas Marketing for breach of contract due to nonpayment of gas
purchases of $122,890.89, plus interest and legal costs. The suit was filed
in the District Court of Harris County, Texas. This matter was settled
between the respective parties. Under the provisions of the Mutual Release
and Settlement Agreement, Excel Gas Marketing was to pay to American
Exploration Gas System Corporation $122,890.89 by May 9, 1995. Such required
amount was not paid by the specified date and has not been paid as of the date
hereof; however, payments have been be made to reduce such amount.
April 17, 1995, H & N Gas, Limited Partnership d/b/a H & N Gas Ltd. filed suit
against the Company for breach of contract due to nonpayment of gas purchases
of $34,624.36. The suit was filed in the County Civil Court of Harris County,
Texas. Under the provisions of the Mutual Release and Settlement Agreement,
the Company was to pay to H & N Gas Ltd. $36,624.36 by July 17, 1995. Such
required amount was not paid by the specified date and has not been paid as of
the date hereof; however, payments have been made to reduce such amount.
September 1, 1995, Marathon Oil Company filed suit against the Company and
Excel Gas Marketing in the District Court of Harris County, Texas, for breach
of contract due to nonpayment of gas purchases of $124,486.31, plus interest,
attorneys fees and court costs. This matter was settled on March 14, 1996,
between the respective parties. Under the terms of the Settlement Agreement
Marathon agreed not to execute on the agreed judgment until June 18, 1996.
The Company and Marathon are near finalizing arrangements whereby the balance
due Marathon would be repaid in monthly installments by the Company beginning
in September, 1996, and continuing through December, 1997.
October 26, 1995, American Prudential Capital d/b/a Texas Partners Fund
(American), filed suit against the Company in the District Court of Harris
County, Texas, seeking, inter alia, a declaratory judgment that its rights in
certain accounts receivable purchased from the Company, the aggregate amount
of which the Company subsequently paid to American, were and are superior to
the rights of Mobil Natural Gas, Inc. (MNGI), if any, in such accounts. MNGI
is an additional named defendant in such action and is the party against whom
the suit was originally filed. American s suit also seeks to recover from the
Company (i) an unspecified amount of damages on the basis of breach of
contract and fraud and (ii) attorneys fees. Although the Company believes it
has met all its obligations in connection with the subject matter of this
action, we cannot predict the outcome of the suit. The Company will, however,
vigorously defend the suit.
December 28, 1995, Bounty Group, Inc. filed suit against the Company in the
District Court of Harris County, Texas, for breach of contract due to failure
to make certain payments as they became due under the provisions of a
promissory note originally executed for an amount equal to one hundred eighty
thousand dollars ($180,000.00). Bounty is seeking to recover the unpaid
principal and interest, the aggregate of which bounty claims to be $66,493.59
as of December 31, 1995, together with subsequent interest applicable to such
amounts, court costs and attorneys' fees. The Company is currently making
efforts to negotiate a settlement of this suit.
May 8, 1996, Williams Energy Services Company, formerly Williams Gas Marketing
Company, filed suit against the Company in the District Court of Tulsa County,
Oklahoma, for breach of contract due to nonpayment of gas purchases of
$10,635.20, plus attorneys fees and court costs. The Company is currently
finalizing a settlement of this suit.
June 24, 1996, CNG Producing Company, filed suit against Bounty Group, Inc.
and the Company in the Civil District Court for Orleans Parish, Louisiana, for
the recoupment of the cash value of a production imbalance attributable to the
overproduction by Bounty and its predecessors-in-interest that allegedly
became due and payable to CNG by the overproduced working interest owner upon
the cessation of production from a gas producing that ceased gas production
within a very short period after the effective date of the property purchase
by the Company from Bounty. CNG is seeking payment of the value of the gas
imbalance, which amount is claimed to be $84,324.01, interest on such amount,
court costs and attorney's fees. The Company's answer to the suit is pending.
By virtue of the foregoing claims, the ability of the Company to continue
its operations as a "going concern" is substantially in doubt. See the
caption "Financial Statements and Financial Statement Schedules" of this
Report.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for the Company's Common
Stock. The number of holders of record of the Company's Common Stock as of
December 31, 1995, is 479. The Company has not paid any dividends on its
Common Stock. Although the Company intends to invest future earnings in its
business, it may determine at some future date that payment of cash dividends
on Common Stock would be desirable. The payment of any such dividends would
depend, among other things, upon the earnings and financial condition of the
Company.
The Company's common stock is listed on the OTC Bulletin Board of
the National Association of Securities Dealers, Inc. (the "NASD"). The range
of high and low bid quotations for the Company's common stock during each
quarter of the calendar year ended December 31, 1995 and the first two
quarters of the calendar year ended December 31, 1996, is shown below. Prices
are inter-dealer quotations as reported by the NASD and do not necessarily
reflect transactions, retail markups, mark downs or commissions.
STOCK QUOTATIONS*
BID
Quarter ended: High Low
----------------- ---- ---
March 31, 1995 9-1/2 1
June 30, 1995 8-7/8 2
September 30, 1995 3-1/2 2-1/2
December 31, 1995 2-1/2 1/2
March 31, 1996 1-1/4 9/16
June 30, 1996 9/16 5/16
* The future sale of presently outstanding "unregistered" and
"restricted" common stock of the Company by present members of
management and persons who own more than five percent of the
outstanding voting securities of the Company may have an
adverse effect on any market that may develop in the shares of
common stock of the Company.
Item 6. Selected Financial Data
The following table summarizes certain selected financial data which
should be read in conjunction with the Company's consolidated financial
statements and related notes and with Management's Discussion and Analysis of
Financial Condition and Results of Operations, all of which are included
elsewhere herein. The selected consolidated financial data as of and for each
of the two years ending December 31, 1991, and December 31, 1992, have been
derived from the financial statements of Dover Capital Corporation audited by
David T. Thomson, P.C., independent auditor, and the consolidated financial
statements of Excel Resources, Inc. audited by Tribolet, Fuller & Associates,
P.C., independent auditors, and are presented herein as restated giving effect
to the acquisition by the Company of Excel-Texas as if consummated as of the
beginning of the period presented. The selected financial data for the two
years ended December 31, 1994, has been derived from the consolidated
financial statements of the Company audited by BDO Seidman LLP, independent
auditors. The selected financial data for the year ended December 31, 1995,
has been derived from the consolidated financial statements of the Company
audited by Jones, Jensen & Company, independent auditors.
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(dollars in thousands except per share information)
Net Revenues $ 33,689 $ 84,940 $ 131,922 $ 35,161 $ 3,746
Gross Profit 1,593 2,297 2,209 (2,098) 131
General &
Administrative 1,550 2,029 2,620 3,688 4,202
Income (Loss)
From Operations 43 268 (411) (5,786) (4,104)
Other Income
(Expense) 90 15 (151) (2,351) (1,246)
Provision for Tax 26 100 (25) (23) 0
Income (Loss) from
Operations 107 183 (537) (8,114) (5,350)
Income (Loss) from
Operations per
Common Share $ .01 $ .02 $ (.06) $ (.93) $ (.55)
Total Assets $ 12,496 $ 28,590 $ 19,935 $ 12,449 $ 5,303
Long-term
Obligation,
excluding
Current
Portion $ 33 $ 0 $ 47 $ 0 $ 0
Stockholders
Equity $ 1,716 $ 1,899 $ 1,314 $ (6,654) $ (7,277)
Cash Dividends
Declared per
Common Share None None None None None
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto.
General
The Company management continues to believe that the long-term
opportunities for servicing the natural gas market are numerous and that the
outlook for the future remains bright for the industry. The cycle of lower
gas prices that began in mid 1994, continued throughout the first three
quarters of 1995. However, after falling to a floor of $1.40 to $1.50 per
MMBtu in the fall of 1995, natural gas prices began to increase in response to
the consuming sector's anticipation of a strong winter demand for gas. As
management's 1994 price forecast had predicted for the 1995-1996 winter,
natural gas prices rose above $2 per MMBtu, continued to firm throughout the
winter season, and at times exceeded $3.50 per MMBtu at the wellhead in the
Gulf Coast region. Market demand challenged pipeline delivery systems
throughout the central and eastern United States, where pipeline capacity
proved insufficient to deliver total available supplies from the Gulf Coast
producing regions to northeast and Chicago markets. These pipeline
constraints were a major contributing factor to the numerous spikes in gas
prices that occurred throughout the 1995-1996 heating season.
Prices have remained strong throughout both the winter and the second
quarter of 1996; ranging from about $2.20 to $2.50 per MMBtu in the second
quarter. Natural gas futures indicate continued price strength well into mid-
1997. This is compatible with the view Company management had expressed in
last year's analysis of future gas prices, when management predicted that the
then existing low-price commodity cycle would be short lived and that prices
would return to levels of $2 per MMBtu and above by 1996. Management, at that
time, held a very positive view regarding the fundamental factors for the
natural gas industry, a view it continues to hold today. In fact, industry
surveys have recently predicted that new records in total United States gas
demand will be set in 1996, and that demand will increase thirty percent (30%)
over the next twenty years.
The basic realignment of the natural gas industry, initially precipitated
by the low-price cycle, continued throughout 1995. The underlying market
perception regarding long-term supply availability, reliability of supply,
flexibility in services provided and pricing among both producers and
consumers has continued to generate change throughout the industry. Among
these changes are a redefinition of producer risk and strategy, a continued
reduction of gas brokerage margins, and increased activity in connection with
acquisitions, mergers, consolidations and strategic alliances among and/or
between both major and smaller sized industry participants.
The redeployment of assets in the gathering, processing and marketing
functions, which began in 1994, reached virtually every segment of the
industry during 1995, and in the first half of 1996. This trend has been
fueled by the continuing divestiture of gathering assets by regulated pipeline
companies into non-regulated businesses. Also, as state utility commissions
in many states promulgate rules and regulations to introduce market
competition at the local distributor level (behind the city gate), realignment
in the gas marketing segment of the industry continues to accelerate.
The recent price cycle of natural gas and the price expectations for the
near term future, coupled with the structural changes underway, have
significantly changed who the industry participants are and how business is
being, and will be, conducted. Many major energy companies have redefined who
they are and what will be their major business plans giving rise to several
very large mergers, acquisitions and joint venture partnerships. These have
been characterized by the pooling of significant financial and productive
resources. The Company management continues to believe that the current
deregulation of the natural gas industry and the predicted deregulation of the
electricity industry before the year 2000, present the Company with many
attractive opportunities. These structural changes in the energy industry
will allow it to compete more effectively with certain of the major producers
and marketers considering the Company's significantly lower overhead costs.
This time of change and the conditions driving the changes provide the
Company with a unique set of opportunities to acquire production properties
and pipeline facilities to achieve the Company's vision. Nevertheless, the
Company cannot take advantage of these opportunities without significantly
improving its financial condition, including securing additional debt or
equity financing.
Results of Operations for the Year Ended December 31, 1995, Compared
to the Year Ended December 1994
Gross revenues for fiscal year 1995, of $3.7 million decreased by $31.4
million, or 89%, from 1994. This decrease was offset by a decrease in the
cost of sales of $32.4 million, or 95% from 1994. The cost of sales consists
primarily of purchases of third-party natural gas and lease operating expenses
for Company-owned production. The decrease in sales was due primarily to the
smaller volume of gas marketed by the Company's affiliate, Excel Gas
Marketing, Inc., and the decrease in natural gas prices the majority of the
year. The decrease in sales can also be attributed to the Company's liquidity
problems which began in 1994. The gross margin was $131,335 in 1995, compared
to a gross margin deficit of $2,098,017 in 1994.
Selling, general and administrative expenses which consist primarily of
salaries, office rent, advertising, professional fees for legal and accounting
services, financing activity expenses and other general operating expenses
increased by $508,964, or 18%, from 1994 to 1995. The increase is
attributable primarily to increased legal services fees and travel expenses
incurred in connection with the pursuit of additional capital funding for the
Company. Salaries and wages expense decreased slightly during 1995.
Net non-operating expenses of the Company decreased by $973,057 from
$2,219,154 in 1994, to $1,246,097 in 1995, primarily due to decreases in
interest expense, decrease in losses on disposition of assets and the
elimination of factoring fees.
Results of Operations for the Year Ended December 31, 1994, Compared
to the Year Ended December 31, 1993
Gross revenues for fiscal year 1994 decreased by $96.8 million, or 73.3%,
from 1993. This decrease was offset by a decrease in the cost of sales of
$95.5 million, or 73.3%, from 1993. The decrease in sales (and in cost of
sales) was due to the smaller volume of gas marketed by the Company's
affiliate, Excel Gas Marketing, Inc. (and therefore purchased by Excel Gas
Marketing, Inc.), as well as a decrease in natural gas prices. The decrease
in sales can also be attributed to the liquidity problems the Company was
experiencing. The gross margin became negative in 1994, compared to a positive
1.7% in 1993. The decreasing sales volumes, decreasing price of natural gas,
and higher depreciation, depletion and amortization cost in 1994 resulted in
the reduced margins.
Selling, general and administrative expenses, which consist primarily of
salaries, office rent, advertising, professional fees and other operating
expenses, increased by $1,067,751, or 40.7%, from 1993 to 1994, even though
salaries decreased by $346,595 or 27.1%. This general and administrative
expense increase is due primarily to three factors. First, professional fees
increased by $426,023, or 244.2%, due to costs related to potential
acquisitions and demand for outside legal services generated by the threatened
and pending litigation associated with the Company's creditors. Second, the
Company recorded an allowance for uncollectible accounts of $65,000. The
allowance was $50,000 in the prior year. In addition there were bad debt
write-offs in 1994, of $334,474, compared to none in the prior year. Third,
the fees paid to outside consultants increased by $471,243, from $36,000 in
1993, to $507,483 in 1994. The fees primarily were paid to outside
consultants for the acquisition of the Gulf Coast Offshore properties and the
acquisition of the Mestana Grande and Katy pipeline facilities.
Net non-operating expenses of the Company increased by $2,101,503 from
$117,651 in 1993, to $2,219,154 in 1994, primarily due to $1,404,078 in
interest paid, $680,930 loss on sale of equipment, and $135,615 in factoring
fees experienced in 1994.
Liquidity and Capital Resources
The primary sources of cash for the Company for fiscal 1995, included
funds generated from current and past operations, proceeds from the sale of
certain assets and equity financing proceeds.
Net cash flow used in operations was $2,679,798 in 1995, as compared to
cash flow provided by operations of $2,795,883 in 1994. The primary reasons
for the negative cash flow in 1995 were a decrease in accounts receivable due
largely to the distribution of over $2.0 million of certain "interpleader"
funds (See "Item 3. Legal Proceedings"), the write-off of accounts considered
uncollectible, a decrease in accounts payable of $4,301,102, a decrease of
$1,345,320 in depreciation, depletion and amortization expenses, and a
decrease in accrued expenses of $706,808.
Net cash provided by investing activities during 1995 was $434,476,
primarily consisting of proceeds from the sale of property and equipment. This
contrasts with net cash used in investing activities in 1994 of $1,549,726
consisting of capital expenditures of $5,069,888 for asset acquisitions,
proceeds from the sale of equipment of $3,374,000 and a reduction in the note
receivable from stockholder of $146,612.
Net cash provided by financing activities in 1995 was $2,232,712. This
is primarily attributable to the sale of $3,595,200 of the Company's common
stock and to repayment of notes payable of $2,361,452. Proceeds from
borrowing in 1995 were $998,964.
The Company's current trade receivables and other current assets are less
than the Company's current liabilities, with the total current assets being
$265,970 and current liabilities being $12,432,778 as of December 31,
1995.
During 1995, the Company received approximately $3.6 million in equity
financing from Union Financiere Privee S.A. (UFIP) of Geneva, Switzerland, a
private investment firm and several private European investors working with
UFIP. The financing agreement between UFIP and the Company was terminated in
January, 1996. The Company continues to seek funds in the European debt and
equity markets, as well as those within the United States.
The Company also is currently seeking additional sources of both equity
and debt financing to fund current and future acquisitions. Each acquisition
is evaluated and judged on its future potential cash flows. It is the
objective of the Company that each acquisition generate cash flows sufficient
to fund the particular acquisition's operations and its associated debt.
The Company's independent auditors have included an explanatory paragraph
in their report on the Company's consolidated financial statements as of and
for the years ended December 31, 1995 and 1994. The Company has suffered
recurring losses and has a working capital deficit and a capital deficit which
raise a substantial doubt about its ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon its
ability to obtain additional debt or equity financing to fund its operations
and future acquisitions. In the event the Company is unable to obtain
additional debt or equity financing, the Company most likely will not be able
to sustain operations and will be forced to cease doing business. See "Report
of Independent Certified Public Accountants."
The Company currently has 5,000,000 authorized but unissued shares of
preferred stock and nearly 89,000,000 shares of authorized but unissued common
stock. The Company will continue to pursue opportunities to acquire
properties in exchange for its stock.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
Name Age Position and Company Offices Director Since
- ---- --- ---------------------------- --------------
Francis H. Brinkman 48 Chairman of the Board, Chief July 1993
Executive Officer and Director
Donald R. Dwight 64 Director October 1993
Roger D. Case 54 President, Chief Operating August 1994
Officer and Director
Jerome C. Cle 30 Director January 1995
Francis ("Fritz") Brinkman has been a director and the Chairman, Chief
Executive Office and President of the Company since July 1993. Mr. Brinkman
resigned from the office of President in August 1994, but continues to hold
the offices of Chairman of the Board and Chief Executive Officer of the
Company. He has held such positions with Excel Texas, which is now a
wholly-owned subsidiary of the Company, but prior to July 1993, was separate
of the Company, since he founded that company in January 1986. Mr. Brinkman
has been involved in the natural gas industry for the past twenty-six years.
He spent thirteen years with Northern Natural Gas in various operational
positions, including compressor maintenance, gas control, and transportation
and exchange. He then joined Tennessee Gas Transmission as Manager of
Transportation and Exchange, holding this position for three years. He was
Senior Vice President of Cenergy Corporation in 1985, prior to starting Excel
Texas in 1986.
Donald R. Dwight has been a director of the Company since October 1993.
He has been President of Dwight Partners, Inc., and a Principal of
Burness/Dwight Partners, both corporate and financial communications
companies, since 1988 and 1989, respectively. He is Chairman of Newspapers of
New England, Inc., a publisher of daily and weekly newspapers in New Hampshire
and Massachusetts, a position he has held since 1982, and since 1987, has been
an independent director and trustee of various mutual funds managed by Eaton
Vance Corporation of Boston. Formerly, he was President and Publisher of the
Minneapolis Star and Tribune and Executive Vice President and a director of
Cowles Media Company. He served for eight years in Massachusetts state
government, including terms as Lieutenant governor and Commissioner of
Administration and Finance.
Roger D. Case has been a director of the Company since August 1994. He
joined the Company from Multi- Option Systems, Inc. of Omaha, Nebraska, where
he was co-founder and President of the software development and consulting
firm since it's inception in April, 1987. Prior to founding Multi-Option
Systems, he worked for Northern Natural Gas Co. (Enron) in Omaha for 23 years,
starting as an engineer and holding executive positions in facility planning
and design, gas control, transmission planning and production, storage
development, operations, marketing and administration.
Jerome C. G. Cle has been a director of the Company since January 1995.
He is the head of the Corporation and Commercial Services Department of UFIP,
a Swiss financial firm, since October 1994. From April 1993 through March
1994, he worked for GDR Associes, S.A.R.L., in the Island of Guadeloupe, as
assistance to the company's manager. Previously, he was assistant to the
Chief Executive Officer of Groupe SIMAT S.A., in the Island of Guadeloupe,
from November 1992 through April 1993. He was Chief Executive Officer of Cle
Importation S.A.R.L., in the French Guyana, from October 1990 through October
1992. From March 1988 through September 1990, he worked as an assistant to
the Chief Executive Officer of Securesys S.A., in Paris, France, a subsidiary
of Elf Aquitaine. He also worked as a Commercial Manager and head of foreign
affairs for Pacal Morabito S.A.R.L., in Paris, France, from September 1987
through October 1988. Currently, Mr. Cle resides in Geneva, Switzerland.
Executive Officers
Set forth below are the executive officers of the Company. The age,
office held and length of service with the Company are indicated opposite each
name.
Name Age Offices Held Officer Since
---- --- ------------ -------------
Francis H. Brinkman 48 Chairman of the Board and July 1993
Chief Executive Officer
Roger D. Case 54 President, Chief Operating August 1994
Officer and Assistant
Corporate Secretary
David J. Brenza 53 Executive Vice President, July 1995
Chief Financial Officer,
and Corporate Secretary
Robert S. Copeland 43 Executive Vice President, June 1995
Marketing and Supply
David J. Brenza was elected to the office of Executive Vice President and
Chief Financial Officer in July 1995 and to the additional office of Corporate
Secretary in August 1995. Mr. Brenza, a certified public accountant, joined
the Company from Falcon Seaboard Resources, Inc. of Houston, Texas, where he
held the offices of Vice President and Controller since 1989. He held similar
positions in Peer Services, Inc. of Dallas, Texas, from 1985-1989. Prior to
Peer Services, Mr. Brenza spent 18 years with Gulf Oil Company in a variety of
audit and financial management positions, after a career start as an auditor
for Price Waterhouse.
Robert S. Copeland was elected to the office of Executive Vice President,
Marketing and Supply, in June 1995. Mr. Copeland, who is an attorney, has
spent nearly 20 years in the marketing, supply procurement, transportation,
regulatory and accounting of natural gas. He came to the Company from two
years experience at Scana Hydrocarbons, Inc. Preceding Scana, he spent two
years at Enermax, a division of Nukem, Inc., as Director of Supply and
Transportation. Mr. Copeland held the position of Vice President of
Transportation and Exchange 1989-91 at Equitable Resources Marketing Co. He
started his career working in the natural gas industry for Columbia Gulf
Transmission Company, followed by Southern Natural Gas Company and Exxon
Company.
Item 11. Executive Compensation
Director Compensation
During 1995, directors who were not employees of the Company did not
receive any compensation for their service as a director. Directors who were
employees of the Company received no additional compensation for their service
as a director.
Summary Compensation Table
Annual Compensation
------ ------------
All Other
Name and Principal Position Year Salary Compensation
- --------------------------- ---- ------ ------------
Francis H. Brinkman 1995 $250,000 $ 0.00(2)
Chairman of the Board, 1994(1) $350,000 $ 33,333.33(2)
Chief Executive Officer 1993(1) $520,000 $ 22,248.73(2)
Roger D. Case 1995 $150,000 $ 45,000.00(3)
President, Chief Operating 1994 $ 62,500 $ 10,000.00(3)
Officer
(1) Mr. Brinkman has served as Chairman of the Board, Chief Executive Officer
and President of the Company since July 1993. He resigned from the office of
President in August 1994. In July 1993, he acquired control of the Company as
a result of the Change in Control. Prior to that time, he was Chairman of the
Board, Chief Executive Officer and President of Excel Texas, which is now a
wholly-owned subsidiary of the Company but, prior to July 1993, was not
affiliated with the Company. The Compensation indicated in 1993 includes
compensation paid by Excel Texas prior to July 1993.
(2) Mr. Brinkman did not receive any form of Other Compensation in 1995. The
amount for 1994 represents the yearly premiums that the Company paid for a
split-dollar life insurance contract, of which Mr. Brinkman is the indirect
beneficiary. In 1993, $20,000 of this amount represents yearly premiums that
the Company has paid for a split-dollar life insurance contract, of which Mr.
Brinkman is the indirect beneficiary. The remainder represents contributions
made by the Company to the Savings Plan for Employees of the Company on Mr.
Brinkman's behalf.
(3) Payments to Mr. Case in 1994 and 1995 in the form of Other Compensation
pertain to initial compensation provided for in the July 1994 Employment
Contract between the Company and Mr. Case. These payments represent partial
payment of the contract with the remaining balance being $45,000.
Compensation Committee Interlocks and Insider Participation
During 1995, no executive officer of the Company served as (i) a member
of the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served on the
Board of Directors of the Company or (ii) a director of another entity, one of
whose executive officers served on the Board of Directors of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following information is furnished, as of December 31, 1995, with
respect to persons known by the Company to be the beneficial owner of more
than five percent of the Company's outstanding Common Stock, the only class of
voting securities outstanding:
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
- ------------------- ----------------------- --------
Francis H. Brinkman 5,100,000 42.4
1111 Bagby, Ste. 2400
Houston, TX 77002
Securities Ownership of Directors and Executive Officers
--------------------------------------------------------
The following information is furnished, as of December 31, 1995, with
respect to the outstanding Common Stock of the Company beneficially owned by
all individual directors and executive officers of the Company and the
directors and executive officers as a group:
Name of Address Amount of Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
- ------------------- ----------------------- --------
Francis H. Brinkman 5,100,000 42.4
1111 Bagby, Ste. 2400
Houston, Texas 77002
Roger D. Case 500,000 4.2
1111 Bagby, Ste. 2400
Houston, Texas 77002
Jerome C. G. Cle -0- 0
8 Rue Neuve Du Molard
1204 Geneva Switzerland
Donald R. Dwight -0- 0
13 Dartmouth College Highway
Lyme, New Hampshire 03768
David J. Brenza 100,000 0.8
1111 Bagby, Ste. 2400
Houston, Texas 77002
Robert S. Copeland 100,000 0.8
1111 Bagby, Ste. 2400
Houston, Texas 77002
All directors and executive
officers as a group (six persons) 5,800,000 48.2
There are no arrangements, including pledges by any person of securities
of the Company, which may at a subsequent date result in a change in control
of the Company.
Item 13. Certain Relationships and Related Transactions
Francis H. Brinkman, a director and executive officer of the Company, has
borrowed money from Excel Texas, at an interest rate of 6%, primarily for the
purpose of acquiring shares of Excel Texas owned by a former officer of Excel
Texas and for certain personal uses. The maximum amount of such borrowings
outstanding during the last fiscal year was $541,276. The remaining balance
on December 31, 1995, was $503,577.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) & (2) Financial Statements and Financial Statement Schedules
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
(a)(3) Exhibits
3.1(a)* Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1(a) of the Company's Form 10-K for the
year ended December 31, 1993).
3.1(b)* Articles of Amendment to Articles of Incorporation of the
Company (Incorporated by reference to Exhibit 3.1(b) of the
Company's Form 10-K for the year ended December 31, 1993).
3.2* Bylaws of the Company (Incorporated by reference to Exhibit 3.2
of the Company's Form 10-K for the year ended December 31,
1993).
10.1* Lease Agreement between Coventry Fund III, Ltd. and the Company
with respect to headquarters office space (Incorporated by
reference to Exhibit 10.1 of the Company's Form 10-K for the
year ended December 31, 1993).
10.2* Contract for Sale between Midcon Texas Pipeline Corp. and the
Company, dated March 15, 1994, with respect to the Katy
facilities (Incorporated by reference to Exhibit 10.2 of the
Company's Form 10-K for the year ended December 31, 1993).
10.3* Agreement of Purchase and Sale between Bounty Group, Inc., and
the Company with respect to certain leases located offshore of
Texas and Louisiana, dated January 21, 1994 (Incorporated by
reference to Exhibit 10.3 of the Company's Form 10-K for the
year ended December 31, 1993).
10.4* Letter Agreement between Intrastate Gas Gathering, Inc. and the
Company, dated March 8, 1994, with respect to the Company's
acquisition of the Houston County natural gas processing plant
(Incorporated by reference to Exhibit 10.4 of the Company's
Form 10-K for the year ended December 31, 1993).
10.5(a)* Purchase and Sale Agreement by and between Peregrinus
Properties 88 and the Company, dated January 31, 1994, with
respect to the Company's proposed purchase of certain Mafla
Field interests (the "Peregrinus Agreement") (Incorporated by
reference to Exhibit 10.5(a) of the Company's Form
10-K for the year ended December 31, 1993).
10.5(b)* First Amendment to Peregrinus Agreement (Incorporated by
reference to Exhibit 10.5(b) of the Company's Form 10-K for the
year ended December 31, 1993).
10.5(c)* Second Amendment to Peregrinus Agreement (Incorporated by
reference to Exhibit 10.5(c) of the Company's Form 10-K for the
year ended December 31, 1993).
10.6(a)* Purchase and Sale Agreement between Gardner Offshore
Corporation and the Company, dated January 31, 1994, with
respect to the Company's proposed purchase of certain Mafla
Field interests (the "Gardner Agreement") (Incorporated by
reference to Exhibit 10.6(a) of the Company's Form
10-K for the year ended December 31, 1993).
10.6(b)* First Amendment to Gardner Agreement (Incorporated by reference
to Exhibit 10.6(b) of the Company's Form 10-K for the year
ended December 31, 1993).
10.6(c)* Second Amendment to Gardner Agreement (Incorporated by
reference to Exhibit 10.6(c) of the Company's Form 10-K for the
year ended December 31, 1993).
10.7* Purchase and Sale Agreement between Edisto Exploration &
Production Company and the Company, dated April 12, 1994, with
respect to the Company's proposed purchase of certain Mafla
Field interests (Incorporated by reference to Exhibit 10.7 of
the Company's Form 10-K for the year ended December 31, 1993).
10.8* Letter of intent, dated April 13, 1994, between Hou-Tex, Inc.,
as agent for the Company, and Taurus Exploration, Inc. with
respect to the Company's proposed purchase of certain Mafla
Field interests (Incorporated by reference to Exhibit 10.8 of
the Company's Form 10-K for the year ended December 31, 1993).
10.9* Letter of intent, dated February 17, 1994, between American
Pipeline Company and the Company with respect to the Company's
proposed purchase of the Mestena Ranch Gathering System
(Incorporated by reference to Exhibit 10.9 of the Company's
Form 10-K for the year ended December 31, 1993).
10.10* Letter of intent between the Company and Securities Planners,
Inc., dated March 10, 1994, with respect to proposed private
placement (Incorporated by reference to Exhibit 10.10 of the
Company's Form 10-K for the year ended December 31, 1993).
10.11* Promissory note from Francis H. Brinkman to the Company dated
July 1, 1992 (Incorporated by reference to Exhibit 10.11 of the
Company's Form 10-K for the year ended December 31, 1993).
10.12* Promissory note from Francis H. Brinkman to the Company dated
July 1, 1993 (Incorporated by reference to Exhibit 10.12 of the
Company's Form 10-K for the year ended December 31, 1993).
10.13* Promissory note from Francis H. Brinkman to the Company dated
January 1, 1994 (Incorporated by reference to Exhibit 10.13 of
the Company's Form 10-K for the year ended December 31, 1993).
10.14* Escrow Agreement, dated August 30, 1993, among Excel Gas
Marketing, Inc., Scana Hydrocarbons, Inc. and Texas Commerce
Bank National Association (Incorporated by reference
to Exhibit 10.14 of the Company's Form 10-K for the year ended
December 31, 1993).
10.15* Escrow Agreement, dated August 1, 1993, among Excel Gas
Marketing, Inc., Mobil Natural Gas Inc. and Texas Commerce Bank
National Association (Incorporated by reference to Exhibit
10.15 of the Company's Form 10-K for the year ended December
31, 1993).
10.16* Facilities Sales Agreement dated April 1, 1994 with respect to
the purchase of a natural gas gathering system and related
facilities by the Company from Koch Gateway Pipeline Company.
(Incorporated by reference to Exhibit 10.16 of the Company's
Form 10-K for the year ended December 31, 1994).
10.17* Assignment of Contract Rights effective January 12, 1995 to
Western Gas Resources Storage, Inc. by the Company with respect
to certain natural gas gathering and pipeline systems and
related facilities located in the Katy area of Texas.
(Incorporated by reference to Exhibit 10.17 of the Company's
Form 10-K for the year ended December 31, 1994).
10.18* Assignment and Bill of Sale dated May 1, 1994 between the
Company and American Pipeline Company with respect to the
purchase of the Mestena Grande Pipeline System and the
Nacogdoches Pipeline System (Incorporated by reference to
Exhibit 2.1 of the Company's Form 8-K filed and dated June 1,
1994).
10.19* Assignment and Bill of Sale dated September 1, 1994 between the
Company and El Sordo Gathering Systems, Inc. with respect to
the sale of the Mestena Grande Pipeline System and the
Nacogdoches Pipeline System (Incorporated by reference to
Exhibit 99.1 of the Company's Form 8-K filed and dated
September 28, 1994).
10.20* Bill of Sale dated March 8, 1994, and Assignment of Agreement
dated February 1, 1994 between Intrastate Gas Gathering, Inc.
and the Company with respect to the purchase of a gas
processing plant and Assignment of a Gas Processing Rights
Agreement. (Incorporated by reference to Exhibit 10.20 of the
Company's Form 10-K for the year ended December 31, 1994).
10.21* Bill of Sale dated July 25, 1994 and Assignment of Agreement
dated July 25, 1994 between the Company and Intrastate Gas
Gathering, Inc. with respect to the sale of a gas processing
plant and Assignment of Gas Processing Rights Agreement.
(Incorporated by reference to Exhibit 10.21 of the Company's
Form 10-K for the year ended December 31, 1994).
22* List of subsidiaries of the Company (Incorporated by reference
to Exhibit 22 of the Company's Form 10-K for the year ended
December 31, 1993).
* Incorporated by reference and modified in their entirety by such reference
to such exhibit or report as indicated.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last quarter
of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 26th day
of July, 1996.
EXCEL RESOURCES, INC.
BY: /s/ Francis H. Brinkman
-----------------------
Francis H. Brinkman, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities with the Registrant indicated on the 26th day of July,
1996.
SIGNATURE: TITLE:
/s/ Francis H. Brinkman
- -----------------------
FRANCIS H. BRINKMAN Chairman of the Board, Chief Executive
Officer and Director (Principal Executive
Officer)
/s/ Roger D. Case
- -----------------
ROGER D. CASE President, Chief Operating Officer,
Assistant Secretary and Director
(Principal Operating Officer)
EXCEL RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
C O N T E N T S
Report of Independent Certified Public Accountants . . . . . F - 3
Consolidated Balance Sheets . . . . . . . . . . . . . . . . F - 5
Consolidated Statements of Operations . . . . . . . . . . . F - 7
Consolidated Statements of Stockholders' Equity (Deficit). . F - 8
Consolidated Statements of Cash Flows . . . . . . . . . . . F - 10
Notes to the Consolidated Financial Statements . . . . . . . F - 12
[LETTERHEAD OF JONES, JENSEN & COMPANY]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Excel Resources, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Excel
Resources, Inc. and subsidiaries as of December 31, 1995 and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Excel Resources, Inc. and subsidiaries as of December 31, 1995 and the
consolidated results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to
the consolidated financial statements, the Company has suffered recurring
losses and has a working capital deficit and a capital deficit which raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 8. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
July 19, 1996
Report Of Independent Certified Public Accountants
Excel Resources, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Excel
Resources, Inc., as of December 31,1994, and the related consolidated
statements of operations, stockholders' equity (capital deficit) and cash
flows for each of the two years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Excel
Resources, Inc. at December 31, 1994, and the results of its operations and
its cash flows for the each of the two years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from
operations and has a working capital deficit and a capital deficit. This
situation raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 8. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 1, the Company changed its method of accounting for
income taxes in 1993.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Houston, Texas
May 19, 1995,
Except for Note 8, which is as of July 19, 1996
EXCEL RESOURCES, INC.
Consolidated Balance Sheets
ASSETS
December 31,
1995 1994
---- ----
CURRENT ASSETS
Cash $ 3,889 $ 16,499
Accounts receivable - trade, net
(Note 1) 262,081 4,719,329
Prepaid expenses - 64,265
Total Current Assets 265,970 4,800,093
FIXED ASSETS (Note 1)
Transmission equipment 163,675 536,690
Office furniture and equipment 141,507 141,166
Transportation equipment - 61,990
Leasehold improvements 6,452 6,452
Less: accumulated depreciation (164,676) (191,810)
Total Fixed Assets 146,958 554,488
OIL AND GAS PROPERTIES (Notes 2 and 9) 4,383,207 6,247,963
OTHER ASSETS
Long-term accounts receivable (Note 1) 491,287 693,935
Investments 15,621 50,240
Deposits - 101,808
Total Other Assets 506,908 845,983
TOTAL ASSETS $5,303,043 $12,448,527
EXCEL RESOURCES, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1995 1994
---- ----
CURRENT LIABILITIES
Accounts payable - trade $7,870,027 $12,171,129
Accounts payable - related (Note 4) 49,960 -
Accrued expenses 455,430 1,162,238
Notes payable - current portion (Note 3) 4,057,361
5,419,849
Total Current Liabilities 12,432,778 18,753,216
LONG-TERM LIABILITIES
Deferred revenue (Note 1) 146,849 349,578
Total Long-Term Liabilities 146,849 349,578
Total Liabilities 12,579,627 19,102,794
COMMITMENTS AND CONTINGENCIES (Notes 2 and 7) - -
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock: 5,000,000 shares
authorized at $0.001 par value, no
shares issued and outstanding - -
Common Stock: 100,000,000 shares
authorized at $0.001 par value,
12,023,956 and 8,775,000 shares
issued and 10,689,956 and 8,775,000
shares outstanding, respectively 12,024 8,775
Additional paid-in capital 5,466,210 779,225
Accumulated deficit (12,251,241)(6,900,991)
(6,773,007) (6,112,991)
Note receivable from stockholder (Note 4) (503,577) (541,276)
Total Stockholders' Equity (Deficit) (7,276,584) (6,654,267)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $5,303,043 $12,448,527
EXCEL RESOURCES, INC.
Consolidated Statements of Operations
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
OIL AND GAS SALES $3,745,737 $35,160,499 $131,921,835
COSTS AND EXPENSES
Cost of oil and gas sales 1,786,248 34,158,516 129,671,677
Selling, general and
administrative 3,283,789 2,774,825 1,315,766
Salaries and wages 917,991 937,947 1,288,701
Depreciation, depletion
and amortization 1,861,862 3,207,232 89,737
Total Costs and Expenses 7,849,890 41,078,520 132,365,881
INCOME (LOSS) FROM OPERATIONS (4,104,153) (5,918,021) (444,046)
OTHER INCOME (EXPENSE)
Gain on marketable securities - 1,469 135,798
Interest income - 49,072 28,149
Interest expense (1,149,150) (1,453,150) (15,704)
Loss on disposition of
assets (96,947) (680,930) (15,194)
Business combination expenses - - (250,700)
Factoring fees (Note 1) - (135,615) -
Total Other Income
(Expense) (1,246,097 ) (2,219,154) (117,651)
INCOME (LOSS) BEFORE INCOME
TAXES (5,350,250) (8,137,175) (561,697)
INCOME TAX EXPENSE (BENEFIT)
(Note 6) - (22,759) (24,600)
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (5,350,250) (8,114,416) (537,097)
Cumulative effect on prior
years of change in accounting
for income taxes (Note 1) - - (38,816)
NET INCOME (LOSS) $(5,350,250) $(8,114,416) $ (498,281)
EARNINGS (LOSS) PER SHARE $ (0.55) $ (0.93) $ (0.06)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 9,699,941 8,775,000 8,683,274
EXCEL RESOURCES, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
Note
Additional Receivable
Common Shares Paid-in Accumulated From
Shares Amount Capital Deficit Stockholder Total
------ ------ ------- ------- ----------- -----
Balance,
December
31, 1992
8,674,883 $ 8,674 $ 178,626 $1,711,706 $ - $1,899,006
Transfer
of notes
receivable
from
stockholder
to equity - - - - (687,438) (687,438)
Common stock
issued for the
payment of fees
related to the
business
combination
117 1 699 - - 700
Common stock
issued for the
purchase of oil
and gas leases
(Note 2)
100,000 100 599,900 - - 600,000
Net loss for the
year ended
December 31,
1993 - - - (498,281) - (498,281)
Balance,
December 31,
1993
8,775,000 8,775 779,225 1,213,425 (687,438) 1,313,987
Payment of note
receivable from
stockholder
- - - - 146,162 146,162
Net loss for the
year ended
December 31,
1994 - - - (8,114,416) - (8,114,416)
Balance,
December 31,
1994
8,775,000 $ 8,775 $ 779,225$(6,900,991) $ (541,276)$(6,654,267)
EXCEL RESOURCES, INC.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Note
Additional Receivable
Common Shares Paid-in Accumulated From
Shares Amount Capital Deficit Stockholder Total
------ ------ ------- ------- ----------- -----
Balance,
December 31,
1994 8,775,000$ 8,775 $ 779,225 $(6,900,991) $(541,276) $(6,654,267)
Common stock
issued for
services
rendered 800,000 800 1,094,234 - - 1,095,034
Common stock
issued for
proposed
acquisition
(Note 10)
1,334,000 1,334 (1,334) - - -
Common stock
issued for cash
1,114,956 1,115 3,594,085 - - 3,595,200
Payment of note
receivable from
stockholder - - - - 37,699 37,699
Net loss for the
year ended
December 31,
1995 - - - (5,350,250) - (5,350,250)
Balance,
December 31,
1995 12,023,956 $ 12,024 $5,466,210 $(12,251,241)$ (503,577)$(7,276,584)
EXCEL RESOURCES, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(5,350,250) $(8,114,416) (498,281)
Adjustments to Reconcile Net Income
(Loss) to Cash Provided by Operating
Activities:
Depreciation, depletion and
amortization 1,861,862 3,207,232 89,737
Deferred revenue (202,729) 192,712 147,230
(Gain) loss on sale of assets 96,947 680,930 15,194
Common stock issued for services 1,095,034 - -
Deferred tax benefit - - (2,300)
Cumulative effect of accounting change - - (38,816)
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts
receivable 4,659,896 10,901,118 7,640,102
Decrease (increase) in marketable
securities - 204,353 308,268
Decrease (increase) in taxes receivable - 72,657 (62,657)
Decrease (increase) in deposits 101,808 (29,740) -
Decrease (increase) in prepaid
expenses 64,265 48,775 (66,105)
Decrease (increase) in investments 1,279 258,758 (87,970)
Increase (decrease) in accounts
payable (4,301,102) (5,754,941)(8,513,964)
Increase (decrease) in accrued
expenses (706,808) 1,128,445 14,716
Increase (decrease) in taxes payable - - (85,698)
Cash Provided (Used) by
Operating Activities (2,679,798) 2,795,883 (1,140,544)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Note receivable from stockholder 37,699 146,162 (480,228)
Note payable to stockholder 49,960 - -
Capital expenditures (1,388) (5,069,888) (142,133)
Payments received on sales-type leases - - 57,862
Proceeds from sale of property and
equipment 348,205 3,374,000 5,900
Cash Provided (Used) by Investing
Activities $ 434,476 $(1,549,726)$ (558,599)
EXCEL RESOURCES, INC.
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
CASH FLOWS FROM FINANCING
ACTIVITIES:
Sale of common stock $3,595,200 $ - $ -
Principal payments on
long-term debt (2,361,452) (3,284,669) (414,536)
Proceeds from borrowings 998,964 100,000 496,500
Cash Provided (Used) by
Financing Activities 2,232,712 (3,184,669) 81,964
NET INCREASE (DECREASE) IN CASH (12,610) (1,938,512)(1,617,179)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 16,499 1,955,011 3,572,190
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 3,889 $ 16,499 $1,955,011
CASH PAID FOR:
Interest $ 887,216 $1,372,847 $ 46,725
Income taxes $ - $ - $ 126,051
NON-CASH FINANCING ACTIVITIES:
Common stock issued for
services $ 1,095,034 $ - $ -
Stock issued for oil and
gas properties $ - $ - $600,000
Note payable issued for
oil and gas properties $ - $8,100,000 $180,000
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was originally incorporated in the State of Nevada on
December 31, 1988 under the name of Dover Capital Corporation. The Company's
primary business activity is the production, gathering, marketing and
transportation of natural gas and related products.
On July 12, 1993, the Company acquired Excel Texas in a business
combination accounted for as a pooling of interests. As a result, Excel
Texas, which also engages in the gathering, marketing and transportation of
natural gas and related products, became a wholly-owned subsidiary of the
Company through the exchange of 5,100,000 shares of the Company's common stock
for all of the outstanding stock of Excel Texas. A further 700,000 shares of
the Company's common stock were issued in payment of certain fees incurred in
connection with the combination.
b. Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting. The full cost method of accounting is used for oil and gas
property acquisitions, exploration and production activities as defined by the
Securities and Exchange Commission, whereby all costs incurred in connection
with the properties, productive or nonproductive, are capitalized.
Capitalized costs related to proved properties and estimated future costs to
be incurred in the development of proved reserves are amortized using the
unit-of-production method. Capitalized costs are annually subjected to a test
of recoverability by comparison to the present value of future net revenues
from proved reserves. Any capitalized costs in excess of the present value of
future net revenue from proved reserves, adjusted for the cost of certain
unproved properties, are expensed in the year in which such an excess occurs.
The Company has elected a calendar year end.
c. Loss per Share of Common Stock
The loss per share of common stock is based on the weighted average
number of shares issued and outstanding at the date of the financial
statements.
d. Provision for Taxes
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting
for Income Taxes. The adoption of SFAS 109 changes the Company's method of
accounting for income taxes from the deferred method to the liability method.
The cumulative effect of this change in accounting for periods prior to
January 1, 1993, decreased the 1993 net loss by $38,816, and is shown
separately in the consolidated statement of operations.
At December 31, 1995, the Company had net operating loss carryforwards
of approximately $11,800,000 that may be offset against future taxable income
through 2010. No tax benefit has been reported in the 1995 financial
statements, because the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
f. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, Excel Resources, Inc., a Texas
Corporation, ("Excel Texas"), Excel Texas' wholly-owned subsidiaries, Excel
Gas Gathering, Inc., Excel Consulting and Management Company, Inc., Excel
Pipeline, Inc., and Excel Ventures, Inc. They also include the accounts of
Excel Gas Marketing, Inc., an affiliate of Excel Texas through common
ownership. All significant intercompany transactions have been eliminated.
g. Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes.
The estimated useful lives are as follows:
Lives
Class (Years)
Transmission equipment 22
Office furniture and equipment 10-12
Transportation equipment 7
Leasehold improvements 3-5
Depreciation expense for the years ended December 31, 1995, 1994 and
1993 was $33,708, $107,232 and $49,037, respectively.
h. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts. This amount was determined to be $-0- and $65,000 at December 31,
1995 and 1994, respectively.
During 1994, the Company entered into an agreement to factor accounts
receivable balances to supplement its cash flows. Under the terms of the
agreement, the Company incurred a fee ranging from 4% to 10% on all accounts
that are factored. During 1994, the Company incurred factoring fees of
$135,615. At December 31, 1994 and for the year ended December 31, 1995, no
accounts receivable were factored.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Deferred Revenue
The Company has long-term throughput contracts with certain customers on
its off shore oil and gas wells. The contracts contain "take or pay"
provisions whereby the Company is entitled to a minimum throughput. The
Company recognizes income only on its entitlement sales. Payment for
surpluses over entitlements are credited to deferred revenues to offset
future deficiencies. If the Company's take of production is less than the
entitlement the Company recognizes revenue on its full entitlement and charges
long-term receivables. At December 31, 1995 and 1994, the Company had
long-term gas balancing receivables of $491,287 and $693,935, respectively,
and offsetting long-term gas balancing payables of $146,849 and $349,578,
respectively.
j. Revenue Recognition
Revenues are recognized when the gas products are delivered to
customers. In the movement of natural gas, it is common for differences to
arise between volumes of gas contracted or nominated, and volumes of gas
actually received or delivered. These situations are the result of certain
attributes of the natural gas commodity and the industry itself. Consequently,
the credit given to the Company by a pipeline for volumes received from
producers may be different than volumes actually delivered by a pipeline.
When all necessary information, such as the final pipeline statement for
receipts and deliveries are available, these differences are resolved by the
Company.
The Company records imbalances based on amounts received and classifies
the imbalances as adjustments to the trade accounts receivable or trade
accounts payable, as appropriate.
k. Reclassifications
Certain 1994 and 1993 amounts have been reclassified to conform to the
1995 financial statement presentation.
l. Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets." This new
standard is effective for years beginning after December 15, 1995 and would
change the Company's method of determining impairment of long-lived assets.
Although the Company has not performed a detailed analysis of the impact of
this new standard on the Company's financial statements, the Company does
not believe that adoption of the new standard will have a material effect on
the financial statements.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Recently Issued Accounting Standards (Continued)
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). The new
statement is effective for fiscal years beginning after December 15, 1995.
FAS 123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments to
employees based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity instruments with
non-employees for goods or services must be accounted for on the fair value
method. The Company currently intends to adopt the fair value accounting
prescribed by FAS 123. However, the Company intends to continue its analysis
of FAS 123 to determine its ultimate effect in the future.
m. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - PURCHASE OF OIL AND GAS LEASES
Effective January 1, 1994, the Company acquired working interests in
certain oil and gas properties from three unrelated entities for a total
purchase price of $7,692,027 net of gas imbalance positions. In order to
complete the acquisition, the Company entered into a purchase note agreement
with a customer (see Note 3). During the year ended December 31, 1994, the
Company incurred additional costs associated with the acquisition of
$1,050,722. The total costs of $8,742,749 were added to the full cost pool.
On December 1, 1993, the Company acquired certain oil and gas properties
from an unrelated entity for a purchase price of $830,000, comprising 100,000
shares of the Company's common stock, a note payable of $180,000 and cash of
$50,000. According to the original agreement, if after two years, the 100,000
shares of common stock did not have a value of $600,000 the Company would be
required to issue additional shares or pay cash for the amount of the
shortfall. At December 31, 1995 the common stock had a value of approximately
$50,000. Management of the Company is currently trying to negotiate the
shortfall amount but as of the date of this audit report, an agreed upon
amount had not yet been determined. If an additional amount is determined to
be owing, the liability will be recorded with a corresponding increase in the
cost of the oil and gas properties.
The purchased properties include fourteen off shore wells in Louisiana
and Texas, subject to operating agreements with third party operators. Under
the agreement, the seller will be responsible to pay up to $125,000 if one
specific offshore well is plugged and abandoned before December 1, 1996.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at December 31, 1995 and
1994:
December 31,
1995 1994
---- ----
Purchase note payable, in default,
payable on demand, currently being
repaid from future production from oil
and gas properties and/or dedicated
natural gas trades, interest imputed
at 20%. $3,990,867 $5,335,961
Interest-free note payable to a company,
effective rate approximately 6%, due
March 1, 1995, in default. 66,494 83,888
4,057,361 5,419,849
Less current maturities (4,057,361) (5,419,849)
Notes payable - long-term $ - $ -
NOTE 4 - RELATED PARTY TRANSACTIONS
At December 31, 1995, there was a related party accounts payable to a
shareholder. The amount is for services and expenses paid on the Company's
behalf. The amount payable at December 31, 1995 totalled $49,960.
The Company also has a note receivable from its majority stockholder for
various expenditures paid by the Company on behalf of the stockholder. The
advances bear interest at 6% and are payable upon demand. The following is a
summary of the notes receivable:
December 31,
1995 1994
---- ----
Notes receivable balance $503,577 $ 541,276
Advances during year - 49,072
Repayments during the year 37,699 195,234
The notes receivable from stockholder are reflected as a reduction in
stockholders' equity (deficit).
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 5 - MAJOR CUSTOMERS AND SUPPLIERS
83% of the total sales in 1995 were related to sales of Company owned
production to one customer who in turn sold to various other parties.
Purchases of all third party production were from one major supplier during
1995.
The Company had sales to two customers representing 42% and 13% of sales
in 1994 and 26% and 11% in 1993. The Company had purchases from two companies
representing in the aggregate, 27% and 23% of the Company's cost of sales
during 1994 and 1993, respectively.
NOTE 6 - INCOME TAXES
The Company, its subsidiaries, and Excel Gas Marketing, Inc. file a
consolidated federal income tax return.
The components of income tax expense (benefit) are as follows:
1995 1994 1993
Federal
Current $ - $(22,759) $ (22,300)
Deferred - - (2,300)
Total income tax
expense
(benefit) $ - $(22,759) $ (24,600)
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under operating
lease agreements. At December 31, 1995, the estimated future minimum rental
payments required under the leases were:
Year ending December 31, Amount
1996 $ 73,000
1997 78,000
1998 78,000
1999 78,000
2000 4,000
Thereafter -
Total $ 311,000
Rental expense for the years ended December 31, 1995, 1994, and 1993, were
approximately $153,000, $156,000 and $129,000, respectively.
The Company has a number of outstanding claims against it, alleging breach
of contract due to non-payment for natural gas purchased. Most of these
claims have been the subject of litigation. Settlement agreements and agreed
judgements have been reached on most claims.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Management believes that the outcome of such litigation will not have a
material adverse effect upon the Company since all claims, excluding legal
fees which the Company believe will be immaterial in amount, are fully accrued
for in the financial statements. The Company is currently attempting to obtain
financing to enable it to pay all of the outstanding claims.
The Company, as a working interest owner in offshore gas wells, is
required to pay a percentage of the production revenues (royalty payments) to
the mineral management service and overriding royalty owners. Included in
accrued expenses at December 31, 1995 and 1994 are accrued royalties of
$262,205 and $486,738, respectively.
NOTE 8 - GOING CONCERN
The Company incurred a net loss for the year ended December 31, 1995 of
$5,350,250 resulting in a capital deficit at December 31, 1995 of $6,773,007.
The Company has also had difficulties in meeting its current obligations, and
at December 31, 1995, its current liabilities exceeded its current assets by
$12,166,808. Several unsatisfied judgements stemming from lawsuits alleging
breach of contract for non-payment of certain debts are outstanding against
the Company. In order for it to be able to continue as a going concern,
it will be necessary for the Company to obtain sufficient financing to meet
its current obligations and ultimately to achieve profitable operations. The
Company was able to raise approximately $3,600,000 during 1995 through sales
of its common stock shares but a substantial amount is still needed in order
for the Company to continue as a going concern. The Company is continuing to
explore other financing alternatives.
Due to the significant losses and cash flow problems incurred by the
Company during 1995 and 1994, the Company has significantly reduced its
operations. The Company factored certain receivables during 1994.
Additionally, in 1995 and 1994, the Company negotiated deferred payment terms
on several of its trade payables during 1995 and 1994, pending the outcome of
the Company's financing efforts, which have provided a temporary measure of
relief for the Company's cash flow problems.
NOTE 9 - BUSINESS COMBINATION
As mentioned in Note 1, On July 12, 1993, the Company acquired Excel Texas
in a business combination accounted for as a pooling of interests. The
accompanying financial statements for 1993 are based on the assumption that
the companies were combined for the full year.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 9 - BUSINESS COMBINATION (Continued)
Summarized results of operations of the separate companies for the period
from January 1, 1993 through July 12, 1993, the date of acquisition, are as
follows.
Excel
Company Texas
------- -----
Revenues $ - $80,931,560
Income before cumulative effect of
accounting change $ 3,320 $ 236,719
Cumulative effect on prior years of change
in accounting for income taxes - 38,816
Net Income $ 3,320 $ 275,535
The summarized assets, liabilities and stockholders' equity of the
separate companies on July 12, 1993, the date of acquisition, were as follows:
Excel
Company Texas
------- -----
Current assets $ 35,000 $20,344,189
Equipment - 464,229
Other long-term assets 20 799,405
Total Assets $ 35,020 $21,607,823
Current liabilities $ - $19,428,298
Long-term debt - 38,051
Other long-term liabilities - 44,086
Stockholders' equity 35,020 2,097,388
Total Liabilities and
Stockholders' Equity $ 35,020 $21,607,823
NOTE 10 - SUBSEQUENT EVENTS
During 1995, the Company entered into negotiations to acquire certain
property, pipelines and related facilities in the Gulf Coast area. 1,334,000
shares of the Company's common stock were issued pending the completion of the
agreement. The negotiations ceased during 1996 and the 1,334,000 shares were
subsequently cancelled.
In March 1995, Excel Gas Marketing, Inc. entered into an agreement, to
provide annually a minimum of 131,000 Mcf of natural gas to the other party
through June 30, 1996 at a predetermined price. At June 30, 1996 the
agreement was completed and was not renewed.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 11 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31,
1995 1994 1993
---- ---- ----
Proved oil and gas producing
properties and related lease
equipment $9,333,663 $9,388,663 $645,914
Accumulated depreciation and
depletion (4,950,456) (3,140,700) (40,700)
Net Capitalized Costs $4,383,207 $6,247,963 $ 605,214
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the Years Ended
December 31,
1995 1994 1993
Acquisition of Properties
Proved and Unproved $ - $8,742,749 $645,914
Exploration Costs - - -
Development Costs - - -
Included in the provision for depreciation, depletion and amortization for
the year ended December 31, 1994 is a writedown of $1,527,196, which resulted
from the capitalized cost limitation test. No writedown was required for the
years ended December 31, 1995 or 1993.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 11 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Continued) (Unaudited)
(3) Results of Operations for
Producing Activities
For the Years Ended
December 31,
1995 1994 1993
Production revenues $3,373,220 $4,179,205 $ 43,600
Production costs (1,299,314) (1,247,654) (15,000)
Depreciation and depletion (1,828,154) (3,100,000) (40,700)
Results of operations for
producing activities
(excluding corporate
overhead and interest costs) $245,752 $(168,449) $ (12,100)
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 11 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Continued) (Unaudited)
(4) Reserve Quantity Information
The following schedule presents estimates of proved oil and natural gas
reserves attributable to the Company, all of which are located offshore from
the continental United States. Proved reserves are estimated quantities of
oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved - developed
reserves are those which are expected to be recovered through existing wells
with existing equipment and operating methods. Reserves are stated in barrels
of oil (Bbls) and millions of cubic feet of natural gas (Mmcf). Geological
and engineering estimates of proved oil and natural gas reserves at one point
in time are highly interpretive, inherently imprecise and subject to ongoing
revisions that may be substantial in amount. Although every reasonable effort
is made to ensure that the reserve estimates reported represent the most
accurate assessments possible, these estimates are by their nature generally
less precise that other estimates presented in connection with financial
statement disclosures.
Oil Gas
(Bbls) (Mmcf)
Proved developed and undeveloped
reserves:
Balance, December 31, 1992 - -
Purchase of reserves in place 18,784 592
Production (389) (19)
Balance, December 31, 1993 18,395 573
Purchase of reserves in place - 9,082
Quantity estimates made (5,514) (809)
Production (4,292) (1,330)
Balance, December 31, 1994 8,589 7,516
Quantity estimates made - 2,511
Production (2,792) (2,198)
Balance, December 31, 1995 5,797 7,829
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 11 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Continued) (Unaudited)
Proved developed reserves:
Beginning of the year 1993 - -
End of the year 1993 18,395 573
Beginning of the year 1994 18,395 573
End of the year 1994 8,589 7,516
Beginning of the year 1995 8,589 7,516
End of the year 1995 5,797 7,829
The following schedule presents the standardized measure of estimated
discounted future net cash flows from the Company's proved reserves for the
years ended December 31, 1995, 1994 and 1993. Estimated future cash flows
were based on independent reserve data. Because of the standardized measure of
future net cash flows was prepared using the prevailing economic conditions
existing at December 31, 1995, 1994 and 1993, it should be emphasized that
such conditions continually change. Accordingly, such information should
not serve as a basis in making any judgment on the potential value of the
Company's recoverable reserves or in estimating future results to operations.
Standardized measures of discounted future net cash flows:
December 31,
1995 1994 1993
Future production revenues $15,657,841 $11,577,656 $1,600,543
Future plugging costs 1,010,602 1,010,602 712,570
Future production costs 5,393,469 4,388,419 444,939
Total future costs 6,404,071 5,399,021 1,157,509
Future cash flows before
income taxes 9,253,770 6,178,635 443,034
Future income tax (benefits) (1,619,410) (1,081,685) (55,141)
Future net cash flows 10,873,180 7,260,320 498,175
Effect of discounting future
annual net cash flows at 10% 1,522,245 1,013,060 122,057
Standardized measure of
discounted future net cash
flows $9,350,935 $6,247,260 $ 620,232
It is anticipated that the properties will produce net operating losses to
be utilized by the Company.
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 11 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Continued) (Unaudited)
Summary of changes in the standardized measure of discounted future net
cash flows:
December 31,
1995 1994 1993
Standardized measure of
discounted future net cash
flows, beginning of year $6,247,260 $ 620,232 $ -
Purchase of reserves in place - 10,375,000 580,181
Net change in expected future
income tax benefit (537,725) (55,141) 68,651
Sales of oil and natural gas
produced, net of production
costs (1,959,489) (3,210,131) (28,600)
Revisions of previous quantity
estimates 4,595,839 ( 699,000) -
Changes in future development
costs - (136,947) -
Net changes in prices and
production costs 1,005,050 (718,255) -
Accretion of discount - 44,304 -
Other, net - 27,198 -
Standardized measure of
discounted future net cash
flows, end of year $9,350,935 $6,247,260 $ 620,232
December 31,
1995 1994 1993
Weighted average outstanding
shares based on primary
earnings per share 9,699,941 8,775,000 8,683,274
Primary earnings per share $ (0.55) $ (0.93) $ (0.06)
Weighted average outstanding
shares based on fully diluted
earnings per share 9,699,941 8,775,000 8,683,274
Fully diluted earnings per share$ (0.55) $ (0.93) $ (0.06)