[FORM 10-Q]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
or
[ ] 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
(State or other jurisdiction of incorporation or organization)
87-0460769
(I.R.S. Employer Identification No.)
1111 Bagby, Suite 2400, Houston, Texas 77002
(Address of principal executive offices) (zip code)
(713) 659-5556
(Registrant's telephone number, including area code)
11,259,552 shares of Common Stock outstanding as of September 30, 1996
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 proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
Part I
FINANCIAL INFORMATION
Item 1 - Financial Statements
EXCEL RESOURCES, INC.
Consoldiated Balance Sheet
ASSETS
September 30 December 31
1996 1995
(Unaudited) (Audited)
CURRENT
Cash and cash equivalents $ 0 $ 3,889
Trade accounts receivable, net of
allowance of $0 in 1996 and $0 in 1995 345,447 262,081
Other 0 0
Total current assets 345,447 265,970
EQUIPMENT
Transmission equipment 163,675 163,675
Office furniture and equipment 105,507 141,507
Transportation equipment 0 0
Leasehold improvements 6,452 6,452
275,634 311,634
Accumulated depreciation (153,676) (164,676)
Total equipment 121,958 146,958
NET OIL AND GAS PROPERTIES,
Full cost method 3,402,718 4,383,207
OTHER
Long-term accounts receivable 33,900 491,287
Miscellaneous 15,621 15,621
Total other assets 49,521 506,908
TOTAL ASSETS $ 3,919,644 $ 5,303,043
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 8,202,852 $ 7,870,027
Accounts payable - related 45,000 49,960
Long-term debt - current portion 2,159,248 4,057,361
Accrued expenses 582,632 455,430
Total current liabilities 10,989,732 12,432,778
LONG-TERM LIABILITIES
Notes and production payables 0 0
Deferred revenue 96,610 146,849
Total long-term liabilities 96,610 146,849
Total liabilities 11,086,342 12,579,627
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
5,000,000 shares authorized, none issued
or outstanding Common stock, $.001 par
value, 100,000,000 shares authorized,
11,259,552 and 12,023,956 shares issued
and outstanding 11,259 12,024
Additional paid-in capital 5,606,210 5,466,210
Retained earnings (deficit) (12,455,866) (12,251,241)
(6,838,397) (6,773,007)
Note receivable from stockholder (328,301) (503,577)
Total stockholders' equity (7,166,698) (7,276,584)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,919,644 $ 5,303,043
See accompanying notes to financial statements.
EXCEL RESOURCES, INC.
Consolidated Statements of Operations
For the Nine Months For the Three Months
ended September 30 ended September 30
1996 1995 1996 1995
SALES $4,466,241 $2,434,909 $1,292,910 $598,372
Cost of sales 2,871,965 1,922,135 949,512 608,548
GROSS PROFIT (LOSS) 1,594,276 512,774 343,398 (10,176)
GENERAL AND
ADMINISTRATIVE EXPENSES 1,066,811 2,804,125 515,383 888,079
INCOME (LOSS)
FROM OPERATIONS 527,465 (2,291,351) (171,985)(898,255)
OTHER INCOME (EXPENSE)
Interest income (expense) (722,090) (325,815) (181,701) 473,327
Factoring fee 0 0 0 0
(Loss) gain on sale of
marketable securities 0 0 0 0
(Loss) gain on sale of
equipment (10,000) 40,877 0 877
Miscellaneous 0 0 0 0
Total other income (expense) (732,090) (284,938) (181,701) 474,204
INCOME (LOSS) BEFORE INCOME
TAXES (204,625) (2,576,289) (353,686)(424,051)
Income Tax (Expense) Benefit 0 60,731 0 60,731
NET GAIN (LOSS) $ (204,625) (2,515,558) (353,686)(363,320)
EARNINGS PER SHARE
NET INCOME (LOSS) $ (0.02) $ (0.24) $ (0.03) $ (0.03)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 11,522,201 10,586,800 11,209,552 10,586,800
See accompanying notes to financial statements.
EXCEL RESOURCES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
For the Nine Months For the Nine Months
ended September 30 ended September 30
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (loss) $ (204,625) $ (2,515,558)
Adjustments to reconcile net
income to net cash provided
(used in) operating activities:
Depreciation, depletion and
amortization 985,489 1,315,405
Deferred revenue (50,239) 194,788
Net loss (gain) on sale of equipment 10,000 (40,877)
Changes in assets and liabilities:
Decrease (Increase) in Trade
accounts receivable (83,366) 2,257,612
Decrease (Increase) in Federal
income tax receivable 0 (60,731)
Decrease (Increase) in Other
current assets 0 (8,714)
Decrease (Increase) in Long-term
receivables 457,387 (79,886)
Miscellaneous 0 (284,775)
Increase (Decrease) in Trade
accounts payable and current
portion of long-term debt (1,565,288) (3,203,900)
Increase (Decrease) in Accrued
expenses 127,202 (36,513)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (323,440) $ (2,463,149)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures $ 0 $ 0
Proceeds from sale of equipment 10,000 373,005
Proceeds from sale of securities 0 0
Note receivable from stockholder 175,276 0
Note payable to stockholder (4,960) 0
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 180,316 373,005
CASH FLOWS FROM
FINANCING ACTIVITIES:
Sale (recission) of common stock (765) 0
Repayment of long-term debt 0 (1,020,276)
Proceeds from equity investors 140,000 3,112,392
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 139,235 2,092,116
Net increase (decrease) in cash
and cash equivalents (3,889) 1,972
Cash and cash equivalents at
beginning of period 3,889 16,499
Cash and cash equivalents at
end of period $ 0 $ 18,471
See accompanying notes to financial statements.
EXCEL RESOURCES, INC
NOTE 1--Basis of Presentation, Organization and Summary of Significant
Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions and requirements of Form 10-Q, and therefore
do not include all information and footnotes necessary for a fair presentation
of financial position, results of operations, and cash flows in conformity
with generally accepted accounting principles. In the opinion of management,
such financial statements reflect all adjustments necessary for a fair
statement of the results of operations and financial position for the interim
periods presented. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full years.
It is suggested that these consolidated financial statements be read in
conjunction with the Company's consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1995.
Organization and Business
Excel Resources, Inc., ("the Company"), formerly Dover Capital
Corporation, was incorporated in the state of Nevada on December 31, 1988.
The Company's primary business activity is the production, gathering,
marketing and transportation of natural gas and related products.
Basis 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., and Excel Gas Marketing, Inc., an
affiliate of the Company through common ownership. All significant
intercompany transactions have been eliminated.
Equipment and Depreciation
Equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the assets using the straight-line method for
financial reporting purposes and accelerated methods for income tax purposes.
The estimated useful lives of equipment for purposes of computing depreciation
are:
Class Life
Transmission equipment 22 years
Office furniture and equipment 10-12 years
Transportation equipment 7 years
Leasehold improvements 3-5 years
Oil and Gas Properties
The Company follows the full cost method of accounting, as defined by
the Securities and Exchange Commission, whereby all costs incurred in
connection with the acquisition, exploration and development of oil and gas
properties, whether 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. The average depletion rate based on equivalent Mcf
of natural gas for the nine months ended September 30, 1996, and 1995 was $.56
and $.83, respectively.
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. There has been no
such test nor any related adjustment for the nine months ended September 30,
1996.
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 is 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.
Deferred Revenue
The Company has long-term throughput contracts with certain customers on
its offshore oil and gas wells (see Note 3). 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 September 30, 1996, and December 31, 1995,
the Company had a long-term gas balancing receivable of $33,900 and $491,287
and an offsetting long-term gas balancing payable of $96,610 and $146,849,
respectively.
Earnings (loss) per Share
Earnings per share amounts are based on the weighted average number of
common shares outstanding.
Marketable Securities
Marketable securities consist of direct obligations of the U.S.
Government and futures contracts. Securities are stated at cost, which
approximates market value.
Cash Equivalents
Cash equivalents include any highly liquid investment instruments
purchased with an original maturity date of three months or less.
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. The payment of
the purchase price was made in April 1994, from funds provided by one of the
Company's major suppliers.
The borrowed funds were repayable within six months beginning June 1994 from
future production payments from the properties and or dedicated natural gas
trades. Management is currently involved in negotiations for refinancing this
short-term debt; however, it cannot be assumed that such negotiations will be
successfully concluded.
NOTE 3 - Oil and Gas Exploration, Development and Producing Activities
(Unaudited)
Results of Operations
The results of oil and gas producing activities during the nine months
ended September 30, 1996, are as follows:
Amount
Production revenues $4,140,554
Production costs 1,508,257
Depreciation, depletion and amortization 980,489
Operating income - producing activities $1,651,808
Cost Incurred
For the nine months ended September 30, 1996, the costs incurred in oil
and gas producing activities totaled $1,508,257, all of which amount was
charged to expense.
Capitalized Costs
Capitalized costs relating to oil and gas exploration, development and
producing activities were as follows:
September 30, 1996
Costs subject to amortization -
all proved properties $ 9,333,663
Less accumulated depreciation, depletion,
and amortization: (5,930,945)
$ 3,402,718
Proved Reserves
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 and millions of cubic feet of natural gas. 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 represent the most accurate assessments
possible, these estimates are by their nature not precise and are often
different from the quantities ultimately recovered.
Nine Months Ended
September 30, 1996
(Bbl) (Mmcf)
Proved reserves:
Beginning of the period 5,797 7,829,000
Production (2,784) (1,724,003)
Proved reserves:
End of the period 3,013 6,104,997
Standardized Measure of Discounted Future Net Cash Flows
The following schedule presents the standardized measure of estimated
discounted future net cash flows from the Company's proved reserves as of
September 30, 1996. Estimated future cash flows were based on independent
reserve data.
Because the standardized measure of future net cash flows was prepared
using the prevailing economic conditions existing at September 30, 1996, 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 of operations.
Standardized measures of discounted future net cash flows:
September 30,1996
Future production revenues $ 12,684,843
Future capital costs $ (1,010,602)
Future production costs $ (4,975,085)
Total future costs $ (5,985,687)
Future cash flows before income
taxes $ 6,699,156
Future income tax / (benefit) $ (1,172,352)
Future net cash flows $ 7,871,508
Effect of discounting
future annual net cash
flows at 10% $ (1,102,011)
Standardized measure of
discounted future net
cash flows $ 6,769,497
NOTE 4--Notes Payable
Notes payable consisted of the following:
September 30, 1996 December 31, 1995
Purchase note payable in default
payable on demand currently being
repaid from production from oil
and gas properties.
Interest is imputed at 20% and
is subject to renegotiation
(See Note 2) $ 1,746,730 $ 3,990,867
Note payable to a company at an
effective interest rate of
approximately 6%. $ -0- $ 66,494
Note payable to a company at an
effective interest rate of
approximately 10%. $ 131,092 $ -0-
Note payable to a company at an
effective interest rate of
approximately 12%. $ 281,426 $ -0-
$ 2,159,248 $ 4,057,361
Less current maturities $(2,159,248) $(4,057,361)
$ - $ -
NOTE 5--Income Taxes
At September 30, 1996, the Company had net operating loss carryforwards
of approximately $12,000,000 that may be offset against future taxable income
through 2010. No tax benefit has been reported in the 1996 financial
statements, because the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
NOTE 6--Commitments
The Company leases office space and certain equipment under operating
lease agreements. At September 30, 1996, the estimated future minimum rental
payments required under the leases were:
Year ending December 31, Amount
1996 73,000
1997 79,000
1998 78,000
Thereafter 82,000
Total $369,000
Rental expense for the nine months ended September 30, 1996, and 1995,
totaled approximately $108,000 and $109,000, respectively.
NOTE 7--Employee Benefit Plan
The Company has a 401(k) deferred compensation plan. Under this plan,
employees meeting eligibility requirements, (as defined in the plan),
contribute a percentage of their before-tax compensation to the plan with the
Company matching the first two percent of the employee contribution.
Additional Company contributions may be made at the discretion of the Board of
Directors. The Company made no contributions for either the nine months ended
September 30, 1996, or the nine months ended September 30, 1995.
NOTE 8--Related Party Transactions
At September 30, 1996, there was a related accounts payable to a
shareholder. The account is for expenses paid in the Company's behalf. The
amount payable at September 30, 1996, equaled $45,000.
The Company also has a note receivable from its primary stockholder for
various expenditures paid by the Company on behalf of the stockholder. The
advances bear interest at 6% and are payable upon demand by the Company. The
following is a summary of the notes receivable:
September 30,1996 December 31,1995
Notes receivable balance $ 328,301 $ 503,577
Advances during year $ 0 $ 0
Repayments during the year $ 175,276 $ 37,699
The notes receivable from stockholder are reflected as a reduction in
stockholder's equity (capital deficit).
NOTE 9 - Supplemental Disclosure of Cash Flow Information
1996 1995
Interest paid $ 398,102 $ 677,776
Item 2. Management's Discussion and Analysis of the Financial Condition
and Results of Operations.
Period from July 1, 1996 through September 30, 1996
Total sales for the quarter ended September 30, 1996, were $1,292,910,
representing a $694,538 or 116% increase over the third quarter 1995 total
sales of $598,372. The increase was attributable primarily to increased
Company-owned natural gas and oil production sales. Natural gas prices
remained strong throughout the third quarter of 1996. Sales prices for
Company-owned natural gas production in the Gulf Coast area during the quarter
ranged between $1.76/MMBtu and $2.61/MMBtu. This strengthening of natural gas
prices over the last quarter of 1995 and the first nine months of 1996 has had
a favorable impact on the Company's production revenues. Industry price
forecasts indicate continued strength in gas prices throughout the remainder
of 1996 and into mid-1997.
Gross profit for the third quarter of 1996 was $343,398, a $353,574
increase over the gross loss of $10,176 for the third quarter of 1995. This
increase resulted from an increase in sales of Company-owned gas and oil
production as indicated above. Total depletion applicable to the Company's
producing properties was approximately $268,462 which amount is included in
the cost of sales.
The net loss of $353,686 for the quarter ended September 30, 1996, an
improvement over the net loss of $363,320 for the quarter ended September 30,
1995, which third quarter 1995 loss included the positive impact of the
recalculation of the amounts due under a production payable with a major
customer. Such positive impact was recorded as a credit to interest expense
in such period. The third quarter 1996 improvement reflects declining general
and administrative costs, declining interest expense, and improved sales
volume and margin from Company-owned production. Management anticipates the
trend in these areas will continue to have a positive impact on the Company's
overall financial condition.
Period from April 1, 1996 through June 30, 1996
Total sales for the quarter ended June 30, 1996, were $1,493,631
representing a $662,843 or 79.8% increase over the second quarter 1995 total
sales of $830,788. The increase was attributable primarily to increased
Company-owned natural gas and oil production sales. Natural gas prices
remained strong throughout the second quarter of 1996. Sales prices for
Company-owned natural gas production in the Gulf Coast area during the quarter
ranged between $2.20/MMBtu and $2.50/MMBtu. This strengthening of natural gas
prices over the last quarter of 1995 and the first six months of 1996 has had
a favorable impact on the Company's production revenues.
Gross profit for the second quarter of 1996 was $805,780, a $628,784 or
355.3% increase over the gross profit of $176,996 for the second quarter of
1995. This increase resulted from an increase in sales of Company-owned gas
and oil production as indicated above. Total depletion applicable to the
Company's producing properties was approximately $358,233 which amount is
included in the cost of sales.
The net profit of $300,776 for the quarter ended June 30, 1996, a
substantial improvement over the net loss of $1,150,379 for the quarter ended
June 30, 1995, reflects declining general and administrative costs, declining
interest expense, and improved sales volume and margin from Company-owned
production. Management anticipates the trend in these areas will continue to
have a positive impact on the Company's overall financial condition.
In connection with the marketing of third-party gas by affiliate Excel Gas
Marketing, Inc., the natural gas sales contract with its only active customer
during the second quarter expired June 30, 1996. Excel Gas Marketing, Inc.
has therefore suspended its gas marketing activities. The Company's
management anticipates this occurrence will have minimal impact, if any, on
Company operations.
Period from January 1, 1996 through March 31, 1996
Total sales for the quarter ended March 31, 1996, were $1,679,700,
representing a $673,951 or 67% increase over first quarter, 1995, total sales
of $1,005,749. The increase resulted from a increase of $712,927 in
Company-owned natural gas and oil production sales. The marketing activities
of third-party gas by Excel Gas Marketing, Inc. have diminished to only one
small active customer. Natural gas prices continued to show strength
throughout the first three months of 1996, reaching levels as high as $3.50
per MMBtu in Gulf Coast region. These price increases have had a favorable
impact on the Company's production revenues.
Gross profit for the first quarter of 1996 was $445,098, representing a
$99,144 or 28.7% increase over the first quarter of 1995. This increase was
due to an increase in sales of Company-owned gas and oil production as
outlined above. Total depletion of the Company's producing properties was
approximately $521,000, which amount is included in the cost of sales.
The net loss of $151,815 for the quarter ended March 31, 1996, a
substantial improvement over a loss of $1,001,859 for the first quarter of
1995, reflects declining general and administrative costs, declining interest
expense and improved sales volume and margin from Company-owned production,
Liquidity and Capital Resources
The principal sources of cash for the third quarter of 1996 were funds
provided from current and past operations of the Company. Cash outflows
included funds used in operations and the repayment of debt.
The net cash used in operating activities through the end of the third
quarter of 1996 was $323,440, compared to $2,463,149 used in operations during
the first nine months of 1995. The negative cash flow in the third quarter of
1996 was primarily due to payments that were made to reduce debt. The
negative cash flow in the third quarter of 1995 was primarily due to payments
made to gas producers from prior period gas marketing activities.
The net cash flow provided by investing activities through the end of
the third quarter of 1996 was $180,316, compared with $373,005 provided by
investing activities for the first nine months of 1995. The 1996 cash flow
was attributable to the sale of equipment and the partial repayment of a note
receivable from a stockholder, and the 1995 cash flow was attributable to the
sale of a pipeline system.
Net cash flow from financing activities through the end of the third
quarter of 1996 was $139,235, which amount is attributable primarily to
additional equity investment in the Company. Net cash flow from financing
activities through the end of the third quarter of 1995 was $2,092,116,
reflecting equity investments of approximately $3,100,000 less approximately
$1,000,000 in debt repayment. This repayment of debt was primarily to a major
customer which advanced funds to the Company in the first quarter of 1994 for
the purchase of offshore oil and gas producing properties.
As of September 30, 1996, the Company's current liabilities of
$10,989,732 exceeded its current assets of $345,447 by $10,644,285. However,
management is confident that the overall improvement in the Company's
operating results will enhance its ability to attract and secure additional
equity funding and/or long-term debt financing; thereby enabling the Company
to both better address the serious liquidity pressures it has endured and
continue its operations.
Throughout 1995, the Company received $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 currently has 5,000,000 authorized but unissued shares of
preferred stock and 88,740,448 shares of authorized but unissued common
stock. The Company issued 266,000 new shares of common stock during the
second quarter of 1996. Also during the second quarter, the Company rescinded
1,334,000 shares of common stock that had been issued in 1995 in connection
with a proposed energy project the Company subsequently elected not to further
pursue. The Company issued 103,596 new shares of common stock during the
third quarter of 1996 to secure professional services pertaining to legal and
financial needs of the Company.
The Company will continue to pursue opportunities to acquire properties in
exchange for its stock.
PART II - OTHER INFORMATION
Item 1. 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 $252,818.00 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, Inc. 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 $2,911,754.00 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.
- - 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.
- - 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 seeks 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. On March
23, 1996, a Turnover After Judgment hearing for Excel Gas Marketing, Inc. was
held in the Judicial Court of Harris County, Texas for the application made by
Phillips Petroleum Company. The result of this hearing was an order for the
appointment of a Receiver, effective with the execution of the Order.
The Order was executed with the appointment of the Receiver and the posting of
the Bond of the Receiver on May 13, 1996.
- - 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.
- - 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.
- - November 22, 1995, Entex Gas Marketing Company filed suit against Excel Gas
Marketing in the District Court of Harris County, Texas, for breach of
contract due to nonpayment of gas purchases of $231,216.20 plus interest,
attorneys fees and court costs. Excel Gas Marketing and Entex are
negotiating a settlement of this matter.
- - 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 was 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. This matter was settled on
September 23, 1996, between the respective parties. Under the terms of the
Settlement Agreement, the Company issued a promissory note to Bounty and
Bounty agreed to abate the suit against the Company.
- - 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. This matter was
settled on June 28, 1996, between the respective parties.
- - 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. This matter was settled on September 23,
1996, between the respective parties. Under the terms of the Settlement
Agreement, a promissory note was issued to CNG by the Company and Bounty, and
CNG agreed to stay the prosecution of the suit against the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
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 third quarter of the 1996
fiscal year.
Item 5. Other Information
Donald R. Dwight terminated his membership on the Company Board of
Directors during April, 1996. David J. Brenza resigned his position of
Executive Vice President, Chief Financial Officer and Corporate Secretary
during April, 1996.
Randy P. Matye was appointed to the Company Board of Directors in
September, 1996.
Item 6. Exhibits
Ex-27 Financial Data Schedule
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 14th day
of November, 1996.
EXCEL RESOURCES, INC.
BY: /s/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 14th day
of November, 1996.
SIGNATURE: TITLE:
/s/Francis H. Brinkman Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
/s/Roger D. Case President, Chief Operating Officer,
Assistant Secretary and Director
(Principal Operating Officer)