SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(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, 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. 2-72232
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION
(Name of small business issuer in its charter)
COMMONWEALTH OF VIRGINIA 54-1082057
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5990 Greenwood Plaza Blvd., Suite 127
Greenwood Village, Colorado 80111-4708
(Address of principal executive offices)
Issuer's telephone number, including area code:(303) 773-6016
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.10 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
<PAGE>
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. (X)
Issuer's revenues for its most recent fiscal year: $2,562,000
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $837,000 as of March 1, 1997.
The registrant had 18,844,245 shares outstanding at March 1, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Company's
definitive proxy statement which will be filed with the Commission within 120
days of December 31, 1996, pursuant to Regulation 14A.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION
INDEX TO FORM 10-KSB
PART I: Page
Item 1. Description of Business. . . . . . . . . . . . 4
Item 2. Description of Properties. . . . . . . . . . . 7
Item 3. Legal Proceedings. . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . 9
PART II:
Item 5. Market for Common Equity and Related Stock-
holder Matters . . . . . . . . . . . . . . . . 10
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 11
Item 7. Financial Statements . . . . . . . . . . . . . 15
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . 30
PART III:
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act. . . . . . . . . . . . . . 30
Item 10. Executive Compensation . . . . . . . . . . . . 30
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . 30
Item 12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . 30
Item 13. Exhibits, List and Reports on Form 8-K . . . . 31
SIGNATURE PAGE. . . . . . . . . . . . . . . . . . . . . . . . 32
<PAGE>
PART I
Item 1. Description of Business
General
Great Eastern Energy and Development Corporation ("Great Eastern") was
incorporated under the laws of the Commonwealth of Virginia on May 1, 1978.
From its inception, Great Eastern has been engaged in the acquisition and
exploration of undeveloped leasehold acreage in potential oil and gas producing
areas and, more recently, in the acquisition and development of more mature oil
and gas properties in established areas of production. Since July 1982, Great
Eastern has maintained its principal place of business in Colorado.
On September 26, 1994, the Company retained the services of Kirkpatrick
Energy Associates, Inc. ("Kirkpatrick"), an investment banking firm, to
evaluate options available to the Company to maximize shareholder value,
including a possible sale of the Company. Except as to certain companies
identified by Kirkpatrick and considered to be active and viable candidates for
the purchase of, or merger with, Great Eastern, Kirkpatrick's services were
terminated October 30, 1995. Except as noted above, management has assumed
sole responsibility for such efforts heretofore. No acceptable offers have
been received. There is no assurance that any action, including a possible
sale, will occur.
During each of the three years in the period ended December 31, 1992, the
Company developed methane gas reserves from coalbeds in southeastern Kansas.
Associated with the sale of methane gas from coalbeds is a tax credit under
Section 29 of the Internal Revenue Code, which mandated that companies drill
qualifying wells by December 31, 1992. Because taxable income, if any,
generated by the Company would either be sheltered entirely by existing net
operating losses or be sheltered partially, resulting in alternative minimum
tax which may not be offset by the tax credit, the Company could not utilize
the benefits of the tax credit.
Given the Company's tax position, the benefit of the tax credit could only
be monetized by sale of the related properties to an entity which could utilize
the tax credit. On September 3, 1993, Great Eastern sold its entire working
interest in certain coalbed methane properties. By the terms of an Asset
Purchase Agreement, the Company will receive monthly payments, which are
secured by a mortgage, through December 31, 2002. A portion of the monthly
payments are attributable to the monetization of the tax credit and will result
in net cash flows to the Company in excess of that which would have been
received had the Company retained and produced the properties. Great Eastern
operates the properties for a fee.
Great Eastern's primary exploratory efforts are in northwestern Colorado.
The Company believes the area has good potential for hydrocarbons and seeks to
<PAGE>
have the potential tested through farm outs or similar arrangements with other
parties. Past instability in the price of oil and natural gas has resulted in
reduced expenditures for exploration activities throughout the industry which
in turn has hampered the Company's efforts to have its Colorado acreage
explored and developed. No assurance can be made that the Company's acreage
will be developed. The Company plans to maintain its acreage as long as
economically feasible and to continue its efforts to develop this acreage.
Also, Great Eastern owns and operates a gas pipeline in southeastern
Kansas, including an affiliated gathering system, Sycamore Valley Gathering
Ltd. ("Sycamore"). Natural gas is purchased from Sycamore and sold in the
interstate market under a gas sales contract with Westar Gas Marketing, Inc.,
and in the intrastate market under a gas sales contract with Bonanza Energy
Corporation.
In addition to the operations that are carried out by Great Eastern, part
of its operations have been conducted through its wholly-owned subsidiaries,
Zoandra Petroleum, Inc. ("Zoandra"), Sycamore and Patton Oil Co. ("Patton").
Great Eastern, Zoandra, Sycamore and Patton are hereinafter collectively
referred to as the "Company".
Zoandra is the sole general partner and operator, and Great Eastern is the
sole limited partner, of Sycamore, a gas gathering facility in southeastern
Kansas. Zoandra's working interest ownership in oil and gas properties is
negligible. Since 1992, no operations have been conducted through Patton.
Principal Products and Markets
The Company does not refine or process its oil production but sells such
production under short-term contracts at field prices quoted by purchasers in
the area of the producing property. A portion of the Company's production
comes from "stripper wells" (i.e., wells with low production and relatively
high operating costs). Because this production is low margin, stripper wells
are particularly vulnerable to declines in oil prices.
In addition, the Company transports and sells natural gas to Bonanza
Energy Corporation and Westar Gas Marketing, Inc. A portion of the gas
purchased for resale is produced by Great Eastern and Zoandra.
Major Customers and Suppliers
During 1996, four customers individually accounted for ten percent or more
of the Company's revenue from oil and gas sales;
<PAGE>
the customers were Texaco (26%), Bonanza Energy Corporation (25%), National
Cooperative Refinery Association (NCRA) (24%) and Iberia Operating
Corp./Memorial Exploration (19%). Effective September 1, 1996, Iberia
Operating Corp. succeeded to the interests and operations of Memorial
Exploration. In view of the demand for domestic oil at market prices, the
Company does not believe that the loss of any of these customers could
adversely affect its operations.
In addition, the Company's revenue from 1996 gas transmission sales was
primarily from two customers, Bonanza Energy Corporation (56%) and Westar Gas
Marketing, Inc. (42%). Loss of the gas sales contracts with either of these
customers could adversely affect gas transmission operations.
Commencing on September 3, 1993, virtually all of the gas acquired by the
Company's gas gathering facility was from one seller under a long-term
contract. The underlying gas is collateral for monthly payments to the Company
under an Asset Purchase Agreement secured by a mortgage.
Seasonality
A portion of the Company's activity may occur in the Rocky Mountain area,
where the weather is often a significant factor in exploration and production.
The exploration areas may be subject to heavy snows, extremely low temperatures
and spring thaws, making drilling, if conducted during such periods, difficult
and expensive. The Company's principal oil production operations in western
Kansas are not seriously affected by the weather. The Company's principal gas
operations in southeastern Kansas may be subject to periodic freezing during
the winter.
Competition
As an independent oil and gas company lacking the financial resources of
major and large independent oil and gas companies, the Company finds itself at
a disadvantage in competing for the limited financing available for
acquisition, exploration and development of oil and gas properties. The future
effect of these competitive factors on the Company and its operations cannot be
accurately predicted.
Environmental Regulation
The Company is subject to a variety of federal, state and local
environmental laws and regulations relating to site rehabilitation, spillages,
noise, air quality and waste disposal arising from its operations. To date,
the cost of complying with these environmental laws and regulations and
carrying insurance has not been material. Whether such compliance in the
future will necessitate material capital expenditures is not known.
Government Regulation
The Company is subject to extensive federal and state regulations
<PAGE>
governing its oil and gas activities. The Company owns leasehold interests in
federal acreage that entail numerous reporting requirements. Federal and state
regulations affect well spacing and drilling permits.
Employees
At December 31, 1996, the Company had six employees, including Donald G.
Jumper, President. Five employees are oil-field workers involved with
operating certain Kansas oil and gas wells and a gas gathering system. The
Company has outsourced its land, accounting and clerical functions.
Item 2. Description of Properties
The Company's interests in its properties are in the form of direct
interests in oil and gas leases. The Company believes it has satisfactory
title to its properties based upon generally accepted industry standards. As
is customary in the industry, only a perfunctory title examination is conducted
at the time property is acquired by the Company. Prior to the commencement of
drilling, however, a thorough examination is conducted and material defects, if
any, are corrected before proceeding with operations.
A portion of the oil and gas properties owned by the Company are leases
requiring annual payment of a delay rental to retain the Company's interest in
the lease. The current annual delay rental on most of the Company's leases is
$1.50 per acre.
Great Eastern and Zoandra collectively own and operate a gas gathering
system along with gas treatment, dehydration and compression facilities.
Current Drilling Operations
The Company has drilled two developmental dry holes since
January 1, 1997.
Oil and Gas Interests in Leasehold Acreage
The areas in which the Company held oil and gas interests in acreage as of
December 31, 1996 were as follows:
Undeveloped Acreage Developed Acreage
------------------- ------------------
Location Gross Net Gross Net
- ----------- ------- ------ ------ ------
Colorado 3,643 3,595 2,087 567
Kansas 5,040 4,183
Louisiana 1,658 40
New Mexico 320 20
Oklahoma 320 120
------ ----- ------ ------
3,643 3,595 9,425 4,930
====== ===== ====== ======
<PAGE>
Oil and Gas Wells
The following table summarizes the Company's gross and net interests in
oil and gas wells as of December 31, 1996. All net well amounts are based on
the working interests currently in effect and include the Company's net
interest in its wells and partnership wells.
Oil Gas
-------------- --------------
Gross Net Gross Net
----- ------ ----- ------
Colorado 4 1.80
Kansas 29 24.96 22 20.92
Louisiana 24 1.25
New Mexico 2 .13
Oklahoma 2 .82
----- ------ ----- ------
53 26.21 30 23.67
===== ====== ===== ======
There was no drilling activity for the year ended December 31, 1996 and
one (1) salt water disposal well was drilled in 1995.
Selected Production, Price and Cost Data
The following table sets forth annual net production, and the average
sales price and average production (lifting) costs per unit of oil and gas
produced by the Company for the years ended December 31, 1996 and 1995.
Average production costs are converted to equivalent units of oil due to the
dominance of oil sales during the periods.
Oil (Bbls) Gas (Mcf)
-------------------- ------------------- Average
Average Average Production Cost
Year Production Price Production Price (Equivalent Bbl)
- ---- ---------- -------- ---------- ------- ---------------
1996 42,278 $20.11 49,148 $1.57 $4.48
1995 34,741 16.36 55,028 1.40 5.54
See Item 6, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for a comparison of 1996 and 1995 operating results.
Additional information concerning the Company's reserves and production appears
in Note 7 of Notes to the Consolidated Financial Statements.
Pipeline Activity
Great Eastern and Zoandra collectively own a gas gathering system, along
with gas treatment, dehydration and compression facilities, which connects to
gas transmission lines owned by two unaffiliated companies. Great Eastern
purchases gas from Sycamore and, after treatment, dehydration and compression,
sells the gas primarily to Bonanza Energy Corporation and Westar Gas Marketing,
Inc.
<PAGE>
Exploration and Development Activity
During 1994, the Company completed a waterflood feasibility study of the
Lansing/Kansas City formation in the SW Wil Field in Edwards County, Kansas and
commenced a waterflood of certain properties in the field in an effort to
increase oil production.
Because of the promising results of the initial waterflood, management
implemented a waterflood of additional properties in the field during 1995.
However, the results of the second waterflood were not as successful as the
initial waterflood. At the recommendation of an independent petroleum
engineer, two additional development wells were drilled during January 1997;
both wells were unsuccessful. Additional analysis is required to augment the
second waterflood.
Some selected developmental drilling for oil and gas may be conducted in
Kansas. No exploratory wells are scheduled to be drilled in 1997.
Other
Although most of the efforts of Great Eastern are expected to be directed
to the above areas and projects, it also owns interests in other properties
located in Colorado, Kansas, Louisiana, New Mexico and Oklahoma.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
During May 1994, the common stock of Great Eastern (symbol GREN) was
delisted from the National Association of Securities Dealers Automated
Quotation (NASDAQ) system, Small-Cap Issues. The common stock of Great Eastern
is traded on the NASD Bulletin Board under the symbol GREN.U. The high and low
bid prices for 1996 and 1995 were as follows:
1996 High Low
---- ---- ----
1st quarter $.06 $.06
2nd quarter .06 .06
3rd quarter .13 .06
4th quarter .13 .03
1995
----
1st quarter .13 .09
2nd quarter .13 .13
3rd quarter .13 .13
4th quarter .13 .06
As of December 31, 1996, there were 1,200 holders of record of Great
Eastern's common stock.
Since inception, Great Eastern has not paid any cash dividends on its
common stock. Any earnings realized by Great Eastern will be reinvested into
the development of its business and, accordingly, no payment of dividends is
anticipated in the foreseeable future.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CAPITAL RESOURCES
Given the associated risk, the Company does not anticipate utilizing any
material amount of its limited funds to conduct exploratory drilling
activities. The Company will continue efforts to farm out high risk prospects
to major oil and gas companies thereby avoiding the risk and the potential
depletion of cash from exploratory drilling activities. With respect to its
development activities, management will fund only those activities that have a
high likelihood of giving the Company an above average return on its
investment. No assurance can be made that the Company will be successful in
its efforts.
LIQUIDITY
During 1996, the Company's liquidity position improved as a result of
retained cash flow provided by operating activities in excess of investing
activities. Cash flow of approximately $970,000 was provided by operations.
At December 31, 1996, the Company had net working capital of $1,878,000. The
Company has no bank debt and, with the exception of one compressor, no oil and
gas properties are pledged as collateral. Management believes that the
Company's liquidity is adequate to meet the planned operations for fiscal 1997.
<PAGE>
RESULTS OF OPERATIONS
1996 compared to 1995
The Company reported net income of $502,000 for the year ended December
31, 1996 compared to a net loss of $326,000 for the year ended December 31,
1995. Fiscal 1996 oil and gas operations benefitted from an increase in both
oil production and prices. Fiscal 1996 gas transmission operations benefitted
from an increase to the average price received for gas coupled with a decrease
to the average price paid for gas, offset by a decline in volumes. In
addition, the Company benefitted from a turnkey contract to relocate a portion
of its gathering lines. The improvements to oil and gas and gas transmission
operations, along with the profit generated from relocating certain gathering
lines, were offset by a reduction in installment sales income (expense); 1995
installment sales income included an $84,000 gain resulting from the proceeds
received under the Asset Purchase Agreement for two wells which were sold by
the purchaser. Results of operations were also augmented by a reduction in
general and administrative expenses.
The following table presents oil and gas operational and financial data:
1996 1995
---------- ----------
Oil production (Bbls) 42,278 34,741
Gas production (Mcf) 49,148 55,028
Average oil price $ 20.11 $ 16.36
Average gas price 1.57 1.40
Oil sales $ 850,000 $ 568,000
Gas sales 77,000 77,000
---------- ----------
927,000 645,000
---------- ----------
Production taxes 46,000 29,000
Lease operating expense 180,000 214,000
---------- ----------
226,000 243,000
---------- ----------
Gross profit $ 701,000 $ 402,000
========== ==========
The Company reported increased profits from oil and gas operations. Oil
sales increased 50% as a result of a 22% increase in production volumes and a
23% increase in sales prices. Production volumes increased as a result of
successful waterflood activity in the Trousdale unit.
Natural gas sales were static as a result of an 11% decrease in production
volumes and a 12% increase in sales prices.
Total production costs decreased 7%, and average production costs per
equivalent barrel decreased to $4.48 in 1996 from $5.54 in 1995. The decline
in production costs was attributed to the Company converting its western Kansas
employees to contract pumpers and resulted in a reduction in personnel and
<PAGE>
vehicle expenses. The decrease in the average production costs per equivalent
barrel was also attributed to an increase in production volumes.
The following table presents gas transmission operational data:
1996 1995
---------- ----------
Gas volumes (Mcf) 505,599 563,931
Average sales price $ 2.14 $ 1.51
Average purchase price 1.26 1.30
Gas transmission sales $1,084,000 $ 852,000
Meter fee income 58,000 55,000
---------- ----------
1,142,000 907,000
---------- ----------
Cost of gas transmission 639,000 734,000
Operating expenses 225,000 227,000
---------- ----------
864,000 961,000
---------- ----------
$ 278,000 $ (54,000)
========== ==========
Increased demand from the marketplace coupled with limited inventories
resulted in an increase in the average sales price of 42%. Normal production
declines resulted in a 10% reduction to gas transmission volumes. The effect
of the 42% increase in sales prices exceeded the effect of the 10% decrease to
sales volumes, and contributed to a 27% increase in gas sales. The 3% decrease
in the average purchase price coupled with the 10% reduction to volumes
resulted in a 13% decrease to the cost of gas. Operating expenses were static.
On September 3, 1993, Great Eastern sold its entire working interest in
certain coalbed methane gas properties located in southeastern Kansas. The
contingent purchase, non-recourse payment, as defined in the Asset Purchase
Agreement, will be paid out over a period through December 31, 2002. During
1996, the Company reflected net installment sales income (expense) of $(46,000)
as compared to $115,000 during 1995. Included in 1995 installment sales income
was an $84,000 gain resulting from the proceeds received under the Asset
Purchase Agreement for two wells sold by the purchaser. Installment sales
income (expense) was net of $249,000 and $277,000 for the years ended December
31, 1996 and 1995, respectively, representing a pro-rata portion of the cost of
the properties sold.
During 1996, the Company completed the relocation of certain gathering
lines at the mandate of the Kansas Department of Transportation (KDOT). The
$498,000 that KDOT compensated the Company is reflected as income from pipeline
relocation in the statement of operations. The associated cost of $260,00 is
reflected as cost of pipeline relocation in the statement of operations.
<PAGE>
Depreciation, depletion and amortization decreased to $209,000 in 1996
from $215,000 in 1995 primarily due to certain wells becoming fully amortized
in 1995.
General and administrative expenses decreased $56,000 to $477,000 during
1996 compared to $533,000 during 1995, and resulted primarily from a reduction
in payroll and related costs.
Effect of changing prices
During fiscal 1996, the increase in gas prices positively affected the
Company as sales and gathering of natural gas comprise a significant portion of
the Company's operations. The increase in oil prices added to the positive
effects of increasing gas prices. Given the volatile nature of the oil and gas
industry, price fluctuations affect both the revenues received and the
Company's ability to attract investors to participate in sharing arrangements.
An improvement to oil and gas prices has contributed to an increase in
demand for drilling rigs and other oil-field services. Consequently, the cost
for services provided by drilling and oil- field service companies has
increased. No assurance can be given that this trend will continue.
<PAGE>
Item 7. Financial Statements
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of independent accountants........................... 16
Consolidated balance sheet at December 31, 1996............. 17
Consolidated statement of operations for the years ended
December 31, 1996 and 1995.................................. 18
Consolidated statement of changes in shareholders' equity
for the years ended December 31, 1996 and 1995.............. 19
Consolidated statement of cash flows for the years ended
December 31, 1996 and 1995.................................. 20
Notes to consolidated financial statements.................. 21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of Great Eastern
Energy and Development Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Great Eastern Energy and Development Corporation and its
subsidiaries at December 31, 1996 and the results of their operations and their
cash flows for the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
March 28, 1997
<PAGE>
<TABLE>
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except for share information)
<CAPTION>
December 31,
1996
------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents....................... $ 1,580
Receivables, net of allowance for doubtful
accounts of $247............................... 449
Prepaid expenses and other current assets....... 23
---------
Total current assets........................ 2,052
---------
OIL AND GAS PROPERTIES, at cost (accounted
for using the successful efforts method)
Proved oil and gas properties.................. 9,514
Undeveloped leaseholds......................... 52
Pipeline equipment............................. 1,346
Equipment inventory............................ 54
---------
10,966
Less accumulated depreciation, depletion,
amortization and impairment................... ( 9,781)
---------
1,185
Properties held under installment sales, net of
accumulated depreciation, depletion and
amortization of $1,210......................... 1,000
---------
2,185
---------
OTHER ASSETS, at cost, net of accumulated
depreciation and amortization of $423........... 84
---------
$ 4,321
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable................................... $ 18
Accounts payable and accrued expenses........... 156
---------
Total current liabilities................... 174
---------
NOTES PAYABLE.................................... 29
---------
COMMITMENTS (Note 1)
SHAREHOLDERS' EQUITY
Preferred stock, $10.00 par value, 4,000,000
shares authorized, none issued or outstanding
Common stock, $.10 par value, 40,000,000
shares authorized, 18,844,245 shares issued
and outstanding................................ 1,884
Additional paid-in capital...................... 29,242
Accumulated deficit............................. (26,968)
Note receivable - officer....................... (40)
----------
Total shareholders' equity.................. 4,118
----------
$ 4,321
==========
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except for per share amounts)
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
REVENUES
Oil and gas sales................... $ 927 $ 645
Gas transmission sales.............. 1,142 907
Income from pipeline relocation..... 498 -
Installment sales income (expense).. (46) 115
Interest and other income........... 41 110
------ ------
2,562 1,777
------ ------
EXPENSES
Production taxes.................... 46 29
Lease operating expense............. 180 214
Cost of gas transmission............ 864 961
Cost of pipeline relocation......... 260 -
Depletion, depreciation and
amortization....................... 209 215
Impairment of oil and gas properties 12 71
General and administrative.......... 477 533
Loss on sale of real estate......... - 66
Exploration expense................. 5 7
Interest expense.................... 7 7
------ ------
2,060 2,103
------ ------
NET INCOME (LOSS).................... $ 502 $ (326)
====== ======
NET INCOME (LOSS) PER SHARE.......... $ .03 $ (.02)
====== ======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING......................... 18,844 18,844
====== ======
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Common stock Additional Notes Total
------------------- paid-in Accumulated receivable- shareholders'
Shares Amount capital deficit officers equity
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994...... 18,844,245 $1,884 $29,242 $(27,144) $(45) $3,937
Net loss.......................... (326) (326)
---------- ------ ------- --------- ----- -------
BALANCE AT DECEMBER 31, 1995...... 18,844,245 1,884 29,242 (27,470) (45) 3,611
Net income........................ 502 502
Reduction to notes receivable -
officers.......................... 5 5
---------- ------ ------- --------- ----- -------
BALANCE AT DECEMBER 31, 1996...... 18,844,245 $1,884 $29,242 $(26,968) $(40) $4,118
========== ====== ======= ========= ===== =======
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................... $ 502 $ (326)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Changes in accounts receivable........ (188) (6)
Changes in provision for bad debts.... 13
Changes in prepaid expenses and other
current assets....................... 123 (121)
(Gain) loss from conveyances of real
estate and property and equipment.... 4 (25)
Depletion, depreciation, amortization 209 215
Depletion, depreciation and
amortization charged against
installment sales income............. 249 277
Impairment of oil and gas properties.. 12 71
Changes in accounts payable and
accrued expenses..................... 41 13
Other................................. 5 -
------ ------
Net cash provided by operating
activities.......................... 970 98
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Changes in certificates of deposit..... 311 (5)
Additions to oil and gas properties.... (85) (163)
Proceeds from conveyances of
properties............................ - 254
Increase in other assets............... (45) (10)
------ ------
Net cash provided by investing
activities........................... 181 76
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of debt..................... (10) (7)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS... 1,141 167
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR................................ 439 272
------ ------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $1,580 $ 439
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 7 $ 7
====== ======
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
GREAT EASTERN ENERGY AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Great Eastern Energy and Development Corporation and subsidiaries ("Great
Eastern" or the "Company") acquires, explores, develops and operates oil and
gas properties. All operations are located in the United States and are
conducted primarily through joint operations with other oil and gas companies.
The Company also operates a gas transmission facility.
Principles of consolidation
The consolidated statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company maintains demand deposit and money market accounts with one
bank in Lexington, Kentucky.
The Company enters into sharing arrangements with other oil and gas
companies and sells its oil and gas to various purchasers. Financial
instruments which potentially subject the Company to concentrations of credit
risk are primarily accounts receivable. The Company performs ongoing credit
evaluations of the oil and gas companies' and purchasers' financial condition
and, generally, requires no collateral from the companies or purchasers.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
receivables and payables. The carrying amounts of such financial instruments
approximate fair value because of the short maturity of these instruments.
Oil and gas properties
The Company follows the successful efforts method of accounting for oil
and gas operations whereby all exploration costs, including geological and
geophysical costs, annual delay rentals on undeveloped leases and exploratory
dry hole costs are charged to expense as incurred. Intangible drilling and
development costs are capitalized on successful wells and development dry
<PAGE>
holes. Undeveloped leasehold costs are capitalized and charged to expense if
abandoned or impaired, based on a prospect-by-prospect evaluation.
Capitalized costs relating to producing properties are depleted on the
units-of-production method based on estimated quantities of proved reserves.
Proved oil and gas properties are not capitalized in an amount that exceeds the
discounted future net revenues of the associated property.
Pipeline equipment is depreciated using the straight-line method over
periods ranging from 7 to 12 years.
Investment in managed partnerships
The Company accounts for its investment in managed partnerships on the
proportionate share method.
Properties held under installment sales
Income from the sale of producing oil and gas properties under installment
sales is reflected in operations as earned. Income from the sale is reduced by
a pro-rata portion of the cost of the properties sold.
Natural gas hedging
The Company periodically hedges a portion of its natural gas production.
When direct investments are made in futures contracts, gains or losses on the
hedges are deferred and recognized in income as the natural gas is produced and
delivered. As of December 31, 1996, the Company had outstanding contracts to
sell 30 thousand cubic feet (Mcf) of natural gas at $1.87 per Mcf in the first
quarter of 1997.
Net income (loss) per share
Net income (loss) per share of common stock is computed based on the
weighted average number of common shares outstanding during the year.
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 the
reported amounts of revenue and expenses during the periods presented. Actual
results could differ from those estimates making it reasonably possible that a
change in these estimates could occur in the near term.
<PAGE>
NOTE 2 - RECEIVABLES
December 31,
1996
------------
(In thousands)
Joint interest billings.................. $309
Accrued oil and gas sales................ 384
Note receivable.......................... 3
----
696
Allowance for doubtful accounts.......... (247)
----
$449
====
On December 30, 1991, the Company purchased certain loans and accrued
interest in the aggregate amount of $45,280 which certain officers of the
Company owed to a bank. The loans were obtained by the officers to acquire
stock of the Company. During 1996, one loan in the aggregate amount of $4,953
was forgiven, and is reflected as general and administrative expense in the
statement of operations. The remaining $40,327 is reflected as a reduction of
shareholders' equity in the consolidated balance sheet.
NOTE 3 - OIL AND GAS PROPERTIES
On September 3, 1993, Great Eastern sold its entire working interest in
certain coalbed methane gas properties (the Properties) located in southeastern
Kansas. The contingent purchase, non-recourse payment, as defined in the Asset
Purchase Agreement (the Agreement), will be paid out over a period through
December 31, 2002, and is secured by a mortgage.
Great Eastern operates the Properties for a fee. Great Eastern and a
wholly-owned subsidiary own and operate a natural gas gathering system and,
after dehydration and compression, market the gas through existing interstate
and intrastate markets.
Commensurate with the execution of the Agreement, a wholly-owned
subsidiary of Great Eastern entered into a contract to purchase all of the
natural gas for $1.25 per Mcf, the price to be redetermined annually. During
1995, this price was reduced to $1.10 per Mcf, based on terms of the Agreement.
There was no change in the price during 1996.
The Company entered into a fixed-price contract with the Kansas Department
of Transportation to relocate certain gas gathering lines. The income from the
pipeline relocation of $498,000 and the cost of the pipeline relocation of
$260,000 are reflected in the statement of operations for the year ended
December 31, 1996.
<PAGE>
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31,
1996
------------
(In thousands)
Trade accounts payable................... $ 69
Revenue distribution payable............. 61
Advances under drilling arrangements..... 26
----
$156
====
NOTE 5 - INCOME TAXES
The differences between the amounts which would have been reported by
applying the statutory federal income tax rate to pretax income or loss and the
provision for income taxes were as follows:
Year ended December 31,
1996 1995
---- ----
(In thousands)
Tax expense (benefit) by applying the
statutory federal income tax rate to
pretax income or loss $ 176 $(111)
Change in previous estimate (14) (33)
----- -----
162 (144)
Utilization of net operating loss
carryforwards (162)
Net operating loss for which no benefit
was realized 144
----- -----
Provision for income taxes $ - $ -
===== =====
Long-term deferred tax assets and liabilities were comprised of the
following:
December 31,
December 31,
1996
------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $6,669
Deferred tax liabilities:
Depreciation, depletion and amortization (226)
------
Net deferred tax asset 6,443
Valuation allowance (6,443)
------
$ -
======
A valuation allowance of $6,443,000 was provided at December 31, 1996 for
net operating loss carryforwards which more likely than not will not be
utilized prior to their expiration. During 1996, the valuation allowance was
reduced by $1,707,000 for expiration of net operating loss carryforwards and by
$162,000 for utilization of net operating loss carryforwards.
The primary sources of temporary differences giving rise to deferred tax
liabilities are costs deducted and proceeds recognized for tax purposes in
excess of or less than net amounts amortized for financial reporting purposes
under the successful efforts method of accounting, principally intangible
drilling costs, impairment of capitalized oil and gas property costs and
proceeds from the sale and exchange of oil and gas properties.
<PAGE>
At December 31, 1996, the Company has federal income tax net operating
loss carryforwards of $24,523,000 which expire from 1997 through 2011.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if
certain significant ownership changes occur, there could be an annual
limitation on the amount of net operating loss carryforwards that can be
utilized. Such a limitation could substantially reduce any future potential
benefit of the net operating loss carryforward. The Company has not
experienced a change in ownership under these rules.
NOTE 6 - MAJOR CUSTOMERS AND SUPPLIERS
During 1996 and 1995, the following customers individually accounted for
in excess of ten percent of the Company's revenue from oil and gas sales:
1996 1995
---- ----
Texaco 26% 31%
Bonanza Energy Corporation 25% 42%
National Cooperative Refinery Association 24% -
Iberia Operating Corp./Memorial Exploration 19% 16%
Effective September 1, 1996, Iberia Operating Corp. succeeded to the
interests and operations of Memorial Exploration. In view of the demand for
domestic oil at market prices, the Company does not believe that the loss of
any customer would adversely affect its operations.
During 1996 and 1995, the following customers individually accounted for
in excess of ten percent of the Company's revenue from gas transmission sales:
1996 1995
---- ----
Bonanza Energy Corporation 56% 53%
Westar Gas Marketing, Inc. 42% 46%
Loss of either of these customers could adversely affect gas transmission
operations.
Virtually all of the gas acquired by the Company's gas gathering facility
was from one seller under a long-term contract. The underlying gas is collater
al for monthly payments to the Company under an Asset Purchase Agreement
secured by a mortgage. (See Note 3.)
<PAGE>
NOTE 7 - SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
The Company's oil and gas operations are conducted in the United States.
Information relating to these operations is summarized as follows:
Costs incurred in oil and gas activities
Year ended December 31,
-----------------------
1996 1995
---- ----
(In thousands)
Acquisition of undeveloped
leaseholds...................... $ - $ 1
Exploration costs................. 5 7
Development costs................. 85 163
Oil and gas reserves
The following quantity and value information is based on prices as of the
end of each respective reporting period. No price escalations were assumed
except for gas sales made under terms of contracts which include fixed and
determinable escalations. Operating costs and production taxes were deducted
in determining the quantity and value information. Such costs were estimated
based on current costs and were not adjusted to anticipate increases due to
inflation or other factors. No deductions were made for general overhead,
depreciation and interest.
The determination of oil and gas reserves is based on estimates and is
highly complex and interpretive. The estimates are subject to continuing
change as additional information becomes available and an accurate
determination of the reserves may not be possible for several years after
discovery.
Estimated quantities of proved oil and gas reserves
Following is a reconciliation of the Company's interest in net quantities
of proved oil and gas reserves. Proved reserves are the estimated quantities
of crude 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. Estimated
reserves of oil (barrels) and natural gas (thousands of cubic feet) as of
December 31, 1996 and 1995, and the changes thereto for the years then ended
were as follows:
<PAGE>
Oil (Bbls) Gas (Mcf)
---------- ---------
Total Proved Reserves: (In thousands)
Estimated quantity, December 31, 1994 553 1,485
Revisions in previous estimates...... 51 (624)
Production........................... (35) (55)
---- ----
Estimated quantity, December 31, 1995 569 806
Revisions in previous estimates...... (6) (130)
Production........................... (42) (49)
---- ----
Estimated quantity, December 31, 1996 521 627
==== ====
Proved developed reserves:
December 31, 1995 495 806
==== ====
December 31, 1996 446 627
==== ====
<PAGE>
Standardized measure of discounted future net cash flows and changes therein
relating to proved oil and gas reserves
Estimated discounted future net cash flows and changes therein were
determined in accordance with Statement of Financial Accounting Standards No.
69. Certain information concerning the assumptions used in computing the
valuation of proved reserves and their inherent limitations are discussed
below. Great Eastern believes such information is essential for a proper
understanding and assessment of the data presented.
Future cash inflows are computed by applying year-end prices of oil and
gas relating to Great Eastern's proved reserves to the year-end quantities of
those reserves.
The assumptions used to compute the proved reserve valuation do not
necessarily reflect Great Eastern's expectations of actual revenues to be
derived from those reserves nor their present worth. Assigning monetary values
to the reserve quantity estimation process does not reduce the subjective and
ever-changing nature of such reserve estimates.
Additional subjectivity occurs when determining present values because the
rate of producing the reserves must be estimated. In addition to errors
inherent in predicting the future, variations from the expected production rate
also could result directly or indirectly from factors outside Great Eastern's
control, such as unintentional delays in development, environmental concerns
and changes in prices or regulatory controls.
The reserve valuation assumes that all reserves will be disposed of by
production. However, if reserves are sold in place, additional economic
considerations also could affect the amount of cash eventually realized.
Future development and production costs are computed by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions.
Future income tax expense is not provided based on the availability of net
operating loss carryforwards.
A discount rate of 10 percent per year was used to reflect the timing of
the future net cash flows.
<PAGE>
December 31,
------------------
1996 1995
---- ----
(In thousands)
Future cash inflows....... $12,908 $11,031
Future production costs... (5,982) (4,767)
Future development costs.. (40) (60)
------- -------
Future net cash flows..... 6,886 6,204
10% annual discount for
estimated timing of
cash flows............... (3,062) (2,692)
-------- -------
Standardized measure of
discounted future net
cash flows............... $ 3,824 $ 3,512
======= =======
The following are principal sources of changes in the
standardized measure of discounted future net cash flows:
Year ended December 31,
-----------------------
1996 1995
---- ----
(In thousands)
Beginning balance............. $3,512 $3,440
Sales of oil and gas produced,
net of production costs...... (734) (402)
Net increase (decrease) in
prices and production costs.. 978 848
Changes in estimated future
development costs............ 20 (20)
Development costs incurred
during the year.............. 23
Revisions in previous
quantity estimates........... (172) (283)
Accretion of discount......... 351 344
Changes in rates of
production and other......... (131) (438)
------ ------
Ending balance................ $3,824 $3,512
====== ======
Oil and gas prices at December 31, 1996 of $22.72 per barrel of oil and
$1.68 per thousand cubic feet of gas were used in the estimation of the
Company's reserves and future net cash flows.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Items 9, 10, 11 and 12 are omitted because the Company will file a
definitive proxy statement (the "Proxy Statement") pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than 120 days after the
close of the fiscal year. The information required by such Items will be
included in the definitive proxy statement to be so filed for the Company's
annual meeting of stockholders scheduled for May 28, 1997 and is hereby
incorporated by reference.
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description of Document
- ------ ------------------------------------------------------------
3.1 Restated Articles of Incorporation of Great Eastern. (1)
3.2 Bylaws of Great Eastern. (1)
10.1 Stock Option plan of Great Eastern. (1)
10.2 Stock Options held by officers and directors of Great Eastern. (1)
10.3 Incentive Stock Option Plan of Great Eastern. (1)
10.4 Incentive Stock Options held by officers of Great Eastern. (1)
10.5 1984 Employee's Incentive Stock Option Plan of Great Eastern. (1)
10.6 1984 Incentive Stock Options held by officers and employees of Great
Eastern. (1)
11.1 Statement re: computation of per share earnings. (2)
22.1 List of subsidiaries. (3)
- ---------------------------------------------------------------------
(1) Incorporated by reference to the Company's registration statement #2-72232
on Form S-14 filed February 1, 1985.
(2) Included by reference to Item 7, Financial Statements, Note 1 of Notes to
Consolidated Financial Statements, Net income (loss) per share, of this
Form 10-KSB.
(3) Included by reference to Item 1, Description of Business, of this Form 10-
KSB.
- ---------------------------------------------------------------------
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter ended December
31, 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GREAT EASTERN ENERGY AND
DEVELOPMENT CORPORATION
Signature Title Date
/s/DONALD G. JUMPER Chief Executive Officer, March 28, 1997
Donald G. Jumper President, Chief Financial
and Accounting Officer and
Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
/s/DONALD G. JUMPER Chief Executive Officer, March 28, 1997 Donald G.
Jumper President, Chief Financial
and Accounting Officer and
Director
/s/ALEX G. CAMPBELL, JR. Chairman and Director March 28, 1997 Alex G.
Campbell, Jr.
/s/WILLIAM T. YOUNG, JR. Director March 28, 1997
William T. Young, Jr.
/s/JOHN I. CREWS, JR. Director March 28, 1997
John I. Crews, Jr.
/s/S. BUFORD SCOTT Director March 28, 1997
S. Buford Scott
/s/EDWARD S. BARR Director March 28, 1997
Edward S. Barr
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,580
<SECURITIES> 0
<RECEIVABLES> 696
<ALLOWANCES> 247
<INVENTORY> 0
<CURRENT-ASSETS> 2,052
<PP&E> 13,683
<DEPRECIATION> (11,414)
<TOTAL-ASSETS> 4,321
<CURRENT-LIABILITIES> 174
<BONDS> 29
<COMMON> 1,884
0
0
<OTHER-SE> 2,234
<TOTAL-LIABILITY-AND-EQUITY> 4,321
<SALES> 0
<TOTAL-REVENUES> 2,562
<CGS> 0
<TOTAL-COSTS> 2,053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 502
<INCOME-TAX> 0
<INCOME-CONTINUING> 502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
