U. S. Securities and Exchange Commission
Washington D. C. 20549
FORM 10-KSB
( ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
_____________
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File No. 0-11732
________
Appalachian Oil & Gas Company, Inc.
__________________________________
(Name of Small Business Issuer in its Charter)
UTAH 87-0382031
______ ____________
(State of Other Jurisdiction (IRS Employer I.D. No.)
of incorporation or organization)
511 Second Avenue North
Nashville, TN 37201
________________________
(Address of Small Business Issuer in its Charter)
Issuer's Telephone Number:
(615) 254-4789
_________________________
240 Mayfield Drive, Suite #106, Smyrna, TN 37617
________________________________________________
(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act.
Securities Registered under Section 12(g) of the Exchange Act:
Check whether the Issuer(l) 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.
(l) Yes X No (2) Yes X No
------ ----- ----- -----
Check if there is no disclosure of delinquent files in response to Item 40S
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
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10KSB. ( )
<PAGE>
State Issuer's revenues for its most recent fiscal year:________________
The Exhibit Index commences on page ____.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
June 30,1995. $ .12 There are approximately 3,235,795 shares of common
--- ----- -----------
voting stock of the Registrant held by non-affiliates.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 12 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
------ ------
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date:
____________ 1995
DOCUMENTS INCORPORATED BY REFERENCE
_____________________________________
A description of "Documents Incorporated by Reference" is contained in
Item 14 of this Report.
Transitional Small Business Issuer Format Yes__ No__
<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC.
INDEX
Page No.
Part I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a
Vote of Securities Holders. . . . . . . . . . . . . . . . 9
Part II
Item 5. Market for Registrant's Common
Equity and Related Matters. . . . . . . . . . . . . . . .10
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . .11
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations. . . . . . . . . . .11
Item 8. Financial Statements and Supplementary Data . . . . . . .12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . .28
Part III
Item 10. Directors and Executive Officers of the Registrant. . . .28
Item 11. Compensation. . . . . . . . . . . . . . . . . . . . . . .31
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . .31
Item 13. Certain Relationships and Related Transactions. . . . . .32
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 10-K. . . . . . . . . . . . . . . . . . .33
<PAGE>
PART I
Item 1 Business
______ ________
General
_______
In 1981, Dry Creek Exploration, Inc. ("Dry Creek"), the predecessor of
Appalachian Oil & Gas Company, Inc. (the "Company") was incorporated under the
laws of the State of Utah. Its purpose was to engage in the acquisition,
exploration and development of mineral properties. Dry Creek sold 1,165,000
shares of its Common Stock to its promoters for $.00214 per share, a total of
$2,500, and 2,500,000 shares of its Common Stock to other residents of the State
of Utah at $.01 per share, an aggregate of $25,000. Dry Creek subsequently
purchased from a non-affiliate ten (10) placer claims, each consisting of one
hundred sixty (160) acres located in Utah, for $20,000. Having substantially
depleted the funds obtained by Dry Creek from its public offering in the
purchase of the mining claims, and unable thereafter to raise the necessary
additional capital for, or to interest third parties in, the exploration of such
claims, Dry Creek conducted no substantive business activities until its
acquisition of assets from Ratliff Farms, Inc. ("Ratliff") and Universal Energy
and Exploration, Inc. ("Universal").
During May 1982, those in control of Dry Creek accepted a proposal from the
management of Ratliff and Universal, two (2) Tennessee corporations under the
common control of James W. Ratliff, whereby their individually owned shares were
acquired by James W. Ratliff and his affiliates and James W. Ratliff and persons
affiliated with him were appointed to the Board of Directors of Dry Creek.
On June 18, 1982, at a special meeting of Dry Creek's shareholders, and at
which, of the three million six hundred sixty-five thousand (3,665,000) shares
outstanding, two million forty-seven thousand (2,047,000) shares were
represented in person or by proxy, the following actions were approved: (I) the
name of the Company was changed to Appalachian Oil & Gas Company, Inc.; (ii) the
authorized Common Stock was increased from Fifty million (50,000,000) to one
hundred million (100,000,000) shares; (iii) the outstanding three million six
hundred sixty-five thousand (3,665,000) shares of Common Stock split on a two
for one basis; (iv) individuals who were officers, directors or affiliates of
Ratliff and/or Universal were elected to comprise the Company's Board of
Directors; and, (v) the Company was thereafter to purchase certain assets of
Ratliff and Universal as described in a brochure presented on behalf of the
sellers, in exchange for five million (5,000,000) shares of its Common Stock, on
a post split basis, subject to satisfying certain conditions relating to the
audit of such assets.
1
<PAGE>
At the time of purchase, Ratliff was a dormant corporation and Universal
was engaged in the acquisition and development of oil and gas properties. The
Company has continued some of the oil and gas operations so acquired.
From 1982 into late 1985 the Company's activities involved lease
acquisitions and the sale of interests in wells to be drilled on such leases.
Income was principally derived from the difference between the aggregate
purchase price obtained for the interests in a well sold to others and the
actual cost to drill and complete the particular well.
In December 1985, new directors were elected and they continued to drill
wells on developed leases. The Company also sought to increase its sales of
natural gas from wells in which it held interests.
On August 15, 1989, a group of shareholders filed a complaint for mandamus
and other relief pursuant to section 13D of the Securities and Exchange
Commission regulations to review the books and records of the company and
conduct a shareholders' meeting. This suit was filed in the Chancery Court of
Hamilton County, Tennessee. The Court upheld the complaint and allowed the
plaintiffs to review the books and conduct a shareholders' meeting. At that
time new Directors and Officers were elected by a meeting of the Shareholders.
The new management and directors exercised the best efforts to attempt to
rectify a situation of field wells that had gone into disrepair, wells that were
non-productive and field equipment that needed to be replaced or repaired. For
the year 1991 the shareholders elected Raymond Connelly as Chairman of the Board
and Director, Russell Ratliff as officer and Director, and Tyler Tait as
Secretary and Director.
In 1992 the shareholders elected Raymond Connelly as Chairman of the Board
of the Corporation, John R. (Jack) Tait as President/CEO and Director and his
son, Tyler Tait Secretary and Director.
In September 1992 at the annual meeting of the shareholders of the Company,
Barry L. Fly was elected as a Director of the corporation. In January 1993,
John R. Tait submitted his resignation as President and Director of the Company,
Tyler Tait submitted his resignation as Director/Secretary-Treasurer of the
Company, and Brent Anderson submitted his resignation as vice-president of the
Company.
2<PAGE>
In January 1993, upon the acceptance of the resignations of Messrs. Tait,
Tait and Anderson, the Board of Directors of the Company elected Mark S. Moore
and Brad L. Fly as Directors of the Corporation.
Barry L. Fly was elected Secretary of the corporation and Brad L. Fly was
elected as Treasurer of the corporation in January 1993.
In April 1993, William Goodwin accepted the position of President with the
Company. Mr. Goodwin resigned as President on February 22, 1994. On March 9,
1994, Mark S. Moore was elected President and CEO of the corporation by the
Board of Directors.
The Company moved its corporate offices on June 1, 1994, to 240 Mayfield
Drive, Suite #106, Smyrna, Tennessee 37167.
The Company had successfully gained approval of a plan of reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Kentucky. The plan was approved
by the Court in March 1992. In January 1993, the Company was able to
successfully satisfy all provisions of the confirmed plan by successfully
satisfying all unsecured debt according to the plan confirmed by the Untied
States Bankruptcy Court for the Southern District of Kentucky. The Corporation
also successfully made payments of $25,000 per month to the secured creditor,
Valley Bank of Sweetwater, Tennessee on a monthly basis according to the
confirmed plan of reorganization by the United States Bankruptcy Court.
The Company is primarily in the drilling of oil and gas wells, the sale of
gas and oil from wells of which it owns an interest, the sale of gas transported
for other companies and as the operator of certain wells in which the Company
has an interest.
For the past two years, the Company sales have been solely from the
production of Natural Gas. Oil production has been negligible.
Business
________
Drilling Program
________________
The Company has looked into several sites for drilling, but does not
have a drilling program in place as of June 30, 1995.
3
<PAGE>
KENTUCKY
Exploratory Gross Productive Wells Net Productive Wells
--------------- ------------------------ ----------------------
7/1/90-6/30/91 -0- .0000
7/1/91-6/30/92 -0- .0000
7/1/92-6/30/93 -0- .0000
7/1/93-6/30/94 -0- .0000
7/1/94-6/30/95 -0- .0000
Gross Dry Wells
------------------------
7/1/90-6/30/91 -0- .0000
7/1/91-6/30/92 -0- .0000
7/1/92-6/30/93 -0- .0000
7/1/93-6/30/94 -0- .0000
7/1/94-6/30/95 -0- .0000
Development Gross Productive Wells Net Productive Wells
- ----------------- ------------------------ ---------------------
7/1/90-6/30/91 -0- .0000
7/1/91-6/30/92 3 1.1500.
7/1/92-6/30/93 -0- .0000
7/1/93-6/30/94 2 .8438
7/1/94-6/30/95 -0- .0000
Gross Dry Wells Net Dry Wells
------------------------ ---------------------
7/1/90-6/30/91 -0- .0000
7/1/91-6/30/92 -0- .0000
7/1/92-6/30/93 -0- .0000
7/1/93-6/30/94 -0- .0000
7/1/94-6/30/95 -0- .0000
Production and Sale of Gas and Oil
__________________________________
The Company's natural gas is produced from wells located mainly in
Clay County, Kentucky.
4<PAGE>
For the fiscal year ending June 30, 1995, the company produced 212,149
MCF'S of natural gas. The Company's ownership interest in this production was
104,117 MCF'S.
The gas product of the Company is distributed through a natural gas
gathering system pipeline owned entirely by the Company that connects to the
Company's only customer and gas purchaser, Somerset Gas Services Utility. The
Company's gas product was sold for the fiscal year entirely to Somerset Gas
Services Utility under a written agreement. While generally the agreement
provides for gas sales upon stated terms at a stated price, the agreement does
provide for a price adjustment according to the NYMEX posted price of natural
gas.
Competition and Markets
_______________________
The competitive business conditions which affect the Company's
competitive position in the industry include the price of gas as determined by
supply and demand, the availability of gas from the Company and other
competitors, weather conditions, and the extremely high cost of the compression
and transportation of the gas that is required of the Company because of the
existing pressure conditions of the Company's sole purchaser, Somerset Gas
Services.
There are a large number of companies, partnerships and individuals
engaged in exploration, development and production of oil and gas properties in
the area including, but not limited to, Delta Gas, Wiser Oil Company, Petro
Flow, Incorporated, PXT, Incorporated, Southern Gas Company, Incorporated and
Midamco, Incorporated. The Company maintains a competitive position in the
industry as concerns the number of wells operated, drilled, number of MCF sold,
and the price for gas with the smaller companies in the area including PXT,
Incorporated, Petro Flow, Incorporated, and Midamco, Incorporated. The company
is presently not competitive with larger companies such as Wiser Oil Company,
Incorporated, Delta Gas, Incorporated, and Southern Gas Company.
Government Regulation
_____________________
Activities of the Company are regulated by several state and federal
agencies and by several state and federal acts. The Company is regulated by the
Environmental Protection Agency, the United States Forestry Service, the United
States Department of Agriculture, United States Bureau of Land Management,
Kentucky Public Service Commission, Kentucky Environmental Protection Agency-
Division of Water, and the Kentucky Bureau of Mines and Minerals. Specific acts
and statutes which govern the Company include the Federal Environmental
Protection Act, the Kentucky Environmental Protection Act and Clean Water and
Air Act, the Kentucky Public Service Commission Law Annotated, Kentucky revised
statutes Chapter 74, and the Commonwealth of Kentucky, Department of Mines and
Minerals permitting drilling operations and the approval of drilled wells for
production.
5<PAGE>
Government approval of the Company's operation is mandated pursuant to
the Kentucky Public Service Commission Law Annotated, Kentucky revised statutes
Chapter 74. The company has submitted its Operation and Maintenance Plan to
the Public Service Commission for approval. The Company has worked closely with
an independent contractor, formerly of the Public Service Commission, to develop
an Operating Management Plan and an Emergency Plan to successfully comply with
all Public Service Commission regulations. Such plans were approved by the
Public Service Commission.
While existing and probable governmental regulations on the business
are time consuming, the Company believes itself to be in compliance with all
regulations and that said compliance has not resulted in any significant expense
or competitive disadvantage to the Company.
Employees
_________
As of June 30, 1995, the Company employed four persons, namely Mark S.
Moore as President and CEO of the Company, Patsy Fly as Office Manager, Ray
Bray, Supervisor of Field Operations, and Jim Combs, Field Worker.
Item 2.
_______
Properties
__________
The following table sets forth the approximate gross and net acres of
undeveloped and developed oil and gas properties of the Company at June 30,
1994:
UNDEVELOPED
State Gross Acres Net Acres
__________ ___________ _________
Kentucky 1,100.00 908.00
TOTAL 1,100.00 908.00
6<PAGE>
DEVELOPED
State Gross Acres Net Acres
____________ _____________ ____________
Kentucky 2,910 2,206
TOTAL 2,910 2,206
The Company's oil and gas properties are located in Clay County in
Kentucky.
Oil and Gas Wells
_________________
The table below shows the number of the Company's gross and net oil
and gas wells as of June 30, 1995. Gross wells are the total number of wells in
which the Company owns a working interest, and net wells refer to the average of
the fractional net revenue interests owned by the Company in gross wells. Dry
holes are not included.
Total Total Oil Gas
State Gross Net Gross Net Gross Net
---------- --------- --------- --------- --------- --------- --------
Kentucky 30 57.245 0 .0000 30 57.245
A list of the wells purchased or drilled by the Company, indicating
the date of completion, the Company's working interest and net revenue interest,
whether the well was exploratory or developmental, oil or gas, and the status of
the well in Exhibit "99"(attached hereto).
Reserves
________
Richard M. Russell and Associates, consulting engineers of Nashville,
Tennessee, rendered an engineering evaluation as of June 30, 1995, of the
Company's interest in gas and oil properties. Reference is made to the
Supplementary Information for the year ended June 30, 1995, and year ended June
30, 1994, included in the approved oil and gas reserve quantities to the
accompanying Report on Audits of Financial Statements.
7<PAGE>
Production
__________
Average
Production
Net Production Average Sales Price Cost
________________ ___________________ _______________
7/1/93-6/30-94 127,204 $2.33 $.49 per MCF
7/1/94-6/30/95 104,117 $2.00 $.52 per MCF
Present Activities
__________________
There are no wells in the process of drilling at the present time.
Delivery Commitments
____________________
The Company has no obligations to provide a fixed or returnable
quantity of oil or gas under existing contracts or agreements.
Item 3. Legal Proceedings
_______ _________________
Federal Bankruptcy Court Filing
_______________________________
On February 1, 1991, the Company filed for relief under Chapter 11 of
the Federal bankruptcy laws in the United States Bankruptcy Court for the
Eastern District of Kentucky. The Court mandated that the Company management
continue operations as debtor-in-possession. On March 25, 1992, a plan of
reorganization was approved by the Court and implemented by Company management.
The plan required final payment to creditors on or before September 25, 1992.
Payment in full was made to all unsecured creditors in January 1993. Monthly
payments were made on a timely basis according to the provisions of the
confirmed plan to Valley Bank in Sweetwater, Tennessee, the only secured
creditor, in the amount of $25,000 per month until March 11, 1993, when the
indebtedness to Sweetwater Bank was satisfied in full by the payment of
$172,348.49, as a result of the re-financing of the Promissory Note to the bank
with private individuals. In 1994 the Company received a court order from the
United States Federal Bankruptcy Court in Kentucky fully dismissing the
bankruptcy case, in which the company was recognized as having fully completed
its obligations under the Chapter 11 Plan of Reorganization and successfully
received a full discharge of all obligations pursuant to the bankruptcy.
Goldeneye, Inc. and Clyde Fuller vs. Appalachian Oil & Gas Company, Inc.
________________________________________________________________________
The case was filed on August 17, 1993 seeking payment of royalties due
to the Leaseholder. The Operator paid under the terms of the contract and case
was dismissed on March 14, 1994 in Clay County Circuit Court, Kentucky.
8<PAGE>
State of Tennessee On the Relation of James E. Ables, et. al. vs. Appalachian
_____________________________________________________________________________
Oil & Gas Company, Inc. and Clyde M. Fuller.
____________________________________________
On August 15, 1989 the plaintiffs (Section 13-D Group) filed a
complaint for mandamus and other relief to be allowed to review the books and
records of the Company and conduct a shareholder meeting, and the defendants
(then Company management) moved for an Order to Restrain plaintiffs from
conducting an adjourned shareholders meeting on December 20, 1989 in Nashville,
Tennessee. The Defendants appealed the interlocutory denial of the request for
restraining order. On December 14, 1989 the court ordered then president Clyde
M. Fuller, to post a personal bond for $10,000.00 and should Court of Appeals
deny defendant's application, the bond shall be liable to pay plaintiffs (13-D
Group) their reasonable expenses with solicitation of proxies caused by staying
shareholders meeting of December 10, 1989 together with the costs of the appeal.
The Chancery Court, Hamilton County, Tennessee denied the appeal and taxed the
costs to defendant/Fuller.
On March 11, 1994, Clyde M. Fuller renewed his petition for release of
his personal bond of $10,000.00. Plaintiffs (then 13-D Group, now present
Company Management has simultaneously moved the Court to fix damages caused by
defendant in attempting to reverse Order of the Court for the sum of $24,176.47,
or alternatively to the extent of Mr. Fuller's bond.
On March 22, 1995, the Chancellor of the Chancery Court, Hamilton
County Court Tennessee ruled in favor of the petitioner, Clyde M. Fuller, and
released the personal bond of $10,000.00 to Mr. Fuller by court opinion.
Item 4. Submission of Matters to a Vote of Security Holders
_______ ___________________________________________________
The annual meeting of Shareholders of the Company was held on
September 12, 1992. In addition to the election of directors and the approval
of auditors, the Shareholders approved an amendment to the Articles of
Incorporation to increase the par value of the Common Stock of the Company from
one-tenth of a cent to one cent per share, with a resultant stock split of one
share of the new one cent par value common voting stock for each ten shares of
the old one-tenth of a cent par value common voting stock issued and
outstanding. Of the shares present at the annual meeting, 36,108,596 voted for
the amendment and 3,670 voted against it; no shares abstained. The Board of
Directors set the date for the reverse split as November 20, 1993.
9<PAGE>
On March 29, 1995 the annual meeting of the stockholders of
Appalachian Oil & Gas Company, Inc. was held at the company's corporate
headquarters, 240 Mayfield Drive, Suite #106, Smyrna, Tennessee 37167.
In addition to the election of directors and the approval of auditors,
the Shareholders approved changing of the state of incorporation from Utah to
the State of Tennessee. 1,401,330 shares presented at the meeting voted in
favor of these items and 20 shares voted against.
PART II
Item 5. Market for Registrant's Common Equity and Related Matters
_______ _________________________________________________________
Market Price of Common Stock
____________________________
The following over-the-counter market quotations reflect inter-dealer
prices, without retain markup, markdown or commission, and may not necessarily
represent actual transactions. The range of reported high and low bid
quotations was derived from a variety of sources, including quotations published
by the National Quotation Bureau, Inc. and other over-the-counter
broker/dealers.
For the Quarter Ended High Low
_____________________ ____ ____
September 30, 1994 .25 .062
December 31, 1994 2.00 .500
March 31, 1995 .44 .125
June 30, 1995 .44 .125
At June 30, 1995, the Company had approximately 750 shareholders of
record.
Dividends
_________
There have been no dividends declared since the date of the Company's
organization and no dividends are contemplated to be paid in the foreseeable
future. It will continue to be the Company's policy to expend any earnings in
developing its gas and oil business.
10
<PAGE>
Item 6 Selected Financial Data
______ _______________________
<TABLE>
<CAPTION>
6/30/95 6/30/94 6/30/93 6/30/92 6/30/91
_______________________________________________________
<S> <C> <C> <C> <C> <C>
Revenues $539,395 $721,179 $1,069,097 $531,966 $541,877
Income (Loss)
From Continuing
Operations ($197,130) $121,727 ($30,771) ($280,287) ($185,797)
Income (Loss)
from Continuing
Operations Per
Common Share (0.05) 0.04 (0.01) (0.17) (0.25)
Total Assets $633,533 $851,628 $790,615 $1,107,718 $874,912
Long-Term
Obligations $129,490 $166,242 $434,596 $593,49l $698,027
Cash Dividends
Declared N/A N/A N/A N/A N/A
</TABLE>
The significant increase in revenues and decrease in assets from June 30, 1992
to June 30, 1993 was due to the sale of the Hamlin Project in Nevada. The sales
proceeds were $317,153 and the cost (basis) was $317,763.
Item 7. Management's Discussion and Analysis of Financial Conditions
____________________________________________________________
and Results of Operations
_________________________
The following discussion should be read in conjunction with the
Financial Statements and their related notes, which are included elsewhere in
this report.
Plan of Operation
_________________
The Company plans to maintain the operation if its 30 gas wells and
continues to seek the highest price for its natural gas operation. There are no
immediate plans to drill additional wells.
11
<PAGE>
Results of Operations
_____________________
Expenses were relatively the same as the prior years with the
exception of two items. The company, however, hired two additional employees
which caused General and Administrative expense to increase significantly. The
company terminated a Joint Venture project with Midamco Company. the project
was to develop an extensive oil field located in Kentucky for which Midamco held
the leases. The company invested $109,000 in the Joint Venture but determined
it would not be economically feasible.
Due to the termination of the Midamco Joint Venture and the additional
salaries, the company's liquidity decreased from the prior year. The Board of
Directors intends to monitor the expenses closely in order to bring its
liquidity back up to a reasonable level. The company has no plans for major
capital expenditures.
Item 8. Financial Statements and Supplementary Data
_______ ___________________________________________
12<PAGE>
To the Board of Directors
Appalachian Oil & Gas Company, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheet of Appalachian Oil &
Gas Company, Inc. (a Utah Corporation) and its subsidiary as of June 30, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended June 30, 1995, 1994 and 1993. Our
audits also included the financial statement schedules listed in the Index at
Item 8. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Appalachian Oil & Gas Company,
Inc., and its subsidiary, as of June 30, 1994 and 1993, and the results of their
operations and their cash flows for the years ended June 30, 1995, 1994 and
1993, in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth herein.
/S/ York, Neel & Company LLP
Hopkinsville, Kentucky
April 24, 1996
13<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1995 and 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,602 $ 66,602
Accounts receivable - trade 72,648 82,166
------------ ------------
Total current assets 85,250 148,768
Property and equipment:
Oil-and gas properties 626,095 697,692
Other property and equipment 747,053 756,271
------------ ------------
1,373,148 1,453,963
Less accumulated depreciation,
depletion and amortization 824,865 753,103
------------ ------------
548,283 700,860
------------ ------------
Other assets - 2,000
------------ ------------
$ 633,533 $ 851,628
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 32,628 $ 28,780
Notes payable - related parties 138,500 72,500
Accounts payable:
Trade 24,674 26,841
Royalties 44,193 51,507
Transported gas 51,418 59,163
Related parties - 68,306
Accrued expenses 5,352 5,655
------------ ------------
Total current liabilities 296,765 312,752
Long term debt less current portion 96,862 137,462
Minority interest - 70,000
------------ ------------
393,627 520,214
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share,
100,000,000 shares authorized, 3,235,795
shares issued and outstanding 32,358 32,358
Additional paid in capital 1,813,342 1,813,342
Retained deficit (1,605,794) (1,514,286)
------------ ------------
Total stockholders' equity 239,906 331,414
------------ ------------
$ 633,533 $ 851,628
============ ============
</TABLE>
The accompanying notes are an
integral part of the consolidated financial statements.
14<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the years ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 531,943 $ 568,741 $ 564,926
Sale of oil and gas leases - - 317,153
Drilling programs 2,418 131,932 181,000
Other 5,034 20,506 6,828
------------ ------------ ------------
539,395 721,179 1,069,907
------------ ------------ ------------
Costs and expenses:
Cost of oil and gas leases sold - - 317,763
Cost of drilling programs - 120,000 98,668
Well abandonments/impairments 121,853 - 24,563
Other operating expenses 220,135 172,792 296,803
Depreciation, depletion and
amortization 83,245 91,744 98,044
Interest 24,368 32,249 59,256
Loss on sale of property and
equipment 11,545 717 1,749
General and administrative 275,379 181,950 203,832
------------ ------------ ------------
736,525 599,452 1,100,678
------------ ------------ ------------
Net income (loss) before
minority interest (197,130) 121,727 (30,771)
Minority interest 2,378 - -
------------ ------------ ------------
Income (loss) before income
taxes and extraordinary item (199,508) 121,727 (30,771)
------------ ------------ ------------
Income taxes:
Current tax expense - 30,724 -
Benefits of operating loss
carryforwards (36,700) (30,724) -
------------ ------------ ------------
(36,700) - -
------------ ------------ ------------
Income (loss) before extraordinary item (162,808) 121,727 (30,771)
Extraordinary item, net of income
taxes of $36,700 71,300 - -
------------ ------------ ------------
Net income (loss) $ (91,508) $ 121,727 $ (30,771)
============ ============ ============
Income (loss) per share:
Income (loss) before extraordinary
item $ (0.05) $ 0.04 $ (0.01)
============ ============ ============
Extraordinary item $ 0.02 $ - $ -
============ ============ ============
Net income (loss) $ (0.03) $ 0.04 $ (0.01)
============ ============ ============
</TABLE>
The accompanying notes are an
integral part of the consolidated financial statements.
15<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional
Common Paid-ln Retained
Shares Stock Capital Deficit Total
----------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at
June 30, 1992 4,189,995 $ 41,900 $ 1,743,676 $(1,605,242) $ 180,334
Common shares
issued 12,404 124 - - 124
Net loss for
the year ended
June 30, 1993 - - - (30,771) (30,771)
----------- --------- ------------ ------------ ----------
Balance at
June 30, 1993 4,202,399 42,024 1,743,676 (1,636,013) 149,687
Common stock
canceled (1,026,604) (10,266) 10,266 - -
Common stock
issued 60,000 600 59,400 - 60,000
Net income for
the year ended
June 30, 1994 - - - 121,727 121,727
----------- --------- ------------ ------------ ----------
Balance at
June 30, 1994 3,235,795 32,358 1,813,342 (1,514,286) 331,414
Net loss for the
year ended
June 30, 1995 - - - (91,508) (91,508)
----------- --------- ------------ ------------ ----------
Balance at
June 30, 1995 3,235,795 $ 32,358 $ 1,813,342 $(1,605,794) $ 239,906
=========== ========= ============ ============ ==========
</TABLE>
The accompanying notes are an
integral part of the consolidated financial statements
16
<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (91,508) $ 121,727 $ (30,771)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion & amortization 83,245 91,743 98,044
Well abandonments and impairments 121,853 - 24,563
Loss on sale of property and equipment 11,545 717 1,749
Minority interest 2,378 - -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 9,518 (32,663) 10,022
Prepaid expenses - - 800
Increase (decrease) in:
Accounts payable (85,532) 39,302 (14,748)
Accrued expenses (303) (2,162) (52,263)
Drilling advances - (32,000) (60,550)
---------- ---------- ----------
Net cash provided by (used in)
operating activities 51,196 186,664 (23,154)
---------- ---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (11,810) (4,415) (133,553)
Proceeds from sale of property and equipment - 4,000 193,687
Purchase of oil and gas properties (11,550) (94,450) -
Investment in joint venture (109,000) - -
Increase in other assets - (2,000) -
---------- ---------- ----------
Net cash provided by (used in)
investing activities (132,360) (96,865) 60,134
---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from notes payable 73,500 - 82,000
Principal payments on notes payable (7,500) (9,500) -
Proceeds from long-term debt - 173,000 -
Principal payments on long-term debt (36,751) (359,354) (240,895)
Common stock issued - 60,000 124
Dividends paid (2,085) - -
Minority interest capital contribution - 70,000 -
---------- ---------- ----------
Net cash provided by (used in)
financing activities 27,164 (65,854) (158,771)
---------- ---------- ----------
Increase (decrease) in cash and
cash equivalents (54,000) 23,945 (121,791)
Cash and cash equivalents,
beginning of year 66,602 42,657 164,448
---------- ---------- ----------
Cash and cash equivalents,
end of year $ 12,602 $ 66,602 $ 42,657
========== ========== ==========
</TABLE>
The accompanying notes are an
integral part of the consolidated financial statements.
17<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Significant accounting policies of the Company are as follows:
a. Principles of Consolidation
The consolidated financial statements include the accounts of Appalachian
Oil & Gas Company, Inc. (AOGI) and its subsidiary, TKGC #1 Limited Partnership.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
b. Business Activity and Major Customers
AOGI and its subsidiary operates in primarily one business segment, which
is the acquisition, exploration and development of oil and gas properties. The
Company's oil and gas properties are located in Clay County, Kentucky. The
majority of all gas sales are made to one customer in south-central Kentucky.
c. Cash and Cash Equivalents
Cash includes amounts on hand and in financial institutions. Cash
equivalents include all highly liquid investments with an original maturity of
three months or less when purchased.
d. Allowance for Losses
AOGI uses the specific write-off method to provide for doubtful accounts
since experience and management's estimation indicates an adequate allowance for
such accounts is immaterial.
e. Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil and
gas producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves, geological and geophysical costs, and
costs of carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment are depreciated over
their estimated useful lives.
Continued
18<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
e. Oil and Gas Properties, Continued
The costs associated with dismantlement and site restoration are considered
immaterial based on past history of AOGI.
On the sale or retirement of a complete unit of a proved property, the cost
and related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
f. Income Taxes
Deferred income taxes are provided for significant temporary differences in
recognition of revenues and expenses for financial reporting and income tax
reporting purposes.
For Federal income tax purposes, the Company deducts certain exploration
and developmental costs, which are capitalized and amortized for financial
reporting purposes. The Company uses statutory depletion for income tax
reporting.
Investment tax credits are accounted for as a reduction of income tax
expense in the year taxes payable are reduced.
g. Minority Interest
Effective April 15, 1994, AOGI acquired 53.35 percentage interest in the
TKGC #1 Partnership for $28,000 in cash and a partial assignment of an oil and
gas farm out agreement. The acquisition was accounted for as a purchase.
AOGI's 53.35 percentage interest requires that TKGC #1's operations be
included in the consolidated financial statements. The remaining interest
(46.65%) is shown as "minority interest" in the June 30, 1994 consolidated
balance sheet. TKGC #1 did not have any operations as of June 30, 1994. April 1,
1995, the TKGC #1 Partnership was dissolved with each partner receiving their
percentage ownership in two oil and gas wells.
Continued
19<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
h. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
I. Environmental Costs
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Liabilities are recorded when environmental
assessments are probable and the amounts can be reasonably estimated.
2. Property and Equipment
<TABLE>
<CAPTION>
A summary of property and equipment is as follows:
1995 1994
---------- ----------
<S> <C> <C>
Proved oil and gas properties $ 626,095 $ 697,692
Less accumulated depreciation,
depletion and amortization 419,503 405,631
---------- ----------
206,592 292,061
---------- ----------
Land 14,810 4,000
Gas gathering system 490,834 490,834
Machinery and equipment 206,536 221,913
Office furniture and equipment 34,873 39,524
---------- ----------
Other property and equipment 747,053 756,271
Less accumulated depreciation 405,362 347,472
---------- ----------
341,691 408,799
---------- ----------
Net property and equipment $ 548,283 $ 700,860
========== ==========
</TABLE>
AOGI incurred depreciation expense of $67,373, $72,879 and $72,558 for the years
ended June 30, 1995, 1994 and 1993, respectively.
Continued
20<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Long-Term Debt
At June 30, 1995 and 1994, long-term debt consisted of the following item:
<TABLE>
1995 1994
---------- ----------
<S> <C> <C>
Note payable to an individual, monthly
payments of $3,676, interest rate 10.0%,
due March, 1999, collateral - all assets
of the Company $ 129,490 $ 166,242
Less current portion of long-term debt 32,628 28,780
---------- ----------
$ 96,862 $ 137,462
========== ==========
</TABLE>
The Company's long-term debt payments are estimated to be repayable annually as
set forth in the following schedule:
<TABLE>
<C> <C>
June 30, Amount
1996 $ 32,628
1997 36,045
1998 39,819
1999 20,998
----------
$ 129,490
==========
</TABLE>
4. Common Stock
During the year ended June 30, 1993, 12,404 shares of common stock were
issued. These shares were stock options that were exercised. As of June 30,
1993, there were outstanding stock options, however, the options were not
exercised.
Effective July, 1993, the Company canceled 1,026,604 shares of common stock
that had been outstanding. The shares were voluntarily returned to the Company
with no cost to the Company.
The Company executed a one for ten reverse split of the outstanding shares
of common stock. This transaction was done in order to raise the price per share
of common stock. The effective date of the one for ten reverse split was
November 20, 1993. The one for ten reverse split was retroactively applied, so
all years presented reflect the reverse split.
Continued
21<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income Taxes
At June 30, 1995, the Company had net operating loss and investment tax
credit carryforwards for income tax purposes of approximately $1,394,000 and
$30,000, respectively, which expire on or before June 30, 2007. For financial
reporting purposes, a valuation allowance of $484,160 has been recognized to
offset the deferred tax assets related to these items
The net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes are reflected in deferred income taxes. Significant
components of the Company's deferred tax assets and liabilities as of June 30,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 473,960 $ 443,360
Investment tax credit 10,200 10,200
Related party expenses - 23,200
---------- ----------
Total deferred tax assets 484,160 476,760
Valuation allowance for
deferred tax assets (484,160) (476,760)
---------- ----------
- -
Deferred tax liabilities - -
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
6. Commitments and Contingencies
During the year ended June 30, 1993, AOGI sold its rights to the leases
associated with the Hamlin project located in Nevada. If the current owner of
those leases fails to complete the drilling of a well on that property, the
leases revert back to AOGI. There is potential for liability if the leases
revert back to AOGI. However, such liability cannot be estimated. Management
believes it is unlikely for the leases to revert back to AOGI. No liability has
been recorded for this contingency.
AOGI is exposed to risks of future material loss related to torts; theft
of, damage to, expropriation of, or destruction of assets; business
interruption, errors or omissions; or acts of God and those risks have not been
transferred to unrelated third parties through insurance.
Continued
22<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Related Party Transactions
At June 30, 1995 and 1994, the Company had notes payable to several Company
stockholders for $138,500 and $72,500, respectively. These notes are unsecured
and payable on demand with interest due monthly at rates that range from 6.0% to
10.0%.
The statement of operations includes the following transactions with
related parties:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Oil and gas sales to Intrastate
Energy Corporation of Tennessee $ - $ - $ 1,394
</TABLE>
Included in accounts payable related parties at June 30, 1994 are unpaid
directors' fees of $68,306. These director fees were waived by the board of
directors subsequent to June 30, 1995. See footnote 8.
8. Extraordinary Item
Subsequent to June 30, 1995, the board of directors voted to waive all past
director fees that were accrued but not paid. As of June 30, 1995, such fees
amounted to $108,000. For purposes of the statement of cash flows this is a
non-cash transaction.
9. Statement of Cash Flows Disclosures
AOGI paid $23,014, $32,155 and $60,546 in interest during the years ended
June 30, 1995, 1994 and 1993, respectively.
As shown in footnote 4, AOGI canceled 1,026,604 shares of common stock.
This was a non-cash transaction that decreased common stock by $10,266 and
increased additional paid in capital by the same amount. Also, AOGI executed a
one for ten reverse split of the outstanding shares of common stock during the
year ended June 30, 1994. This was also a non-cash transaction.
10. Earnings (Loss) Per Share
Earnings (loss) per share are based on the weighted average number of
shares outstanding of 3,235,795, 3,247,408, and 4,198,747 for the years ended
June 30, 1995, 1994 and 1993, respectively. Stock options were not considered in
the computation of the weighted average number of shares outstanding for the
year ended June 30, 1993 because the options would have been antidilutive.
Continued
23<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Earnings (Loss) Per Share, Continued
The weighted average number of shares outstanding was computed as follows:
<TABLE>
<CAPTION>
Change in
Shares Shares Days
Outstanding Outstanding Outstanding
------------ ------------ ------------
<S> <C> <C> <C>
For the year ended June 30, 1993:
July 1, 1992 4,189,995 69
September 8, 1992 shares sold 4,894 4,194,889 62
November 9, 1992 shares sold 7,428 4,202,317 140
March 29, 1993 shares sold 82 4,202,399 94
-----
365
For the year ended June 30, 1994:
July 1, 1993 4,202,399 21
July 22, 1993 shares canceled (1,026,604) 3,175,795 267
April 15, 1994 shares sold 50,000 3,225,795 4
April 19, 1994 shares sold 10,000 3,235,795 73
----- 365
=====
For the year ended June 30, 1995:
July 1, 1994 3,235,795 365
=====
</TABLE>
11. Subsequent Event
Effective March 27, 1996, AOGI sold 60% of their operating assets and 60%
of their well interests for $427,550. The company that purchased the assets
began operating and managing the majority of AOGI's wells as of February 1,
1996. AOGI incurred a capital gain from this sale of approximately $197,000.
24
<PAGE>
SUPPLEMENTAL INFORMATION<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
SUPPLEMENTAL INFORMATION (Unaudited)
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Capitalized Costs Relating to Oil and Gas Producing Activities
at June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Unproved oil and gas properties $ - $ - $ -
Proved oil and gas properties 626,095 697,692 686,415
Support equipment and facilities 712,180 716,747 721,951
----------- ----------- -----------
1,338,275 1,414,439 1,408,366
Less accumulated depreciation,
depletion and amortization 793,433 718,992 715,961
----------- ----------- -----------
Net capitalized costs: $ 544,842 $ 695,447 $ 692,405
=========== =========== ===========
<CAPTION>
Costs Incurred in Oil and Gas Producing Activities
for the years ended June 30, 1995, 1994 and 1993
1995 1994 1993
----------- ----------- -----------
Property acquisition costs:
Proved $ - $ 94,450 $ -
Unproved - - -
Exploration and development - - -
----------- ----------- -----------
$ - $ 94,450 $ -
=========== =========== ===========
</TABLE>
25<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
SUPPLEMENTAL INFORMATION (Unaudited)
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Proved Oil and Gas Reserve Quantities
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only, and
do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable ln future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses (based on year-end statutory
tax rates, with consideration of future tax rates already legislated) to be
incurred on pretax net cash flows less tax basis of the properties and available
credits, and assuming continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of 10 percent a
year to reflect the estimated timing of the future cash flows.
<TABLE>
<CAPTION>
1995 1994 1993
Gas (MCF) Gas (MCF) Gas (MCF)
----------- ----------- -----------
<S> <C> <C> <C>
Proved developed reserves:
Beginning of year 1,647,830 1,994,239 2,482,389
Revisions of previous estimates 113,065 (349,507) (616,400)
Extensions and discoveries 98,009 130,302 326,469
Production (104,117) (127,204) (198,219)
----------- ----------- -----------
End of year 1,754,787 1,647,830 1,994,239
=========== =========== ===========
</TABLE>
26<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
SUPPLEMENTAL INFORMATION (Unaudited)
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Standardized Measure of Discounted Future Net Cash Flows
at June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Future cash inflows $3,649,959 $4,003,046 $3,992,354
Future production and
development costs (1,038,940) (979,911) (904,881)
Future income tax expenses (403,586) (551,186) (606,041)
----------- ----------- -----------
Future net cash flows 2,207,433 2,471,949 2,481,432
10% annual discount for
estimated timing of cash flows (1,065,749) (1,198,648) (1,282,409)
----------- ----------- -----------
Standardized measure of
discounted future net cash
flows relating to proved oil
and gas reserves $1,141,684 $1,273,301 $1,199,023
=========== =========== ===========
</TABLE>
The following reconciles the change in the standardized measure of discounted
future net cash flow for the years ended June 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Beginning of year $1,273,301 $1,199,028 $1,963,327
Sales of oil and gas produced,
net of production costs (74,798) (113,185) (148,880)
Net changes in prices and
production costs (321,940) 255,691 (67,732)
Extensions, discoveries and
improved recovery, less
related costs 70,410 115,225 245,196
Revisions of previous quantity
estimates 81,227 (310,988) (462,972)
Accretion of discount 127,330 119,903 196,333
Net change in income taxes 71,261 26,599 238,113
Changes in production rates
(timing) and other (85,107) (18,972) (764,357)
----------- ----------- -----------
End of year $1,141,684 $1,273,301 $1,199,028
=========== =========== ===========
</TABLE>
27
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
___________________________________________________________
and Financial Disclosure
________________________
The Board of Directors again for the third year chose to employ York
Neel & Company, Certified Public Accountants, to prepare the Auditor's Report of
Financial Statements and all other accounting information for the Company.
There were no disagreements with the Accountants.
PART III
Item 10. Directors and Executive Officers of the Registrant
________ __________________________________________________
The following list sets forth the names and ages of all Directors and
Executive Officers of the Company, indicates the position held by each and their
length of service.
<TABLE>
<CAPTION>
Name Position Assumed Office
_________________________ ____________________ ___________________
<S> <C> <C>
Raymond A. Connelly Director/ April, 1990
Age 62 Chairman
Barry L. Fly Director/ September, 1992
Age 39 Secretary
Brad L. Fly Director/ January, 1993
Age 38 Treasurer
Mark S. Moore Director/Chief January, 1993
Age 39 Executive Officer/
President
</TABLE>
The following is a brief resume of the business experience of the
Company Directors and Officers.
Raymond A. Connelly
___________________
Mr. Connelly is a self-employed businessman. He has been involved in
limited partnerships promoting oil and gas development since 1985. He is
President and CEO of First Place Corporation and President of Central Paint and
Body Shop in Nashville, Tennessee. He has been a Director and Officer of the
Company since 1989. Mr. Connelly, for the last five years, has had business
experience in the areas of oil and gas serving as an officer and director of
Appalachian Oil & Gas, Inc., in the repair of automobiles and sale of automobile
parts.
28
<PAGE>
Barry L. Fly
____________
Dr. Fly has been Secretary and Director of the company since
September, 1992. Dr. Fly is self-employed as a partner in the Nolensville
Veterinary Clinic in Nolensville, Tennessee, and has been an investor in the
company for approximately four years. Dr. Fly is the brother of Brad L. Fly.
For the past five years Dr. Fly has had expertise in the area of Veterinary
medicine.
Brad L. Fly
___________
Dr. Fly has been Treasurer/Director of the Corporation since January
1993. Dr. Fly is self-employed as a partner in the Nolensville Veterinary
Clinic in Nolensville, Tennessee, and has been an investor in the Company for
approximately four years. Dr. Fly is the brother of Barry L. Fly. For the past
five years Dr. Fly has had expertise in the area of Veterinary medicine.
Mark S. Moore
_____________
Mr. Moore is an attorney licensed to practice in the state of
Tennessee. Mr. Moore was appointed to the position of Director by the Board of
Directors in January 1993, and has been an investor in the Company for
approximately two years. Mr. Moore was appointed President of the Company by
the Board of Directors on March 9, 1994. For the past five years Mr. Moore has
had expertise in the area of law having maintained an active practice of law in
the State of Tennessee.
Except as indicated below and to the knowledge of management, during
the past five years, no present or former director, person nominated to become a
director, executive officer, promoter or control person of the company:
(1) Was a general partner or executive officer of any business
by or against which any bankruptcy petition, was filed,
whether at the time of such filing or two years prior thereto;
(2) Was convicted in a criminal proceeding or named the
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
29<PAGE>
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court,
of competent jurisdiction, permanently or temporarily
enjoining him from or otherwise limiting, the following
activities:
(I) Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker leverage
transaction merchant, associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in connection with
such activity;
(ii) Engaging any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of federal or state
securities laws or federal commodities laws;
(4) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or
state authority barring, suspending or otherwise limiting for
more than 60 days the right of such person to engage in any
activity described above under this Item, or to be associated
with persons engaged in any such activity;
(5) Was found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission to have violated any
federal or state securities law, and the judgment in such civil
action or finding by the Securities and Exchange Commission has
not been subsequently reversed, suspended, or vacated.
(6) Was found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated
any federal action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
30<PAGE>
Item 11. Compensation
________ ____________
Annual Compensation Paid to Officers and Directors for Fiscal Year
__________________________________________________________________
<TABLE>
Name & Other Securities
Princi- Annual Restricted Underlying LTIP
pal Fiscal Salary Bonus Compen- Stock Options/ Payouts
Position Year ($) ($) sation($) Awards($) SARs(#) ($)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ray S.
Connelly 1995 -0- -0- $2,077 -0- -0- -0-
Barry L.
Fly 1995 -0- -0- $2,077 -0- -0- -0-
Brad L.
Fly 1995 -0- -0- $2,077 -0- -0- -0-
Mark S.
Moore 1995 $68,783 -0- $2,077 -0- -0- -0-
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
________ ______________________________________________________________
The following sets forth, as of June 30, 1995, certain information
regarding ownership of the common stock of the Company by (I) all persons
known by the Company to be the beneficial owners of as much as five percent
(5%) of the outstanding common stock of the company, (ii) each Officer and
Director and (iii) all Officers and Directors as a group.
31<PAGE>
<TABLE>
<CAPTION>
Title of Class Name and Amount and Percent of Class
Address of
Beneficial
Owner
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Raymond Connelly
511 2nd Ave. No. (FN-1)
Nashville, Tennessee 744,066 17.7
Common Stock Aymkone PTY,LTD
Sydney, Australia 750,000 17.8
Common Stock Industrial Resources, Inc.
Knoxville, Tennessee 240.000 5.7
Common Stock Barry L. Fly
7204 Nolensville Road
Nolensville, Tennessee 133,333 2.3
Common Stock Brad L. Fly
7204 Nolensville Road
Nolensville, Tennessee 110,000 2.3
Common Stock Mark S. Moore
240 Mayfield Drive #106
Smyrna, TN 37167 50,000 1.1
</TABLE>
The Company's directors and executive officers as a group (4) owned a total
of 1,037,399 shares of the Company's common stock, or approximately 23.4% of the
outstanding voting securities of the Company.
___________
(FN-1) Includes 7,226,667 (17.1%) owned by First Place Corporation of
Nashville, Tennessee. Mr. Connelly is President of First Place Corporation.
Changes In Control
__________________
There are no arrangements contemplated at the present time which may result
in the change in control of the small business issuer.
Item 13. Certain Relationships and Related Transactions
________ ______________________________________________
Raymond Connelly, Director and Chairman of the Board of the Company,
is an Officer and Shareholder of First Place Corporation. First Place
Corporation owns 7,226,667 shares of Common Stock.
There were no material transactions, or series of similar
transactions, during the Company's last three calendar years, or any currently
proposed transactions, or series of similar transactions, to which the Company
or any of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000, and in which any promoter or founder or any member of the
immediate family of any of the foregoing persons, had an interest.
32<PAGE>
There were no reports required by Section 16 (a) that were not filed
on a timely basis.
Item 14. Exhibits and Financial Statement Schedules
________ __________________________________________
A1. Financial Statement Schedules for the year ended June 30, 1995,
June 30, 1994, and June 30, 1993.
(I) Schedule IV, Indebtedness to Related Parties
(ii) Schedule V, Property and Equipment.
(iii) Schedule VI, Accumulated Depreciation, Depletion and
Amortization of Property and Equipment.
(iv) Schedule X, Supplementary Income Statement Information.
B 1. Exhibits.
99 List of Kentucky Wells and Company Ownership Interest
Attached
33
<PAGE>
Schedule IV
___________
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
INDEBTEDNESS TO RELATED PARTIES
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End
of Year Additions Deductions of Year
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Year Ended June 30, 1995:
Mark Moore $ 27,500 $ - $ - $ 27,500
Richard Daverman 30,000 43,500 7,500 66,000
Other stockholders 15,000 30,000 - 45,000
__________ __________ __________ __________
$ 72,000 $ 73,500 $ 7,500 $138,500
========== ========== ========== ==========
Year ended June 30, 1994:
Mark Moore $ 30,000 $ - $ 2,500 $ 27,500
Richard Daverman 31,000 - 1,000 30,000
Other stockholders 21,000 - 6,000 15,000
__________ __________ __________ __________
$ 82,000 $ - $ 9,500 $ 72,500
========== ========== ========== ==========
</TABLE>
The amounts above were borrowed from stockholders in order for the Company to
pay off the bankruptcy settlement and have adequate operating funds. As of June
30, 1995 and 1994, the above notes are considered current liabilities.
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End
Of Year Additions Deductions of Year
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Year ended June 30, 1995:
Tim and Nancy Young $166,242 $ - $ 36,752 $129,490
Year ended June 30, 1994:
Tim and Nancy Young $ - $173,000 $ 6,758 $166,242
</TABLE>
The above long-term debt was incurred to pay off a note with a financial
institution. Tim and Nancy Young are stockholders of AOGI. By refinancing
AOGI's monthly payment decreased from $25,000 per month to $3,676 per month.
This was done by extending the payment period.
34<PAGE>
Schedule V
____________
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions at End
Classification of Year at Cost Retirement of Year
___________________________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Year ended June 30, 1995:
Oil and gas properties $ 697,692 $ 11,500 $ 83,147 $ 626,095
Other property and
equipment 756,271 11,810 21,028 747,053
___________ ___________ ___________ ___________
$1,453,963 $ 23,360 $ 104,175 $1,373,148
=========== =========== =========== ===========
Year ended June 30, 1994:
Oil and gas properties $ 686,415 $ 94,450 $ 83,173 $ 697,692
Other property and
equipment 760,180 4,415 8,324 756,271
___________ ___________ ___________ ___________
$1,323,586 $ 362,207 $ 239,198 $1,446,595
=========== =========== =========== ===========
</TABLE>
35<PAGE>
Schedule VI
____________
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions at End
Classification of Year at Cost Retirement of Year
___________________________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Year ended June 30, 1995:
Oil and gas properties $ 405,631 $ 13,872 $ - $ 419,503
Other property and
equipment 347,472 67,373 9,483 405,362
___________ ___________ ___________ ___________
$ 753,103 $ 81,245 $ 9,483 $ 824,865
=========== =========== =========== ===========
Year ended June 30, 1994:
Oil and gas properties $ 469,939 $ 18,865 $ 83,173 $ 405,631
Other property and
equipment 278,200 72,878 3,606 347,472
___________ ___________ ___________ ___________
$ 748,139 $ 91,743 $ 86,779 $ 753,103
=========== =========== =========== ===========
Year ended June 30, 1993:
Oil and gas properties $ 419,890 $ 50,049 $ - $ 469,939
Other property and
Equipment 249,404 72,558 43,762 278,200
___________ ___________ ___________ ___________
$ 669,294 $ 122,607 $ 43,762 $ 748,139
=========== =========== =========== ===========
</TABLE>
36<PAGE>
Schedule X
__________
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Charged to Costs and Expenses
For the Years Ended June 30,
<TABLE>
<CAPTION>
1995 1994 1993
___________ ___________ ___________
<S> <C> <C> <C>
Maintenance and repairs $ 89,920 $ 36,743 $ 23,103
Severance and property
taxes $ 30,638 $ 20,401 $ 32,941
</TABLE>
37
<PAGE>
Exhibit 99
Attached
38<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
09-05-96 /S/ Raymond A. Connelly
____________________ _______________________________
Date Signature
Chairman and Director
09-05-96 /S/ William R. Jones
____________________ _______________________________
Date Signature
Secretary/Director
09-05-06 /S/ William R. Jones
____________________ _______________________________
Date Signature
Treasurer/Director
09-05-96 /S/ Raymond A. Connelly
____________________ _______________________________
Date Signature
President/CEO/Director
39
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000732814
<NAME> APPALACHIAN OIL & GAS COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 99
__________
KENTUCKY
________
Exploratory % %
Drilling of AOGI Ownership
Well Name Completed Developmental O/G WI NRI Status
____________________ _________ _____________ ___ ______ _________ ______
<S> <C> <C> <C> <C> <C> <C>
Bonnie L. Smith 10/19/83 Exp. G 76.375 59.573 Prod.
Napier-Fordson #1 (FN-1) 11/23/93 Exp. G 58.464 49.000 Prod.
Napier-Fordson #1B 12/31/83 Exp. G 94.949 78.627 Prod.
Combs-Scully #1 01/02/84 Exp. G 30.000 29.640 Prod.
Fordson #3 (FN-1) 04/05/84 Exp. G 95.000 76.000 Prod.
Fordson #4 06/16/84 Exp. G 68.085 52.400 Prod.
Napier #1 07/08/84 Exp. G 58.464 49.000 Prod.
Fordson #2 (FN-2) 08/15/84 Exp. G 66.500 52.400 SIGW
Fordson #8 09/01/84 Exp. G 60.000 47.200 Prod.
Fordson #6 (FN-1) 09/26/84 Exp. G 13.900 9.520 Prod.
Robert Roberts #1 11/20/84 Exp. G 45.000 34.453 Prod.
Pearl Collins #1 (FN-2) 12/21/84 Exp. G 50.000 52.257 SIGW
Brandt-Day #1 04/26/85 Exp. G 94.340 82.550 Prod.
Dee Collins #1 06/11/85 Exp. G 95.050 77.408 Prod.
Twila Hicks #1 07/18/85 Exp. G 48.000 38.764 Prod.
Maude Williams #1 10/19/85 Exp. G 75.000 60.484 Prod.
Robert Roberts #2 01/29/86 Dev. G 97.000 73.202 Prod.
Mendal Day #1 03/26/86 Dev. G 95.000 83.125 Prod.
James Ray #2B 10/15/86 Dev. G 75.000 81.923 Prod.
Maude Williams #6 (FN-2) 03/26/87 Dev. G 76.000 70.546 SIGW
James E. Ray #3 05/25/87 Dev. G 95.000 78.188 Prod.
Twila Hicks #2 04/22/87 Dev. G 89.450 73.225 Prod.
Dee Collins #2 07/15/87 Dev. G 91.350 75.367 Prod.
Pearl Collins #2 (FN-3) 04/06/92 Dev. G 14.806 37.015 Prod.
Conrad Abner #1 04/22/94 Dev. G 56.250 42.188 Prod.
Fannie Woods #1 11/02/93 Dev. G 40.000 40.000 Prod.
Fannie Woods #2 06/15/94 Dev. G 56.250 42.188 Prod.
James Ray #4 05/07/92 Dev. G 50.000 41.016 Prod.
Napier #3 06/15/93 Dev. G 100.00 87.500 Prod.
Susan Patterson 06/08/92 Dev. G 49.456 42.599 Prod.
- ---------------------------
(FN-1) The Company is responsible for an additional one percent (1%) carried
working interest.
(FN-2) SIGW - Shut in Gas Wells
(FN-3) The net revenue includes a royalty interest purchased by the Company.
</TABLE>
