FORM 10QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2054
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE AT OF 1934
For the transition period from __________ to __________
Commission file number 0-11732
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APPALACHIAN OIL & GAS COMPANY, INC
-----------------------------------
(Exact name of registrant as specified in its charter)
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UTAH 87-0382031
------ ------------
(State of other jurisdiction of (IRS Employer
Incorporation or organization) identification No.)
701 Second Avenue North, Nashville, TN 37201
- -------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (615) 254-4789
----------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
The total number of shares outstanding as of September 30, 1995 were
-------------------
3,135,795.
- ----------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
The Financial Statements of the Registrant required to be filed
with this 10-QSB Quarterly Report were prepared by York, Neel & Company,
LLP, Certified Public Accountants, and commence on the following page,
together with Related Notes. In the opinion of management, the Financial
Statements fairly present the financial condition of the Registrant.
-THIS SPACE INTENTIONALLY LEFT BLANK-
<PAGE>
/Letterhead/ Malcolm E. Neel, CPA
YORK NEEL & COMPANY, LLP Roderick J. Topkins, CPA
CERTIFIED PUBLIC ACCOUNTANTS Leonard F. Adcock, CPA
BUSINESS CONSULTANTS Michael L. Toms, CPA
1113 Bethel Street Jeffrey T. Ebelhar, CPA
Hopkinsville, Kentucky 42240 Martin McElroy, CPA
(502) 886-0206 John M. DeAngelis, CPA
FAX (502) 886-0875 Doug E. Keller, CPA
J. Wesley Alford, Jr, CPA
Rebecca M. Whitehead, CPA
Bradley K. Cornelius, CPA
Malcolm E. Neel, III, CPA
------------------------------------------
C. Louis DeAngelis, CPA
Independent Accountant's Report
To the Board of Directors
Appalachian Oil & Gas Company, Inc.
Nashville, Tennessee
We have reviewed the accompanying consolidated balance sheet of Appalachian
Oil & Gas Company, Inc., (a Utah Corporation) and its subsidiary as of
September 30, 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the three month periods ended
September 30, 1995 and 1994, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of Appalachian Oil & Gas
Company, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less
in scope than an audit conducted in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet (presented herein) of Appalachian
Oil & Gas Company Inc. as of June 30, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows (not
presented herein) and we expressed an unqualified opinion on those
statements in our report dated April 24, 1996, but we have not preformed
any auditing procedures since that date.
/S/ York, Neel & Company, LLP
Hopkinsville, Kentucky
December 6, 1996
_______________________________________________________
Hopkinsville - Madisonville - Morganfield - Hendersen - Owensboro
<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1995 and June 30, 1995
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1995 1995
Unaudited Audited
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,974 $ 12,602
Accounts receivable - trade 78,378 72,648
------------ ------------
Total current assets 81,352 85,250
------------ ------------
Property and equipment:
Oil and gas properties 626,095 626,095
Other property and equipment 750,053 747,053
------------ ------------
1,376,148 1,373,148
Less accumulated depreciation,
depletion and amortization 842,226 824,865
------------ ------------
533,922 548,283
------------ ------------
$ 615,274 $ 633,533
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 30,000 $ 32,628
Notes payable - related parties 128,500 138,500
Accounts payable:
Trade 47,679 24,674
Royalties 31,583 44,193
Transported gas 44,423 51,418
Accrued expenses 6,235 5,352
------------ ------------
Total current liabilities 288,420 296,765
Long term debt, net of
current portion 91,991 96,862
------------ ------------
380,411 393,627
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per
share, 10,000,000 shares
authorized, issued and outstanding
3,135,795 and 3,235,795 shares at
September 30, 1995 and
June 30, 1995, respectively 31,358 32,358
Additional paid in capital 1,814,342 1,813,342
Retained deficit (1,610,837) (1,605,794)
------------ ------------
Total stockholders' equity 234,863 239,906
------------ ------------
$ 615,274 $ 633,533
============ ============
</TABLE> See accompanying notes and accountant's report
2
<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
1995 1994
------------ ------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 99,678 $ 139,005
Drilling programs - 2,418
Other 1,717 5,005
------------ ------------ 101,395 146,428
Costs and expenses:
Other operating expenses 37,655 52,790
Depreciation, depletion and
amortization 17,362 21,932
Interest 5,484 5,667
General and administrative 45,937 70,470
------------ ------------
106,438 150,859
------------ ------------
Net loss before minority interest (5,043) (4,431)
Minority interest - 707
------------ ------------
Net loss $ (5,043) $ (5,138)
============ ============
Earnings (loss) per share $ (0.00) $ (0.00)
============ ============
</TABLE>
See accompanying notes and accountant's report.
3<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three month periods ended September 30, 1995, and 1994
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Shares Stock Capital Deficit
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
June 30, 1994 3,235,795 $ 32,358 $ 1,813,342 $(1,514,286)
Net loss for the
three months ended
September 30, 1994 - - - (5,138)
----------------------------------------------------------
Balance,
September 30, 1994 3,235,795 32,358 1,813,342 (1,519,424)
Net loss for the
nine months ended
June 30, 1995 - - - (86,370)
----------------------------------------------------------
Balance,
June 30, 1995 3,235,795 32,358 1,813,342 (1,605,794)
Common shares
canceled (100,000) (1,000) 1,000 -
Net loss for the
three months ended
September 30, 1995 - - - (5,043)
----------------------------------------------------------
Balance,
September 30, 1995 3,135,795 $ 31,358 $ 1,814,342 $(1,610,837)
==========================================================
</TABLE>
See accompanying notes and accountant's report.
4<PAGE>
APPALACHIAN OIL & GAS COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (5,043) $ (5,138)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization 17,362 21,932
Undistributed income of limited partnership - 707
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (5,730) 22,370
Increase (decrease) in:
Accounts payable 3,400 (39,323)
Accrued expenses 883 (3,864)
------------ ------------
Net cash provided by (used in)
by operating activities 10,872 (3,316)
------------ ------------
Cash Flows from Investing Activities:
Purchase of property and equipment (3,000) (2,200)
Purchase of oil and gas properties - (11,550)
Increase in other assets - (5,000)
------------ ------------
Net cash used in
operating activities (3,000) (18,750)
------------ ------------
Cash flows from Financing Activities:
Principal payments on notes payment (10,000) (7,500)
Principal payments on long-term debt (7,500) (6,928)
------------ ------------
Net cash used in
financing activities (17,500) (14,428)
------------ ------------
Decrease in cash and cash equivalents (9,628) (36,494)
Cash and cash equivalents, beginning of period 12,602 66,602
------------ ------------
Cash and cash equivalents, end of period $ 2,974 $ 30,108
============ ============
</TABLE>
See accompanying notes and accountant's report
5<PAGE>
APPALACHIAN OIL AND 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
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.
Continued
6<PAGE>
APPALACHIAN OIL AND 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.
Unproved oil an 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.
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.
Continued
7<PAGE>
APPALACHIAN OIL AND GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued,
f. Income Taxes, Continued
For Federal income tax purposes, the Company deducts certain
exploration and development 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". 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.
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.
Continued
8<PAGE>
APPALACHIAN OIL AND GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Property and Equipment
A summary of property and equipment is as follows:
<TABLE>
Sept. 30, June 30,
1995 1995
-------- --------
<S> <C> <C>
Proved oil and gas properties $626,095 $626,095
Less accumulated depreciation,
depletion and amortization 422,971 419,503
203,124 206,592
Land 14,810 14,810
Gas gathering system 490,834 490,834
Machinery and equipment 209,536 206,536
Office furniture and equipment 34,873 34,873
Other property and equipment 750,053 747,053
Less accumulated depreciation 419,255 405,362
330,798 341,691
--------- ---------
Net property and equipment $533,922 $548,283
</TABLE>
AOGI incurred depreciation expense of $13,893 and $17,216 for the
three month periods ended September 30, 1995 and 1994, respectively.
3. Notes Payable - Related Parties
At September 30, 1995, and June 30, 1995, the Company had notes
payable to several Company stockholders for $128,500 and $138,500,
respectively. These notes are unsecured and payable on demand with
interest due monthly at a rate of 9.0%.
4. Long-Term Debt
At September 30, 1995 and June 30, 1995, long-term debt consisted of
the following items:
<TABLE>
<CAPTION>
Sept. 30, June 30,
---------- ---------
1995 1995
<S> <C> <C>
Note payable to an individual;
monthly principal payments of $2,500
plus interest; interest rate of 10.0%;
due March 1999; collateral - all
assets of the Company $121,991 $129,490
Less current portion of long-term debt 30,000 32,628
$ 91,991 $ 96,862
</TABLE>
Continued
9<PAGE>
APPALACHIAN OIL AND GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
4. Long-Term Debt, Continued
The Company's long-term debt payments are estimated to be repayable
annually as set forth in the following schedule:
<TABLE>
<CAPTION>
Years Ending
September 30, Amount
------------- --------
<C> <C>
1996 $ 30,000
1997 30,000
1998 30,000
1999 31,991
---------
$121,991
</TABLE>
5. Common Stock
Effective July 1, 1995, the Company canceled 100,000 shares of common
stock that had been outstanding. The shares were voluntarily returned to
the Company with no cost to the Company.
6. Income Taxes
The Company has unused net operating losses of $1,399,000 and unused
investment tax credits of approximately $30,000 as of September 30, 1995.
All carryforward amounts expire on or before June 30, 2007. For financial
reporting purposes, a valuation allowance of $485,860, 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 September 30, 1995 and June 30, 1995 are as follows:
<TABLE>
<CAPTION>
Sept. 30 June 30
1995 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss $475,660 $473,960
Investment tax credit 10,200 10,200
Total deferred tax assets 485,860 484,160
Valuation allowance for
deferred tax assets (485,860) (484,160)
Deferred tax liabilities - -
Net deferred tax asset $ - $ -
</TABLE>
Continued
10
<PAGE>
APPALACHIAN OIL AND GAS COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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 omission; or acts of God and those risks have not
been transferred to unrelated third parties through insurance.
8. Statement of Cash Flows Disclosure
AOGI paid $5,484 and $5,667 in interest during the three months ended
September 30, 1995 and 1994 respectively.
As shown in footnote 5, AOGI canceled 100,000 shares of common stock.
This was a non-cash transaction that decreased common stock by $1,000 and
increased additional paid in capital by the same amount.
9. Earnings (Loss) Per Share
Earnings (loss) per share are based on the weighted average number of
shares outstanding of 3,135,795 and 3,235,795 for the three month periods
ended September 30, 1995, and 1994, respectively.
10. Subsequent Events
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 the sale of
approximately $197,000.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
An analysis of the revenues for the current quarter as compared to the
same reporting period in 1994 showed a $40,000 decrease to the company.
Revenues showed a decrease in that the oil and gas revenues dropped
considerably during the month of August as there was no contract in
existence and the Company had to go to the Spot Market for its sales. The
price on the Spot Market was much less than before under our previous
contract. In September, 1995, the company obtained a short-term contract.
This contract provided a higher price than the open Spot Market, but still
was not at the level of our previous contract.
Another factor in the decrease in revenues was due to the fact the
Company had no drilling program in place during the current quarter.
Due to the fact that the Company knew revenues would be lower for this
quarter, the Company made every effort to keep expenses down.
Operating expenses decreased approximately $15,000.00. Repairs and
maintenance costs decreased over $25,000 as compared to the prior year
quarter due to the fact the Company stopped using its old compressor and
leased a new compressor. Lease expense increased approximately $16,000 due
to the leasing of the new compressor. Contract services also decreased
over $10,000 due to the release of some contract field personnel.
General and Administrative expenses were down approximately $25,000
because of a decrease in administrative salaries and no Director's fees
were paid for this quarter. Administrative salaries were down due to the
resignation of a key management person.
The Company continues to be satisfied with the reduction of long-term
debt as the company continues to make timely monthly payments on the long-term
debt of the Company and the Board of Directors has voiced its desire
to make additional principal payments on the long-term debts as funds
become available.
PART II. OTHER INFORMATION
Item 1. Legal Processing
State of Tennessee On the Relation of James E. Ables, et. al. Vs.
Appalachian Oil & Gas
On March 11, 994, 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 $24,276.47, or alternatively to the extent of Mr. Fuller's bond.
This case is still pending in Chancery Court, Hamilton County,
Tennessee.
<PAGE>
Item 2. Changes in Securities.
Effective July 1, 1995, the Company canceled 100,000 shares of common
stock that had been outstanding. The shares were voluntarily returned to
the Company with no cost to the Company.
Item 3. Defaults Upon Senior Securities.
None; not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
There were no submission of matters to a vote of Security Holders as
of the period ending September 30, 1995.
Item 5. Other Information
None; not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: December 30, 1996 Appalachian Oil & Gas Company, Inc.
/S/ Raymond A. Connelly
Raymond A. Connelly, President/CEO
/S/ Bill Jones
Bill Jones, Secretary/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000732814
<NAME> APPALACHIAN OIL AND GAS COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,974
<SECURITIES> 0
<RECEIVABLES> 78,378
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,352
<PP&E> 1,376,148
<DEPRECIATION> 842,226
<TOTAL-ASSETS> 615,274
<CURRENT-LIABILITIES> 288,420
<BONDS> 0
0
0
<COMMON> 31,358
<OTHER-SE> 203,505
<TOTAL-LIABILITY-AND-EQUITY> 615,274
<SALES> 99,678
<TOTAL-REVENUES> 101,395
<CGS> 37,655
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 68,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,043)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,043)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,043)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
