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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the quarter period ended MARCH 31, 1996 Comm. File# 0-12813
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AMERICAN ATLAS RESOURCE CORPORATION
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(Formerly Wepco Energy Co.)
(Exact name of small business registrant as specified in its charter)
DELAWARE 84-0809164
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
240 WEST JESSUP BRIGHTON, COLORADO 80601
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(Address of principal executive office)
Registrant's telephone number, including area code: (303) 659-8203
Check whether the registrant (1) has filed all reports to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the registrant's class of common
stock or common stock equivalents
Class Outstanding at March 31,1996
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COMMON STOCK $.01 PAR VALUE 720,430 SHARES
PREFERRED STOCK 523,903 SHARES *
* CONVERTIBLE INTO 5,239,030 COMMON SHARES
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AMERICAN ATLAS RESOURCE CORPORATION
(Formerly Wepco Energy Co.)
Form 10QSB - For the Quarter Ended March 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
A. Consolidated Balance Sheet - March 31, 1996 3
B. Consolidated Statements of Operations - Three Months
ended March 31, 1996 and 1995 4
C. Consolidated Statements of Changes in Cash Flows - Three
Months Ended March 31, 1996 and 1995 5
D. Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 32,100
Accounts Receivable (less $4,700 allowance for doubtful accounts) 90,000
Parts and Equipment Inventory 74,600
Prepayments and Other 11,900
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TOTAL CURRENT ASSETS 208,600
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PROPERTY AND EQUIPMENT:
Oil and Gas Properties, (at cost on the successful
efforts method of accounting)
Proved Properties 3,321,200
Natural Gas Compressors 1,016,400
Land and Building 141,900
Automobiles, Trucks and Heavy Equipment 139,200
Shop Machinery, Equipment, Furniture and Fixtures 71,900
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4,690,600
Accumulated Depreciation, Depletion and Amortization (3,220,300)
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1,470,300
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OTHER ASSETS: 5,000
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TOTAL ASSETS $ 1,683,900
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 220,700
Oil and Gas Revenue Payable 220,700
Production Taxes Payable 40,500
Current Portion of Long-Term Debt 139,000
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TOTAL CURRENT LIABILITIES 620,900
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LONG-TERM DEBT AND OTHER LIABILITIES:
Long-Term Debt 120,900
Production Taxes Payable 66,100
Advances From Joint Owners and Affiliates 39,600
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226,600
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COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Serial Preferred Stock, $.01 par value;
1,000,000 shares authorized:
Series A, 462,890 shares issued and outstanding;
face value $3.82 per share 1,768,200
Series B, 61,013 shares issued and outstanding;
face value $5.00 per share 305,100
Common Stock, $.01 par value; 12,000,000
shares authorized; 720,043 shares issued and outstanding 7,200
Additional Paid-In Capital 5,312,000
Accumulated Deficit (6,556,100)
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TOTAL STOCKHOLDERS' EQUITY 836,400
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,683,900
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1996 1995
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<S> <C> <C>
REVENUES:
Oil and Gas Sales $ 72,000 $ 85,200
Compressor Rental Income and Sales 70,300 100,800
Gain on Sale of Oil and Gas Properties (Net) 10,700 --
Sales and Services of Oil and Gas Field Equipment 14,400 2,400
Management and Operator Fees 20,700 20,500
Other Income 100 5,600
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188,200 214,500
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COSTS AND EXPENSES:
Oil and Gas Production Costs 32,100 53,300
Compressor Operating Costs 46,700 48,500
Costs of Oil and Gas Field Equipment and Services 5,900 6,300
Depreciation, Depletion and Amortization 47,200 78,100
General and Administrative 50,200 58,900
Interest Expense 6,200 10,300
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188,300 255,400
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LOSS INCOME BEFORE TAXES (100) (40,900)
PROVISION FOR INCOME TAXES:
Income Tax Benefit (Expense) -- --
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NET LOSS (100) (40,900)
LESS PREFERRED DIVIDENDS (5,300) (5,300)
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NET LOSS TO COMMON STOCKHOLDERS $ (5,400) $ (46,200)
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NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.00) $ (0.01)
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,349,300 5,349,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (100) $ (40,900)
Adjustments to Reconcile Net (Loss) Income to
Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 50,200 78,100
Gain on Sale of Oil and Gas Properties (10,700) --
Bonus Interest 1,100 2,000
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40,500 39,200
Changes in Operating Assets/Liabilities:
Decrease (Increase) in Accounts Receivable (21,000) 21,200
Decrease (Increase) in Parts and Equipment Inventory (14,400) 6,800
Decrease (Increase) in Prepayments and Other (10,600) (13,300)
Decrease (Increase) in Other Assets -- --
(Decrease) Increase in Accounts Payable
and Accrued Expenses (85,800) (10,800)
(Decrease) Increase in Undistributed Revenue (16,700) (3,200)
(Decrease) Increase in Production Taxes Payable (1,900) (7,500)
(Decrease) Increase in Advances from Joint Owners -- --
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NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (109,900) 32,400
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Oil and Gas Properties 12,400 --
Additions to Oil and Gas Properties (Net) (3,000) (100)
Additions to Compressors and Other Equipment (700) (800)
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NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 8,700 (900)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Note 19,300 18,000
Payments on Notes (38,900) (45,300)
Payment of Preferred Stock Dividends -- --
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (19,600) (27,300)
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NET (DECREASE) INCREASE IN CASH (120,800) 4,200
CASH, Beginning of Year 152,900 13,600
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CASH, End of Quarter $ 32,100 $ 17,800
========= =========
SUPPLEMENTAL INFORMATION:
Cash Paid During the Quarter For Interest $ 5,100 $ 5,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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AMERICAN ATLAS RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1996 and the related
consolidated statements of operations for the three months ended March 31, 1996
and 1995, and the consolidated statements of changes in cash flows for the
periods then ended have been prepared by the Company, without audit. In the
opinion of management, the accompanying financial statements contain all
adjustments necessary to present fairly the financial position of the Company
as of March 31, 1996 and results of operation for the periods then ended except
for normal recurring year-end adjustments.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Therefore, it is suggested that these financial
statements be read in conjunction with the financial statements and notes
included in the Company's 1995 Form 10-KSB. The accounting policies utilized in
the preparation of the financial statements herein presented are the same as
set forth in the Company's annual financial statements except as modified for
appropriate interim accounting policies. The operating results of the three
months ended March 31, 1996 are not necessarily indicative of those which the
Company may experience for fiscal 1996.
Consolidation:
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, States Exploration Co. ("States"), Schreider &
Company, Inc. ("Schreider"), and American Gas Compression Services, Inc.
("AGCSI"). All significant intercompany transactions have been eliminated.
Certain reclassifications have been made to the March 31, 1995 statement of
operations to conform with the current period's presentation.
Net Loss Per Common and Common Equivalent Share:
Net loss per common share is computed on the basis of the weighted average
number of common shares outstanding during the period. Common Stock equivalents
are not included in the weighted average shares or net loss per share
calculation for the quarter ended March 31, 1996 and 1995, due to their effect
being antidilutive.
6
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ITEM 2 - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources:
The Company continues to survive the downturn in natural gas prices that
started in late 1994 and continued through most of 1995. Gas compression
rentals have not improved significantly during the first quarter of 1996 when
two compressors were returned and three new rentals were delivered. Of the
Company's forty-four compressors, seventeen were leased and twenty-seven were
available for delivery. Potential rental income from these available units is
in excess of $30,000 per month. The Company continues to actively market its
residual inventory of oil and gas field equipment including approximately
29,000 feet of 6 5/8 inch gas pipeline which has been recovered and available
for immediate sale.
The Company plans to sell at auction in June, 1996, all of its non-operated oil
and gas properties not held as part of its partnership interest. Further, the
Company plans to sell several pieces of equipment used in its pipeline recovery
operations in a June equipment auction or by private sale to raise working
capital.
The Company completed the repayment of its $315,000 equipment financing note in
April, 1996. While the Company was current with its Bonus Interest Noteholders
on January 2, 1996, it is currently delinquent in its monthly payment by
approximately $26,000 at the end of April, 1996. The Company intends to pay
this balance from either the proceeds of the auctioned oil and gas properties
and equipment, or proceeds from the sales of the oil and gas field equipment
inventory. Approximately 70 percent of the Bonus Notes and related interest of
$127,000 is owed to present and former officers and directors and their
relatives.
To summarize, Company management is holding to its course of returning the
Company to profitable operations and meeting its obligations to creditors and
shareholders.
Results of Operations:
For the quarter ended March 31, 1996 the Company had a net loss to common
shareholders of $5,400 or $0.001 per share after undeclined and unpaid Series B
Preferred Stock dividends of $5,300. This was an improvement of $40,800 over
the comparable 1995 period.
Oil and gas revenues decreased by $13,200 or 15 percent over the comparable
1995 quarter. Production costs decreased by 40 percent or $21,200. The
decreased revenues are the results of sales of properties at the end of June,
1995, which had high operating costs. Production for the quarter ended March
31, 1996 was 1700 Bbls. of oil and 22,400 Mcf of gas with average selling
prices of $17.88 per Bbl. and $1.85 per Mcf. (1995 prices were $16.78 per Bbl.
and $1.34 per Mcf).
Compressor rental revenues decreased 30 percent. The $30,500 decrease in
revenues
7
<PAGE> 8
represents the difference between an average 17 rentals for 1996 compared to 24
rentals for 1995, plus reduced rental rates caused by fierce price competition.
Compressor operating costs only decreased by $1800 as field labor and related
vehicle costs have remained constant.
The Company sold/exchanged its non-operated interests in four wells to a former
officer and director to retire its indebtedness. The properties were sold on
March 31, 1996, and the Company recorded a gain of $10,700. The
unescalated/undiscounted reserve value at January 1, 1996, was the basis of the
exchange.
Sales and service of oil and gas field equipment increased $12,000 over the
same period in 1995.
Management and operator fees were comparable between periods.
Depreciation on oil and gas properties decreased by $25,000 because of lower
remaining basis and increased reserves projected for the Company's properties
at January 1, 1996. Compressor and equipment depreciation remained comparable
between periods.
General and administrative expense declined $8,700 between periods, chiefly
from expenses of a former officer and director who resigned in April, 1995.
Interest expense decreased $4,100 between periods as a significant amount of
debt has been retired.
In conclusion, the Company's $100 loss before preferred dividends again is a
significant improvement over 1995's $40,900 loss. Oil and gas prices are
weakening in the second quarter of 1996 and management intends to auction
non-operated oil and gas properties and surplus equipment in an effort to meet
its debt obligations. The Company's six full time employees continue to work
diligently toward profitability and enhancement of shareholders equity.
8
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
9
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SIGNATURES
In accordance with 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.
AMERICAN ATLAS RESOURCE CORPORATION
/s/Rudy C. Schreider, Jr. May 8, 1996
- ---------------------------------- Chief Executive Officer Date
Rudy C. Schreider, Jr. Director
The Company is actively looking for qualified replacements for its two
directors and will fill the vacancies as soon as practical.
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
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<S> <C> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 32,100
<SECURITIES> 0
<RECEIVABLES> 94,700
<ALLOWANCES> 4,700
<INVENTORY> 74,600
<CURRENT-ASSETS> 208,600
<PP&E> 4,690,600
<DEPRECIATION> 3,220,300
<TOTAL-ASSETS> 1,683,900
<CURRENT-LIABILITIES> 620,900
<BONDS> 226,600
<COMMON> 0
7,200
2,073,300
<OTHER-SE> (1,244,100)
<TOTAL-LIABILITY-AND-EQUITY> 1,683,900
<SALES> 167,400
<TOTAL-REVENUES> 188,200
<CGS> 84,700
<TOTAL-COSTS> 131,900
<OTHER-EXPENSES> 50,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,200
<INCOME-PRETAX> (100)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
