<PAGE> 1
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
For the quarter period ended SEPTEMBER 30, 1997 Comm. File# 0-12813
AMERICAN ATLAS RESOURCE CORPORATION
- --------------------------------------------------------------------------------
(Formerly Wepco Energy Co.)
(Exact name of small business registrant as specified in its charter)
DELAWARE 84-0809164
- --------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
240 WEST JESSUP STREET, BRIGHTON, COLORADO 80601
- --------------------------------------------------------------------------------
(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 September 30, 1997
- -------------------------------------------------------------------------------
COMMON STOCK $.01 PAR VALUE 720,430 SHARES
PREFERRED STOCK 523,903 SHARES *
* CONVERTIBLE INTO 5,239,030 COMMON SHARES
<PAGE> 2
AMERICAN ATLAS RESOURCE CORPORATION
(Formerly Wepco Energy Co.)
Form 10QSB - For the Quarter Ended September 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
<S> <C>
Item 1. Financial Statements
A. Consolidated Balance Sheet - September 30, 1997 3
B. Consolidated Statements of Operations - Nine Months
and Three Months ended September 30, 1997 and 1996 4
C. Consolidated Statements of Changes in Cash Flows - Nine
Months Ended September 30, 1997 and 1996 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
- ---------------------------
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
ASSETS
- ------
<S> <C>
CURRENT ASSETS:
Cash $ 95,300
Accounts Receivable (less $10,000 allowances for doubtful accounts) 110,000
Parts and Equipment Inventory 91,200
Prepayments and Other 9,000
------------
TOTAL CURRENT ASSETS 305,500
------------
PROPERTY AND EQUIPMENT:
Oil and Gas Properties, (at cost on the successful
efforts method of accounting)
Proved Properties 1,651,700
Natural Gas Compressors 941,800
Land and Building 141,900
Automobiles and Trucks 132,700
Shop Machinery, Equipment, Furniture and Fixtures 79,300
------------
2,947,400
Accumulated Depreciation, Depletion and Amortization (1,781,000)
-----------
1,166,400
------------
OTHER ASSETS: 5,000
------------
TOTAL ASSETS $1,476,900
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 331,100
Oil and Gas Revenue Payable 241,700
Production Taxes Payable 23,100
Current Portion of Long-Term Debt 36,500
TOTAL CURRENT LIABILITIES 632,400
------------
LONG-TERM DEBT AND OTHER LIABILITIES:
Long-Term Debt 86,100
Production Taxes Payable 72,800
Advances From Joint Owners and Affiliates 39,600
------------
198,500
------------
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; 720,430 shares issued and outstanding 7,200
Additional Paid-In Capital 5,312,000
Accumulated Deficit (6,746,500)
------------
TOTAL STOCKHOLDERS' EQUITY 646,000
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,476,900
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
---------------------- -----------------------
September 30 September 30
----------------------- -----------------------
1997 1996 1997 1996
----------------------- -----------------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and Gas Sales $ 124,100 $172,400 $ 31,600 $ 41,800
Compressor Rental Income 210,100 177,000 68,200 55,300
Gain on Sale of Oil and Gas Properties and Compressors 91,600 50,900 37,600 --
Sales and Services of Oil and Gas Field Equipment 645,700 120,100 393,200 83,300
Management and Operator Fees 30,900 31,900 4,800 6,800
Other Income 5,000 2,400 3,900 2,300
---------- -------- -------- --------
1,107,400 554,700 539,300 189,500
---------- -------- -------- --------
COSTS AND EXPENSES:
Oil and Gas Production Costs 56,600 75,200 16,700 26,400
Compressor Operating Costs 202,300 165,000 49,700 59,300
Costs of Oil and Gas Field Equipment and Services 592,100 108,600 364,800 75,600
Depreciation, Depletion and Amortization 141,300 134,800 50,300 41,400
General and Administrative 130,800 131,100 42,500 36,200
Interest Expense 13,400 16,300 3,400 4,200
---------- -------- -------- --------
1,136,500 631,000 527,400 243,100
---------- -------- -------- --------
LOSS BEFORE INCOME TAXES (29,100) (76,300) 11,900 (53,600)
PROVISION FOR INCOME TAXES:
Income Tax Benefit -- -- -- --
---------- -------- -------- --------
NET PROFIT (LOSS) (29,100) (76,300) 11,900 (53,600)
LESS PREFERRED DIVIDENDS 15,900 15,900 5,300 5,300
---------- -------- -------- --------
NET PROFIT (LOSS) TO COMMON STOCKHOLDERS $ (45,000) $(92,200) $ 6,600 $(58,900)
========== ======== ======== ========
NET PROFIT (LOSS) PER COMMON SHARE $ (0.06) $ (0.13) $ 0.01 $ (0.08)
========== ======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 720,043 720,043 720,043 720,043
========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES
(Formerly Wepco Energy Co.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1996
-------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (29,100) $ (76,300)
Adjustments to Reconcile Net (Loss) Income to
Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 141,300 134,800
Gain on Sale of Oil and Gas Properties and Compressors (91,600) (50,900)
Bonus Interest 600 2,700
--------- ---------
10,300
Changes in Operating Assets/Liabilities:
Decrease (Increase) in Accounts Receivable 12,200 (9,400)
Decrease (Increase) in Parts and Equipment Inventory (14,400) (32,200)
Decrease (Increase) in Prepayments and Other (7,300) (5,500)
Decrease (Increase) in Other Assets -- --
(Decrease)Increase in Accounts Payable
and Accrued Expenses (9,200) (64,200)
(Decrease) Increase in Undistributed Revenue (6,600) 18,700
(Decrease) Increase in Production Taxes Payable 2,000 (22,500)
(Decrease) Increase in Advances from Joint Owners -- --
--------- ---------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (2,100) (104,800)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Oil and Gas Properties and Compressors 146,000 85,400
Additions to Oil and Gas Properties (Net) (4,600) (3,100)
Additions to Compressors and Other Equipment (Net) (9,500) 4,900
--------- ---------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 131,900 87,200
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Notes 23,000 19,900
Payments on Notes (111,400) (116,800)
--------- --------
NET CASH PROVIDED BY (USED) FINANCING ACTIVITIES (88,400) (96,900)
--------- ---------
NET (DECREASE) INCREASE IN CASH 41,400 (114,500)
CASH, Beginning of Year 53,900 152,900
--------- --------
CASH, End of Quarter $ 95,300 $ 38,400
= ======== ========
SUPPLEMENTAL INFORMATION:
Cash Paid During the Period For Interest $ 49,800 $ 10,900
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
AMERICAN ATLAS RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1997 and the related
consolidated statements of operations for the nine months and three months
ended September 30, 1997 and 1996, 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 September 30, 1997 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 1996 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 nine months ended September 30, 1997 are not necessarily indicative of
those which the Company may experience for fiscal 1997.
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 September 30, 1996 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 nine months and three months ended September 30, 1997
and 1996, due to their effect being antidilutive.
6
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
The Company's liquidity continues to improve in spite of fluctuating oil and
gas prices experienced over the last twelve months. During the second quarter
and the first half of the third quarter of 1997, substantially all of its
residual inventory of oil and gas field equipment was sold plus four of its
compressors. Net proceeds from these sales provided sufficient funds to
liquidate the bonus interest of $36,400 and the Bonus Notes and interest of
$6,900 at the end of October 1997.
Fourteen compressors were rented at September 30, 1997, and twenty-five are
available for rental or sale. Current rental rates for the unutilized
compressor packages exceed $25,000 per month. One Compressor was extensively
damaged by fire and the residual value after insurance proceeds of $16,000 is
carried in inventory at $3,000.
In conclusion, the Company's management and employees have managed to maintain
good relationships with customers, suppliers, creditors and shareholders. Both
liquidity and capital resources remain a major concern to all involved with the
Company and all actions are subjected to the restraints of inadequate liquidity
and capital resources.
Results of Operations:
For the nine months and the quarter ended September 30, 1997, the Company
experienced losses of $29,100 and a profit of $6,600 as compared to losses of
$33,300 and $27,900 for the comparable 1996 periods. All amounts include the
7% preferred stock dividends of $5,300 per quarter which have not been declared
nor paid since January, 1995.
Oil and gas prices were down dramatically from the first quarter of 1997 and
the decline between the 1997 periods and the 1996 amounts are reflective of the
sale of non operated properties in June of 1996 at auction and exchange of
other properties for indebtedness.
7
<PAGE> 8
The following table shows the components of these changes on a production unit
basis:
<TABLE>
<CAPTION>
September 30,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Production:
Oil-bbl 2,540 4,700
Gas 34,965 66,500
Sale:
Oil $ 48,600 $ 79,500
Gas $ 75,500 $ 92,900
Average Price:
Oil $ 19.12 $ 17.08
Gas $ 2.16 $ 1.40
Production Costs: $ 56,600 $ 75,200
Depletion Expense: $ 75,000 $ 75,000
Equivalent Barrels: 8,368 15,783
Sales $ 14.83 $ 10.92
Production Cost $ 6.76 $ 4.76
Gross Margin $ 8.07 $ 6.16
Depletion $ 8.96 $ 4.75
</TABLE>
The revenue declines are a combination of lower prices and production problems
and the sale of non operated properties in the second quarter of 1996. Oil and
gas revenues in the third quarter were down 46% from the first quarter of 1997,
and comparable to the second quarter while production costs remained comparable
between all periods.
The gas production declines caused by the H2S situation in the State 1-17
continues to be addressed and production has been resumed at approximately 40
MCFD as compared to 200 MCFD prior to the problem. (The Company has 33%
working interest and a 25% net revenue interest in this well).
Oil and gas production costs have declined with the sale of the non operated
properties. Estimated depletion expense for the nine months ended September
30, 1997 and 1996 was $75,000.
The Company's gas compression rental and sales revenues for the nine months
ended September 30, 1997 have increased by 19 percent and related costs have
increased by 23 percent. On a segment basis, the Company's compressor rental
and sales operation lost $46,400 for the nine months ended September 30, 1997,
compared to $59,300 for the same period in 1996.
8
<PAGE> 9
Continuing low gas prices in the Company's market area have caused customers to
return rental units. Of the Company's thirty-nine units, fourteen were under
contract at September 30, 1997.
Sales and service of oil and gas field equipment has increased and includes the
sale of the 6 5/8 inch gas pipeline. Also, included in the quarter ended
September 30, 1997, is the purchase and resale of a compressor and several
pieces of related equipment. These sales reflect the efforts of management and
the outside sales representative hired in October, 1996 to spearhead sales of
rentals and equipment at its Brighton, Colorado facility.
All other revenue and costs are comparable between periods.
In summary, the quarter and the nine month period ended September 30, 1997, are
significantly better than the comparable periods in 1996. The compressor
rental segment, while improved, still lags behind expectations and efforts of
the Company's personnel. Renewed efforts to rent and/or sell unutilized
compressors are currently proceeding. The results of these efforts remain
dependent on certain factors that are not within the control of management or
the Company's sales force.
9
<PAGE> 10
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
10
<PAGE> 11
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. October 29, 1997
- -------------------------- ----------------
Rudy C. Schreider, Jr. Chief Executive Officer Date
Director
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Exhibit Description Page
- ------ ------------------- ----
27 Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 95,300
<SECURITIES> 0
<RECEIVABLES> 120,000
<ALLOWANCES> 10,000
<INVENTORY> 91,200
<CURRENT-ASSETS> 305,500
<PP&E> 2,947,400
<DEPRECIATION> 1,781,000
<TOTAL-ASSETS> 1,476,900
<CURRENT-LIABILITIES> 632,400
<BONDS> 198,500
0
2,073,300
<COMMON> 7,200
<OTHER-SE> (1,433,600)
<TOTAL-LIABILITY-AND-EQUITY> 1,476,900
<SALES> 1,071,500
<TOTAL-REVENUES> 1,107,400
<CGS> 851,100
<TOTAL-COSTS> 1,136,500
<OTHER-EXPENSES> 272,100
<LOSS-PROVISION> 5,300
<INTEREST-EXPENSE> 13,400
<INCOME-PRETAX> (29,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,100)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
