<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMM. FILE #0-12813
AMERICAN ATLAS RESOURCE CORPORATION
(Formerly Wepco Energy Co.)
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 84-0809164
- --------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
240 WEST JESSUP, BRIGHTON, COLORADO 80601
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (303) 659-8203
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK,
PAR VALUE $.01 PER SHARE.
Check whether the Registrant (1) filed all reports to be filed by Section 13 or
15(d) of the Securities Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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 10-KSB. ( X )
Registrant's revenues for fiscal year ended December 31, 1996: $685,600
On December 31, 1996, there were 720,430 shares of Common Stock issued and
outstanding and 462,890 shares of Series A Preferred Stock, face value of
$3.82, (convertible to 4,628,900 shares of Common Stock) and 61,013 shares of
Series B Preferred Stock, face value of $5.00, (convertible to 610,130 shares
of Common Stock). The aggregate market value of the Common Stock held by non-
affiliates of the Registrant on that date is not available because the Common
Stock is not traded in any reporting market (see Item 5 Page 10).
Documents Incorporated by Reference
NONE
<PAGE> 2
AMERICAN ATLAS RESOURCE CORPORATION
ANNUAL REPORT ON FORM 10-KSB
INDEX
Securities and Exchange Commission Item Number
and Description
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PAGE
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PART I
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Properties . . . . . . . . . . . . . . . . . . 6
Item 3. Description of Legal Proceedings . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . 10
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . . . 10
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 10
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . 14
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 14
PART III
Item 9. Directors and Executive Officers . . . . . . . . . . . . . . 15
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . 16
Item 11. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 18
Item 12. Certain Relationships and Related Transactions . . . . . . . 19
Item 13. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Exhibits Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 3
PART I
ITEM 1 - BUSINESS
BACKGROUND
American Atlas Resource Corporation ("American Atlas" or the "Company") is the
new name of Wepco Energy Co. ("Wepco"). At its Annual Shareholders Meeting on
August 6, 1993, Wepco shareholders voted to change the Company name. American
Atlas/Wepco was incorporated by Polaris Oil & Gas, Inc. ("Polaris") on June 19,
1984, under the laws of the State of Delaware, as a wholly-owned subsidiary of
Polaris. The shareholders approved and adopted an Agreement and Plan of Merger
pursuant to which Polaris was merged with and into American Atlas/Wepco, and
the holders of shares of Common Stock of Polaris became holders of
corresponding shares of Common Stock of American Atlas /Wepco on July 13, 1984.
Effective December 31, 1992, American Atlas/Wepco completed the "1992
Reorganization". This was accomplished through the acquisition of 100 percent
of the Common Stock of Schreider & Company, Inc. and the remaining unowned
shares of American Gas Compression Services, Inc., see "1992 Reorganization
Transaction" below.
Hereafter, the term "Company" as used, refers to American Atlas and its wholly-
owned subsidiaries States Exploration Co. ("States"), Schreider & Company,
Inc. ("Schreider") and American Gas Compression Services, Inc. ("AGCSI").
NARRATIVE DESCRIPTION OF BUSINESS
The Company is primarily engaged in (a) oil and gas property acquisition,
exploration, development and production activities; (b) fabricating, leasing
and servicing natural gas compressors; and (c) selling and servicing of oil and
gas field equipment. The area of these activities is the Rocky Mountain region
of the United States, which will continue to be the focus of the Company's
operations. The Company has no present plans for operations in foreign
countries.
OIL AND GAS ACQUISITION, PRODUCTION, DEVELOPMENT AND EXPLORATION
The Company has interests in approximately 20 oil and gas wells located in 6
states within the continental United States. Ten of these wells located in
Adams and Baca Counties of Colorado, are operated by the Company.
The Company's largest oil and gas property is the Comanche Creek Field. This
field is operated by the Company and is located in Adams County, Colorado.
Currently there are seven producing wells in the field.
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In 1996 and 1995, the sales from the oil and gas segment accounted for 46
percent and 47 percent, respectively, of the Company's total revenues.
The Company intends to continue to develop the Comanche Creek Field. As of
December 31, 1996, an independent petroleum engineer, retained by the Company,
determined three proved undeveloped drilling locations exist containing
approximately 56,200 barrels of oil and 224,600 MCF of gas with an estimated
undiscounted value of $1,203,000. The Company holds approximately 800
undeveloped acres in the Comanche Creek Field.
Occasionally, operators of the Company's non-operated properties propose the
drilling of a well on acreage in which the Company has an interest. As to each
proposal, the Company performs evaluations to determine its level of
participation, if any. If the Company decides not to participate, it attempts
to farm-out its interest to other oil companies or elects to non-consent under
applicable operating agreements.
NATURAL GAS COMPRESSOR FABRICATION, LEASING AND SERVICING
The natural gas compression business meets the needs of oil and gas companies
involved in the production of natural gas. The purpose of gas compression is
to reduce the flowing tubing pressure at the wellhead, and increase flowing
pressure to a pressure sufficient for gas to enter the sales line, which
results in an increase in production and sales volumes. The sales line is
where the producer of the natural gas transfers the gas to the purchaser. A
normal gas compression unit will consist of a natural gas engine, compressor,
cooler, inlet scrubbers, control panel, fuel and starting gas system and the
necessary piping to connect the components. All of these are mounted on an oil
field skid.
The Company operates its natural gas compression functions in its wholly-owned
subsidiary, AGCSI. At December 31, 1996, AGCSI maintained a rental fleet of 44
natural gas compressor packages, of which 13 were under rental agreements. One
of the compressor packages is rented to Schreider, a wholly-owned subsidiary of
the Company. The rented compressor packages are currently located in the
following areas:
<TABLE>
<S> <C> <C> <C>
Colorado:
Adams County 1 Utah:
Baca County 1 Uintah County 3
Rio Blanco County 1 Wyoming:
Carbon County 1
Sweetwater County 6
</TABLE>
Five compressor packages are being remanufactured at AGCSI's maintenance
facility located in Brighton, Colorado. Twenty-six others are available for
rental.
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Of the 44 compressor packages currently in the rental fleet, the breakdown by
horsepower ("HP") is as follows:
<TABLE>
<CAPTION>
Unit Power 10HP 15HP 30HP 50HP 100HP 125HP 150HP
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Units 2 10 13 8 3 4 4
</TABLE>
In the past, AGCSI has acquired its compressor packages by purchasing used
equipment from other compressor companies, from surplus inventory of producers,
or from brokers. Upon acquisition of compressor packages, it is the Company's
policy to remanufacture each major component prior to being put into service
under a rental agreement. The performance of a complete remanufacturing
process provides AGCSI the assurance of meeting its stringent quality standards
required for each compressor package.
AGCSI usually signs a rental agreement with a natural gas operator for a period
of three to twelve months. However, the average period of time compressors are
on lessee's location is between 6 to 18 months. The rental rates received vary
from $800 per month for a 10 HP compressor, to $2,800 per month for a 150 HP
compressor. These rental rates include a maintenance agreement, whereby AGCSI
is responsible for parts, labor and lubricants associated with operating the
compressor and providing monthly maintenance.
AGCSI also performs service work on compressors not owned by the Company. To
date, the sale of outside service has not been a significant part of AGCSI's
revenues. The percentage of total revenues contributed by the gas compression
segment was 35 percent in 1996 and 36 percent in 1995.
AGCSI commenced the manufacture of its own 10hp and 15hp compressor packages
for its rental fleet and sale in 1993. The intent was to provide oil and gas
producers with a cost effective compressor package that was portable, reliable
and easily operated. AGCSI manufactured ten of these packages. The initial
acceptance of the units was encouraging; however, when gas prices fell to the
$1 per MCF and lower range, the units were returned because of marginal or sub-
economic reasons. As the depressed prices persisted during 1996, additional
larger packages were also returned.
AGCSI continues to actively pursue all rental opportunities within its
marketing area. It has encountered strong competition from larger rental fleet
operations in the form of severe reduction of rental and maintenance rates.
Also with the significantly lower natural gas prices, other rental fleet
operators and independently owned compressor packages are now readily available
for purchase at substantially lower prices than in 1990 through 1994.
AGCSI has reduced rental prices to meet competitive price cutting and will
continue to do so if it is in the best long-term benefit to the Company. AGCSI
has reviewed its carrying value of its compressor fleet at December 31, 1996,
and has determined that the recorded values approximate fair market value. The
recorded values of these packages continue to be significantly below
replacement cost of newly manufactured packages; however, these amounts may be
greater than the asking prices of similar packages available for purchase in
the as-is, where-is, used market place which in management's opinion are not
comparable to its fleet of well maintained compressors.
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SALES AND SERVICING OF OIL AND GAS FIELD EQUIPMENT
This is a segment of the industry conducted by Schreider, a wholly owned
subsidiary. Sales and servicing of oil and gas field equipment accounted for
19 percent of the Company's total revenue in 1996 and 17 percent in 1995.
This business segment concentrated on sales of inventory and the sale and
reclamation of its four pipelines. The Company did sell two inactive gas
transmission lines in the fourth quarter of 1995 for a net profit of
approximately $157,000 and commenced recovery of a third pipeline consisting of
28,000 feet of 6 5/8 inch pipe. The Company may reactivate its well
reclamation in the future if and when management is confident that the return
on invested assets is warranted.
Sales of oil field equipment have been generated, whereby Schreider obtains
used oil field equipment to market, by purchasing depleted wells from oil and
gas operators. Wells purchased have marginal oil or gas production or have not
produced for a period of time. Schreider salvages the useable equipment from a
well and resells it to wholesalers and end users. Equipment salvaged includes
subsurface and surface equipment. In connection with the salvaging of
equipment, Schreider also plugs wellbores and restores locations to their
condition prior to drilling, in accordance with requirements of various state,
county and federal government agencies.
The servicing segment primarily involves maintenance and restoration of
existing well locations and performing maintenance and repairs on production
equipment located above the surface; such as pumping units, separators,
treaters and tank batteries.
1992 REORGANIZATION TRANSACTIONS
On December 12, 1992, the Company's Board of Directors approved a plan of
reorganization ( "1992 Reorganization") which involved issuance of 462,890
shares of the Company's newly authorized 1993 Series A Convertible Preferred
Stock ("Series A Preferred Stock"). Preferred stock was utilized because the
Company did not have a sufficient number of authorized but unissued shares of
its Common Stock at the time of the transactions. The 1992 Reorganization is
fully described in the Company's Form 8-K, filed on March 3, 1993 and the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1992.
The 1992 Reorganization is summarized as follows:
1. Acquisition of 100 percent of the common stock of Schreider & Company,
Inc. making it a wholly-owned subsidiary of the Company;
2. Acquisition of the remaining 2 percent of the common stock of American
Gas Compression Services, Inc. not already owned by the Company,
making it a wholly-owned subsidiary of the Company; and
3. Acquisition of fractional undivided working interests in certain oil
and gas properties from various working interest owners associated
with Schreider, ("Et. Al's." or "Et. Al's. Interest").
OTHER INFORMATION ABOUT THE COMPANY'S BUSINESS
The Company has not made any public announcement and no information has
otherwise become public about any new product or line of business requiring the
investment of a material amount of the Company's total assets.
4
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The Company has no patents, trademarks, licenses, franchises or concessions
other than oil and gas leasehold interest granted by federal and state
authorities and private mineral owners
The Company's business is not seasonal except to the extent that weather and
market conditions can affect oil and gas exploration and production activities.
The nature of the Company's business does not include a backlog of orders. Nor
does the Company engage in any research and development activities as those
terms are customarily used.
COMPETITION, MARKETS AND CUSTOMERS
A large number of companies and individuals are engaged in exploration,
development and production of oil and gas, many of which possess substantially
greater technical and financial resources than the Company. There is
competition for leases and suitable prospects for oil and gas drilling
operations. Competition is also intense in obtaining funding for exploration
and development activities.
Production and marketing of oil and gas is affected by a number of factors
which are beyond the Company's control, the effect of which cannot be
predicted. These factors include crude oil imports, actions by foreign oil-
producing nations, the availability of adequate pipelines and other
transportation facilities, the marketing of competitive fuels and other matters
affecting the availability of a ready market, such as fluctuating supply and
demand.
The natural gas compression business is directly affected by all of the risks
related to oil and gas exploration and production, with primary emphasis on the
volatility of natural gas prices. Since this segment is dependent on the (1)
production of natural gas, (2) the volatility of natural gas prices, (3) supply
and (4) demand, they have substantial effect on the Company; and may adversely
affect the ability of the Company to rent new compressors or keep existing
rental contracts.
The natural gas compression business is highly competitive in many respects,
including identification of prospective leasing and/or sales clients, securing
financing for obtaining the necessary compressor packages and personnel to
conduct such operations and activities. In seeking suitable opportunities, the
Company competes with a number of other companies, including large natural gas
compression companies with greater financial resources and, in some cases, with
more experience. Many other natural gas compression companies in the industry
have financial resources, personnel and facilities substantially greater than
those of the Company and there can be no assurance that the Company will
continue to be able to compete effectively with these larger entities.
During 1994 and 1995 there were several acquisition/mergers of existing large
rental fleet operators. These consolidations coupled with lower natural gas
prices has sponsored predatory pricing tactics previously not experienced by
AGCSI.
The Company does not refine or otherwise process crude oil or natural gas. Oil
production is sold at posted field prices and natural gas is sold under both
long-term and short-term contracts with purchasers who have pipelines and
gathering systems in the areas of production.
Three customers accounted for more than 10 percent of the Company's aggregate
oil and gas sales for the fiscal year ended December 31, 1996. Additionally,
one customer accounted for more than 21 percent of AGCSI's compressor rental
income, see Item 7 below and in particular "Notes to Consolidated Statements".
5
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GOVERNMENT REGULATIONS
The Company currently owns leasehold interests where production from oil and
gas wells is controlled by the state or the federal government. Control is
exercised through regulations requiring drilling permits, establishing the
spacing of wells, requiring the pooling and unitization of properties, limiting
the number of days in a given month during which a well can produce and
otherwise limiting the rate of allowable production. Local, state and federal
environmental controls also affect the operations of the Company through
regulations enacted to protect against waste, conserve natural resources,
prevent pollution and otherwise guard against abuse of the environment. Such
regulations could require spending substantial funds on environmental
protection and penalties can be imposed for violating such regulations. To
date no such penalties have been threatened or imposed on the Company.
The Company believes that its operations comply with all applicable legislation
and regulations in all material aspects, and that the existence of such
regulations has had no more effect on the Company's method of operations than
similar companies in the industry. Consequently, the Company does not
anticipate any material capital expenditures for environmental control
facilities for the current or succeeding year. However, no assurance can be
given as to the future capital expenditures which may be required for
compliance with environmental regulations which may be adopted in the future.
OPERATING HAZARDS AND UNINSURED RISKS
All of the Company's business segments are subject to operating hazards
normally incident to drilling for and producing of oil and gas, such as unusual
formations and pressures, blow-outs, environmental pollution and personal
injury. The Company maintains insurance coverage customary for companies of a
similar size engaged in operations similar to that of the Company. Losses can
occur from uninsurable risks or in amounts in excess of existing insurance
coverage. The occurrence of an event which is not insured or not fully insured
could have an adverse impact upon the Company's financial position.
EMPLOYEES
As of December 31, 1996, the Company had five full-time employees; it retains
independent consultants as needed.
ITEM 2 - PROPERTIES
GENERAL
COMPRESSION EQUIPMENT. See Item 1, "Natural Gas Compressor Fabrication,
Leasing and Servicing," on page 2, for information concerning significant
equipment owned and leased by the Company.
OFFICES AND MAINTENANCE FACILITY. The corporate offices of the Company
consist of approximately 1600 square feet located at 240 West Jessup Street,
Brighton, Colorado, 80601.
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On December 15, 1994, the Company subleased its corporate office space at 1660
Lincoln Street, Suite 2330, Denver, Colorado 80264 for a term and at the rate
consistent with its lease. All offices have been consolidated at the Company's
Brighton, Colorado facilities.
The Company owns approximately one half acre of land which includes a 5,000
square foot maintenance facility located within the city limits of Brighton,
Colorado. The maintenance facility was purchased in September, 1991 by AGCSI
and is being financed by the seller, who holds the first mortgage on the
property. The shop and yard are used for compressor fabrication,
remanufacturing, equipment storage and repair of vehicles and heavy equipment
used in field operations.
MISCELLANEOUS. The Company owns two pipeline systems located in Colorado.
The Colorado pipelines are currently abandoned and consist of approximately 10
miles of pipe. The pipelines were obtained by the Company through settlement
of a gas contract dispute. It is the Company's intent to salvage the pipe for
resale, unless new drilling of gas wells within areas serviced by the pipelines
commences. If such activity does take place, the Company will attempt to sell
the pipeline to operators or gas gathering companies. The financial statements
of the Company do not reflect any cost basis or value for the two pipelines at
December 31, 1995, due to the difficulty in assessing their ultimate value, if
any. The Company is in the process of salvaging one of these pipelines, having
28,000 feet of 6 5/8 inch steel pipe and has recorded actual salvage cost to
date of $19,200 in the inventory category of the Balance Sheet.
RESERVE INFORMATION. The Company's reserves of oil, gas, condensate and
natural gas liquids (hereinafter referred to as "oil and gas") and the present
value thereof have been estimated as of January 1, 1995 and thereafter, by an
independent engineer, Mr. Warren Johnston. Reserves estimated for producing
wells were determined by a combination of volumetric estimates, extrapolation
of performance history and analogy to other wells producing from similar
reservoirs in the respective areas.
The following is a summary of estimated proved developed and proved undeveloped
net recoverable reserves as of January 1, 1997, 1996 and 1995. The reserve
amounts have been prepared by an independent petroleum engineer, with
unescalated prices and costs.
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF)
----------------------- --------------------
January 1, Developed Undeveloped Developed Undeveloped
---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1997 22,400 56,200 538,600 224,600
1996 29,200 75,200 695,400 376,000
1995 40,000 69,700 837,000 209,200
</TABLE>
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The Company has not filed any oil or gas reserve estimates or included any such
estimates in reports to any other federal or foreign government authority or
agency within the past 12 months.
There have been no major discoveries or other favorable or adverse events,
other than fluctuating prices, that are believed to have caused a significant
change in the estimated proved reserves since January 1, 1997.
OIL AND GAS PROPERTIES
The Company owns working interests in developed and undeveloped oil and gas
properties in Colorado, Montana, Oklahoma, Utah and Wyoming. The following
tables set forth relevant information as of December 31, 1996:
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State: Oil Wells Gas Wells
- ----- ----------------- -----------------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
Colorado 7 6.64 4 1.85
Montana 1 .02 -- --
Oklahoma -- -- 3 .04
Utah 1 .01 -- --
Wyoming 1 .05 -- --
-- ---- ---- -----
TOTAL 10 6.72 7 1.89
== ==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Developed Undeveloped
State: Acreage Acreage
- ----- ----------------- -----------------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C>
Colorado 4,343 1,879 840 635
Montana 320 40 -- --
Oklahoma 1,892 189 -- --
Utah 240 3 -- --
Wyoming 41 5 -- --
----- ----- ---- ----
TOTAL 6,836 2,116 840 635
===== ===== ==== ====
</TABLE>
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DRILLING ACTIVITIES
The following table summarizes the results of the Company's drilling and
production activity during each of the three years in the period ended December
31, 1996, all amounts include the acquisition of Schreider:
WELLS DRILLED
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OIL GAS DRY TOTAL
---------- --------- ---------- ----------
GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Development:
-----------
1996 --- --- --- --- --- --- --- ---
1995 --- --- --- --- --- --- --- ---
1994 --- --- --- --- --- --- --- ---
Exploratory:
-----------
1996 --- --- --- --- --- --- --- ---
1995 --- --- --- --- --- --- --- ---
1994 --- --- --- --- 1 .52 1 .52
</TABLE>
OIL AND GAS PRODUCTION
<TABLE>
<CAPTION>
Average
Sales Price Average Production
------------------- Cost of Oil
Production Oil Per Gas Per & Gas
Oil (BBL) GAS (MCF) (BBL) (MCF) (Eqv. BBL)
--------- --------- ----- ----- ----------
(1)
<S> <C> <C> <C> <C> <C>
For the year ended:
December 31, 1996 6,400 91,000 $ 19.32 $ 1.85 $ 6.16
December 31, 1995 7,900 113,000 17.25 1.33 6.16
December 31, 1994 13,000 131,000 14.55 1.58 8.77
</TABLE>
(1) For purposes of calculating average production cost per equivalent
barrel of oil in this table, MCF's of gas have been converted to
barrels of oil at a ratio of six MCF for each barrel.
The Company's oil production is sold pursuant to contracts which can be
terminated by either party upon notice. The Company's gas production is sold
pursuant to both long-term contracts, which generally permits the purchaser to
charge its customers the maximum lawful price subject to market price
adjustments and short-term contracts (i.e. one month to two years), which
generally provide for the Company to receive a fixed percentage of the price
which the purchaser receives for the gas. Such gas purchase contracts
generally allow the purchaser to curtail or cease gas purchases, often
resulting in the shut-in of applicable wells. Elections by gas purchasers to
cease gas purchases from wells in which the Company maintains an interest has
historically resulted in reduced revenues to the Company, usually occurring
during the summer months.
See Item 7 and in particular "Notes to Consolidated Financial Statements," for
information with respect to the Company's major customers.
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TITLE TO PROPERTIES
Oil and gas interests are subject to customary burdens, including royalty and
overriding interests and operating agreements. Titles to the Company's
properties may also be subject to liens incident to operating agreements and
minor encumbrances, easements and restrictions. The Company believes that it
has satisfactory title to its properties; none are subject to bank or other
lender's liens or mortgages.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, nor is it aware of
any threatened litigation to which it or its subsidiaries may be a party, or to
which any of its properties may become subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the Company's fiscal year
ended December 31, 1996 to a vote of security holders.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
On July 26, 1988 NASDAQ deleted the Company from its National List (in which it
published bid and ask quotations on the Company's Common Stock) due to the
Company's failure to meet certain capital and surplus requirements. Since then,
quotations for the Company's Common Stock have not been generally available.
The number of stockholders of record of the Company's Common Stock was 990. No
dividends have been declared or paid by the Company on its Common Stock since
the inception of the Company nor does management anticipate that the Company
will pay dividends on its Common Stock in the foreseeable future.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 VS. 1995 Net loss per common share was $.03 for the year ended
December 31, 1996, compared to a profit of $.01 for the prior fiscal year.
Gross revenues declined by 30% between the two periods which was comprised of a
31% decline in the Oil and Gas segment; a 32% decline in Compression Rental
and Service and a 23% decline in the Sales and Service of Oil and Gas Field
Equipment segment. These reductions carried through to Operating Income
because operating costs are largely fixed in nature as opposed to variable with
the revenue streams of the three industry
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<PAGE> 13
segments. Oil and gas operations lost $37,000 compared to a profit of $9,500
in 1995. The non- reoccurring sale of propriety seismic data in 1995 which
netted $38,800 was not repeated in 1996. The sale of substantially all non-
operated oil and gas properties at auction in June of 1996 and the exchange of
minor interests in five Oklahoma wells for the account payable to a prior
officer and director netted income of $50,900 compared to $59,200 in 1995.
Sales, service and compression rental income continued to fall with natural gas
prices throughout 1996. The loss incurred in 1996 of $128,000 as compared to
$69,600 reflects the failure to rent the units available in the fleet and a
roll back in rental rates, warranted by competition, to retain current
customers. Compression segment's cost reduction of $55,000 in 1996 could not
overcome the $113,000 reduction in revenues.
The single largest contributor to 1995 revenues and profitability was the sale
of two of the Company's four pipelines which resulted in income of $156,500.
During 1996, the Company undertook salvage operations of one of the two
remaining pipelines and has incurred costs of $19,000 which were included in
its inventory. No sales were made from this source in 1996. Other equipment
sales were made that had substantially lower margins than in 1995.
Depreciation expense was down between the two periods by $33,600. The majority
of this reduction was in the oil and gas segment where sales of properties over
the past two years have reduced the depreciable basis. Also, price increases
for oil and gas in December 1996 caused extension of the economic lives of the
remaining properties thus reducing the write off percentages.
General and administrative costs declined by $50,000. The compression segment
decrease was approximately $36,000 representing salary paid to a sales
representative in 1995 and $13,000 in the oil and gas segment from savings
derived when the Company's controller resigned and was replaced by a
consultant.
Interest expense declined $20,000 representing the repayment of long term debt
from the pipeline sales and from the auction proceeds in June of 1996.
In summary, 1996 started off on a promising note with the pipeline sales in
late 1995 and substantial debt reduction; however, numerous pending and
potential rentals and sales did not materialize because of changes in customers
plans and/or pricing from competition.
1995 VS. 1994 Earnings per common and common equivalent shares outstanding
changed from a $.16 cent per share loss in 1994, to a $.01 cent per share
profit in 1995. The change reflects deduction for preferred stock dividends of
$21,400 in 1995, and $79,600 in 1994, which were not declared nor paid by the
Company because of severe liquidity concerns. The calculations of per share
amounts reflect the 10 shares for 1 share stock split effected March 31, 1995,
and the automatic conversion of the Serial Preferred Stock, Series A at
December 31, 1994, (which has been postponed pending payment of dividends to
the Series A holders in the amount of $79,600 which represents the last three
quarterly dividends for 1994).
The Company's oil and gas operations incurred 89% of 1994 losses, chiefly
associated with the write down of its Comanche Creek field in the amount of
$315,700. During 1995, price increases coupled with holding of production
costs, created a positive change in the reserves for the Comanche Creek field,
causing reduced depletion and increased reserves. The Company also sold and/or
bartered the disposition of several producing wells that had marginal reserve
values in relationship to revenues and production costs. The final element of
the improvement between 1995 and 1994 was the sale of
11
<PAGE> 14
certain proprietary seismic data for $38,900 included in other income which has
no cost basis.
The compression rental and sales segment of the Company's operations
experienced a 25% reduction in revenues during 1995, as a result of rental
units returned due to low gas prices making compression less attractive. The
net loss remained virtually unchanged between the two periods because
compressor depreciation was down (depreciation expense is not recorded on idle
compressors) as was interest expense on debt associated with this operating
segment.
Sales and service of oil and gas field equipment revenues increased by $162,300
in 1995 as the result of selling two of the Company's four gas pipelines for
$110,000 and $59,000. The Company continues to sell its residual salvage
inventory but did not commence any new salvage operations of wells. At year
end, the Company was proceeding with the salvage of the two remaining pipelines
which it expects to recover for sale 28,000 feet of 6 5/8 inch pipe.
General and administrative expense decreased by approximately 36% in 1995
compared to 1994. Main factors in the reduction were closing of its Denver
office which eliminated the rent expense of $26,500 incurred in 1994 and the
resignation of its president and director which eliminated associated costs.
Interest expense decreased by $14,700 as the result of reducing interest
bearing debt of $226,800 and incurring only $40,500 in new debt, chiefly from
the purchase of a truck for the compressor service segment.
In summary, the Company's prospects for survival improved dramatically during
the fourth quarter of 1995 with the cash transfusion from the sales of the two
pipelines and seismic data which allowed it to become current with its outside
creditors and Bonus Noteholders.
Stronger prices for natural gas during the fourth quarter helped the Company's
oil and gas reserves but have not translated into increased revenues for the
gas compression segment. If the Company is to survive, it must attain positive
cash flows and profitability in its compression segment. During 1995 it
incurred $69,600 in operating losses and negative cash flow of $223,000 which
was similar to the results experienced in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Management continues to follow the survival strategy for its operations in 1997
which it implemented in 1995. All non-essential and noncore assets are being
actively marketed. The management has been cut by two-thirds and a fulltime
and a parttime sales representative has been added on a salary/commission
basis. The Company's executive offices were sublet in 1994, reducing and/or
eliminating all non-essential costs and expenses. Management elected to
postpone the audit of the 1996, 1995 and 1994 financial statements and will
continue postponement or transfer work performed by consultants or independent
professionals to current personnel wherever possible.
Further, management has elected to defer payments on certain debts, dividend
and other obligations in order to remain current with its suppliers and
employees until sufficient monies are raised through sales, refinancing and/or
recapitalization activities are consummated.
There are no assurances that the current situation will abate and the Company
can resume on its path to growth and future profitability.
12
<PAGE> 15
Cash flow from oil and gas operations forecast by the independent engineer are
projected at $154,000 for 1997 which is barely sufficient to amortize scheduled
debt and interest payments of approximately $125,000.
If the Company is to survive with its current working capital deficits of
$462,700, it must continue to sell its noncore assets and generate such
additional funds as necessary from its compressor sales and rental activities.
Management, unfortunately, has no control over oil and gas prices and supply
and demand for natural gas in its market area. If these elements improve in
early 1997 and management's survival tactics work, the Company will survive, if
not, one or all of its business segments will be sold to pay its obligations.
INFLATION AND CHANGING PRICES
The oil and gas industry has been subject to inflationary cost pressures over
the past several years, particularly in the areas of lease operating costs and
general and administrative costs. In general, until 1982, the impact of such
cost increases were offset by increases in prices received for crude oil and
gas sold during the same period. Since 1982 the price per barrel received for
crude oil has declined, largely to an oversupply of crude oil relative to
market demand. Such declines accelerated during 1986 through late 1988,
although there was a modest recovery since late 1988 through the second quarter
of 1990. Beginning on August 2, 1990, the date Iraq invaded Kuwait, the price
of oil began a rapid increase from an average price of $18.00 per barrel to a
high of $40.00 per barrel. These inflated oil prices began to recede in
October 1990 and have continued to decline through December, 1994, reaching an
average of $14.55 per barrel. The average price for oil in 1995 was $17.25 per
barrel and $19.32 in 1996, and is above $20.00 on the futures market at March
12, 1997, but management has no reason to believe prices will remain at this
level.
Over the last four to five years, market prices for natural gas have declined
as well. As a result of an oversupply of natural gas, pipeline purchasers have
exercised "market out" contract provisions to reduce prices paid to producers;
purchasers have curtailed the amount of gas taken from wells and have been very
selective in the granting of new contracts. During the winter of 1991, gas
prices began to rebound due to the cold weather conditions in the Northeast.
These conditions also occurred in 1992. However, the winters of 1993 and 1994
were milder than expected and gas prices have declined 9% in 1993, an
additional 7% in 1994, and an additional 16% in 1995 with $1.25 MCF being used
in the 1995 Reserve Report. Gas prices used for the January 1, 1997 Reserve
Report reflect substantially higher prices of $3.09 in Baca County and $4.26 in
Adams County, Colorado which were the highest prices in several years. These
prices have subsided to levels more in line with prior years results. March of
1997, Baca County, Colorado prices were in the $1.40 range.
Due to the reduction in product prices and substantial reduction of industry
exploration activity, certain costs and services associated with the drilling
of oil and gas wells have also declined since 1982. Because of a variety of
factors, none of which is within the control of the Company, the Company is
unable to predict future cost trends or the prices to be received by it, and
the demand, for any oil and gas produced in the future. One of the gas market
commentators attributed the price increase to low volumes of storage gas.
13
<PAGE> 16
During 1993 the average oil price decreased 2.5% to $16.39, in 1994 the average
oil price dropped 11% to $14.55 and in 1995 average oil prices increased $2.70
or approximately 19%. The beginning oil price used in 1996 Reserve Report was
$15.69 per barrel and the 1997 Reserve Report was $20.25 per barrel. While the
current mid March 1997 price is $18.50 management does know what the average
price for the current year will be.
The compressor rental, sales and servicing segments of the Company are directly
related to the fluctuations in oil and gas prices. If prices decline, the
demand for compressors and service will also decline; thus putting pressure on
the Company to lower prices received for these services. In addition, the
exploration activity will decrease which will cause downward pressure on the
prices received for oil field equipment. The reverse generally takes place
when oil and gas prices are on the increase, or even when prices appear to be
stabilizing.
ITEM 7 - FINANCIAL STATEMENTS
The Consolidated Financial Statements included in this report follow page F-1.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Management decided to postpone the audits of its 1996 and 1995 financial
statements because of liquidity concerns.
14
<PAGE> 17
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, with respect to each director and executive
officer of the Company, as of March 31, 1997, his name and age, his position
and offices, the expiration of his term as director and the period during which
he has served as a director:
<TABLE>
<CAPTION>
Expiration of Period as
Name Age Position Term as Director Director
- --------------------- --- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Rudy C. Schreider, Jr. 54 Chief Executive Officer 1996 Oct., 1988
Director to Present
</TABLE>
EXECUTIVE OFFICERS
Rudy C. Schreider, Jr., is the President and Chief Executive Officer and a
Director of American Atlas. He has held these positions since October, 1988.
Mr. Schreider was the President of American Atlas from October, 1988 until
August, 1993. Since 1985, Mr. Schreider has served as President and Director
of Schreider & Company, Inc.. Mr. Schreider has held the positions of Chief
Executive Officer, Secretary and Director of American Gas Compression Services,
Inc. since its inception. Mr. Schreider is also the President and Director of
Schreider Operating Company. From July, 1983 until March, 1984, Mr. Schreider
was President of Tango Corporation and its oil and gas, real estate and
aviation subsidiaries. From September, 1980 until June, 1983, he was co-
founder and Senior Vice President of Finance of the Quantum Corporation and its
subsidiary Quantum Resource Corporation, both oil and gas companies owning
substantial proven reserves and active in partnership related drilling
activities. For the 14 years prior to September, 1980, Mr. Schreider was
associated with Touche Ross & Co., an international public accounting firm,
serving as a general service partner (audit function) for his last three years.
Mr. Schreider is a CPA and member of the AICPA and Colorado CPA societies. Mr.
Schreider has served as president and director of several professional and
civic organizations on both a local and national level. Mr. Schreider holds
undergraduate and graduate degrees in Accounting and Business from Rice
University in Houston, Texas.
15
<PAGE> 18
ITEM 10 - EXECUTIVE COMPENSATION
The following sets forth the compensation of the Company's chief executive
officer for the last three year period ended December 31, 1996. There are no
executive officers whose compensation is greater than $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Total Annual
Name Position Year Salary ($) Compensation
- ---- -------- ---- ---------- ------------
(1) (2)
<S> <C> <C> <C> <C>
Rudy C. Schreider, Jr. Chief Executive Officer 1996 $60,000 $60,000
Director 1995 $60,000 $60,000
1994 $60,000 $60,000
</TABLE>
(1) Mr. Schreider's salary since August 15, 1994 has been accrued but not paid,
the cash portion in 1994 was $37,500.
(2) The executive officer of the Company and its subsidiaries have not been
awarded, earned or paid any compensation, other than salaries, during the
three year period ended December 31, 1996.
The directors of the Company do not receive any fee or other compensation for
attending meetings of the Board of Directors; however, they may be reimbursed
for actual expenses incurred in connection with attending such meetings. The
Company does not provide any other benefits to its directors.
The Company does not have any stock bonus, pension or profit-sharing plans
other than the Incentive Stock Option Plan described below.
STOCK OPTION PLAN
At the 1993 Annual Meeting of Shareholders, approval was obtained to
discontinue the 1984 Incentive Stock Option Plan, of which no options were
outstanding; and implement the 1993 Key Employees' Incentive Stock Option Plan,
(the "Option Plan"). Pursuant to the Option Plan, the Board of Directors are
authorized to grant options to purchase up to 75,000 (increased to 750,000 to
reflect the 10 shares for one stock split effective March 31, 1995) shares of
the Company's Common Stock only to employees of the Company or its wholly-owned
subsidiaries. The exercise price of the option to acquire Common Stock shall
not be less than the fair market value of the Common Stock at the date of
grant; provided, however, that the exercise price shall not be less than 110%
of the fair market value of the Common Stock on the date of grant in the event
an optionee owns 10% or more of the Common Stock of the Company.
There were no outstanding options at December 31, 1996 and none have been
exercised under the Plan.
16
<PAGE> 19
The following table summarizes the stock options granted during the fiscal
years ended December 31,:
Option Grants in 1995 and 1996
None
Aggregated Options Exercised in Last Fiscal Year and
Fiscal Year End Option Values
None Outstanding
17
<PAGE> 20
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1997 the number and
percentage of shares of the Company's voting equity securities for, (a) each
person who, to the knowledge of the Company, is the beneficial owner of 5
percent or more of the outstanding shares of the Company's voting equity
securities; (b) each of the Company's officers and directors; and (c) all of
the Company's officers and directors as a group. Unless otherwise noted in the
footnotes following the table, the director or officer in each case has sole
voting and investment power with respect to the listed shares.
<TABLE>
<CAPTION>
Series A and Series B
1993 Convertible Common Stock
Name and Address of Common Stock Preferred Stock (2) Equivalents (1)
Beneficial Owner Shares Percent Shares Percent Shares Percent
- ---------------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
G.H. and N.E. Englund As Trustees 117,940 13.5% 96,668(a) 18.5% 1,084,620 17.7%
of the Englund Family Trust
P.O. Box 5466
Incline Village, Nevada 89450
Daniel R. Wenzinger 41,000(f) 4.7% 86,649(g)(h) 16.5% 907,490 14.9%
1660 Lincoln Street, Suite 2812
Denver, Colorado 80264
R.C. Schreider Family Trust (j) 27,010(b) 3.1% 16,104(b) 3.1% 188,050 3.1%
1334 Oxford Street
Houston, Texas 77008
J.E. Wenzinger (j) 34,820(c) 4.0% 8,851(c) 1.7% 123,330 2.0%
480 So. Marion Pkwy. #904-A
Denver, Colorado 80209
Officer and Director
Rudy C. Schreider, Jr. 11,010(d) 1.3% 234,405(e) 44.7% 2,355,060 38.5%
240 West Jessup
Brighton, Colorado 80601
All Officers and Directors
as a Group (1 person) 11,010 1.3% 234,405 44.7% 2,355,060 38.5%
</TABLE>
(1) Common Stock Equivalents represents the maximum shares of common stock to
be issued, assuming: (a) the 155,410 warrants and options outstanding as
of March 31, 1997 were exercised; and (b) the 523,903 shares of Series A
and Series B Preferred Stock were converted to common stock at the ratio
of 10 common for each share of Preferred Stock.
(2) Includes 462,890 shares of Series A Convertible Preferred Stock, 61,013
shares of Series B Convertible Preferred Stock issued in connection with
the Series B Preferred Stock.
(a) Includes 88,628 shares of Series A Preferred Stock; and 8,040 shares of
Series B Preferred Stock.
(b) Represents warrants to purchase 27,010 shares of common stock in
connection with Bonus Interest Promissory Notes of AGCSI and 16,104 shares
of Series A Stock.
(c) Represents warrants to purchase shares of common stock in connection with
Bonus Interest Promissory Notes of AGCSI and 6,251 shares of Series A
Preferred Stock; and 2,600 shares of Series B Preferred Stock.
(d) Includes warrants to purchase 11,010 shares in connection with Bonus
Interest Promissory notes of AGCSI.
(e) Includes 218,405 shares of Series A Preferred Stock; and 16,000 shares of
Series B Preferred Stock.
(f) Includes warrants to purchase 14,520 shares in connection with Bonus
Interest Promissory Notes of AGCSI.
(g) Includes 79,749 shares of Series A Preferred Stock; and 6,900 shares of
Series B Preferred Stock.
(h) Mr. Wenzinger's Series A Preferred Shares are held in the name of Atlas
Energy Corp. ("Atlas"), which is a privately-owned Colorado corporation.
Mr. Wenzinger (who resigned as an officer and director of the Company on
April 12, 1995) is the sole Shareholder and Director of Atlas.
(i) R.C. Schreider is the parent of Rudy C. Schreider, Jr.; J.E. Wenzinger is
the parent of Daniel R. Wenzinger; Messrs. Schreider and Wenzinger
disclaim ownership or the right to vote any of these shares.
18
<PAGE> 21
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The executive officers of the Company, Messrs. Schreider and Wenzinger, (who
resigned as an officer and director on April 12, 1995) were also officers,
directors and former majority shareholders of entities involved in the 1992
Reorganization.
Schreider's issued and outstanding capital stock at the time of the 1992
Reorganization was owned 72% by Mr. Schreider who is the Chief Executive
Officer and a Director of the Company and 25% by Mr. Wenzinger who was the
President/Treasurer/Chief Financial Officer and a Director of the Company.
Messrs. Schreider and Wenzinger held the similar positions with Schreider.
Prior to the 1992 Reorganization, Schreider owned 33,202 shares or 35.5% of the
outstanding Common Stock of the Company. Schreider also held the rights to
purchase additional shares of the Company's Common Stock through a warrant for
682 shares and an option for 450 shares. As a result of the 1992
Reorganization, Mr. Schreider received 165,977 shares of Series A Preferred
Stock valued at $634,032, he also received a warrant to purchase 490 shares of
Common Stock for $221 per share, which expired July 1994 and an option to
acquire 324 shares of Common Stock, at $34 per share, which expired November
1995. In connection with the 1992 Reorganization, Mr. Wenzinger received 57,631
shares of Series A Preferred Stock valued at $220,150, he also received a
warrant to purchase 171 shares of Common Stock for $221 per share, which
expired July 1994 and an option to acquire 113 shares of Common Stock, at $34
per share, which expired in November 1995.
Mr. Wenzinger was a Director, Treasurer of AGCSI. In connection with the 1992
Reorganization, he received 69.89 shares of Series A Preferred Stock of the
Company, valued at $267, in exchange for his shares of AGCSI.
A portion of the 10% Bonus Interest Promissory Notes issued by AGCSI were
subscribed to by Messrs. Schreider and Wenzinger and various family members of
both. The original investments in the Notes by Messrs. Schreider and Wenzinger
was $26,000 and $23,600, respectively. In connection with the issuance of
warrants for Common Stock for the release of the Noteholder's security interest
in AGCSI's compressors, as of December 31, 1992, Messrs. Schreider and
Wenzinger received warrants to purchase 2,638 shares and 5,513 shares,
respectively. The shares underlying the warrants are declining monthly due to
payments on the Notes being made; for every $3.82 paid on the unamortized
principal, the warrant declines by one share. The number of shares acquired
through the warrant are calculated on the outstanding principal and interest
balance of the Notes at the time of exercise.
In addition, Messrs. Schreider and Wenzinger personally owned undivided working
interests in the same oil and gas properties as the Et. Als. They also
exchanged their interests for shares of Series A Preferred Stock on the same
basis as all other Et. Als. Mr. Schreider received 52,428 shares of Series A
Preferred Stock, valued at $200,274 and Mr. Wenzinger received 22,048 shares of
Series A Preferred Stock, valued at $84,225.
All of the 1992 Reorganization transactions which involved Messrs. Schreider
and Wenzinger or their family members were conducted upon the same terms and
conditions as all 1992 Reorganization transactions involving unrelated parties.
There are no preferential rights associated with any transaction in which the
officers of the Company were involved.
Messrs. Wenzinger and Schreider purchased 6,900 and 16,000 units of Series B
Preferred Stock with Class A and B Warrants for cash of $34,500 and $80,000,
respectively.
19
<PAGE> 22
In 1995, Mr. Schreider borrowed from his bank for the Company, $15,000 for the
purchase of certain equipment and to pay Company obligations. The Company
repaid the loan and applicable interest to the bank.
During 1994, the Company exchanged various pieces of equipment for an account
payable owed to Mr. Schreider. The account payable arose from working capital
advances to the Company by Mr. Schreider. The value of the equipment exchanged
was $47,000, which equaled the Company's book value and approximated the fair
market value of the equipment.
During 1996, the Company exchanged its interest in five oil and gas properties
in Oklahoma for an account payable owed Mr. Wenzinger. The account payable
arose from salary, consulting fees and expenses prior to his resignation. The
reserve value of the wells was equal to the payable of $12,400. The Company
recorded a profit of $10,700 which was the difference between the book value
and the payable.
20
<PAGE> 23
ITEM 13 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included in Part II (Item 7) of this report:
Management's Report in Lieu of Independent Auditor's Report
Financial Statements:
Consolidated Balance Sheet at December 31, 1996.
Consolidated Statements of Operations for each of the two
years in the period ended December 31, 1996.
Consolidated Statement of Changes in Stockholders' Equity for
each of the two years in the period ended December 31, 1996.
Consolidated Statements of Cash Flow (Indirect Method) for
each of the two years in the period ended December 31, 1996.
Notes to Consolidated Financial Statements.
2. Exhibits
3.1 Certificate of Incorporation of WEPCo Energy Co.
(Incorporated by reference to Exhibit 3.1 to Form 10-K for
the fiscal year ended December 31, 1986).
3.2 Certificate of Amendment to Certificate of Incorporation of
WEPCo Energy Co. filed with the Delaware Secretary of State
on August 24, 1987. (Incorporated by reference to Exhibit 3.2
to Form 10-K for the fiscal year ended December 31, 1987).
3.3 Certificate of Amendment to Certificate of Incorporation of
WEPCo Energy Co. filed with the Delaware Secretary of State
on December 4, 1991. (Incorporated by reference to Exhibit
3.3 to Form 10-K for the fiscal year ended December 31,
1991).
3.3A Certificate of Designation of 1993 Convertible Preferred
Stock. (Incorporated by reference to Exhibit 3.3A to Form
10-KSB for the fiscal year ended December 31, 1993).
3.4 By-Laws of WEPCo Energy Co., as amended (Incorporated by
reference to Exhibit 3.2 to Form 10-K for the fiscal year
ended December 31, 1986).
4.4 Specimen of Common Stock Certificate of WEPCo Energy Co.
(Incorporated by reference to Exhibit 4.7 to Form S-4
Registration Statement filed November 10, 1986).
10.1 Stock Option Plan adopted by Polaris Oil & Gas, Inc. on July
10, 1984, and transferred and assumed by WEPCo Energy Co.
(Incorporated by reference to Exhibit 10(a) to Form 8-K filed
on September 5, 1984).
21
<PAGE> 24
10.2 Sublease dated March 31, 1989, Wepco Energy Company as
sublessee and Western Mud Company as sublessor. (Incorporated
by reference to Exhibit 10.10 to Form 10-K for the fiscal
year ended December 31, 1988).
10.3 Letter Agreement dated December 18, 1989, by and among KPW
Oil Company, Schreider & Company, Inc. and Daniel R.
Wenzinger. (Incorporated by reference to Exhibit 10.3 to Form
10-K for the fiscal year ended December 31, 1989).
10.4 Letter Agreement dated December 15, 1989, by and between
Schreider & Company, Inc. and Atlantic Oil Company.
(Incorporated by reference to Exhibit 10.4 to Form 10-K for
the fiscal year ended December 31, 1989).
10.5 Agreement dated December 22, 1989, by and between Billings
401 Joint Venture and WEPCo Energy Co. accompanying
Assignment of Lessor's Interest in Lease of even date from
Billings 401 Joint Venture to Schreider & Company, Inc.
(Incorporated by reference to Exhibit 10.5 to Form 10-K for
the fiscal year ended December 31, 1989).
10.6 Assignment Agreement dated as of September 30, 1989, by and
between Continental Illinois Energy Development Corporation
and Schreider & Company, Inc. (Incorporated by reference to
Exhibit 10.6 to Form 10-K for the fiscal year ended December
31, 1989).
10.7 Settlement Agreement dated December 29, 1989, by and between
Ameritrust Company National Association and WEPCo Energy Co.
(Incorporated by reference to Exhibit 10.7 to Form 10-K for
the fiscal year ended December 31, 1989).
10.8 Promissory Note and Commercial Pledge Agreement, each dated
December 29, 1989, from WEPCo Energy Co. in favor of The
Professional Bank of Colorado. (Incorporated by reference to
Exhibit 10.8 to Form 10-K for the fiscal year ended December
31, 1989).
10.9 Secured Term Loan Agreement dated as of December 29, 1989, by
and between WEPCo Energy Co. and Schreider & Company, Inc.
(Incorporated by reference to Exhibit 10.9 to Form 10-K for
the fiscal year ended December 31, 1989).
10.10 Promissory Note and Commercial Pledge Agreement, each dated
December 29, 1989, by WEPCo Energy Co. in favor of Schreider
& Company, Inc. (Incorporated by reference to Exhibit 10.10
to Form 10-K for the fiscal year ended December 31, 1989).
10.11 Purchase and Sale Agreement dated September 15, 1990 between
WEPCo Energy Co. and Enron Oil and Gas Company for interest
in the Shelton State #1-12, Roger Mills County, Oklahoma.
(Incorporated by reference to Exhibit 10.11 to Form 10-K for
the fiscal year ended December 31, 1990).
10.12 Promissory Note dated October 17, 1990 by American Gas
Compression Services, Inc. in favor of WEPCo Energy Co.
(Incorporated by reference to Exhibit 10.12 to Form 10-K for
the fiscal year ended December 31, 1990).
10.13 Commercial Pledge Agreement dated October 17, 1990 from
American Gas Compression Services, Inc. in favor of WEPCo
Energy Co. (Incorporated by reference to Exhibit 10.13 to
Form 10-K for the fiscal year ended December 31, 1990).
22
<PAGE> 25
10.14 Letter Agreement dated August 24, 1990 by and among Davis,
Graham & Stubbs, and Schreider & Company, Inc. (Incorporated
by reference to Exhibit 10.14 to Form 10-K for the fiscal
year ended December 31, 1990).
10.15 10% Secured Bonus Interest Promissory Note issued by American
Gas Compression Services, Inc. (Incorporated by reference to
Exhibit 10.15 to Form 10-Q for the nine months ended
September 30, 1991).
10.16 American Gas Compression Services, Inc.: Agency Agreement.
(Incorporated by reference to Exhibit 10.16 to Form 10-Q for
the nine months ended September 30, 1991).
10.17 American Gas Compression Services, Inc.: Commercial Pledge
Agreement. (Incorporated by reference to Exhibit 10.17 to
Form 10-Q for the nine months ended September 30, 1991).
10.18 Settlement Agreement and Mutual Release dated March 11, 1992
by and among David V. Creel, Bob N.Nichols, WEPCo Energy Co.
and Rudy C. Schreider, Jr. (Incorporated by reference to
Exhibit 10.18 to Form 10-Q for the three months ended March
31, 1992).
10.19 Purchase and Sale Agreement, dated April 20, 1992 and amended
April 21 and 30, 1992 between Wepco Energy Co. and Plymouth
Resources, Inc. for interest in four wells and undeveloped
acreage located in Custer and Roger Mills counties, Oklahoma.
(Incorporated by reference to Exhibit 10.19 to Form 10Q for
the six months ended June 30, 1992).
10.20 Schreider & Company Shareholders' Exchange Agreement:
Exchange of Working Interest by Et. Al's. (Incorporated by
reference to Exhibit 10.20 to Form 10KSB for the fiscal year
ended December 31, 1992).
10.21 Schreider & Company Shareholders' Exchange Agreement:
Exchange of Schreider & Company Common Stock. (Incorporated
by reference to Exhibit 10.21 to Form 10KSB for the fiscal
year ended December 31, 1992).
10.22 American Gas Compression Services, Inc. Shareholder Exchange
Agreement: Exchange of American Gas Compression Services,
Inc. Common Stock. (Incorporated by reference to Exhibit
10.22 to Form 10KSB for the fiscal year ended December 31,
1992).
10.23 Warrant Agreement by and between American Gas Compression
Services, Inc. and 10% Secured Bonus Interest Promissory Note
holders. Whereas the Company issued a warrant to purchase its
common stock at an exercise price of $.0382 per share.
(Incorporated by reference to Exhibit 10.23 to Form 10KSB for
the fiscal year ended December 31, 1992).
10.93.1 Promissory Note and Security Agreement dated April 12, 1993
by American Gas Compression Services, Inc. and Wepco Energy
Co., as co-debtors and Norwest Equipment Finance Inc.
(Incorporated by reference to Exhibit 10.93.1 to Form 10QSB
for the three months ended March 31, 1993).
10.93.2 1993 Key Employees' Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10.93.2 to Form 10KSB
for the fiscal year ended December 31, 1993).
23
<PAGE> 26
22.1 Subsidiaries of the Registrant. (Incorporated by reference to
Exhibit 22.1 to Form 10KSB for the fiscal year ended December
31, 1992).
27 Financial Data Schedule. (Filed herewith, see Exhibit Index).
(b) Reports on Form 8-K.
NONE
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATED: March 22, 1997
American Atlas Resource Corporation
By: /s/ Rudy C. Schreider, Jr.
---------------------------------------
Rudy C. Schreider, Jr., President, C.E.O.
Pursuant with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on the behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Rudy C. Schreider, Jr. March 22, 1997
- ------------------------- --------------
Rudy C. Schreider, Jr. President Date
Chief Executive Officer
Director
25
<PAGE> 28
ITEM 7 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN ATLAS RESOURCE CORPORATION
(FORMERLY WEPCO ENERGY CO.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
CONSOLIDATED FINANCIAL STATEMENTS (SUBMITTED IN RESPONSE TO PART II,
ITEM 8).
<S> <C>
Management's Report in Lieu of Independent Auditor's Report F-2
Consolidated Balance Sheet - December 31, 1996 F-3
Consolidated Statements of Operations - for the Years Ended December 31,
1996 and 1995 F-4
Consolidated Statement of Changes in Stockholders' Equity - for the Period
from January 1, 1995 through December 31, 1996 F-5
Consolidated Statements of Cash Flows - for the Years ended December
31, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 29
MANAGEMENT'S REPORT IN LIEU OF
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
American Atlas Resource Corporation
We have prepared the accompanying consolidated balance sheet of American Atlas
Resource Corporation (formerly WEPCo Energy Co.) and subsidiaries as of
December 31, 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the years in the two
year period ended December 31, 1996 without audit by Independent Auditors.
These consolidated financial statements are the responsibility of the Company's
management.
Independent Auditors would have subjected these financial statements to audits,
in accordance with generally accepted auditing standards which require planning
and performance of audit procedures to obtain reasonable assurance about
whether the financial statements are free of material misstatements.
Independent Auditors would assess the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. The Independent Auditors would then opine as
to the fairness of the financial position of the Company at the end of the
period presented in conformity with generally accepted principles.
The consolidated financial statements referred to above have been prepared by
the Company without audit. In the opinion of management, these financial
statements contain all adjustments necessary to present fairly, in all material
aspects, the financial position of American Atlas Resources Corporation and
subsidiaries as of December 31, 1996 and the results of our operation and our
cash flow for each of the years in two year period ending December 31, 1996, in
conformity with generally accepted accounting principles.
Rudy C. Schreider, Jr.
March 22, 1997
F - 2
<PAGE> 30
AMERICAN ATLAS RESOURCE CORPORATION and SUBSIDIARIES
(Formerly WEPCO Energy Co.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 53,900
Accounts Receivable (less $4,700 allowance for doubtful accounts) 122,200
Parts and Equipment Inventory 76,800
Prepayments and Other 1,700
-----------
TOTAL CURRENT ASSETS 254,600
-----------
PROPERTY AND EQUIPMENT:
Oil and Gas Properties, (at cost, on the successful
efforts method of accounting)
Proved Properties 1,647,100
Natural Gas Compressors 1,010,200
Land and Building 141,900
Automobiles and Trucks 149,700
Shop Machinery, Equipment, Furniture and Fixtures 63,300
-----------
3,012,200
Accumulated Depreciation, Depletion and Amortization (1,663,600)
-----------
1,348,600
-----------
OTHER ASSETS: 5,000
-----------
TOTAL ASSETS $ 1,608,200
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 340,300
Oil and Gas Revenues Payable 248,300
Production Taxes Payable 27,300
Current Portion of Long-Term Debt 101,400
-----------
TOTAL CURRENT LIABILITIES 717,300
-----------
LONG-TERM DEBT AND OTHER LIABILITIES:
Long-Term Debt 109,600
Production Taxes Payable 66,600
Advances From Joint Owners and Affiliates 39,600
-----------
215,800
-----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)
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 (6,717,400)
-----------
TOTAL STOCKHOLDERS' EQUITY 675,100
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,608,200
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 3
<PAGE> 31
AMERICAN ATLAS RESOURCE CORPORATION and SUBSIDIARIES
(Formerly WEPCo Energy Co.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995
--------- ----------
<S> <C> <C>
REVENUES:
Oil and Gas Sales $ 225,300 $ 285,700
Compressor Rental Income and Sales 239,500 318,000
Gain on Sale of Oil and Gas Properties (Net) 50,900 59,200
Sales and Services of Oil and Gas Field Equipment 130,100 204,200
Management and Operator Fees 37,300 32,300
Other Income 2,500 78,700
--------- ----------
685,600 978,100
--------- ----------
COSTS AND EXPENSES:
Oil and Gas Production Costs 132,900 164,600
Compressor Operating Costs 220,500 183,800
Costs of Oil and Gas Field Equipment and Services 123,900 51,300
Dry Holes, Exploration Expense and Expired Leases --- 5,800
Depreciation, Depletion and Amortization 172,900 206,500
Write Down of Oil and Gas Properties
to Estimated Future Net Revenues 100 1,100
General and Administrative 176,500 226,200
Interest Expense 20,200 42,400
---------- ----------
847,000 881,700
---------- ----------
INCOME (LOSS) BEFORE TAXES: (161,400) 96,400
PROVISION FOR INCOME TAXES:
Income Tax Benefit (Expense) --- ---
---------- ----------
NET PROFIT (LOSS) (161,400) 96,400
LESS PREFERRED DIVIDENDS 21,400 21,400
---------- ----------
NET PROFIT (LOSS) TO
COMMON STOCKHOLDERS $ (182,800) $ 75,000
========== ==========
NET PROFIT (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (.03) $ .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.
F - 4
<PAGE> 32
AMERICAN ATLAS RESOURCE CORPORATION and SUBSIDIARIES
(Formerly WEPCo Energy Co.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1995 THROUGH DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Additional Total
Series A Series B Common Stock Paid-In Accumulated Stockholder's
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 462,890 $ 1,768,200 61,013 $305,100 72,043 $ 700 $ 5,318,500 $(6,652,300) $740,200
Stock Split -- -- -- -- 648,387 6,500 (6,500) -- --
Net Profit -- -- -- -- -- -- -- 96,400 96,400
------- ----------- ------ -------- ------ ------ ----------- ----------- --------
BALANCE, DECEMBER 31, 1995 462,890 $ 1,768,200 61,013 $305,100 720,430 $7,200 $ 5,312,000 $(6,556,000) $836,500
------- ----------- ------ -------- ------ ------ ----------- ----------- --------
Net Loss (161,400) (161,400)
------- ----------- ------ -------- ------ ------ ----------- ----------- --------
BALANCE, DECEMBER 31, 1996 462,890 $ 1,768,200 61,013 $305,100 720,430 $7,200 $ 5,312,000 $(6,717,400) $675,100
======= =========== ====== ======== ======= ====== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
<PAGE> 33
AMERICAN ATLAS RESOURCE CORPORATION and SUBSIDIARIES
(Formerly WEPCo Energy Co.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit (Loss) Income $(161,400) $ 96,400
Adjustments to Reconcile Net Profit (Loss) Income to
Net Cash (Used) Provided by Operating Activities:
Depreciation, Depletion and Amortization 172,900 206,500
Write Down of Oil and Gas Properties
to Estimated Future Revenues 100 1,100
Gain on Sale of Oil and Gas Properties (50,900) (59,200)
Write Off of Undeveloped Acreage -- 5,800
Write Off of Deferred Tax Asset -- --
Bonus Interest 2,000 6,900
--------- ---------
(37,300) 257,500
Changes in Operating Assets/Liabilities:
Decrease (Increase) in Accounts Receivable (53,200) 77,200
Decrease (Increase) in Parts and Equipment Inventory (16,600) 46,600
Decrease (Increase) in Prepayments and Other (400) 1,300
Decrease (Increase) Other Assets -- 3,900
(Decrease) Increase in Accounts Payable
and Accrued Expenses 33,800 (45,500)
(Decrease) Increase in Undistributed Revenue 10,900 6,000
(Decrease) Increase in Production Taxes Payable (14,600) (24,700)
(Decrease) Increase in Advances from Joint Owners -- (18,900)
--------- ---------
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES (77,400) 303,400
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Oil and Gas Properties 62,600 68,600
Additions to Oil and gas Properties (Net) (11,700) (3,900)
Additions to Compressors and Other Equipment (5,100) (42,500)
--------- ---------
NET CASH (USED) PROVIDED IN INVESTING
ACTIVITIES 45,800 22,200
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Notes 38,300 40,500
Payments on Notes (105,700) (226,800)
--------- ---------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES (67,400) (186,300)
--------- ---------
NET (DECREASE) INCREASE IN CASH (99,000) 139,300
CASH, Beginning of Year 152,900 13,600
--------- ---------
CASH, End of Year $ 53,900 $ 152,900
========= =========
SUPPLEMENTAL INFORMATION:
Cash Paid During the Year For:
Interest$ 18,200 $ 35,500
Net Book Value of Oil and Gas Properties
exchanged for Account Payable $ 1,700 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 6
<PAGE> 34
AMERICAN ATLAS RESOURCE CORPORATION AND SUBSIDIARIES (Formerly
WEPCo Energy Co.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business -- American Atlas Resource Corporation ("American
Atlas" or the "Company") is the new name of Wepco Energy Co. ("Wepco"). At its
Annual Shareholders Meeting on August 6, 1993, Wepco shareholders voted to
change the Company name. American Atlas/Wepco was incorporated by Polaris Oil &
Gas, Inc. ("Polaris") on June 19, 1984, under the laws of the State of
Delaware, as a wholly-owned subsidiary of Polaris. The shareholders approved
and adopted an Agreement and Plan of Merger pursuant to which Polaris was
merged with and into American Atlas/Wepco, and the holders of shares of Common
Stock of Polaris became holders of corresponding shares of Common Stock of
American Atlas /Wepco on July 13, 1984.
The Company and its wholly-owned subsidiaries, States Exploration Co.
("States") and Schreider & Company, Inc. ("Schreider"), are engaged in the
exploration and development of oil and gas properties and sales and services of
oil field equipment. American Gas Compression Services, Inc. ("AGCSI"), is
engaged in the leasing, fabrication and servicing of natural gas compressors.
The Company and its subsidiaries operate exclusively in the oil and gas
industry, and all of its operations are conducted within the continental United
States.
Basis of Presentation -- The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. The
Company has a working capital deficit of $462,700 as of December 31, 1996. The
continuation of the Company as a going concern is dependent upon obtaining
additional long-term debt and/or equity financing, and/or selling property and
equipment and achieving and maintaining profitable operations.
Financial Reporting -- The consolidated financial statements for the years
ended December 31, 1996 and 1995 include the accounts of American Atlas and its
wholly-owned subsidiaries, States, Schreider and AGCSI. All material
intercompany accounts and transactions have been eliminated.
A summary of the Company's significant accounting policies follows:
Parts and Equipment Inventory -- Inventory, which primarily includes compressor
parts and oil field equipment, is recorded at the lower of cost or market.
Compressor parts are valued using the first-in-first-out method; oil field
equipment is valued using the specific identification method.
Oil and Gas Properties The Company follows successful efforts method of
accounting for costs incurred in the acquisition, exploration and development
of oil and gas properties. Under this method, geological and geophysical costs,
annual delay rentals on undeveloped leases and exploratory dry hole costs are
charged to expense as incurred. Intangible drilling and development costs are
capitalized on successful wells and development dry holes. Property acquisition
costs are capitalized as incurred and are charged to expense when abandoned.
F - 7
<PAGE> 35
Depreciation, depletion and amortization are provided on the
units-of-production method based on the estimated proved oil and gas reserves,
computed on a property-by-property basis. Costs are not capitalized in an
amount which exceeds total estimated future net revenues of the Company's
proved reserves.
Unproved properties are assessed periodically for impairment on a
property-by-property basis. Proceeds from sales of interests in unproved oil
and gas properties in which the Company retains an economic interest are
credited against property costs. Gains on sales of interests in unproved
properties are recognized when property costs are fully recovered and the
Company has no substantial commitments for future performance.
Natural Gas Compressors -- Compressors are recorded at cost, which includes the
initial acquisition cost and all direct and indirect cost associated with
overhauling and reconditioning. Depreciation is provided over an estimated
useful life of ten years using the straight-line method.
Land and Building -- Land and Building are recorded at cost. Land cost
estimated to be $24,000 is not depreciated. The remaining cost associated with
the building is depreciated over a thirty year life using the straight-line
method. Maintenance and repairs are included in operations as incurred;
expenditures for major improvements are capitalized.
Automobiles, Trucks, Equipment and Shop Machinery and Tools -- All items are
carried at cost plus any significant expenditures which are required to get the
equipment in operating condition or extend the life of the asset. All
maintenance and repair expenditures are charged to operations. These assets are
depreciated using the straight-line method over their estimated useful lives.
Furniture and Fixtures -- Furniture and fixtures are carried at cost.
Maintenance and repairs are charged to operations as incurred; expenditures for
major improvements are capitalized. Depreciation is provided using the
straight-line method over five to seven years, which represents the estimated
useful lives of the related assets.
Net (Loss) Income Per Common and Common Equivalent Share -- Net Loss per common
share is computed on the basis of the weighted average number of common and
common stock equivalent shares outstanding during the period. Common Stock
outstanding at December 31, 1996 and 1995, used in the computation of Net
(Loss) Income per common share was adjusted to reflect the automatic conversion
of the Preferred Stock Series A to Common Stock at December 31, 1994, which was
postponed, as accrued dividends in the amount of $79,600 were not declared nor
paid by the Company because of liquidity. The Board of Directors has not
declared dividend on the Preferred Stock Series B in the amount of $21,400 for
the year ending December 31, 1995, and an equal amount in 1996 which amount has
been deducted from Net Profit in determining Net Profit to Common and Common
Equivalent Shares outstanding. Common Stock equivalents are not included in the
weighted average shares or net loss per share calculation for the year ending
December 31, 1996, due to their effect being antidilutive. All references to
per share amounts gives retroactive effect to the 1 for 10 stock split, which
became effective March 31, 1995.
F - 8
<PAGE> 36
2. RECEIVABLES:
Receivables consist of the following, at December 31, 1996:
<TABLE>
<S> <C>
Accrued Oil and Gas Sales $ 46,200
Compressor Rental Receivables
($4,700 Allowance for Doubtful Accounts) 46,000
Sale of Oil and gas Equipment 30,000
--------
$122,200
========
</TABLE>
3. NOTES PAYABLE:
The Company's notes payable and long-term debt consist of the following as of
December 31, 1996:
<TABLE>
<S> <C>
10% Bonus Interest Promissory Notes (A) 32,900
Accrued Bonus Interest (A) 43,400
Brighton Shop (B) 78,600
Note to the Bank and Finance Company (C) 53,000
Other 3,100
---------
211,000
Less Current Portion 101,400
---------
Total Long-Term Debt $ 109,600
=========
</TABLE>
(A) During 1991 and 1992, AGCSI placed $500,000 through a private
placement of 10% Secured Bonus Interest Promissory Notes (the
"Notes"). The rate of interest on the Notes is 10% per annum fixed
simple interest, with a Bonus Interest payment payable the month
following the final principal and interest payment. The Bonus Interest
is equal to one-half of the total interest paid on the Notes. The
payment schedule requires monthly payments based upon a five year
amortization applied first to interest, then principal. During 1994
the Company suspended monthly payments including management and
related parties, and on January 2, 1996 all back payments of principal
and interest were made.
Again in October, 1996, payments of principal and interest were
suspended and will resume when funds are available. As of March 15,
1997, no unpaid Note-holders have commenced any action against the
Company, nor is any anticipated.
The Notes were originally collateralized by a first mortgage on twenty
compressors and included all contractual rights associated with the
operations of the pledged compressors. On December 31, 1992 all of the
Note holders relinquished their security position in the compressors
in exchange for a decreasing Warrant to purchase the Company's Common
Stock at $3.82 per 10 shares. The number of shares underlining the
Warrant is determined based upon the remaining principal and accrued
Bonus Interest outstanding at the time of exercise, thereby decreasing
with each monthly payment. As of December 31, 1996, warrants to
purchase 155,410 shares of Common Stock were outstanding.
(B) This note is payable to the seller of the AGCSI's maintenance facility
located in Brighton, Colorado. It is collateralized by a first
mortgage on the facility. The note requires monthly payments based
upon 8.5% per annum, with principal and interest amortized over 20
years. On October 15, 2001, the unamortized principal balance of
$63,000 becomes due.
F - 9
<PAGE> 37
(C) In June 1995, the Company purchased a mechanics truck for its Utah
compressor operations. The purchase was financed by a $36,000, thirty-six
month loan at 7.375% collateralized by the truck. In October 1996, the
Company purchased a utility vehicle. The purchase was financed by a $34,800,
thirty-six month note at 8.9% collateralized by the vehicle.
Minimum principal payments due for the next five years on the notes and
long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 101,400
1998 25,100
1999 15,000
2000 3,600
2001 and after 65,900
-------
$ 211,000
=========
</TABLE>
4. INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes in 1992 and elected to restate the financial
statements for the year ended December 31, 1991. Retained earnings were
increased by $11,000 to reflect the cumulative effect of adoption on years
prior to 1991 and recorded a $114,000 net deferred tax asset based upon its
interpretation of the Standard and oil and gas reserve report projections
prepared by its independent petroleum engineers.
As of December 31, 1994, the Company increased the evaluation allowance to
reflect the uncertainty as to the prudence and feasibility of its tax planning
strategy because of its lack of control over oil and gas prices.
The components of the net deferred tax asset recognized as of December 31,
1996, are as follows:
<TABLE>
<S> <C>
Deferred Tax Asset $ 2,964,000
Less Valuation Allowance (2,733,000)
-------------
231,000
-------------
Deferred Tax Liability (231,000)
Net Deferred Tax Asset $ -0-
=============
</TABLE>
The temporary differences between the tax basis of assets and their financial
reporting amounts that give rise to the deferred tax liability are primarily a
result of the timing of deductions and write-offs for certain costs of oil and
gas exploration and production activities. Temporary differences are also
created due to the differences arising from the use of financial accounting for
the acquisitions of companies versus the tax basis of the assets received, most
recently the acquisition of Schreider and the Et. Al's. Interest.
F - 10
<PAGE> 38
The amounts which give rise to the net deferred tax asset (liability) as of
December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
Liability Asset Liability Asset
------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Excess Book Basis $ 1,081,000 $ $ 586,000 $
Excess Book Depreciation 562,000 93,900
Excess Book
Officer's Salary (153,000) --
----------- ----------
Total Taxable Temporary Differences 1,490,000 679,900
----------- ----------
Net Operating Loss Carry Forward 8,325,100 8,452,900
----------- ----------
Tax Effect of Temporary Differences $ 506,000 $ 2,830,000 $ 231,000 $2,874,000
----------- ----------
Investment Tax Credit Carry Forward 90,000 90,000
----------- ----------
2,920,000 2,964,000
Less Valuation Allowance (2,414,000) (2,733,000)
----------- ----------
Total Deferred Tax Asset 506,000 231,000
Less Total Deferred Tax Liability (506,000) (231,000)
----------- ----------
Net Deferred Tax Asset $ -0- $ -0-
=========== ==========
</TABLE>
The tax net operating loss carry forwards of approximately $8,325,100
begin to expire in 1997 and continue through 2007. The investment tax
credit carry forwards expire 1997 through 2004.
The components of income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995
------- -------
<S> <C> <C>
Federal:
Current $ -0- $27,000
Deferred (55,000) 5,800
-------- -------
$(55,000) $32,800
======== =======
</TABLE>
Total income tax (benefit) expense differed from the amounts computed,
by applying the U.S. federal statutory tax rates to pre-tax income as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995
-------- --------
<S> <C> <C>
Total Expense Computed by Applying
the U.S. Statutory Rate $(55,000) $ 32,800
Income Tax Benefit -- (5,800)
Net Increase in Deferred Tax Asset 55,000 (27,000)
-------- --------
-0- -0-
Alternative Minimum Tax -- --
-------- --------
$ -0- $ -0-
======== ========
</TABLE>
5. STOCKHOLDERS' EQUITY:
Preferred Stock
The Company's Certificate of Incorporation, as amended, provides that the
directors have the authority to issue up to 1,000,000 shares of $.01 par value
preferred stock. Such shares can be issued in one or more series upon terms
fixed by the directors which terms may include some or all of the following
features: (a) voting power; (b) may be convertible; (c) may be entitled to the
benefit of a sinking fund to be applied to the redemption of the shares; (d)
may have other rights; and (e) may be entitled to receive cumulative or
noncumulative dividends.
On December 12, 1992, the Board of Directors approved the acquisition of
Schreider, AGCSI and the Et. Al's. Interest through the issuance of
additional equity securities. This plan of acquisition involved the designation
and issuance of the 1993 Series A Convertible Preferred Stock. Effective
F - 11
<PAGE> 39
in December, 1992, the Company completed final agreements and documents
consummating the issuance of 462,890 shares of the Series A Preferred Stock.
The features of the Series A Preferred Stock issued include: (a) each Series A
Preferred share is being convertible to 10 shares of the Company's Common
Stock; holders of the Series A Preferred Stock may convert to Common Stock at
their option any time or it will automatically be converted on December 31,
1995; and (b) is entitled to a non-cumulative dividend, payable quarterly, at a
rate of 6% per annum of the face value of $3.82 per share. The Series A
Preferred Stock does not have any liquidation preference; but, is entitled to
one vote per share. The automatic conversion of the Series A Preferred Stock
has been postponed until management has determined that it has sufficient
liquidity to pay the three quarterly dividends ($79,600) originally scheduled
for 1994.
In June, 1994, the Company completed a private placement offering under a
Securities Exchange Commission Regulation D filing. The offering consists of
Units of 1993 Series B Convertible Preferred Stock and Warrants to purchase
Common Stock (the "Units"). Each Unit consists of one share of 1993 Series B
Convertible Preferred Stock ("Series B Preferred Stock"), one Class A Common
Stock Purchase Warrant, and one Class B Common Stock Purchase Warrant (the
"Series B Warrants").
The features of the Series B Preferred Stock include: (a) an annual cumulative
dividend payable quarterly rate of 7% of the face value of $5.00 per share; (b)
each Series B Preferred share is convertible to 10 shares of Common Stock; (c)
each share is entitled to ten votes on all matters brought before the Company's
shareholders; (d) the Series B Preferred Stock is redeemable for $5.00 per
share after December 31, 1995; and do not have any liquidation preference.
The exercise price and term of each Series B Warrant is as follows:
Class A Warrants Exercisable at $6.00 per share from the date of
issuance through December 31, 1995 (all expired
unexercised)
Class B Warrants Exercisable at $7.00 per share from the date of
issuance through December 31, 1996 (all expired
unexercised)
The Company sold 61,013 Units of the Series B Preferred Stock and warrants, of
which 22,900 were sold to officers of the Company, with total proceeds being
$305,100.
During 1994 management and the Board of Directors postponed dividend payments
until the Company's liquidity position improves. Cumulative but undeclared
dividends on the Series B Preferred Stock was $42,800 and $79,600 on the Series
A Preferred Stock at December 31, 1996.
Common Stock
Effective March 31, 1995, the Company declared a 10 for 1 share split of its
Common Stock. All warrants and options were adjusted to reflect this change.
As part of the reorganization, the Company issued Warrants to purchase its
Common Stock to persons who hold 10% Secured Bonus Interest Promissory Notes
issued by its subsidiary AGCSI.
F - 12
<PAGE> 40
The Notes were collateralized by 20 compressors owned by AGCSI and require
monthly payments of principal and interest. On December 31, 1992, the Company
offered to all holders of the Notes, warrants to purchase Common Stock at $3.82
per share for the release of their collateral interest in the compressors. The
amount of shares underlying the Warrant was calculated based upon the remaining
principal balances in the Notes plus the accrued Bonus Interest to date.
Thereafter, the number of shares underlying the Warrant will decrease by ten
shares for every $3.82 paid towards the unamortized principal with each monthly
payment. As of December 31, 1996, Warrants to purchase 155,410 shares of Common
Stock were outstanding, including 10,010 warrants to an officer and director
who is a Noteholder.
At the 1993 Annual Meeting of shareholders, approval was obtained to
discontinue the 1984 Incentive Stock Option Plan, of which no options were
outstanding; and implement the 1993 Key Employees' Incentive Stock Option Plan,
(the "Option Plan"). Pursuant to the Option Plan, the Board of Directors are
authorized to grant options to purchase up to 750,000 shares of the Company's
Common Stock. Only employees of the Company or its wholly-owned subsidiaries
are eligible to participate in the option plan. The exercise price of the
option to acquire Common Stock shall not be less than the fair market value of
the Common Stock on the date of grant; in the event an optionee owns 10% or
more of the Common Stock of the Company, the exercise price shall not be less
than 110% of the fair market value of the Common Stock on the date of the
grant. As of December 31, 1994, the Board of Directors has granted options
under the option plan to purchase 70,000 shares at an exercise price of $.40
per share which expired unexercised when the grantee resigned.
The Company's Board of Directors issued options to purchase 100,000 shares to a
former director. The options are exercisable at $.40 per share and expire in
October, 1998.
6. COMMITMENTS AND CONTINGENT LIABILITIES:
On December 15, 1994 the Company entered into a sublease on its executive
offices. The terms of the sublease are comparable to the lease which expires in
May of 1997.
As general partner of certain managed limited partnerships, the Company is
contingently liable for the obligations of the partnerships.
7. MAJOR CUSTOMERS:
Major purchasers of the Company's oil and gas, which accounted for more than
10% of the Company's oil and gas sales for the years ended December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Customer A $ 71,600 $ 64,500
Customer B 54,800 55,700
Customer C 45,900 44,300
</TABLE>
A major purchaser of the Company's natural gas compression services, which
accounted for more than 10% of the Company's compressor rental income for the
years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Customer A $ 50,400 $101,400
</TABLE>
F - 13
<PAGE> 41
8. RELATED PARTY TRANSACTIONS:
A majority of the 10% Bonus Interest Promissory Notes issued by AGCSI were
placed with various family members of the officers of the Company. The officers
of the Company also participated in the placement of the Notes through self
directed retirement accounts.
The Company owed the Wepco Energy 1984 Drilling Program $73,700 and $90,600 as
of December 31, 1996 and 1995, respectively.
As of December 31, 1995, an entity related to the president and chief executive
officer has advanced the Company $65,000 of which $47,000 was repaid by
transfer of equipment having a book value of the same amount in 1994. In 1995,
the chief executive officer borrowed from his bank $15,000, for the benefit of
the Company, which the Company subsequently repaid with applicable interest.
During 1996, the Company exchanged its interest in five oil and gas properties
in Oklahoma for an account payable owed Mr. Wenzinger, a former officer and
director. The account payable arose from salary, consulting fees and expenses
prior to his resignation. The reserve value of the wells was equal to the
payable $12,400. The Company recorded a profit of $10,700 which was the
difference between the book value and the payable.
9. INDUSTRY SEGMENTS AND OIL AND GAS PRODUCING ACTIVITIES:
The Company operates primarily in (1) oil and gas exploration and development,
(2) fabrication and leasing, of natural gas compressors, and (3) sales and
service of oil field equipment. Summarized financial information concerning the
business segments is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Oil and Gas $ 313,500 $ 453,800
Compressor Rental 242,000 355,500
Sale and Service of Oil and Gas field Equipment 130,100 168,800
----------- -----------
$ 685,600 $ 978,100
=========== ===========
Operating (Loss) Income:
Oil and Gas $ (37,000) $ 9,500
Compressor Rental (128,200) (69,600)
Sale and Service of Oil and Gas field Equipment 3,800 156,500
----------- -----------
$ (161,400) $ 96,400
=========== ===========
Identifiable Assets:
Oil and Gas $ 456,000 $ 564,600
Compressor Rental 858,300 940,400
Sale and Service of Oil and Gas field Equipment 34,300 13,500
----------- -----------
$ 1,348,600 $ 1,518,500
=========== ===========
Depreciation, Depletion and Amortization Expense:
Oil and Gas $ 94,200 $ 136,200
Compressor Rental 76,700 66,900
Sale and Service of Oil and Gas field Equipment 2,000 3,400
----------- -----------
$ 172,900 $ 206,500
=========== ===========
Additions to Property and Equipment:
Oil and Gas $ -- $ 3,900
Compressor Rental -- 42,500
Sale and Service of Oil and Gas field Equipment 36,300 --
----------- -----------
$ 36,300 $ 46,400
=========== ===========
</TABLE>
F - 14
<PAGE> 42
Results of operations for oil and gas producing activities are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Revenues:
Oil and Gas Sales $ 225,300 $285,700
Cost and Expenses:
Oil and Gas Production Cost 132,900 164,600
Depreciation, Depletion and Amortization
and write down to estimated future value 94,200 110,600
--------- --------
227,100 275,200
--------- --------
Expired Leases and Exploration Expense 100 5,800
--------- --------
Income (Loss) Before Income Taxes (1,900) 4,700
Income Tax Benefit -- --
--------- --------
Income (Loss) from Oil and Gas
Producing Activities $ (1,900) $ 4,700
========= ========
</TABLE>
Information relating to costs incurred in oil and gas producing activities for
the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Development costs --- 3,900
</TABLE>
Aggregate capitalized costs and related accumulated depreciation, depletion and
amortization write down to estimated future value relating to oil and gas
producing activities for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Proved Properties $ 1,647,100 $ 3,542,300
Accumulated Depreciation
Depletion and Amortization
and write down to estimated
future value (1,194,200) (2,983,700)
----------- -----------
Net Capitalized Costs $ 452,900 $ 558,600
=========== ===========
</TABLE>
10. CONCENTRATIONS OF CREDIT RISK:
The Company maintains demand deposit accounts with two banks located in Denver,
Colorado. These accounts are maintained in the names and federal identification
numbers of the separate entities, and for limited periods of time they exceed
the insurance levels of the Federal Deposit Insurance Corp., thereby minimizing
any chances of loss.
F - 15
<PAGE> 43
The Company, as operator of jointly owned oil and gas properties, sells oil and
gas production to relatively large U.S. oil and gas purchasers and pays vendors
for oil and gas services. The risk of non-payment by the purchasers or joint
owners is considered minimal.
11. SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited):
The determination of oil and gas reserves is based on estimates and is highly
complex and interpretive. The estimates are subject to continuing change as
additional information becomes available; and an accurate determination of the
reserves may not be possible for several years after discovery. Moreover, the
standardized measure of discounted net cash flows will not necessarily
correspond with the current market value of the Company's oil and gas reserves.
A market value determination would include many additional factors.
Reserve quantities and estimated future net revenues are based on estimates
prepared by an independent petroleum engineer for 1996, 1995 and 1994. The
Company's reserves are all located within the continental United States.
Following is a summary of the changes in the Company's interest in quantities
of proved reserves for the two years ended December 31, 1996.
<TABLE>
<CAPTION>
Oil (Bbls) Gas (Mcfs)
---------- ----------
<S> <C> <C>
PROVED RESERVES:
Reserves at December 31, 1994 110,000 1,046,000
Production (7,900) (113,000)
Sales of Minerals in Place (4,000) (6,200)
Revisions 6,300 144,600
-------- ----------
Reserves at December 31, 1995 104,400 1,071,400
Production (6,400) (91,000)
Sales of Minerals in Place (3,300) (55,900)
Revisions (16,100) (161,300)
-------- ----------
Reserves at December 31, 1996 78,600 763,200
======== ==========
PROVED DEVELOPED RESERVES:
December 31, 1996 22,400 538,600
December 31, 1995 29,200 695,400
December 31, 1994 40,500 837,000
</TABLE>
F - 16
<PAGE> 44
The standardized measure of discounted future net cash flows and changes
therein for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Future Cash Inflows $ 4,466,000 $3,661,000
Future Production and Development Costs (2,210,000) (2,204,000
Future Income Tax Expense -- --
----------- ----------
Future Net Cash Flows 2,256,000 1,457,000
10% Annual Discount for Estimating Future
Net Cash Flows (744,000) (484,000
----------- ----------
Standardized Measure of Discounted Future
Net Cash Flows $ 1,512,000 $ 973,000
=========== ==========
</TABLE>
The Company will not incur any future income tax expense due to its net
operating loss carry forwards.
The following are the principal sources of change in the standardized measure
of discounted future net cash flows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Standardized Measure, Beginning of Year $ 973,000 $ 746,000
Sales and Transfers of Oil and Gas Produced,
Net of Production Costs (93,000) (121,000)
Net Changes in Prices and Production Costs 734,000 (30,000)
Net Change Due to Sale of Minerals in Place (42,000) (17,000)
Net Change Due to Quantity Revisions (157,000) 320,000
Accretion of Discount 97,000 75,000
----------- ----------
Standardized Measure, End of Year $ 1,512,000 $ 973,000
=========== ==========
</TABLE>
The foregoing quantity and discounted future net cash flow information is based
on prices and costs as of the end of each respective reporting period.
F - 17
<PAGE> 45
EXHIBIT INDEX
-------------
EXHIBIT
NO. PAGE
- ------- ----
27 Financial Data Schedule
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 53,900
<SECURITIES> 0
<RECEIVABLES> 126,900
<ALLOWANCES> 4,900
<INVENTORY> 76,800
<CURRENT-ASSETS> 254,600
<PP&E> 3,012,200
<DEPRECIATION> 1,663,600
<TOTAL-ASSETS> 1,608,200
<CURRENT-LIABILITIES> 717,300
<BONDS> 215,800
0
2,073,300
<COMMON> 7,200
<OTHER-SE> (1,405,400)
<TOTAL-LIABILITY-AND-EQUITY> 1,608,800
<SALES> 645,800
<TOTAL-REVENUES> 685,600
<CGS> 477,300
<TOTAL-COSTS> 650,200
<OTHER-EXPENSES> 176,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,200
<INCOME-PRETAX> (161,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (161,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161,400)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
