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, 1997 Commission File Number:
0-13871
VINEYARD OIL & GAS COMPANY
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 25-1349204
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10299 West Main Road, North East, Pennsylvania 16428-0391
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (814) 725-8742
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 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 is not contained in this form, and no disclosure will
be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Parts II or III of this
Form 10-KSB or any amendment to this Form 10-KSB. (X)
State issuer's revenues for its most recent fiscal year: $_____________
As of March 31, 1998, there were __________ shares of common stock issued
and outstanding. The aggregate value of the voting stock held by non-
affiliates of Vineyard oil & Gas Company (hereinafter referred to as
Vineyard, Company, or Registrant) on that date is unknown. The
Registrant's stock is not listed on any exchange and private sale
information is unavailable to management.
Documents Incorporated By Reference
None.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
PART I
1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 10
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . 10
PART II
5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCK-HOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . 10
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATION . . . . . . . . . . . . . . . . . . . 10
7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . 13
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . 13
PART III
9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . 13
10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 14
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 16
PART IV
13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 18
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES. . . . . . . . . . 19
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of Business
Vineyard produces oil and gas wells which it owns outright, partnership
wells and third party wells. It provides contract well services to the
industry as well as pipeline construction, repair and operational endeavors.
Vineyard is a marketer of natural gas, marketing equity gas production and
gas production from unrelated third party producers to industrial and
commercial gas end-users in New York and Pennsylvania. The Company also
performs gas brokerage services for producers and other gas marketing
companies in several states and Canada.
Originally, the Company obtained leasehold interest in oil and gas
properties, and then developed the leases for its own account and for limited
partnerships which it organized.
Vineyard was incorporated under the laws of Pennsylvania in November of
1978. Its principal executive office is at 10299 West Main Road, North
East, Pennsylvania 16428, with a telephone number of (814) 725-8742. At
present, Vineyard has no subsidiaries.
Further information concerning the industry segments of the Registrant can
be found in Note G, Business Segment Information, in the notes to the
financial statements dated December 31, 1997, included in this Form 10-KSB.
<PAGE>
NARRATIVE DESCRIPTION OF BUSINESS DURING FISCAL 1997
Exploration and Development Activities
Vineyard engaged in no exploration and development activities during fiscal
1997, and the Company does not foresee any exploration or development
activities during fiscal 1998.
Should market conditions change Vineyard will, to the extent of
available exploration and development capital, focus on Medina prospects
which demonstrate low risk infill, development and extension drilling and
shallow oil and gas wells in proven fields of Pennsylvania.
Operation of Oil and Gas Wells
The Company operates approximately 166 gas wells and 97 oil wells on behalf
of itself and Limited Partnerships of which it is also the General Partner,
as well as operating approximately 45 wells for third parties. Such
operations are primarily in New York and Pennsylvania.
Management of Investment Partnerships
As of March 31, 1998, the Company was the General Partner of 11 Limited
Partnerships for which it maintained all books, records and annually
provided appropriate tax information.
Revenue from Activities
The total revenue contributed by each of the various activities of the
Company for the last two fiscal years is set forth in the Income Statement
attached to this report.
Sources and Availability of Raw Materials
The Company possesses sufficient equipment to engage in all phases of
drilling and completing wells other than the actual drilling,
hydrofracturing, and some aspects of logging. These three (3) items must
be subcontracted. The availability of these services, as well as tubular
goods and other production equipment, can be a limiting factor to the
Company's ability to drill wells. This was not a factor during fiscal 1997
due to the low level of drilling activity in the Company's areas of
operation. The current prices for natural gas and oil, leads the Company to
believe that there will not be a shortage of these materials during 1998.
The Company is cognizant, however, that the oil and gas industry is subject
to tremendous flux and a sudden increase in prices could result in shortages.
Seasonality of Business
The various segments of the Registrant's business are subject to seasonal
changes. Drilling and well services, specifically drilling, historically
has focused in the first three (3) months of the calendar year. This focus
is the result of drilling programs closing near year-end. As there were no
drilling program solicitations in 1997, there has been no drilling in the
first three (3) months of 1998. Revenues generated by the sale of natural
gas are also seasonal, with more demand coming in the colder winter months
when heating consumption is high. Vineyard has continued to stabilize its
sales of natural gas by entering into contracts with individual industrial
end-users to provide for a more level consumption of natural gas on a
twelve (12) month basis.
Comments Concerning Liquidity and Capital Resources
Information concerning Vineyard's practices with respect to liquidity and
capital resources is set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources" included in Item __.
Major Customers
See Related Parties Transactions and Business Segment Information, and
Major Customers and Suppliers contained in Notes __, __ and __ to the Financial
Statements dated December 31, 1997, included in this Form 10-KSB.
Competition
Vineyard's business activities in the exploration and development of
natural gas wells, as well as gas marketing, are faced with competition
from many similarly placed companies, as well as much larger companies and
companies which are affiliates of major pipeline companies. The inconsistent
price of natural gas has eliminated some competitors and has adversely
affected many others, just as it has adversely affected Vineyard. The
existence of other companies in the oil and gas business has not influenced
the price of supplies, subcontracted services, and equipment consumed by
Vineyard. Vineyard does not deem its oil and gas operations to be a
significant factor in the industry as a whole, but believes that they are
significant in its immediate area of operations in Northwestern Pennsylvania.
Markets
Over 97% of Vineyard's gas production is serviced by two(2) major natural
gas transportation companies. The vast majority of wells owned and
operated by Vineyard are adjacent to the first (NFG) of the two (2) natural
gas transmission companies. The second company (TCO) has only gathering
lines near Vineyard's wells, which in turn delivers the gas to a third
transmission company (Tenneco) to transport the gas back to itself, at an
additional charge. Consequently, the Company is in an unequal bargaining
position in contracting for price and volumes of natural gas to be
purchased by natural gas pipeline companies.
Vineyard's bargaining position has been improved through the opening of
end-user markets pursuant to rules and regulations promulgated by the
Federal Energy Regulatory Commission and the Pennsylvania and New York Public
Utility Commission. These rules and regulations force the natural gas
transmission companies to transport the Company's production to independent
industrial or third party end-users. Although this transportation is done at
a fee, it does allow the Company a choice of markets for its production.
The agreements that Vineyard has with the pipeline companies, permit
transportation of Vineyard's production to end-users. While the existence and
availability of end-users is benefiting the Company in regards to a higher
price for productions, as well as the taking of higher volumes, said end-user
market is dependent on the transmission companies. Lack of sales to end-users
would cause a reduction in the price received by the Company for which the
Company could sell on a day-to-day basis. The Company is confident that it
possesses the contacts, knowledge, and information necessary to continue to
market natural gas to end-users. The Company's ability to market to end-users
is such that it is now marketing significant volumes of natural gas for third
party producers of natural gas to industrial and commercial end-users for a fee
payable to the Company.
Gas Marketing
Demand for the Company's gas depends on many factors beyond Vineyard's
control, including the level of domestic production, foreign imports, the
price of fuel oil, access to pipelines, seasonal demands for fuel (which
historically peak during cold weather and decline during warmer weather)
and government regulation. To help offset the impact of these factors,
during the early 1980's the Company began to market its gas as well as that
of other producers directly to end-users and to broker gas via spot deals
with suppliers and end-users. This portion of Vineyard's business has grown
to higher levels and has become a significant part of the Company's over-all
business.
Pipelines
Vineyard Oil & Gas Company owns approximately 48 miles of pipelines that
gather both its productions and that of other companies, to be transported
to the major transmission companies and directly to end-users. The Company
is in the process of expanding this gathering system to allow producers to
consolidate compression and dehydration.
The Company also owns a 45% interest in Northern Pipeline Company LLC which
imposes a gathering charge for the collection of natural gas as discussed in
Note __ to the financial statements dated December 31, 1997, included in this
Form 10-KSB.
Environmental Regulation
Vineyard's drilling and well services are subject to existing laws and
regulations designed to protect the environment. Compliance with said laws
and regulations has decreased the efficiency of the Company's operations,
but has not materially increased the cost of doing business. Environmental
regulations are no more burdensome to Vineyard than to other similar oil
and gas companies. Additional laws and regulations which could be passed
or repealed at any time could result in a material increase or decrease in
the cost of doing business.
Employees
On March 31, 1998, the Company had 15 full-time employees. None of
Vineyard's employees are presently represented by a union for collective
bargaining purposes.
<PAGE>
ITEM 2. PROPERTIES
Information Concerning Reserves, Production Wells, Acreage, Drilling
Activities, and Real Estate are as follows:
Introduction
The Company believes that it has satisfactory title to its interests in
developed oil and gas properties, all of which are located primarily in New
York and Pennsylvania. Substantially all of the Company's assets in its
proved developed reserves have been pledged to secure certain borrowings
discussed in Item ___ herein. The Company's developed oil and gas properties
are also subject to customary royalty interest generally contracted for in
connection with the acquisition of the properties, burdens incident to
operating agreements, current taxes, and easements and restrictions
(collectively, "Burdens"). The Burdens are customary in the Company's
industry and do not place the Company in a competitive disadvantage.
As is customary in the oil and gas industry in the case of undeveloped
properties, little or no investigation of title is made at the time of
acquisition (other than a preliminary review of local real estate records).
However, investigations are generally made, and in virtually every case, a
title opinion is obtained from local counsel before drilling operations
begin.
The Company's headquarters in North East, Pennsylvania include an office
complex, four unit apartment house, single family dwelling, repair shop,
storage building and 19 acres of land zoned Industrial.
<PAGE>
Definitions
The following words have the following definitions when used herein:
Gross Well or Gross Acre: A gross well or gross acre is a
well or acre in which an interest
is owned. The number of gross
wells or acres is the total number
of wells or acres in which an
interest is owned.
Net Well or Net Acre: A net well or net acre is deemed to
exist when the sum of fractional
ownership interests in gross wells
or net acres equals one. The number
of net wells or net acres is the
sum of the fractional interests owned
in gross wells or gross acres.
Proved Oil and Gas Reserves: Proved oil and gas reserves are the
estimated quantities of crude oil,
natural gas, and natural gas
liquids which geological and
engineering data demonstrate with
reasonable certainty to be
recoverable in the future from
known reservoirs under existing
economic and operating conditions;
i.e., prices and costs as of the
date the estimate is made. Prices
include consideration of changes in
existing prices provided only by
contractual arrangements, but not
of escalations based upon future
conditions.
Proved Developed Oil and Gas Reserves: Proved developed oil and gas
reserves are reserves that can be
expected to be recovered through
existing wells with existing
equipment and available operating
methods.
Proved Undeveloped Reserves: Proved undeveloped oil and gas
reserves are reserves that are
expected to be recovered from new
wells on undrilled acreage, or from
existing wells where a relatively
major expenditure is required for
recompletion. Reserves on
undrilled acreage are limited to
those drilling units that offset
productive units and that are
reasonably certain of production
when drilled.
Developed Acreage: Developed acreage is acreage that
is spaced or assignable to
productive wells or is acreage held
by production which eventually
could receive additional wells.
Undeveloped Acreage: Undeveloped acreage is acreage on
which wells have not been drilled
or completed to a point which would
permit production of commercial
quantities of oil and gas
regardless of whether or not such
acreage contains proved reserves.
Exploratory Well: A well drilled to find and produce
oil or gas in an unproven area, to
find a new reservoir in a field
previously found to be productive
of oil or gas in another reservoir,
or to extend a known reservoir.
Development Well: A well drilled within the proved
area of an oil or gas reservoir to
the depth of stratigraphic horizon
known to be productive.
Dry Well: A dry well is an exploratory or a
development well found to be
incapable of producing either oil
or gas in sufficient quantities to
justify completion as an oil or gas
well.
Barrels (Bbls.): Equal to 42 U.S. gallons and
represents the basic unit for
measuring oil production.
Mcf: Equal to the volume of 1,000 cubic
feet of natural gas under
prescribed conditions of pressure
and temperature and represents the
basic unit for measuring natural
gas.
<PAGE>
Significant Properties
As of March 31, 1998, the Company had no individual interests in an oil and
gas property that accounted for more than 10% of the Company's proved
developed oil or gas reserves, including the Company's interest in reserves
owned by 11 Partnerships.
Oil and Gas Reserve Information
See Proved Reserves Table included in Note ___ (unaudited) to the Financial
Statements dated December 31, 1997, included in this Form 10-KSB.
Reserves Reported to Other Agencies
Vineyard does not file any estimates of total proved net oil or gas
reserves with any other Federal authority or agency, other than the
Securities and Exchange Commission on this Form 10-KSB.
Oil and Gas Production
<TABLE>
The following table sets forth net quantities of oil and natural gas
produced by Vineyard, including its proportional share in production of
partnerships, for the fiscal years indicated. All production is from wells
located in the United States. For further information see Note ___ to the
Financial Statements dated December 31, 1997, included in this Form 10-KSB.
<CAPTION>
1997 1996
<S> <C> <C>
GAS (mcfs) 144,896 177,076
OIL (barrels) 810 1,781
</TABLE>
Average Annual Sales Prices and Production Costs
<TABLE>
The following table sets forth the average annual sales price per unit of
oil and gas produced by the Company, including its proportional interest in
the production of Partnerships.
<CAPTION>
1997 1996
<S> <C> <C>
Average Annual Sales Price
per Unit of Gas (mcf) $2.80 $2.39
Average Annual Sales Price
per Unit of Oil (barrel) $17.83 $19.78
Equivalent Average Annual Production Cost
1997 1996
Gas (per mcf) $1.91 $1.23
Oil (per barrel) $21.92 $12.46
</TABLE>
Oil and Gas Wells
<TABLE>
The following table sets forth information as of March 31, 1998, regarding
the Company's productive oil and gas wells.
<CAPTION>
Gross Wells Net Wells
<S> <C> <C>
Gas Wells 169 140
Oil Wells 79 79
</TABLE>
(Two (2) of the gas wells listed above are combination wells producing oil
and natural gas. Thirteen (13) of the oil wells are currently producing
natural gas, as well as oil.)
Acreage
<TABLE>
The following table sets forth information as of March 31, 1998, regarding
the Company's developed and undeveloped oil and gas acreage.
<CAPTION>
LEASEHOLD ACREAGE
Gross Acreage Net Acreage
<S> <C> <C>
Developed Natural Gas Acreage 13,947.35 4,881.45
Undeveloped Natural Gas Acreage* -0- -0-
Developed Oil Acreage 520 137.85
Undeveloped Oil Acreage 25 25
</TABLE>
* The lack of drilling activity in the Company's area of operations has
resulted in large amounts of undeveloped acreage being freed from the
obligations of oil and gas leases. The Company currently has undrilled
locations on acreage held for the benefit of the Company by production and
is confident that it can acquire acreage in amounts in excess of its needs
in the event of an up-turn in drilling activity.
Natural gas lease acreage typically costs the Company between $2.00 and
$5.00 per acre in delayed rentals. No delay rentals are currently paid.
The majority of the natural gas leases entered into by the Company are for
a two (2) year period, and typically is a 7/8th interest. Oil acreage
generally is burdened by additional third party royalty interest and
generally a lease is being held by production on some part of that lease.
Drilling Activity
There has been no drilling activity in fiscal 1997 and 1996.
Present Activities
As of March 31, 1998, no wells were in the process of drilling.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings for the Company other than
being party to several actions which arise in the normal course of the
Company's business. In Management's opinion, none of these lawsuits or
proceedings should, individually or in the aggregate, have a material
adverse affect upon the financial position of the Company.
See Note ___ to the Financial Statements dated December 31, 1997, included in
this Form 10-KSB.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and Value of Common Stock
There is no established public trading market for Vineyard's common stock.
Vineyard's common stock is traded privately on a sporadic basis principally
in the Northwestern Pennsylvania market.
Number of Holders of Common Stock
As of March 31, 1998, the stock ledger of the Registrant indicated that
there were 970 shareholders of its common stock.
Dividends
The Company did not declare or pay a dividend during fiscal 1997. The
Board of Directors does not anticipate paying or declaring a dividend
during fiscal 1998 or in the near future.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The Company's results of operation for the year ended December 31, 1997,
and its financial condition at December 31, 1997, are discussed in the
following paragraphs and should be read in conjunction with the financial
statements of the Company.
Business Overview
The year 1997 was again a volatile business climate for all energy related
companies, particularly so for small independent producers and marketers
such as Vineyard. The winter of 1997 was in part mild, thus our endusers did
not burn as much gas as in a normal winter.
The Company showed a net profit of $192,936 in 1997, up from a $________
deficit in 1996.
The Company will continue to analyze all facets of its operations and
close those cost centers which are unable to function profitably at the same
time grow the centers that are profitable.
General and administrative expenses will be reviewed for cost savings while
in-house accounting procedures will be evaluated and made more efficient
wherever possible. In December, 1996, management presented and the Board
adopted a detailed business plan identifying company strengths, industry
trends and growth projects for 1997 and beyond.
Gas Marketing and Transmission
The year 1997 as in years past, saw well-head prices too inconsistent to
warrant significant investment capital for new drilling ventures.
Management, some time ago, identified this trend and has successfully added to
Vineyard's gas marketing and transportation. These divisions have shown
continued significant improvement and are the major focus of the Company now
and for the immediate future.
Gas Transmission
Vineyard currently owns and operates 48 miles of gathering lines.
In 1996, the Company (45% owner) and two producers formed a limited liability
company (Northern Pipeline) which acquired Pennzoil's National Transit
Pipeline and is in the process of restoring this pipeline. To date, we have
activated 35 miles of line and are transporting approximately 4400 Dth per day
for companies other than Vineyard Oil & Gas.
The agreement will facilitate the gathering of gas from isolated production
fields for the marketing of gas to third parties and end-users.
Management expects this segment of its operations to become a major part of
its business plan.
Liquidity and Capital Resources
The cash flow of Vineyard Oil and Gas Company is dependent primarily on gas
marketing sales, revenues from well services, sale of existing production,
and the transmission of third party gas.
The continued inconsistent prices for both oil and gas has adversely impacted
the Company's desire to attract outside investment capital for drilling new
wells. Unless gas and oil prices stabilize, the Company will direct its
attention to increased activity in gas marketing, and transmission of third
party gas.
The Company is continuing to review the various cost centers in an effort to
control and reduce costs where possible. The Company is continuing to
analyze all partnership programs in an effort to determine which are not
economic to maintain
Comparative Results of Operations
The total revenues for 1997 increased $3,171,769, or 47%, over total revenues
in 1996. Gas marketing accounted for $3,111,099 of the increase, as a result
of increased volumes sold at increased prices. Gas purchases increased
$3,128,865 to offset the revenue increase.
Well services increased $46,225, or 23%, over 1996. Goods for resale increased
$56,000 and were offset by an $11,00 decrease in well maintenance. Production
and royalties decreased $40,531, or 9%, generally reflecting a decrease in the
current year's production. Equipment and rental increased $18,827 due to an
increase in billable services.
Other income increased $37,376 over 1996. The principal reasons were an
increase in interest income of $23,000 and administrative fees charged of
$5,300.
Costs and expenses increased $3,093,965 in 1997 over 1996. Of this amount,
$3,128,865 is attributable to gas purchases, explained above. Well service,
production and equipment expense decreased $13,506 and depreciation decreased
$21,394, as more assets became fully depreciated without substantial asset
replacement.
General and administrative expenses increased $11,408, or 3%, in 1997. This
was due to normal increase in costs.
Interest expense decreased $8,200 in 1997, as a result of paying off the long-
term debt during the year without adding any new debt.
Net income increased $73,971 over 1996. The major reasons for the increase
were increases in pipeline income of $24,000, and equipment rental and service
income of $22,000. Other income contributed an additional $37,000, as
previously stated.
Net current assets increased $138,519 in 1997 over 1996. Unrestricted cash
increased $399,278, due mainly to the changes in trade accounts receivable and
accounts payable balances resulting in a cash increase of $333,612.
Cash restricted for well plugging increased $56,320, of which $12,279 was
investment income and the balance was repayment of funds borrowed by the
Company plus an increment for interest. There were no partnership
contributions to well plugging in 1997.
Investments represent the Company's interest in a jointly owned company. The
increase of $104,276 represents the additional investment made by Vineyard Oil
& Gas Company during the year.
Deferred revenues increased $12,279 during the year, the amount of interest
earned by cash restricted for well plugging. There were no partnership
contributions to the account in 1997.
Long-term debt was paid off in 1997. There was no new long-term indebtedness
added in 1997.
Net cash provided by operating activities for the year ended December 31, 1997,
was $615,002, up $536,349 from 1996. The major reason, as explained
previously, was the favorable changes in accounts receivable and accounts
payable balances. Purchases of equipment and additional investment in an
outside company decreased cash by $111,272. Final payments on long-term debt
further decreased cash by $48,132. This resulted in a total cash increase for
the year of $455,598.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this is submitted in a separate section of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The firm of Gorzynski, Felix and Gloekler, P.C., was retained by the
Company for the 1997 audit. There were no disagreements with the auditors
on any matters of accounting principles or practices, financial statement
disclosures, or auditing scope and procedures for the years ended December
31, 1997, and 1996.
<PAGE>
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors, Officers, and Nominees as of March 31, 1998.
Name Age
James J. Concilla 60 Board Chairman, President, Director and a member
of the Executive Committee. Mr. Concilla has a
Bachelors of Science degree from Edinboro
University and a Masters degree in Mathematics
from the state of Pennsylvania. Mr. Concilla has
been an employee, director, and officer of the
Company since its organization in 1978.
Charles L. Valone 66 A director and member of the Wage and Bonus
Committee and Audit Committee. Mr. Valone has been
a director of the Company since its founding. Mr.
Valone has owned and operated vineyard in North
East, Pennsylvania, since 1948. These operations
are unrelated to the Company.
Jeffery L. Buchholz 51 Secretary, Treasurer, director, and a member of
the Executive, Audit, and Wage/Bonus Committees. Mr.
Buchholz holds a Bachelors degree in Business
Administration from Lambuth College, Jackson,
Tennessee, and a Masters degree in Education from
Georgia Southern University, Statesboro, Georgia.
Mr. Buchholz, a director since 1989, and the
Secretary/Treasurer since 1990, has been a teacher
and Union Officer in the Ripley, New York, school
system since 1970.
Stephen B. Millis 40 Vice-President, director, and a member of the
Executive Committee. Mr. Millis holds a Bachelor
of Arts degree from Gannon University. Mr.
Millis, an employee since 1982, was elected Vice-
President and a director in 1992.
James J. MacFarlane 36 Mr. MacFarlane was elected a director in 1993.
Mr. MacFarlane is a member of the Wage/Bonus and
Audit Committees. Mr. MacFarlane holds a Bachelor
of Science degree from the University of Pittsburgh.
Mr. MacFarlane has been a Consulting Geologist/
Engineer with MacTech Mineral Management, Inc.,
Bradford, Pennsylvania, since 1987. MacTech
Mineral Management, Inc. is unrelated to the
Company.
W. Eric Johnson
<PAGE>
Current Officers Title/Office Year in Which Term to Expire
and Directors Service as at Annual
Director Began Meeting in
James J. Concilla Board Chairman/President 1978 1999
Jeffery L. Buchholz Director/Secretary/Treasurer 1989 1999
Charles L. Valone Director 1978 1998
Stephen B. Millis Director/Vice-President 1992 2000
James J. MacFarlane Director 1993 1998
W. Eric Johnson Director 1997 2000
See note below.
March 31, 1997 Board Committees and Members
Executive Audit Wage/Bonus
James J. Concilla Jeffery L. Buchholz Jeffery L. Buchholz
Jeffery L. Buchholz James J. MacFarlane W. Eric Johnson
Stephen B. Millis Charles L. Valone James J. MacFarlane
W. Eric Johnson Charles Valone
NOTE: Ms. Kathy Lang, a Director since 1993, resigned her position in August
of 1997. That directors seat remains vacant with the term to expire at this
year's annual meeting. The Board of Directors anticipates filling that
position by appointment in the near future.
<PAGE>
<TABLE>
ITEM 10. EXECUTIVE COMPENSATION
Executive Officers
The following table sets forth certain information concerning the
compensation paid during fiscal 1995, 1996 and 1997 by the Company to each
of the Company's executive officers.
<CAPTION>
Summary Compensation Table
Name and Year Base Salary Commissions Bonus Other
Principal Position (1) (2) (3)(4)
<S> <C> <C> <C> <C> <C>
James J. Concilla 1997 $47,341 $31,928 0 $3,000
President, Chairman 1996 $47,341 $15,000 0 $3,000
of the Board 1995 $47,341 $36,564 $937 $3,700
Stephen B. Millis 1997 $36,941 $43,289 0 $3,000
Vice-President 1996 $36,941 $17,000 0 $3,000
1995 $36,941 $35,163 $1,125 $3,000
Jeffery L. Buchholz 1997 $ 874 0 0 0
Secretary/Treasurer 1996 $1,159 0 0 0
1995 $1,619 0 $75 0
</TABLE>
(1) Reflects commissions paid for the sale of natural gas. 1997 figures are
earned in 1996. It does not include 1997 deferred commissions of $94,904.
That amount is reflected in accounts payable.
(2) A stock bonus of 150,000, 125,000 and 10,000 shares of Vineyard common
stock were awarded to Messrs. Millis, Concilla and Buchholz, respectively in
fiscal 1996. The estimated fair market value per share of Vineyard common
stock at the time of the award was calculated at $.0075. No stock bonus was
awarded to any directors, executive officers or other employees of the
Company during fiscal 1996 or 1997.
(3) In April, 1996, the Board of Directors established life insurance plans
for Mr. Concilla and Mr. Millis, contributed annually in the amounts as shown.
(4) Mr. Concilla and Mr. Millis are given the use of Company vehicles and
the Company provides Mr. Buchholz, a part-time employee, with personal
automobile labor maintenance.
No officer received any other non-cash compensation during the year ending
December 31, 1997, other than health insurance which all full-time
employees of the Company are entitled to receive.
Executive Officer Severance Package
A 1995 Executive Officer severance package offered to Chief Executive Officer
Concilla and Vice President Millis was withdrawn by the Board of Directors in
December of 1997.
There are no other written employment contracts for executive officers. No
stock options were awarded to any directors, executive officers or other
employees of the Company during fiscal 1997.
Directors
Directors are paid $150 for each meeting of the Board of Directors at which
the director is present. In addition, directors attending Wage/Bonus
and/or Audit Committee meetings are also each paid $150.00 per meeting.
There is no compensation for directors attending Executive Committee
meetings.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
Security Ownership of Certain Beneficial Owners
Set forth below is information, as of March 31, 1998, concerning the stock
ownership of all persons who own of record or are known to the Company to
own beneficially at least 5% of the outstanding common stock, all directors
owning stock and all officers and directors as a group.
<CAPTION>
Name and Address Number of Shares (1) Percentage of Class
<S> <C> <C>
James J. Concilla 307,261.25 6.0%
20 Blaine Street
North East, PA 16428
Charles L. Valone 142,000 2.8%
11217 Old Lake Road
North East, PA 16428
Stephen B. Millis 221,650 4.4%
11370 Martin Road
North East, PA 16428
Jeffery L. Buchholz 62,375.5 1.2%
149 Orchard Beach Park
North East, PA 16428
W. Eric Johnson 38,345.63 .7%
830 Compass Drive
Erie, PA 16505
All Officers and Directors
as a group (5 individuals) 771,632.75 15.1%
</TABLE>
Director MacFarlane is not a shareholder.
(1) All shares are beneficially owned and the sole investment and voting
power is held by the persons named. Includes shares which may be owned
beneficially by the wives and/or minor children and/or trusts for the
benefit of the minor children of the persons names, as to which beneficial
interest is disclaimed.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1), (2), and (3) The response to this portion of Item 13 is
submitted as a separate section of this Report.
(b) Reports on Form 8-K filed in the fourth quarter 1997: None.
(c) Other reports on Form 8-K: None.
(d) Exhibits - The response to this portion of Item 13 is submitted as a
separate section of this Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VINEYARD OIL & GAS COMPANY
/s/ James J. Concilla Chairman, Board of Directors, __________________
JAMES J. CONCILLA President
/s/ Jeffery L. Buchholz Secretary/Treasurer, Director __________________
JEFFERY L. BUCHHOLZ
/s/ Charles L. Valone Director __________________
CHARLES L. VALONE
/s/ Stephen B. Millis Vice-President, Director __________________
STEPHEN B. MILLIS
/s/ James J. MacFarlane Director __________________
JAMES J. MACFARLANE
/s/ W. Eric Johnson Director __________________
W. ERIC JOHNSON
<PAGE>
FORM 10-KSB ITEM 7
VINEYARD OIL AND GAS COMPANY
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. Balance Sheet - December 31, 1997
2. Income Statements - Years Ended December 31, 1997 and 1996
3. Statements of Shareholders' Equity - Years Ended December 31,
1997 and 1996
4. Statements of Cash Flows - Years Ended December 31, 1997 and
1996
5. Notes to Financial Statements - December 31, 1997
<PAGE>
Independent Auditors' Report
Board of Directors
Vineyard Oil and Gas Company
North East, Pennsylvania
We have audited the accompanying balance sheet of Vineyard Oil
and Gas Company as of December 31, 1997, and the related statements
of income, shareholders' equity, and cash flows for each of the two
years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to provide reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes an assessment of the accounting principles used and
significant estimates made by management, as well as an evaluation
of the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements
present fairly, in all material respects, the financial position of
Vineyard Oil and Gas Company at December 31, 1997, and the results
of its operations and its cash flows for each of the two years in
the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Gorzynski, Felix and Gloekler, P.C.
<PAGE>
March 20, 1998
North East, Pennsylvania
<TABLE>
VINEYARD OIL AND GAS COMPANY
Balance Sheet
December 31, 1997
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash $ 680,464
Accounts receivable, less allowance for
doubtful accounts of $70,000 2,426,739
Inventories (note A) 174,659
Prepaid expenses 42,986
Total current assets $3,324,848
Property, Plant and Equipment (Note A)
Land and land improvements $ 193,680
Building and improvements 257,008
Oil and gas properties and transmission
equipment 6,945,833
Drilling and other equipment 1,188,456
$8,584,977
Less: accumulated depletion, depreciation and
amortization ( 8,076,530)
$ 508,447
Other Assets
Cash restricted for well plugging (note A) $ 382,057
Investments - at equity (note D) 234,959
$ 617,016
$4,450,311
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current Liabilities
Accounts payable
Trade $2,437,385
Limited partnerships 168,275
Accrued expenses 27,387
Total current liabilities $2,633,047
Deferred Revenue (Note A) $ 394,572
Commitments and Contingencies (Note G) $ --
Shareholders' Equity
Common stock, authorized 15,000,000 shares
without par value, issued 5,125,563 shares
at December 31, 1997, at stated value of $.05 $ 256,278
Additional paid-in capital 4,935,430
$5,191,708
Retained Earnings (Deficit) ( 3,544,096)
$1,647,612
Less: Cost of 67,944 Shares Held in Treasury ( 224,920)
$1,422,692
$4,450,311
</TABLE>
<PAGE>
<TABLE>
VINEYARD OIL AND GAS COMPANY
Income Statements
For the Years Ended December 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Earned Revenues
Gas marketing $9,011,565 $5,900,466
Well services 246,432 200,207
Production and royalties 400,934 441,465
Equipment rental and service income 186,310 167,483
$9,845,241 $6,709,621
Other income 82,398 45,022
Equity in earnings of jointly owned
company 11,222 12,449
$9,938,861 $6,767,092
Costs and Expenses
Direct costs of earned revenues
Gas marketing $8,666,825 $5,537,960
Well services 344,583 327,430
Production 180,961 208,660
Equipment expenses 41,495 44,455
Depreciation and amortization 89,329 110,723
$9,323,193 $6,229,228
General and administrative 408,557 397,149
Depreciation 11,567 10,942
Interest 2,608 10,808
$9,745,925 $6,648,127
Net Income Before Income Taxes $ 192,936 $ 118,965
Income Taxes (Note C) -- --
Net Income $ 192,936 $ 118,965
Income Per Common Share $ .038 $ .023
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
VINEYARD OIL AND GAS COMPANY
Statements of Shareholders' Equity
For the Years Ended December 31, 1997 and 1996
<CAPTION>
Capital in Retained
Common Excess of Earnings Treasury
Stock Par Value (Deficit) Stock
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $256,278 $4,935,430 ($3,855,997)($224,920)
Net Income For the Year -- -- 118,965 --
Balance at December 31, 1996 $256,278 $4,935,430 ($3,737,032)($224,920)
Net Income For the Year -- -- 192,936 --
Balance at December 31, 1997 $256,278 $4,935,430 ($3,544,096)($224,920)
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
VINEYARD OIL AND GAS COMPANY
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Operating Activities
Net income $ 192,936 $ 118,965
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depletion, depreciation and
amortization 100,896 121,665
Provision for losses on accounts
receivable ( 3,200) ( 5,327)
Changes in operating assets and
liabilities providing (using) cash:
Accounts receivable 1,243,634 ( 1,944,174)
Inventories 24,027 23,722
Prepaid expenses ( 20,640) 10,236
Accounts payable ( 910,022) 1,758,508
Accrued expenses ( 24,908) ( 22,103)
Deferred revenue 12,279 17,161
Net cash provided by operating
activities $ 615,002 $ 78,653
Investing Activities
Purchases of property, plant and
equipment ($ 6,996) ($ 78,335)
Investment in jointly-owned company ( 104,276) ( 126,291)
Net cash (used in) investing
activities ($ 111,272) ($ 204,626)
Financing Activities
Principal payments on borrowings ($ 48,132) ($ 86,907)
Net cash (used in) financing
activities ($ 48,132) ($ 86,907)
Increase (Decrease) in Cash $ 455,598 ($ 212,880)
Cash at Beginning of Year 606,923 819,803
Cash at End of Year (Note B) $1,062,521 $ 606,923
</TABLE>
See notes to financial statements.
<PAGE>
VINEYARD OIL AND GAS COMPANY
Notes to Financial Statements
December 31, 1997
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Vineyard Oil and Gas Company is a
producer and marketer of its own oil and natural gas and gas
produced by others. It also transports natural gas and performs
well maintenance, service, construction, trucking and other jobs
related to the oil and gas industry. Its principal markets are
industrial end-users, third party producers and utility companies
located mostly in Pennsylvania and New York.
Restricted Cash - Restricted cash consists of cash collected
from limited partnerships, which is held in escrow in separate bank
accounts, and a certificate of deposit required by the state to be
maintained to offset future plugging costs. Since these funds will
be restricted for a period of more than one year, the assets and
any deferred revenue related thereto have been classified as
noncurrent items. (See Deferred Revenue).
Inventories - Inventories are stated at the lower of cost
(first-in, first-out method) or market. Inventory consists of
parts and piping utilized in the Company's oil and gas operations
and gas produced in 1997 to be redelivered to customers in future
periods.
Development Costs of Oil and Gas Properties - The Company
follows the successful efforts method of accounting for its oil and
gas producing activities as prescribed by FASB Statement No. 19.
Under this method, all costs of production equipment, properties
and wells are capitalized and depleted on the units of production
method based on the estimated recoverable oil and gas reserves.
Costs of acquiring undeveloped oil and gas leasehold acreage are
capitalized. Geological expenses are charged against income as
incurred.
For income tax purposes, tangible costs are depreciated using
accelerated tax methods and intangible costs are expensed when
incurred.
Property, Plant and Equipment - Property, plant and equipment
is stated on the basis of cost. Expenditures for major additions
or betterments are capitalized. Maintenance and repairs are
charged to expense as incurred. Differences between amounts
received and net carrying value of assets retired or disposed of
are included in the income statement. Depreciation of assets is
computed by the straight-line method for financial reporting
purposes at rates sufficient to amortize the costs over their
estimated useful lives and by accelerated methods for income tax
purposes.
<PAGE>
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments in Limited Partnerships - The Company accounts for
its investments in limited partnerships under the proportional
consolidation method, which recognizes its share of earnings or
losses after the date of acquisition.
Deferred Revenue - The Company, as general partner, is
withholding from quarterly partnership distributions an estimated
fee for future well plugging charges. The plugging fees are
recorded as a deferred cost until the actual plugging costs have
been incurred by the partnerships. The Company holds in escrow
cash collected from the partnerships, plus earnings thereon,
designated to cover these future costs. Future collections are
contingent upon future revenue distributions and therefore are
currently indeterminable.
Income Taxes - The Company provides for taxes based on income
as reported in the income statement. Deferred income taxes are
provided on certain income and expenses which are recognized in
different periods for tax and financial reporting purposes.
Earnings Per Share - Primary earnings per share are determined
by dividing net income by the weighted average number of common
equivalent shares outstanding (5,125,563 in 1997 and 1996).
<TABLE>
The following schedule summarizes the changes in the number of
shares of capital stock:
<CAPTION>
Common
Stock
<S> <C>
Balance at January 1, 1996 5,125,563
Issuance of shares --
Balance at December 31, 1996 and 1997 5,125,563
</TABLE>
Other - Certain reclassifications were made to the prior
year's financial statements to conform to current presentations.
Concentrations of Credit Risk - Financial instruments that
potentially subject the Company to concentrations of credit risk
consist principally of cash investments and trade accounts
receivable.
At December 31, 1997, the carrying amount of the Company's
deposits was $797,978 and the bank balance was $864,217. Of the
bank balance, $304,239 was covered by federal depository insurance
and $559,978 was uninsured. The Company also maintains a $264,543
balance in a short-term government bond fund. This balance is not
insured. (See Note B.)
<PAGE>
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Credit risk with respect to trade accounts receivable is
generally diversified due to the number of entities comprising the
Company's customer base and their dispersion across many different
industries.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Investment Tax Credits - Investment credits are accounted for
as a reduction of income tax expense in the years they are
available for use under the flow through method. In accordance
with the 1982 Tax Act, an amount equal to 50% of the allowable
investment credit on property and equipment acquired after December
31, 1982 and has been applied to reduce the tax basis of such
property and equipment.
<PAGE>
NOTE B - CASH FLOW INFORMATION
For purposes of the statement of cash flows, cash includes
demand deposits, certificates of deposit, and short-term
investments with original maturities of three months or less.
<TABLE>
The Company's non-cash investing and financing activities and
cash payments for interest and income taxes were as follows:
<CAPTION>
Cash paid during the year for:
1997 1996
<S> <C> <C>
Interest $ 2,125 $ 11,291
Income taxes -- --
Cash consists of the following at the end of each year
presented:
1997 1996
Cash in bank $ 797,978 $447,520
Short-term investment 264,543 159,403
$1,062,521 $606,923
</TABLE>
<TABLE>
NOTE B - CASH FLOW INFORMATION (CONTINUED)
Cash is classified as follows for financial statement
reporting purposes:
<CAPTION>
1997 1996
<S> <C> <C>
Unrestricted cash $ 680,464 $281,186
Cash restricted for well plugging 382,057 325,737
$1,062,521 $606,923
</TABLE>
NOTE C - INCOME TAXES
<TABLE>
The taxes on pretax income are reconciled with income tax
expense as follows:
<CAPTION>
1997 1996
<S> <C> <C>
Expected tax on pretax income from
continuing operations at statutory
rates $ 58,495 $ 40,448
Tax (benefit) expense of excess
financial basis depreciation ( 16,030) ( 4,611)
Tax (benefit) expense of net
operating loss carryover ( 42,465) ( 35,837)
Income tax expense $ -- $ --
Amounts for deferred tax assets and liabilities are as
follows:
1997 1996
Deferred tax liability $ -- $ --
Deferred tax asset $2,024,421 $1,998,102
Valuation allowance ( 2,024,421)( 1,998,102)
$ -- $ --
The net change in the valuation allowance was $26,319 between
1997 and 1996.
</TABLE>
<PAGE>
NOTE C - INCOME TAXES (CONTINUED)
<TABLE>
The following temporary differences gave rise to the deferred
tax asset at December 31, 1997 and 1996:
<CAPTION>
1997 1996
<S> <C> <C>
Excess of financial accounting over
tax depreciation $ 16,030 $ 4,611
Tax credit carryforward 549,157 549,157
Net operating loss carryforward 1,459,234 1,444,334
$2,024,421 $1,998,102
</TABLE>
<PAGE>
<TABLE>
The Company has available at December 31, 1997, unused
investment credits and operating loss carryforwards, which may
provide for future tax benefits expiring as follows:
<CAPTION>
Unused
Year of Investment Unused Operating
Expiration Credits Loss Carryforward
<S> <C> <C>
1998 $ 87,666 $ --
1999 183,968 --
2000 226,056 --
2001 51,467 82,826
2002 -- 867,597
2003 -- 1,544,234
2004 -- 1,593,565
2005 -- --
2006 -- 102,646
2007 -- 5,592
2008 -- 51,581
2009 -- --
2010 -- --
2011 -- 43,824
$549,157 $4,291,865
</TABLE>
<PAGE>
NOTE D - INVESTMENT IN JOINTLY OWNED COMPANY
The Company owns a 45% interest in Northern Pipeline Company,
LLC, which operates a pipeline for the transportation of natural
gas and which began operations in July, 1996. This investment is
carried at cost, under the equity method and is adjusted for the
Company's proportionate share of undistributed earnings or losses.
NOTE D - INVESTMENT IN JOINTLY OWNED COMPANY (CONTINUED)
<TABLE>
Following is a summary of unaudited financial position and
unaudited results of operations of Northern Pipeline Company, LLC:
<CAPTION>
1997 1996
<S> <C> <C>
Current assets $172,448 $ 57,407
Property and equipment, net 605,307 300,513
Other assets, net 4,328 5,564
$782,083 $363,484
Current liabilities $106,927 $ 52,263
Long-term debt -- 13,257
$106,927 $ 65,520
Equity 675,156 297,964
$782,083 $363,484
Sales $145,774 $ 54,142
Net income $ 24,937 $ 27,211
</TABLE>
<PAGE>
NOTE E - RELATED PARTY TRANSACTIONS
1. The Company is reimbursed for actual and necessary expenses
paid or incurred in connection with its management of various
related limited partnerships. It also charges the partnerships for
certain well-tending and related services provided.
<TABLE>
Transactions and balances for the years ended December 31,
1997 and 1996 are as follows:
<CAPTION>
1997 1996
<S> <C> <C>
Drilling and well services
revenue $ 96,325 $114,069
Production and royalties revenue 319,848 340,911
Gas marketing revenue 16,712 20,061
$432,885 $475,041
Accounts receivable $ 93,282 $102,599
Accounts payable $168,275 $110,991
</TABLE>
2. The Company charges Northern Pipeline, LLC, for equipment
rental. It also charges the subsidiary a monthly management fee.
NOTE E - RELATED PARTY TRANSACTIONS (CONTINUED)
<TABLE>
Transactions and balances for the years ended December 31,
1997 and 1996 are as follows:
<CAPTION>
1997 1996
<S> <C> <C>
Equipment rental and service
income $ 23,869 $ 25,622
Other income 4,320 2,200
$ 28,189 $ 27,822
Accounts receivable $ 60,066 $ 10,892
Accounts payable $ 37,592 $ --
</TABLE>
<PAGE>
NOTE F - BUSINESS SEGMENT INFORMATION
The Company's business segments are gas marketing, well
services and equipment rental and oil and gas production. The
Company's gas marketing operation involves purchasing gas from
local producers and interstate pipeline sources, as well as
marketing gas from the Company's managed limited partnerships, and
reselling that gas to industrial gas users through transportation
arrangements on intrastate and interstate pipeline systems.
In the well services and equipment rental operation, the
Company rents well service equipment (e.g. for use in water
hauling, pipeline installation, and welding) and provides workover
and well tending services for producing wells.
The Company's well services are performed principally for
limited partnerships of which the Company is the general partner.
Revenues from oil and gas production operations are primarily
derived from working and royalty interests in the sale of oil and
gas production and for the transmission of such production.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues:
Gas marketing $9,011,565 $5,900,466
Well services and equipment
rental 432,742 367,690
Oil and gas production -
unaffiliated customers 400,934 441,465
$9,845,241 $6,709,621
General corporate 93,620 57,471
$9,938,861 $6,767,092
</TABLE>
<TABLE>
NOTE F - BUSINESS SEGMENT INFORMATION (CONTINUED)
<CAPTION>
1997 1996
<S> <C> <C>
Income (loss) before
income taxes:
Gas marketing $ 344,740 $ 362,506
Well services and equipment
rental ( 7,148)( 71,426)
Oil and gas production 184,456 189,313
$ 522,048 $ 480,393
General corporate ( 329,112)( 361,428)
$ 192,936 $ 118,965
Identifiable assets:
Gas marketing $2,466,371 $3,679,207
Well services and equipment
rental 818,019 456,660
Oil and gas production 628,661 669,883
$3,913,051 $4,805,750
General corporate 537,260 422,408
$4,450,311 $5,228,158
Capital spending:
Gas marketing $ -- $ --
Well services and equipment
rental 6,996 78,335
Oil and gas production -- --
$ 6,996 $ 78,335
General corporate -- --
$ 6,996 $ 78,335
Depletion, depreciation and
amortization:
Gas marketing $ -- $ --
Well services and equipment
rental 41,923 67,231
Oil and gas production 47,406 43,492
$ 89,329 $ 110,723
General corporate 11,567 10,942
$ 100,896 $ 121,665
</TABLE>
<PAGE>
NOTE G - COMMITMENTS AND CONTINGENCIES
All except eleven of the limited partnerships in which the
Company was the general partner have closed and their assets have
reverted to the Company. Prior to the closing of the partnerships,
the Company had been escrowing partnership cash to provide for
future well-plugging costs. (See Note A). Upon closing of the
partnerships, the Company will now assume all well-plugging
responsibilities associated with the wells which were previously
assets of the partnerships. As of December 31, 1997, the wells
transferred to the Company from these partnerships continued to
produce oil and gas. Also, as of December 31, 1997 the Company
owned 216 oil and gas wells, excluding wells in which the Company
has an interest as a general partner.
Under current promulgated regulations of the Pennsylvania
Department of Environmental Protection, Oil and Gas Division, to
the extent that the mechanical integrity of the wells is sound,
non-producing wells can receive a permit to be placed on inactive
status for an indefinite period of time and not be plugged. Also,
wells that fail to produce enough gas to feed transportation lines
will still produce some gas; at that time, instead of being
plugged, the wells would be available to be turned over to
landowners, who could use gas produced for personal home utilities.
Lastly, future explorations may discover formations deeper
than those existing, and non-producing wells may be deepened to
access them. For these reasons, no well-plugging liability
relating to gas wells owned directly by the Company, or in which
the Company has an interest as a general partner, has been recorded
as of December 31, 1997.
The Company has been informed that two of its major suppliers
are in the process of being sold. The impact of these sales are
not readily determinable. During 1997, the Company purchased
approximately $3,682,000 of gas from these two suppliers for
resale, which represents 42% of total gas purchases for the year.
The Company is also a party to several actions which arise in
the normal course of the Company's business. In management's
opinion, none of these lawsuits or proceedings should, individually
or in the aggregate, have a material adverse effect upon the
financial position of the Company.
<PAGE>
NOTE H - MAJOR CUSTOMERS AND SUPPLIERS
The Company makes a substantial portion of its gas marketing
sales to three customers. During 1997 and 1996, sales to the three
largest customers aggregated approximately $4,058,000 (45%) and
$1,446,000 (25%), respectively. At December 31, 1997 and 1996,
amounts due from those customers included in trade accounts
receivable were approximately $484,000 and $352,000, respectively.
NOTE H - MAJOR CUSTOMERS AND SUPPLIERS (CONTINUED)
The Company purchased approximately $4,486,000 (52%), from
three suppliers and $3,475,000 (63%), from four suppliers of gas
for resale, during 1997 and 1996, respectively. At December 31,
1997 and 1996, amounts due to those suppliers included in accounts
payable were approximately $1,064,000 and $1,109,000, respectively.
<PAGE>
NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
Cash - Fair value approximates carrying value due to the
initial maturities of the instruments being three months or less.
<TABLE>
The estimated fair values of the Company's financial
instruments as of December 31, 1997, are as follows:
<CAPTION>
Carrying
Amount Fair Value
<S> <C> <C>
Financial assets:
Cash $1,062,521 $1,062,521
</TABLE>
<PAGE>
NOTE J - SUPPLEMENTARY OIL AND GAS DISCLOSURES (UNAUDITED)
In November 1982, the Financial Accounting Standards Board
issued Statement No. 69, "Disclosures About Oil and Gas Producing
Activities". This Statement establishes a standardized
comprehensive set of supplemental unaudited disclosures for oil and
gas exploration and production activities which are included in the
schedules that follow.
Proved Reserves - The following schedule presents estimates of
proved oil and natural gas reserves attributable to the Company,
all of which are located in the United States. Proved reserves are
estimated quantities of oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved-developed reserves are
those which are expected to be recovered through existing wells
with existing equipment and operating methods. All proved reserves
are developed. Reserves are stated in barrels of oil and thousands
of cubic feet of natural gas.
<PAGE>
<TABLE>
NOTE J - SUPPLEMENTARY OIL AND GAS DISCLOSURES (UNAUDITED)
(CONTINUED)
<CAPTION>
Gas (MCF) Oil (BBL)
<S> <C> <C>
Proved reserves at December 31, 1995 971,394 6,351
Production (177,076) (1,781)
Revisions in previous quantity estimates 74,434 3,131
Proved reserves at December 31, 1996 868,752 7,701
Production (149,632) ( 810)
Revisions in previous quantity estimates 95,688 345
Proved reserves at December 31, 1997 814,808 7,236
</TABLE>
<TABLE>
Capitalized Costs - The Company's net investment in oil and
gas producing properties, excluding transmission equipment, at
December 31, 1997 and 1996 is as follows:
<CAPTION>
1997 1996
<S> <C> <C>
Proved oil and gas properties $5,740,913 $5,740,913
Accumulated depletion, depreciation
and amortization ( 5,634,109)( 5,598,591)
$ 106,804 $ 142,322
</TABLE>
<PAGE>
Costs Incurred in Oil and Gas Property Acquisitions,
Exploration and Development Activities - There were no costs
incurred in oil and gas property acquisitions, exploration and
development activities for the years ended December 31, 1997 and
1996.
Results of Operations for Oil and Gas Producing Activities -
The following summarizes the "Results of Operations for Producing
Activities" as defined by FASB 69, for the years ended December 31,
1997 and 1996. As required, income taxes are included in the
results, but were computed under FASB guidelines using statutory
tax rates, while considering the effects of permanent differences
and tax credits relating to oil and gas producing activities.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues $935,012 $964,125
Less:
Production costs $370,299 $368,814
Depletion, depreciation
and amortization 47,406 88,626
$417,705 $457,440
</TABLE>
<PAGE>
<TABLE>
NOTE J - SUPPLEMENTARY OIL AND GAS DISCLOSURES (UNAUDITED)
(CONTINUED)
<CAPTION>
1997 1996
<S> <C> <C>
$517,307 $506,685
Income taxes -- --
Results of operations from
oil and gas producing
activities before corporate
overhead and interest costs $517,307 $506,685
</TABLE>
Geological and engineering estimates of proved oil and natural
gas reserves at any one point in time are highly interpretive,
inherently imprecise, and subject to ongoing revisions that may be
substantial in amount. Although every reasonable effort is made to
ensure that the reserve estimates reported represent the most
accurate assessments possible, these estimates are by their nature
generally less precise than other estimates presented in connection
with financial statement disclosures.
Standardized Measure of Discounted Future Net Cash Flows - The
following schedule presents estimates of the standardized measure
of discounted future net cash flows from the Company's proved
reserves. Estimated future cash flows are determined using year-end
prices adjusted only for fixed and determinable increases for
natural gas provided by contractual agreement. Estimated future
production and development costs are based on economic conditions
at year end. Future federal income taxes are computed by applying
the applicable statutory federal income tax rates under the Revenue
Reconciliation Act of 1994 to the differences between the future
pretax net cash flows and the tax basis of proved oil and gas
properties. Future net cash flows from oil and gas production have
been discounted at ten percent as required by the FASB. Therefore,
all properties are discounted at the same rate regardless of the
attendant risk. The assumptions used to compute the standardized
measure are, therefore, those required by the FASB and, as such, do
not necessarily reflect the Company's expectations of actual
revenues to be derived from those reserves nor their present worth.
Because the standardized measure of future net cash flows was
prepared using the prevailing economic conditions existing at the
respective year end, it should be emphasized that such conditions
continually change, as evidenced by the fluctuations in natural gas
and crude oil prices during the last several years. Accordingly,
such information should not serve as a basis in making any judgment
on the potential value of the Company's recoverable reserves, or in
estimating future results of operations.
<PAGE>
<TABLE>
NOTE J - SUPPLEMENTARY OIL AND GAS DISCLOSURES (UNAUDITED)
(CONTINUED)
<CAPTION>
1997 1996
<S> <C> <C>
Future cash inflows $2,473,000 $2,024,000
Future production costs ( 1,113,000)( 963,000)
Future income tax expense -- --
Future after-tax net cash
flows $1,360,000 $1,061,000
10% annual discount ( 629,000)( 495,000)
Standardized measure of
discounted future net
cash flows $ 731,000 $ 566,000
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash
Flows-FASB 69 requires a reconciliation which displays the
principal sources of changes in the standardized measure of
discounted future net cash flows during the year. The Company
believes that such a reconciliation may suggest a degree of
accuracy that is inappropriate in light of the subjectivity and
imprecision of the underlying reserve estimates. The Company
cautions users not to infer an unwarranted degree of reliance on
the amounts and the reasons for the changes in those standardized
measures.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Beginning of year $566,000 $639,000
Changes resulting from:
Sales of production ($935,000) ($964,000)
Net change in prices
relating to future
production 612,000 456,000
Extensions and discoveries -- --
Revisions in previous
quantity estimates 280,000 216,000
Accretion of discount 50,000 56,000
Net change in income taxes -- --
Other 158,000 163,000
Net increase (decrease) $165,000 ($ 73,000)
End of year $731,000 $566,000
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT NUMBER 27
FINANCIAL DATA SCHEDULE
For the Year Ended December 31, 1997
<CAPTION>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 281,186
<SECURITIES> 0
<RECEIVABLES> 3,740,373
<ALLOWANCES> 73,200
<INVENTORY> 198,686
<CURRENT-ASSETS> 4,169,391
<PP&E> 8,577,994
<DEPRECIATION> 7,975,647
<TOTAL-ASSETS> 5,228,158
<CURRENT-LIABILITIES> 3,616,109
<BONDS> 48,132
0
0
<COMMON> 256,278
<OTHER-SE> 973,478
<TOTAL-LIABILITY-AND-EQUITY> 5,228,158
<SALES> 6,709,621
<TOTAL-REVENUES> 6,767,092
<CGS> 6,229,228
<TOTAL-COSTS> 6,229,228
<OTHER-EXPENSES> 408,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,808
<INCOME-PRETAX> 118,965
<INCOME-TAX> 0
<INCOME-CONTINUING> 118,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,965
<EPS-PRIMARY> .023
<EPS-DILUTED> .023
