Form 10-QSB -- Quarterly or Transitional Report
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE EXCHANGE ACT For the
transition period from ___________ to ___________
Commission File Number 0-23814
CONCORD ENERGY INCORPORATED
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2670198
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
75 Claremont Road, Bernardsville, New Jersey 07924
- - -------------------------------------------------------------------------------
(Address of principal executive offices)
908-766-1020
(Issuer's telephone number)
(Formername, former address and former fiscal
year, if changed since last report)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No
At March 31, 1996, the outstanding common equity of Concord Energy
Incorporated comprised 4,444,350 shares of common stock, $.0001 par value.
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements are filed as part of this report:
Pages
-------
Consolidated Balance Sheet (Unaudited)
March 31, 1996 and 1995 F-1
Consolidated Statements of Operations and
Accumulated Deficit (Unaudited)
Three and Nine Months Ended March 31, 1996, and 1995 F-2
Consolidated Statements of Cash Flows (Unaudited),
Three and Nine Months Ended March 31, 1996, and 1995 F-3
Notes to Consolidated Financial Statements F-4 - F-15
2
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Item 2. Management's Discussion and Analysis or Plan of Operation.
General Operations
------------------------------------------------------------
In May 1993 the Registrant consummated an Agreement and Plan of
Reorganization ("Agreement") pursuant to which it entered into the oil and gas
industry. Under the Agreement, the Registrant changed its name to Concord Energy
Incorporated (referred to herein as the "Company") and became the parent of an
entity which manages and owns interests in approximately 100 oil and gas wells
primarily located in East Texas and the Louisiana Gulf Coast. Concord's oil and
gas subsidiary was formed in June 1991 in order to effectuate a consolidation of
166 oil and gas partnerships. Following Monoclonal's acquisition of Concord, the
Company changed its fiscal year end to June 30 in order to coincide with the
fiscal year of its operating subsidiary (Concord).
In May 1995, the Company acquired Knight Equipment and Manufacturing
Corporation ("KEMCO"), which locates, designs, refurbishes, and installs gas
processing plants for the natural gas industry. The effective date of the
acquisition was April 1, 1995.
In March 1996, the Company acquired Integrated Petroleum System Corporation
("IPS"), has developed a unique, properietary software which is used to collect,
process, analyze and transmit data relative to petroleum production and
processing operations.
Results of Operations
- - ----------------------
The Company's revenues are primarily derived from the buying, selling and
renting of gas processing equipment. The Company also realizes revenue through
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<PAGE>
the sale of oil and gas, sale of it's software system as developed by IPS,
as well as through well operations. During the nine months ended March 31, 1996
the Company reported total income from operations of $10,731,747. Contract
revenues during the nine months period were $9,694,810. Rental income for the
nine months period was $88,101. The Company's oil sales during the nine month
period were $417,475 while gas sales totaled $348,865. The Company reported
revenue from syndication sales of $140,000 and well operating income of $39,902
and software sales of $2,594 during the nine months period ended March 31, 1996.
By comparison, during the nine months period ended March 31, 1995 the Company
reported total income from operations of $1,504,130, including oil sales of
$636,577 and, gas sales of $351,372, revenue from syndication sales and revenue
interests of $467,075 and well operating income of $49,106.
Total revenues increased by $9,227,617 during the nine months ended March
31, 1996 compared to the nine months period ended March 31, 1995. This increase
is primarily due to the addition of KEMCO's operations.
Total costs and operating expenses during the nine months ended March 31,
1996 were $9,202,391. Cost of contract revenue during the period was $6,005,281.
Lease operating expenses accounted for $507,641, during the nine months period.
Lease operating expenses as a percentage of total oil and gas sales were
approximately 66%. In comparison, during the nine months period ended March 31,
1995 total costs and operating expenses were $2,259,626, lease operating
expenses were $588,938 and lease operating expenses as a percentage of oil and
gas sales
4
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were approximately 60% . Total costs and operating expenses increased by
$6,942,765, and lease operating expenses decreased by $81,297, during the nine
months period ended March 31, 1996 as compared to the nine months period ended
March 31, 1995, and lease operating expenses as a percentage of total oil and
gas sales increased by approximately 6% . The increases in costs and operating
expenses primarily relate to the inclusion of KEMCO's cost of operations.
During the nine months period ended March 31, 1996 general and
administrative expenses were $2,363,424. $1,044,000 of such expenses were
incurred under the Company's management agreement with its affiliate Integrated.
Other general and administrative expenses, which include KEMCO's and IPS's
administrative costs as well as professional fees and franchise taxes, were
$1,319,424, during the nine months period ended March 31, 1996. During the nine
months period ended March 31, 1995, the Company's total general and
administrative expenses were $1,298,785, for which $1,044,000 were incurred
under the Company's management agreement with Integrated. The primary increase
in the Company's general and administrative costs are those additional costs
associated with KEMCO.
Depreciation, depletion and amortization expenses during the nine months
period ended March 31, 1996 were $326,044. During the nine months period ended
March 31, 1995 these expenses were $371,903. The $45,859 decrease in these
expenses primarily result from the reduction in oil and gas production,
partially offset by the additional depreciation related to KEMCO's property,
plant and equipment which totaled $90,000 for the nine month period ended March
31, 1996.
5
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Interest expense for the nine months period ended March 31, 1996 was
$704,059. During the nine months period ended March 31, 1995 interest expense
was $272,597. The increase of $431,462 is primarily the result of the additional
debt obtained for KEMCO's inventory acquisitions and the financing related to
the KEMCO acquisition.
For the nine months period ended March 31, 1996 the Company reported net
income of $849,071. For the nine months period ended March 31, 1995 the Company
reported a net loss of $1,022,356. The increased net income of $1,871,427 for
the nine months ended March 31, 1996 as compared to the nine months ended March
31, 1995, resulted from the addition of KEMCO's result of operations to the
Company's oil and gas operations.
Liquidity and Capital Resources
- - --------------------------------
As of March 31, 1996 the Company reported working capital of $8,480,238
compared to a working capital deficit of $1,278,211 at March 31, 1995. Total
current assets increased by $12,173,916 which is the combination of an increase
in cash and cash equivalents of $316,714, an increase in receivables of
$1,893,835 and an increase in inventories and other current assets of
$9,599,429, as compared to March 31, 1995. Total current liabilities increased
from $1,952,371 as of March 31, 1995 to $4,367,838 as of March 31, 1996, for a
net increase of $2,415,467. The combination of the foregoing resulted in a net
increase in working capital of $9,758,449 from March 31,
6
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1995 to March 31, 1996. This increase is primarily related to the
acquisition of KEMCO and the related long term debt and equity financing.
On July 7, and August 21, 1995 the Company issued $500,000 and $275,000,
respectively, of convertible notes to private investors. In December 1995 the
Company sold 222,000 shares of common stock and realized net proceeds of
$500,000. On October 4, 1995 the Company completed a sale of properties for
approximately $461,250.
On January 31, 1996 the Company agreed to issue 24,000 shares of common
stock in exchange for the retirement of approximately $100,000 of debt. In
January 1996 the Company sold 114,943 shares of common stock to private
investors and realized net proceeds of $250,000. In February 1996 the Company
sold 123,158 shares of common stock privately and realized net proceeds of
$350,428. In March 1996 the Company sold 175,000 shares of common stock
privately and realized net proceeds of $589,302. In April 1996 the Company sold
103,800 shares of common stock and realized net proceeds of $298,500.
Capital Expenditures and Commitments
- - ------------------------------------
During the nine months ended March 31, 1996, the Company incurred capital
expenditures of $162,762. These capital expenditures were primarily of equipment
and the purchase of and improvements to a 6,000 square foot building by KEMCO.
These improvements consisted of renovations necessary for occupancy of the
building which was acquired in November, 1995. The building, located across from
KEMCO's
7
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main yard, will be used for KEMCO's engineering department. The total
cost of the building and improvements will be approximately $75,000. The
expansion of the engineering department will allow KEMCO to consolidate the
engineering staff and expand to meet the anticipated future engineering work
requirements.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONCORD ENERGY INCORPORATED
(Registrant)
Jerry Swon
--------------------------------
Dated: March 17, 1996 Jerry Swon
President, Chief Executive Officer
and Chairman of the Board of Directors
Dated: March 17, 1996 Scott Kalish
---------------------------------
Scott Kalish
Chief Financial Officer
9
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Balance Sheet
- - --------------------------------------------------------------------------------
(Unaudited) (Unaudited)
March 31 March 31
1996 1995
Assets
Current assets
Cash and cash equivalents $ 432,494 $ 115,780
Costs and estimated earnings in excess
of billings on uncompleted contracts 363,937 -
Accounts receivable, net of allowance for
doubtful accounts of $67,490 and $0 1,555,707 205,377
Receivable from stockholder 106,636 -
Receivable due from affiliated company 789,872 353,003
Inventories 9,510,074 -
Prepaid expenses and other assets 89,355 -
------------- -----------
Total current assets 12,848,076 674,160
Property, plant and equipment, net 8,547,141 8,548,874
Note receivable 1,000,000 -
Bond issuance costs, net 494,649 222,258
Other assets 50,012 2,125,000
------------- -----------
Total assets $22,939,877 $11,570,292
============= ===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 1,168,750 $ 1,468,750
Accounts payable 1,843,688 282,794
Accrued expenses 1,233,118 200,827
Payable due to Integrated, net - -
Federal income taxes payable 122,282 -
------------- -----------
Total current liabilities 4,367,838 1,952,371
Long term liabilities
Notes payable 6,193,362 1,813,000
Capital lease obligations 46,673 -
------------- -----------
Total Long term liabilities 6,240,035 1,813,000
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Commitments and Contingencies
Stockholders' equity
Preferred Stock, $.01 par value, 1,000 shares
authorized, 0 shares issued and outstanding - -
Common stock, $.0001 par value, 20,000,000
shares authorized, 4,444,350 and 11,464,268
(pre-split) shares issued and outstanding 444 1,111
Paid-In capital 15,783,886 11,546,768
Accumulated deficit (3,452,325) (3,742,958)
------------- -----------
Total stockholders' equity 12,332,005 7,804,921
------------- -----------
Total liabilities and stockholders'
equity $22,939,877 $11,570,292
============= ===========
The accompanying notes are an integral
part of these consolidated financial statements.
F-1
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Operations
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<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Quarter Ended Nine-Months Quarter Ended Nine-Months
March 31, March 31, March 31, March 31,
1996 1996 1995 1995
<S> <C> <C> <C> <C>
Revenue
Oil sales $ 140,397 $ 417,475 $ 217,636 $ 636,577
Gas sales 168,565 348,865 102,161 351,372
------- ------- ------- -------
Total oil and gas sales 308,962 766,340 319,797 987,949
Contract revenue 2,340,260 9,694,810 - -
Syndication sales and
revenue interests - 140,000 243,125 467,075
Well operating income 13,916 39,902 16,925 49,106
Rental income 37,367 88,101 - -
Software Sales 2,594 2,594 - -
----- -----
Total revenue 2,703,100 10,731,747 579,847 1,504,130
Costs and Operating Expenses
Lease operating 138,359 507,641 207,541 588,938
Cost of contract revenue 1,524,131 6,005,281 - -
General and administrative:
Management agreement 348,000 1,044,000 348,000 1,044,000
Other expenses 579,084 1,319,424 96,430 254,785
Depreciation, depletion and
amortization 55,000 326,044 123,694 371,903
------ ------- ------- -------
Total costs and operating
expenses 2,644,574 9,202,391 775,665 2,259,626
--------- --------- ------- ---------
Income (Loss) from Operations 58,526 1,529,356 (195,818) (755,496)
------ --------- -------- --------
Other income (expense)
Other income 1,778 23,774 2,583 5,737
Interest expense (43,916) (704,059) (138,168) (272,597)
------- -------- ------- --------
(42,139) (680,284) (135,585) (266,860)
------- ------- ------- --------
Income (Loss) before income
taxes 16,387 849,071 (331,402) (1,022,356)
------ ------- -------- ----------
Income tax expense - - - -
------ ------- -------- ----------
Net Income (Loss) $ 16,387 $ 849,071 $ (331,402) $ (1,022,356)
============= ============= =============== =============
Accumulated deficit, beginning
of period (3,468,712) (4,301,396) (3,411,556) (2,720,602)
============= ============= =============== =============
Accumulated deficit, end
of period $ (3,452,325) $ (3,452,325) $ (3,742,958) $ (3,742,958)
============= ============= =============== =============
Income (Loss) per share $ 0.00 $ 0.19 $ (0.07) $ (0.23)
The accompanying notes are an integral part
if these consolidated financial statements.
</TABLE>
F-2
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
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<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Quarter Ended Nine-Months Quarter Ended Nine-Months
March 31, March 31, March 31, March 31,
1996 1996 1995 1995
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net Income (loss) $ 16,387 $ 849,071 $ (331,402) $(1,022,356)
Adjustments to reconcile net
income/loss to net cash (used in)
provided by operating activities:
Depreciation, depletion and amortization 55,000 326,044 123,694 371,903
Other noncash transactions
Decrease (Increase) in assets:
Accounts receivable 1,184,929 (859,150) 57,323 91,617
Note receivable (1,000,000) (1,000,000) - -
Costs and estimated earning in excess
of billings on uncompleted contracts 369,092 194,924 - -
Receivable From Joint Venture (150,240)
Receivable due from Stockholder 8,441 (3,017) -
Receivable due from affiliated company (789,872) (773,935) (121,948) 11,542
Inventories 320,830 (1,057,449) - -
Deferred taxes
Other assets and liabilities 38,459 (17,648) - -
(Decrease) Increase in liabilities
Accounts payable (368,275) 985,153 (32,209) (34,022)
Accrued expenses 67,164 728,382 54,566 70,729
Federal income tax payable 8,333 2,184 - -
Franchise tax payable 10,000 45,000 7,500 (6,000)
Receivable due from/payable due
to Integrated, net (259,052) (594,685) - -
-------- -------- -------- --------
Net cash provided by (used in)
operating activities (338,563) (1,175,125) (242,476) (666,827)
-------- ---------- -------- --------
Cash flows from investing activities
Purchase of propery, plant, oil and gas equipment,
well workovers and recompletions (111,568) (162,762) (9,709) (80,902)
Acquisition of business, net of cash acquired (897,280) (897,280) (500,000) (500,000)
Sale of oil and gas interests - 477,332 - 16,082
Recapitalization costs
Investment in Joint Venture - - - (1,625,000)
Other, net - - - -
---------- -------- -------- ----------
Net cash (used in) provided by
investing activities (1,008,848) (582,710) (509,709) (2,189,820)
---------- -------- -------- ----------
Cash flows from financing activities
Net proceeds from bonds payable - - 275,000 2,228,242
Net proceeds from note payable 454,000 1,279,000 (425,000) 275,000
Net proceeds from issuance of common stock - - - 250,000
Net proceeds from sale of common stock 1,189,730 1,689,730 - 313,000
Net decrease in notes payable (93,938) (1,036,188) (68,750) (160,417)
------- ---------- ------- --------
Net cash flows provided by (used in)
financing activities 1,549,792 1,932,542 (218,750) 2,905,825
--------- --------- -------- ---------
Net increase (decrease) in cash and
cash equivalents 202,381 174,707 (970,935) 49,179
------- ------- -------- ------
Cash and cash equivalents at beginning of period 230,114 257,788 1,086,715 66,601
------- ------- --------- ------
Cash and cash equivalents at end of period $ 432,494 $ 432,494 $ 115,780 $ 115,780
========== ============== ============ ===========
The accompanying notes are an integral part
of these consolidated financial statements
</TABLE>
F-3
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
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1. Organization, Recapitalization, and Operations
Concord Energy Incorporated (the "Company") is an oil and gas exploration
and production company which also locates, designs, refurbishes and installs gas
plants and gas processing equipment for customers in the natural gas industry.
The Company also provides rentals of gas plants and gas processing equipment and
provides services such as engineering, procurement, dismantling, reapplication
and relocation of complete gas processing facilities. In addition, the Company
has developed unique, proprietary software which is used to collect, process,
analyze and transmit data relative to petroleum production and processing
operations. The Company is headquartered in Bernardsville, New Jersey with
substantially all of its oil and gas operations in East Texas and the Louisiana
Gulf Coast. The Company's wholly-owned subsidiaries, Concord Operating, Inc.
("COI"), Knight Equipment and Manufacturing Corporation ("KEMCO"), and
Integrated Petroleum Systems Corporation ("IPS") are located in Houston, Texas,
Jourdanton, Texas, and Denver, Colorado, respectively.
Concord Energy, Inc., (the Company's name prior to the recapitalization
described below) was formed in June 1991 for the purpose of combining the net
assets and operations of 166 previously independent oil and gas partnerships
(the "Partnerships") and the net assets and operations of COI through an
exchange of Partnership and COI net assets for common stock in Concord Energy,
Inc. The exchange was accounted for at historical cost. Certain limited partners
in the Partnerships which did not participate in the exchange were allocated net
working interests in the properties previously held by the respective
Partnerships.
Prior to the exchange, the Partnerships were managed by Integrated Energy,
Inc. ("Integrated") and Tucker Financial, Inc. ("Tucker") which were in the
business of establishing and managing oil and gas limited partnerships.
Subsequent to the exchange, Integrated continues to provide certain management
and administrative services to the Company pursuant to a management agreement
between the Company and Integrated. COI manages the production of Company-owned
oil and gas properties.
On May 19, 1993, Monoclonal International Technology, Inc. ("MITI")
acquired all of the outstanding common stock of Concord Energy, Inc., with MITI
as the acquirer (i.e. a reverse acquisition). In connection with the
acquisition, MITI later changed its name to Concord Energy Incorporated,
approved a 1 for 230 reverse split of its 127,784,100 shares of common stock and
issued 10,556,077 shares of its common stock in exchange for all the outstanding
common stock of Concord Energy, Inc. Historical stockholders equity has been
retroactively restated for all periods presented in the
F-4
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
accompanying consolidated financial statements to account for the equivalent
number of shares received in the acquisition totaling 11,111,660 shares, after
giving effect to the difference in par value of Concord Energy, Inc. and MITI
stock with the offset to paid-in capital. Costs incurred in connection with the
recapitalization totaling $45,000 were recorded as a reduction in paid-in
capital during 1993.
In December 1995, the company effectuated a 1 for 5 reverse split of it's
outstanding stock.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements are comprised of the Company and its
wholly-owned subsidiaries, Concord Energy, Inc., Concord Operating, Inc., and
Knight Equipment & Manufacturing Corporation and its wholly-owned subsidiary, K
& S Engineering, Inc. All significant intercompany accounts and transactions are
eliminated in consolidation.
Cash equivalents
Cash and cash equivalents include all cash and highly liquid investments
with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market using the first-in
first-out method. Inventory consists principally of gas plants, compressors,
separators, supplies and repair parts utilized by the Company in conjunction
with its design and refurbishing of gas plants and gas processing equipment.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation, depletion and amortization.
The Company accounts for its oil and gas properties under the full cost
method of accounting. Under the full cost method, all costs incurred in
acquiring, exploring and developing oil and gas reserves are capitalized to the
full cost pool. When oil and gas properties are sold, retired or otherwise
disposed of, any applicable proceeds are
F-5
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
credited to the full cost pool, with no gain or loss recognized, unless the sale
would have a significant impact on the relationship between capitalized costs
and proved reserves. Since all of its oil and gas operations are within the
United States, the Company utilizes one cost pool to account for its oil and gas
properties. Depreciation, depletion and amortization of oil and gas properties
is computed based on the unit-of-production method for the cost pool, based on
estimates of proved reserves as determined by an independent reserve engineer.
Other property, plant and equipment is recorded at cost less accumulated
depreciation. Repairs and maintenance costs which do not extend the useful lives
of the assets are expenses as incurred. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets which range
from three to seven years, except for buildings and improvements which are
depreciated over estimated useful lives ranging from 20 to 30 years.
Leases
Leases which meet certain criteria evidencing substantive ownership by the
company are capitalized and the related capital lease obligations are included
in liabilities. Amortization and interest are charges to expense, with rent
payments being treated as payments of the capital lease obligation. All other
leases are accounted for as operating leases, with rent payments being charges
to expense as incurred.
Deferred financing and bond issuance costs
Costs incurred in conjunction with obtaining financing (including costs
associated with the issuance of bonds) are amortized using the straight-line
method over the term of the related financing agreement or bond.
Revenue recognition
Oil and gas sales
Revenues from oil and gas sales are accrued as earned based on joint
interest billings obtained from the well operator.
Contract revenue
Revenues from construction contracts are recognized based on the percentage
of completion method, measured on the basis of costs incurred to date to
estimated total budgeted costs for each contract. Contract costs include all
direct material and labor
F-6
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
costs, including those indirect labor and repair costs related to contract
performance. Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements are monitored
on a periodic basis in order to determine if revisions to the income and cost
estimates are necessary as a result of such changes. Revisions to the income and
cost estimates, if any, are recognized in the period in which such revisions are
determined to be necessary. Costs and earnings in excess of billings on
uncompleted contracts represent an asset based on revenues recognized in excess
of amounts billed to customers. Billings in excess of costs and earnings on
uncompleted contracts are recorded as a liability and represent contracts for
which billings to date exceed cumulative revenues recognized based on the
percentage of completion method.
Syndication sales
Under an agreement between the company and Integrated (see Note 12), the
Company is entitled to receive 20% of all sales made by Integrated of syndicated
retail partnerships. This revenue is recognized when earned.
Well operating income
The Company, through its wholly owned subsidiary COI, manages and operates
wells. The revenue generated from these services is recognized when earned.
Rental revenue
The Company leases certain gas plants and separators to customers under
short term leases which are accounted for as operating leases. At June 30, 1995,
there are no significant future minimum rentals to be received under these
noncancelable operating leases.
Income taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized based upon differences arising from the carrying of amounts of the
Company's assets and liabilities for tax and financial reporting purposes using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period when the change in tax rates is
enacted.
F-7
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Net income (loss) per share
Net loss per share of common stock is based upon the number of shares of
common stock outstanding (4,444,350) . The Company's common stock equivalents,
which consist of outstanding warrants to purchase the Company's common stock,
are not considered in the net income (loss) per share calculation since their
effect is anti-dilutive.
3. Business Combinations
On May 7, 1995, the company acquired all of the issued and outstanding
shares of the common stock of KEMCO for $7,000,000 in a business combination
accounted for under the purchase method of accounting. The acquisition was
financed through 400,000 shares of the Company's common stock and $4,500,000 in
cash. Financing for the cash portion of the purchase price was obtained
primarily through the net proceeds from debt financing totaling approximately
$3,700,000 and the net proceeds from the issuance of 260,000 shares of the
Company's common stock totaling approximately $800,000. The results of
operations of KEMCO and its wholly-owned subsidiary, K & S Engineering, Inc.,
subsequent to April 1, 1995, the date effective control of KEMCO transferred to
the Company for financial reporting purposes, are included in these consolidated
financial statements.
On March 1, 1996 the Company acquired all of the issued and outstanding
shares of the common stock of IPS for 600,000 shares of the Company's common
stock.
4. Accounts Receivable and Concentration of Credit Risk
Accounts receivable represent amounts due from customers who are in the oil
and gas business throughout North America. Fluctuations in market conditions
impact the credit worthiness of these customers. The Company reviews the
financial condition of purchasers and joint interest participants prior to
signing sales or joint interest agreements. Payment terms are on a short-term
basis and in accordance with industry standards.
5. Notes Receivable
On December 29, 1995, the Company completed a $1,600,000 gas processing
equipment sale consisting of $600,000 cash and a $1,000,000 note receivable at
an interest rate of 9% annually, due on March 29, 1997.
F-9
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
6. Property, Plant and Equipment, Net
Significant components comprising property, plant and equipment at March 31
include the following:
1996 1995
Oil & gas properties:
Leasehold costs $ 6,806,177 $ 7,378,124
Lease well & equipment 1,944,882 1,944,882
Intangibles 1,904,925 1,904,925
Property, plant & equipment 945,431 942,820
Other 58,551 58,551
----------- ------------
11,659,966 12,229,302
----------- ------------
Other property, plant & equipment
Land 159,913 -
Buildings & improvements 374,719 -
Machinery & equipment 234,921 -
Vehicles 218,769 -
Furniture, fixtures & software 163,633 53,016
----------- ------------
1,151,955 53,016
----------- ------------
Accumulated depreciation,
depletion and amortization (4,264,780) (3,733,444)
------------ ------------
Property, plant and equipment, net $ 8,547,141 $ 8,548,874
------------ ------------
Depreciation, depletion and amortization of oil and gas properties, and
depreciation of other property, plant and equipment for the periods ended March
31 is as follows:
1996 1995
Oil and gas properties $236,044 $371,281
Other property, plant
and equipment 90,000 621
-------- ----------
$326,044 $372,102
-------- ----------
F-9
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
7. Debt and Capital Lease Obligations
Debt
Long-term debt includes the following at March 31:
1996
Bond payable, dated May 1995, with interest
at 10% per annum, requiring semi-annual interest
payments through maturity on May 1, 1997. The
bond is secured by the assets of KEMCO. As
additional consideration, the Company issued
90,000 shares of common shares to the lender. $2,920,000
Secured notes payable, dated December 1994,
with a face value of $2,500,000 issued at
$750,000 discount. The notes bear
interest at 9% per annum with an
effective interest rate of 15% per annum.
Semi-annual interest payments of $112,500 are
required through maturity in January 2010. The
notes are secured by certain gas plants and
equipment and a guarantee of the Company. 1,760,263
Secured notes payable, dated September 1994,
with a face value of $1,400,000 issued at a
$604,500 discount. The notes bear interest at
6% per annum payable semi-annually with an
effective interest rate of 14.02% per annum.
Annual principal payments of $140,000 are
required beginning in August 2005 through
maturity in August 2009. The notes are secured
by certain oil and gas property owned by the Company. 708,787
F-10
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Acquisition bridge financing evidenced
by notes payable which bear interest at
12% per annum. The interest and related
principal are due at various maturity
dates through November 1996.
Approximately $530,000 of the notes at
September 30, 1995 are secured by a personal
guarantee from Jerry Swon, the Chief
Executive Officer of the Company, who is also a
shareholder of the Company. 270,000
In July, 1995 issued $500,000 of 12% convertible
notes. Upon maturity, or any time prior thereto,
each $250,000 portion of the obligation is
convertible into additional shares of common stock.
The notes mature, one half each July 7,
1996 and August 7, 1996, respectively. 500,000
On August 21, 1995, the Company issued $275,000
of 12% convertible notes. Upon maturity, or
any time prior thereto, the obligation is
convertible into additional shares of common
stock. The note matures on August 21, 1996. 275,000
Unsecured notes payable, originally in the amount
of $450,000 bearing interest at 7% to 7.5% per annum.
Principal and interest are due at various dates
through fiscal 1996. 450,000
12% convertible notes, dated October 1994,
convertible at maturity into shares of Company's
common stock. $125,000 of these notes matured
and were converted into 25,000 shares of the
Company's common stock. Upon the conversion,
an additional 3,000 shares of the Company's
common stock was issued consideration for accrued
interest expense through the date of conversion
totaling $15,000. The remainder of the notes mature
in October 1996. The notes are secured by certain oil
and gas property owned by the Company. 125,000
F-11
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Various convertible notes payable assumed from IPS which
have interest rates of 10% to 12%. 123,062
Various notes payable assumed from IPS which
have interest rates of 4.5% to 10%. 230,000
-------
Total debt outstanding 7,362,112
Less: current portion 1,168,750
---------
Long-term debt $6,193,362
----------
Capital Lease Obligations
In conjunction with its acquisition of KEMCO, the Company acquired certain
leased equipment which is accounted for as capital leases. prior to the
acquisition, the leases were prepaid at inception. Capital lease obligations
recorded in the accompanying consolidated financial statements represent the
present value of the lease purchase options which are exercisable at the end of
the lease term in December 1997, discounted at an interest rate of 16%.
Capital lease obligations as of March 31, 1996 consist of the following:
Total future minimum lease payments due
in fiscal 1998 $67,106
Less: amounts representing interest 20,433
--------
Present value of minimum lease payments $46,673
--------
F-12
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
8. Commitments and Contingencies
Minimum Rental Commitments
The Company has several noncancelable operating leases, primarily for
office equipment, that expire over the next five years. These leases generally
contain renewal options for periods ranging from three to five years and require
the Company to pay all executory costs such as maintenance and insurance.
9. Transactions with Related Parties
Related Party Ownership Interests
Integrated and Tucker, which are owned by an officer and director of the
Company, own 1.36% and 1.30%, respectively, of the Company's common stock as of
March 31, 1996. Additionally, certain officers and directors of the Company,
together with Integrated own or control 19.60% of the Company's common stock as
of March 31, 1996.
Receivables from Related Parties/Affiliated Company
Integrated and the Company have an agreement by which the associated
receivables and payables may be netted. At March 31, 1996, the Company has a net
receivable due from Integrated of $789,872. At March 31, 1995, the Company had a
net receivable due from Integrated of $353,003.
At March 31, 1996 The Company finalized a sale of gas processing and
related equipment to Integrated for $550,000, which is included in the net
receivable balance as of March 31, 1996. The Company's profit on the sale of
these items is approximately $250,000.
As part of its ongoing operations, the Company conducts business with
Atascosa Electric Services ("AES"), an entity which is owned and controlled by
Deral Knight, the president of KEMCO, who is also a stockholder of the Company.
At March 31, 1996, the receivable due from stockholder (Deral Knight) and due
from affiliated company (AES) were $106,636 and $0, respectively.
Under the provisions of the agreement whereby the Company acquired Deral
Knight's stock in KEMCO, Deral Knight has agreed to return to the Company,
Concord Energy Incorporated common stock valued at $6.25 per shares to the
extent that Deral Knight owed money to the Company at June 30, 1995.
Accordingly, in liquidation of the receivable balance, approximately 17,062
shares of Company common stock issued to Deral Knight as part of the purchase
price of his KEMCO stock have been returned to the Company.
F-13
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Notes Payable to Stockholders
Notes payable to stockholders bear interest at rates ranging from 5 to 12%
per annum which are generally payable in monthly installments through maturity.
Interest expense incurred on these notes during fiscal 1995, 1994 and 1993
totals $42,661, $67,892 and $74,029, respectively. The notes mature at various
dates through August 1996. Approximately $50,000 of the notes at December 31,
1995 are secured by future production of approximately 75,000 equivalent barrels
of oil.
Management Agreement
The Company and Integrated have entered into an agreement (the "Management
Agreement") that requires Integrated to provide certain management,
administrative and accounting services to the Company and certain subsidiaries
for $116,000 per month through June 30, 1996. Subject to automatic extension
under certian circumstances. The services provided by Integrated include the
receipt of cash for oil and gas sales and the payment of operating and capital
expenditures on behalf of the Company. In accordance with the original
provisions of the Management Agreement, the Company is also entitled to 10% of
all syndicated retail partnership gross sales made by Integrated. As additional
consideration for the Management Agreement, Integrated assigned to the Company,
effective June 1, 1991 through March 31, 1994, its revenue sharing in future
program syndications. Effective March 31, 1994, the Management Agreement was
modified to provide the Company with 20% of all syndicated retail partnership
gross sales made by Integrated. During fiscal 1994, the Company sold to
Integrated all of its revenue sharing interests which were earned under the
Management Agreement, aggregating $363,266. Revenue interest income earned was
also remitted to Integrated in connection with the sale. The proceeds from the
sale were recorded as reduction of the Company's full-cost oil and gas
properties pool. During the periods ended March 31, 1995 and 1996 the Company
recorded income from Integrated as follows:
1996 1995
Syndication income $140,000 $459,000
Revenue interest income - -
Management fee income - 8,075
-------- ----------
$140,000 $467,075
--------- ----------
F-14
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
Other Related Party Transactions
The two automobiles held under capital lease are to be transferred to an
officer and an employee of KEMCO upon the execution of the lease purchase
options at the expiration of the lease terms.
10. Events Subsequent to Date of Balance Sheet
On April 3, 1996 the Company sold 103,800 shares of common stock in private
transactions and realized net proceeds of $298,500.
On April 29, 1996 the Company completed a private placement of convertible
debt and realized net proceeds of $179,000. The face amount of the debt is
$200,000 with a 3- year maturity and a 6% annual interest rate, payable
quarterly.
On May 10, 1996 the Company received a confirmation from a convertible note
holder to the effect that it had elected to convert its $275,000 note to common
stock at $3.00 per share.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-30-1996
<CASH> 432,494
<SECURITIES> 0
<RECEIVABLES> 3,413,069
<ALLOWANCES> 67,490
<INVENTORY> 9,510,074
<CURRENT-ASSETS> 12,848,076
<PP&E> 12,811,921
<DEPRECIATION> 4,264,780
<TOTAL-ASSETS> 22,939,877
<CURRENT-LIABILITIES> 4,367,838
<BONDS> 5,389,050
0
0
<COMMON> 444
<OTHER-SE> 12,331,561
<TOTAL-LIABILITY-AND-EQUITY> 22,939,877
<SALES> 10,463,744
<TOTAL-REVENUES> 10,731,747
<CGS> 6,512,922
<TOTAL-COSTS> 9,202,391
<OTHER-EXPENSES> (23,774)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704,059
<INCOME-PRETAX> 849,071
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 849,071
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
