<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 29, 1998
------------------
Resource America, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-4408 72-0654145
- -------- ------ ----------
(State of incorporation (Commission File Number) (I.R.S. Employer
or organization) Identification No.)
</TABLE>
1521 Locust Street, 4th Floor, Philadelphia, PA 19102
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 546-5005
--------------
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Independent auditors' report
Consolidated statements of financial position
Consolidated statements of income
Consolidated statements of cash flow
Notes to consolidated financial statements
(b) Unaudited Pro Forma Financial Information
Pro forma combined consolidated balance sheet at
June 30, 1998
Pro forma combined consolidated statement of operations
for the nine months ended June 30, 1998
Pro forma combined consolidated statement of operations
for the years ended September 30, 1997 and July 31, 1997
Notes to pro forma combined consolidated financial
statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Atlas Group, Inc.
Coraopolis, Pennsylvania
We have audited the accompanying consolidated statements of financial
position of The Atlas Group, Inc. and subsidiaries as of June 30, 1998 and July
31, 1997, and the related consolidated statements of income and cash flows for
the eleven months ended June 30, 1998 and the year ended July 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 obtain
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
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Atlas Group, Inc. as of
June 30, 1998 and July 31, 1997, and the results of its operations and its cash
flows for the eleven months ended June 30, 1998 and the year ended July 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 17, on July 13, 1998 the Company entered into an
Agreement and Plan of Merger with Resource America, Inc. pursuant to which The
Atlas Group, Inc. will be merged into a wholly owned subsidiary of Resource
America, Inc.
/s/ McLaughlin & Courson
- ------------------------
Pittsburgh, Pennsylvania
July 31, 1998
- 1 -
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
---------------------------------------------
THE ATLAS GROUP, INC.
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS
------
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 5,292,207 $ 9,385,866
Trade accounts and notes receivable, less allowance for doubtful
accounts of $391,667 in 1998 and $300,000 in 1997 5,857,331 4,018,804
Other receivables 1,094,550 330,626
Accounts receivable - officers 464,859 41,449
Inventories 783,067 175,635
Prepaid expenses and other current assets 331,838 386,569
------------- ------------
TOTAL CURRENT ASSETS 13,823,852 14,338,949
OIL AND GAS PROPERTIES
- ----------------------
Oil and gas wells and leases 40,739,334 35,526,072
Less accumulated depreciation, depletion and amortization 16,598,203 14,694,388
------------ ------------
24,141,131 20,831,684
OTHER ASSETS 447,386 374,722
- ------------
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Land 504,693 504,693
Buildings 2,816,023 2,777,821
Equipment 1,687,956 1,565,391
Gathering lines 21,830,936 20,506,629
------------ ------------
26,839,608 25,354,534
Less accumulated depreciation 16,116,882 14,699,813
------------ ------------
10,722,726 10,654,721
------------- ------------
$49,135,095 $46,200,076
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 4,402,878 $ 4,024,644
Working interests and royalties payable 4,890,885 4,504,911
Billings in excess of costs of $2,334,975 in 1998
and $2,916,951 in 1997 on uncompleted contracts 4,907,001 6,761,946
Current maturities on long-term debt:
Subordinated notes payable to stockholders 1,348,189 1,907,084
Other 1,922,797 819,048
Income taxes payable -0- 336,873
--------------- ------------
TOTAL CURRENT LIABILITIES 17,471,750 18,354,506
DEFERRED INCOME TAXES 675,000 700,000
- ---------------------
LONG-TERM DEBT, net of current maturities:
Subordinated notes payable to stockholders -0- 1,348,190
Other 8,310,536 4,859,523
OTHER LONG-TERM LIABILITIES 400,000 323,742
- ---------------------------
STOCKHOLDERS' EQUITY
- --------------------
Capital stock, no par; authorized 2,000,000 shares; issued 500,000 shares 1,250 1,250
Paid-in capital 560,093 560,093
Retained earnings 26,931,861 25,404,167
Treasury stock, at cost (130,519 shares and 133,919 shares, respectively) (5,215,395) (5,351,395)
------------ -----------
22,277,809 20,614,115
----------- -----------
$49,135,095 $46,200,076
=========== ===========
</TABLE>
See notes to consolidated financial statements
- 2 -
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
THE ATLAS GROUP, INC.
ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
ELEVEN
MONTHS ENDED YEAR ENDED
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
INCOME
- ------
Sales - gas wells $21,777,181 $22,354,389
Purchased gas revenues 21,786,823 29,908,989
Well operating fees 3,379,158 3,445,777
Gathering line charges 2,466,470 2,539,795
Working interests and royalties 4,505,756 5,124,912
Interest 137,835 227,524
Other 459,696 411,912
------------- -------------
54,512,919 64,013,298
COSTS OF SALES AND OTHER EXPENSES
- ---------------------------------
Costs of sales - gas wells 19,895,082 18,472,875
Cost of purchased gas 22,013,008 30,401,349
Gathering line and well operation expense 2,648,643 2,253,146
General and administrative 4,065,342 3,589,809
Interest:
Subordinated notes payable to stockholders 277,213 536,096
Other 356,983 144,625
Depreciation, depletion and amortization 3,323,754 3,850,978
------------ ------------
52,580,025 59,248,878
------------ ------------
INCOME BEFORE INCOME TAXES 1,932,894 4,764,420
INCOME TAXES
- ------------
Current:
Federal 450,000 665,000
State 100,000 560,000
Deferred (25,000) 45,000
-------------- -------------
525,000 1,270,000
------------- ------------
NET INCOME $ 1,407,894 $ 3,494,420
============ ===========
</TABLE>
See notes to consolidated financial statements
- 3 -
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
THE ATLAS GROUP, INC.
ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
ELEVEN
MONTHS ENDED YEAR ENDED
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,407,894 $ 3,494,420
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 3,323,754 3,850,978
Expense funded by issuance of capital stock 255,800 157,500
Other, net 22,503 -0-
Change in assets and liabilities:
Receivables (3,025,861) 1,935,803
Inventories (607,432) 273,558
Prepaid expenses and other current assets 82,468 406,004
Accounts payable and accrued expenses and
working interests and royalties payable 764,208 (1,555,919)
Uncompleted contract billings, net (1,854,945) (3,412,123)
Income taxes payable (364,610) (662,000)
Deferred income taxes (25,000) 45,000
Long-term liabilities 76,258 13,696
------------ ------------
Net cash provided by operating activities 55,037 4,546,917
Cash flows used in investing activities:
Investment in oil and gas wells and leases (5,213,262) (3,598,288)
Other assets, net (72,664) (66,595)
Gathering line additions (1,324,307) (2,062,390)
Other property additions (186,140) (1,493,305)
------------ ------------
Net cash used in investing activities (6,796,373) (7,220,578)
Cash flows provided by (used in) financing activities:
Proceeds from long-term borrowings 9,475,000 4,750,000
Principal payments on long-term borrowings (4,920,238) (4,935,715)
Principal payments on notes payable to stockholders (1,907,085) (1,669,660)
------------ ------------
Net cash provided by (used in) financing activities 2,647,677 (1,855,375)
------------ ------------
Net decrease in cash and cash equivalents (4,093,659) (4,529,036)
Cash and cash equivalents at beginning of period 9,385,866 13,914,902
------------ ------------
Cash and cash equivalents at end of period $ 5,292,207 $ 9,385,866
============ ============
Additional Cash Flow Information:
Cash paid during the period for:
Interest $ 584,743 $ 691,226
Income taxes 914,609 1,887,000
</TABLE>
See notes to consolidated financial statements
- 4 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC.
1. DESCRIPTION OF BUSINESS
The Atlas Group, Inc. (Atlas) was formed in July, 1995 to hold, through its
wholly owned subsidiary AIC, Inc. also formed in July, 1995, Atlas Energy Group
and its subsidiaries, including Atlas Resources, Inc. and Atlas Gas Marketing,
Inc. The purpose of the reorganization is to achieve more efficient
concentration of funds of the Atlas group of companies, thereby minimizing
transaction costs and maximizing returns on investment vehicles. No changes in
the consolidated assets, liabilities or stockholders' equity occurred as a
result of the reorganization.
Atlas and subsidiaries are engaged in the exploration for development,
production, and marketing of natural gas and oil primarily in the Appalachian
Basin area. In addition, the Company performs contract drilling and well
operation services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of The
Atlas Group, Inc., and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Inventories
Inventories, consisting of oil and gas field materials and supplies,
are stated at the lower of first-in, first-out cost or market.
Method of accounting for oil and gas properties
The Company uses the successful efforts method of accounting for oil
and gas producing activities. Property acquisition costs are capitalized
when incurred. Geological and geophysical costs and delay rentals are
expensed when incurred. Development costs, including equipment and
intangible drilling costs related to both producing wells and developmental
dry holes, are capitalized. All capitalized costs are generally depreciated
and depleted on the unit-of-production method using estimates of proven
reserves. Oil and gas properties are periodically assessed and when
unamortized costs exceed expected future net cash flows, a loss is
recognized by recording a charge to income.
On the sale or retirement of oil and gas properties, the cost and
related accumulated depreciation, depletion and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized.
For tax purposes, intangible drilling costs are being written off as
incurred. The greater of cost or percentage depletion as defined by the
Internal Revenue Code, is used as a deduction from income.
Property, plant and equipment
Land, buildings, equipment and gathering lines are recorded at cost.
Major additions and betterments are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the
life of the respective assets are expensed currently. As property is
retired or otherwise disposed of, the cost of the property is removed from
the asset account, accumulated depreciation is charged with an amount
equivalent to the depreciation provided, and the difference, if any, is
charged or credited to income. Depreciation is computed over the estimated
useful life of the assets generally by the straight-line method.
Revenue recognition
The Company sells interests in oil and gas wells and retains therefrom
a working interest and/or overriding royalty in the producing wells. The
income from the working interests is recorded when the natural gas and oil
are produced.
The Company also contracts to drill oil and gas wells. The income from
these contracts is recorded upon substantial completion of the well.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. 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.
Costs in excess of amounts billed are classified as current assets
under costs in excess of billings on uncompleted contracts. Billings in
excess of costs are classified under current liabilities as billings in
excess of costs on uncompleted contracts. Contract retentions are included
in accounts receivable.
Working interests and royalties
Revenues from working interests and royalties are reported net of all
landowner royalty and lease operating expenses and are recognized when the
natural gas and oil are produced. For the eleven months ended June 30,
1998, the Company recognized working interest income of $3,556,373 and
royalty income of $949,383. Working interest and royalty income during the
year ended July 31, 1997 amounted to $4,113,425 and $1,011,487,
respectively.
- 5 -
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts contained in prior year comparative information have
been reclassified to conform with the 1998 presentation.
3. AFFILIATED OIL AND GAS PARTNERSHIPS
In connection with the sponsorship of oil and gas partnerships, the Company
is reimbursed by the partnerships for certain operating and overhead costs
incurred on their behalf. These reimbursements totalled approximately $370,000
during the eleven months ended June 30, 1998 and the year ended July 31, 1997.
In addition, as part of its duties as well operator, the Company receives
proceeds from the sale of oil and gas and makes distributions to investors
according to their working interest in the related oil and gas properties.
4. PLAN OF REORGANIZATION
On November 8, 1990 the Company adopted a plan of reorganization whereby a
substantial portion of the common stock of the two majority shareholders would
be purchased by the Company and shares of the Company's stock would be granted
to certain key employees of the Company (Management Investors) giving the
Management Investors control of the Company.
PURCHASE OF TREASURY SHARES AND NOTES PAYABLE TO STOCKHOLDERS
On November 14, 1990 the Company entered into an agreement effective as
of August 16, 1990 to purchase 248,717 shares of common stock from its two
majority shareholders at $40.00 per share ($9,948,680).
The purchase price is evidenced by promissory notes bearing interest at
13.5%. Quarterly principal payments range from $100,574 on November 15,
1991 to a final payment of $856,103 on November 15, 1998. Payments may be
deferred or accelerated under certain circumstances. Principal payments
totaled $1,907,085 and $1,669,660 during the eleven months ended June 30,
1998 and the year ended July 31, 1997, respectively. Interest expense
amounted to $277,213 and $536,096 for the eleven months ended June 30, 1998
and the year ended July 31, 1997, respectively.
The notes are subordinate to all direct and indirect debt, past,
present or future and all obligations, if any, to make contributions to any
employee stock ownership plan now in existence or hereinafter created.
The promissory notes are secured by warrants on the common stock of the
Company that are exercisable upon an uncorrected event of default. At June
30, 1998 and July 31, 1997, the following warrants were outstanding:
JUNE 30, JULY 31,
1998 1997
---- ----
Number of shares 28,678 167,194
Exercise price 47.01 19.47
The Company has options to purchase, and the majority shareholders had
options to sell 131,425 shares of the Company's common stock at per share
prices ranging from $63.25 to $74.10 commencing on the earlier of the
satisfaction of all the Company's obligations under the foregoing
promissory notes or November 14, 1999.
STOCK GRANTS
The Company has established a management employee stock option
consisting of an aggregate of options to acquire 47,578 shares of common
stock at $1.00 per share. No options have been granted as of June 30, 1998.
The option will terminate August 15, 2012.
There are restrictions on the sale of the vested Management Investor
and ESOP shares of common stock which include among other restrictions,
that shares may not be sold until obligations to the majority shareholders
are satisfied. Shares offered for sale must first be offered to the Company
and then to other shareholders before being offered to a third party.
Further conditions apply to sales that would result in a third party owning
5% or more of the total shares of the Company.
- 6 -
<PAGE>
5. OTHER LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt at June 30, 1998 and July 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
Revolving credit loan payable to bank $ 9,475,000 $4,750,000
Note payable to bank in monthly installments through August 2002 of
$15,476, plus interest at or below prime rate plus one-half percent
(1/2%) (7.97% and 8.25% at June 30, 1998 and July 31, 1997,
respectively). Secured by building and equipment having a net book
value of $1,045,860 at June 30, 1998 758,333 928,571
----------- -----------
10,233,333 5,678,571
Less current maturities (1,922,797) (819,048)
----------- -----------
$ 8,310,536 $4,859,523
=========== ==========
</TABLE>
The revolving credit and term loan agreement enables the Company to borrow
$10,000,000 on a revolving basis until August 15, 1998. A commitment fee at a
rate of three-eights of one percent (3/8%) is charged on the unused portion.
During the revolving credit period, loans bear interest at or below prime rate
plus one-quarter percent (1/4%). The average interest rate at June 30, 1998 was
7.79%. The agreement provides that the Company may convert any outstanding
borrowings into a 5 year term loan, payable in equal monthly installments, plus
interest at or below prime rate plus one-half percent (1/2%).
The loan agreements are secured by certain assets of the Company.
6. MATURITIES ON LONG-TERM DEBT
Aggregate maturities on long-term debt at June 30, 1998 for the next five
fiscal years are as follows:
FISCAL SUBORDINATED OTHER
YEAR NOTES PAYABLE LONG-TERM
ENDING TO STOCKHOLDERS DEBT TOTAL
------ --------------- ---- -----
1999 1,348,189 $1,922,797 $3,270,986
2000 -0- 2,080,714 2,080,714
2001 -0- 2,080,714 2,080,714
2002 -0- 2,080,714 2,080,714
2003 -0- 1,910,476 1,910,476
7. LEASE COMMITMENTS
The Company leases certain vehicles and compressor sites. These leases are
accounted for as operating leases. Lease expense for the eleven months ended
June 30, 1998 and the year ended July 31, 1997 amounted to $521,261 and
$317,870, respectively. The future minimum lease payments at June 30, 1998 are
as follows:
FISCAL YEAR ENDING
------------------
1999 $501,963
2000 162,848
2001 57,661
2002 21,690
2003 -0-
- 7 -
<PAGE>
8. INCOME TAXES
Net deferred tax liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
Exploration and development costs expensed
for income tax reporting $1,460,000 $1,250,000
Tax credits (310,000) (270,000)
Other (475,000) (280,000)
---------- ----------
$ 675,000 $ 700,000
========== ==========
</TABLE>
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
U.S. statutory rate 34.0 % 34.0 %
State income taxes net of federal income tax benefit 3.2 4.1
Depletion (5.4) (3.9)
Nonconventional fuels and alternative minimum tax credits (1.9) (4.4)
Other (2.8) (3.1)
---- ----
Effective tax rate 27.2 % 26.7 %
==== ====
</TABLE>
9. PROFIT SHARING PLAN
The Company maintains a defined contribution 401 (K) profit sharing plan
covering substantially all of its employees. The Plan Administrator set the
maximum allowable employee contribution at the lesser of 15% of their
compensation or $10,000. The Company matches employee contributions by
contributing an amount equal to 50% of each employee's contribution. Pension
expense under the 401 (K) profit sharing plan was $154,997 for the eleven months
ended June 30, 1998 and $142,189 for the year July 31, 1997.
10. OPTION ON BUILDING
The majority shareholders were granted an option to acquire the land and
building (having a net book value of $961,966 at June 30, 1998) utilized as the
Company's headquarters for a period of six months commencing on August 15, 2003
and ending February 15, 2004 for $500,000. The option has been amended to allow
the cancellation of the option, upon the event of a disposition of the Company,
by payment of $500,000 to the majority shareholders.
11. CHANGES IN STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the eleven months ended June 30,
1998 and the year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1996 $1,250 $560,093 $21,892,247 $(5,491,395)
Treasury stock issued to ESOP
(3,000 shares) 15,000 120,000
Other (500 shares) 2,500 20,000
Net income for the year 3,494,420
--------- ------------ ------------ ---------------
BALANCE AT JULY 31, 1997 1,250 560,093 25,404,167 (5,351,395)
Treasury stock issued to ESOP
(3,000 shares) 111,000 120,000
Other (400 shares) 8,800 16,000
Net income for the period 1,407,894
--------- ------------ ------------- ---------------
BALANCE AT JUNE 30, 1998 $1,250 $560,093 $26,931,861 $(5,215,395)
======= ========= ============ ===========
</TABLE>
12. EMPLOYEE STOCK OWNERSHIP PLAN
Effective August 1, 1990 the Company established a non-contributory
employee stock ownership plan (ESOP) covering substantially all employees except
the Company's two majority shareholders. The Company contributed 3,000 shares of
common stock based on a fair market value of $77.00 ($231,000) and $45
($135,000) to the plan during the eleven months ended June 30, 1998 and the year
ended July 31, 1997, respectively. The Company also contributed $30,595 and
$29,413 in cash during the eleven months ended June 30, 1998 and the year ended
July 31, 1997, respectively. Employee benefits vest after five years of service,
including service prior to establishment of the plan. There are restrictions on
the sale of the stock (see Plan of Reorganization).
As of June 30, 1998 the Company has made provision of $462,000 for an ESOP
contribution of 6,000 shares of common stock based on a fair market value of
$77.00.
- 8 -
<PAGE>
13. FUTURES CONTRACTS
The Company enters into natural gas futures contracts to hedge its exposure
to changes in natural gas prices. At any point in time, such contracts may
include regulated NYMEX futures contracts and non-regulated over-the-counter
futures contracts with qualified counterparties. The futures contracts employed
by the Company are commitments to purchase or sell natural gas at a future date
and generally cover one month periods for up to 18 months in the future.
Realized gains (losses) are recorded in the income accounts in the month(s) that
the futures contracts are intended to hedge. Unrealized gains (losses) are
deferred until realized. Deferred gains (losses) were $206,035 and $95,990 at
June 30, 1998 and July 31, 1997, respectively.
14. COMMITMENTS
Atlas Resources, Inc., as general partner in several oil and gas limited
partnerships, and The Atlas Group, Inc. have agreed to indemnify each investor
general partner from any liability incurred which exceeds such partner's share
of partnership assets. Management believes that such liabilities that may occur
will be covered by insurance and, if not covered by insurance, will not result
in a significant loss to The Atlas Group, Inc. and its subsidiaries.
Subject to certain conditions, investor general partners in certain oil and
gas limited partnerships may present their interests beginning in 1998 for
purchase by Atlas Resources, Inc., as managing general partner. Atlas Resources,
Inc. is not obligated to purchase more than 5% of the units in any calendar
year.
Atlas Resources, Inc., as managing general partner in certain oil and gas
limited partnerships has also agreed to subordinate its share of production
revenues to the receipt by investor partners of cash distributions equal to at
least 10% of their subscriptions in each of the first five years of partnership
operations. During the eleven months ended June 30, 1998 and the year ended July
31, 1997, Atlas Resources, Inc. had net subordinations of $427,245 and $417,896,
respectively.
15. YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000 date
are a known risk. The Company has established processes for evaluating and
managing risks and costs associated with this problem. The computing portfolio
was identified and an initial assessment has been completed. The Company
anticipates corrective action to be completed during fiscal year 1999 and the
aggregate costs of such corrections will not be material.
16. LITIGATION
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings, claims and litigation
will not have a material effect on operating results, or cash flows when
resolved in a future period, and these matters will not materially affect the
Company's consolidated financial position.
17. SUBSEQUENT EVENTS
Merger
On July 13, 1998 the Company entered into an Agreement and Plan of
Merger with Resource America, Inc. pursuant to which The Atlas Group, Inc.
will be merged into a wholly owned subsidiary of Resource America, Inc.
The merger is expected to become effective in the late summer of 1998.
The Company has the right to accelerate the payment of the options to
purchase certain shares of the majority shareholders referred to in Note 4
to the financial statements, in event of a disposition of the Company.
Stock Options
On July 1, 1998 the Company granted to certain key employees options to
purchase 36,374 shares of Common Stock of the Company at $1.00 per share.
On July 6, 1998, 32,874 shares were exercised based on a fair market value
of $77.00 per share. The charge to income, net of the estimated tax
benefit, is approximately $1,850,000.
- 9 -
<PAGE>
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
The supplementary information summarized below presents the results of
natural gas and oil activities in accordance with SFAS No. 69, "Disclosures
About Oil and Gas Producing Activities."
(1) Production Costs
The following table presents the costs incurred relating to natural gas
and oil production activities:
<TABLE>
<CAPTION>
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
Capitalized costs at:
Capitalized costs $ 40,739,334 $35,526,072
Accumulated depreciation and depletion (16,598,203) (14,694,388)
------------ -----------
Net capitalized costs $ 24,141,131 $20,831,684
============ ===========
Costs incurred during the period ended:
Property acquisition costs - proved undeveloped properties $ 234,985 $ 94,375
============= ============
Developed costs $ 4,978,277 $ 3,503,913
============ ===========
</TABLE>
Property acquisition costs include costs to purchase, lease or otherwise
acquire a property. Development costs include costs to gain access to and
prepare development well locations for drilling, to drill and equip
development wells and to provide facilities to extract, treat, gather and
store oil and gas.
<TABLE>
<CAPTION>
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
Capitalized gathering line costs at:
Capitalized cost $ 4,754,778 $ 4,716,525
Accumulated depreciation (3,078,929) (2,979,430)
------------ -----------
Net capitalized costs $ 1,675,849 $ 1,737,095
============ ===========
Costs incurred during the period ended:
Gathering line additions $ 288,434 $ 474,350
============ ===========
</TABLE>
(2) Results of Operations for Producing Activities
The following table presents the results of operations related to natural
gas and oil production for the eleven months ended June 30, 1998 and the
year ended July 31, 1997:
<TABLE>
<CAPTION>
ELEVEN
MONTHS ENDED YEAR ENDED
JUNE 30, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Revenues $ 5,042,953 $ 5,709,065
Production costs (576,874) (518,224)
Depreciation and depletion (2,161,354) (2,759,182)
Income tax expense (674,593) (689,485)
----------- -----------
Results of operations from producing activities $ 1,630,132 $ 1,742,174
=========== ===========
</TABLE>
Depreciation, depletion and amortization of natural gas and oil
properties are provided on the unit-of-production method and gathering
lines are depreciated over 10 years.
- 10 -
<PAGE>
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
(3) Reserve Information
The information presented below represents estimates of proved natural
gas and oil reserves. Proved developed reserves represent only those
reserves expected to be recovered from existing wells and support equipment.
Proved undeveloped reserves represent proved reserves expected to be
recovered from new wells after substantial development costs are incurred.
Substantially all reserves are located in Eastern Ohio and Western
Pennsylvania.
<TABLE>
<CAPTION>
JUNE 30, 1998 JULY 31, 1997
------------- -------------
NATURAL GAS OIL NATURAL GAS OIL
(Mcf) (Barrels) (Mcf) (Barrels)
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of period 112,040,540 104,931 67,802,983 106,278
Revision of previous estimates 4,538,943 29,241 2,472,316 2,523
Extensions, discoveries and other additions 17,606,758 61,002 57,973,911 -0-
Production (2,655,365) (7,647) (2,658,946) (3,870)
Sales of minerals in place (17,709,377) -0- (13,549,724) -0-
----------- ---------- ----------- ----------
End of period 113,821,499 187,527 112,040,540 104,931
=========== ========== =========== =======
Proved developed reserves:
Beginning of period 31,084,190 104,931 31,220,113 106,278
=========== ========== =========== =======
End of period 41,781,119 187,527 31,084,190 104,931
=========== ========== =========== =======
</TABLE>
(4) Standard Measure of Discounted Future Cash Flows
Management cautions that the standard measure of discounted future
cash flows should not be viewed as an indication of the fair market value
of natural gas and oil producing properties, nor of the future cash flows
expected to be generated therefrom. The information presented does not
give recognition to future changes in estimated reserves, selling prices
or costs and has been discounted at an arbitrary rate of 10%. Estimated
future net cash flows from natural gas and oil reserves based on selling
prices and costs at June 30, 1998 and July 31, 1997 price levels are as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Future cash inflows $307,132,350 $291,945,690
Future production costs (60,321,170) (47,469,590)
Future development costs (69,941,230) (68,028,140)
Future income tax expense (50,664,334) (52,958,050)
------------ ------------
Future net cash flow 126,205,616 123,489,910
10% annual discount for estimated timing of cash flows (93,549,205) (88,952,400)
------------ ------------
Standard measure of discounted future net cash flows $ 32,656,411 $ 34,537,510
============ ============
</TABLE>
<PAGE>
Summary of changes in the standardized measure of discounted future
net cash flows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales of gas and oil produced - net $ (4,024,581) $ (3,900,673)
Net changes in prices, production and development costs (4,884,526) 395,917
Extensions, discoveries, and improved recovery,
less related costs 2,396,461 9,931,040
Development costs incurred 4,215,402 3,532,100
Revisions of previous quantity estimates 2,864,965 1,400,886
Sales of minerals in place (3,033,660) (1,255,106)
Accretion of discount 2,258,881 2,161,723
Net change in income taxes (1,674,041) (1,448,161)
------------ ------------
Net (decrease) increase (1,881,099) 10,817,726
Beginning of period 34,537,510 23,719,784
------------ ------------
End of period $ 32,656,411 $ 34,537,510
============ ============
</TABLE>
- 11 -
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 1998
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger
Historical Pro Forma
Resource Atlas Adjustments Combined
-------- ----- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 84,370 $ 5,292 $(7,814)(a) $81,848
Accounts and notes receivable 3,020 7,417 500 (a) 10,937
Prepaid expenses and other
current assets 2,216 1,115 - 3,331
-------- ------- ------- --------
Total Current Assets 89,606 13,824 (7,314) 96,116
Investments in Real Estate Loans 188,996 - - 188,996
Investments in Leases and Notes
Receivable 19,728 - - 19,728
Investment in Resource Asset
Investment Trust 13,323 - - 13,323
Property and Equipment
Oil and gas properties and
equipment (successful efforts) 25,618 40,739 (22,081)(a) 44,276
Gas gathering and transmission
facilities 1,628 21,831 (16,710)(a) 6,749
Other 4,614 5,010 (1,093)(a) 8,531
-------- ------- ------- --------
31,860 67,580 (39,884) 59,556
Less - accumulated depreciation,
depletion and amortization (16,440) (32,715) 32,715 (a) (16,440)
-------- ------- ------- --------
Net Property and Equipment 15,420 34,865 (7,169) 43,116
Other Assets 14,946 446 44,690 (a)(b) 60,082
-------- ------- ------- --------
$342,019 $49,135 $30,207 $421,361
======== ======= ======= ========
</TABLE>
- 1 -
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 1998
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger
Historical Pro Forma
Resource Atlas Adjustments Combined
-------- ----- ----------- --------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $ 3,008 $ 9,231 - $ 12,239
Accrued liabilities 3,974 4,907 228 (b) 9,109
Accrued interest 5,790 63 - 5,853
Estimated income taxes 1,171 - - 1,171
Current portion of long-term
debt 3,828 3,271 (1,348)(a) 5,751
-------- ------- ------- --------
Total Current Liabilities 17,771 17,472 (1,120) 34,123
Long-term Debt 117,548 8,311 19,975 (a) 145,486
Deferred Income Taxes 727 675 2,730 4,132
Other Long-Term Liabilities 1,541 400 - 1,941
Commitments and Contingencies - - - -
Stockholders' Equity
Preferred stock, $1.00 par value;
1,000,000 shares authorized - - - -
Common stock, $.01 par value,
49,000,000 shares authorized 209 1 20 (a) 230
Unrealized gain on investment
reported at fair value, net of tax 930 930
Additional paid-in capital 178,697 560 30,319 (a) 209,576
Less treasury stock, at cost (13,967) (5,215) 5,215 (a) (13,967)
Less loan receivable for ESOP (321) (321)
Retained earnings 38,884 26,932 (26,932)(a) 38,884
-------- ------- ------- --------
Total Stockholders' Equity 204,432 22,278 8,622 235,332
-------- ------- ------- --------
$342,019 $49,135 $30,207 $421,361
======== ======= ======= ========
</TABLE>
- 2 -
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Nine Months Ended June 30, 1998
(in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger
Historical Pro Forma
Resource Atlas Adjustments Combined
-------- ----- ----------- --------
<S> <C> <C> <C> <C>
Revenues
Real estate finance $43,808 $ 43,808
Equipment leasing 9,985 9,985
Energy: production 3,294 $ 4,192 7,486
: marketing 19,185 19,185
: services 1,577 27,945 29,522
Interest and other 2,840 406 3,246
------- -------- -------- --------
61,504 51,728 - 113,232
Costs and Expenses
Real estate finance 7,628 7,628
Equipment leasing 3,903 3,903
Energy: production and exploration 1,912 1,341 3,253
: marketing 18,841 18,841
: services 882 19,585 20,467
General and administrative 3,275 6,372 (1,345)(b) 8,302
Depreciation, depletion and
amortization 1,948 2,547 (81)(e) 4,414
Interest 13,726 596 1,100 (d) 15,422
Provision for losses 1,204 1,204
------- -------- -------- --------
34,478 49,282 (326) 85,434
------- -------- -------- --------
Income Before Income Taxes 27,026 2,447 (326) 29,798
Provision for Income Taxes 8,400 659 178 9,237
------- -------- -------- --------
Net Income $18,626 $ 1,787 $ 148 $ 20,561
======= ======== ======== ========
Net Income Per Common Share:
Basic $ 1.20 $ 1.17
Diluted $ 1.16 $ 1.13
Weighted Average Shares Outstanding-
Basic 15,544 2,063 17,607
Weighted Average Shares Outstanding -
Diluted 16,087 2,183 18,270
</TABLE>
- 3 -
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Years Ended September 30, 1997 and July 31, 1997
(in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger
Historical Pro Forma
Resource Atlas Adjustments Combined
-------- ----- ----------- --------
<S> <C> <C> <C> <C>
Revenues
Real estate finance $19,144 $19,144
Equipment leasing 7,162 7,162
Energy: production 3,936 5,125 9,061
: marketing 29,909 29,909
: services 1,672 28,339 30,011
Interest and other 1,031 640 1,671
------- -------- --------- -------
32,945 64,013 97,958
Costs and Expenses
Real estate finance 1,069 1,069
Equipment leasing 3,822 3,822
Energy: production and exploration 1,823 2,253 4,076
: marketing 30,401 30,401
: services 909 18,473 19,382
General and administrative 2,851 3,590 (580)(b) 5,861
Depreciation, depletion and
amortization 1,614 3,851 (562)(d) 4,903
Interest 5,273 681 1,467 7,421
Provision for losses 653 _ 653
------- -------- --------- -------
18,014 59,249 325 77,588
------- -------- --------- -------
Income Before Income Taxes 14,931 4,764 (325) 19,370
Provision for Income Taxes 3,980 1,270 (20) 5,230
------- -------- --------- -------
Net income $10,951 $ 3,494 $ (305) $14,140
======= ======== ========= =======
Net Income Per Common Share:
Basic $ 1.05 $ 1.13
Diluted $ 0.84 $ 0.93
Weighted Average Shares Outstanding-
Basic 10,434 2,063 12,497
Weighted Average Shares Outstanding -
Diluted 13,074 2,183 15,257
</TABLE>
- 4 -
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(a) Merger Pro Forma Adjustments as of June 30, 1998
The accompanying unaudited pro forma consolidated balance sheet as of June
30, 1998 has been prepared as if the acquisition of Atlas had occurred on June
30, 1998 and reflects the following adjustments:
To adjust assets and liabilities under the purchase method of accounting
based on the purchase price. Such purchase price has been allocated to the
consolidated assets and liabilities of Atlas based on preliminary estimates of
fair values, with the remainder allocated to goodwill. The information presented
herein may differ from the actual purchase price allocation. The purchase price
is determined as follows (in thousands):
Cash consideration $ 7,814
Estimated fair value (at $14.31 per share) of 2,063,496
shares of Resource America Common Stock 29,535
Estimated fair value of options to purchase 120,213
shares of Resource America Common Stock 1,378
Estimated proceeds from options to purchase 120,213
shares of Resource America Common Stock (13)
--------
$ 38,714
========
The preliminary allocation of the purchase price included
in the pro forma balance sheet is summarized as follows:
(in thousands):
Negative working capital assumed $ (3,648)
Oil and gas properties:
Proved 18,298
Unproved 360
Gas gathering systems 5,121
Other fixed assets 3,917
Other assets 44,908
Debt (26,686)
Deferred income taxes (3,405)
--------
$ 38,714
========
The accompanying unaudited pro forma combined consolidated statement of
operations for the nine months ended June 30, 1998 has been prepared as if the
acquisition had occurred on October 1, 1997. The accompanying unaudited
pro forma combined consolidated statement of operations for the year ended
September 30, 1998 for the Company, and for the year ended July 31, 1997 for
Atlas have been prepared to reflect operations of Atlas for its fiscal year that
ended within ninety days of the Company's fiscal year end.
(b) To record acquisition related costs.
(c) To adjust general and administrative expenses for certain cost reductions
realized from the combining of operations.
(d) To adjust interest expense for additional borrowings of Atlas.
(e) To record estimated adjustment to depletion, depreciation and amortization
expense attributable to the allocation of the purchase price.
- 5 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 14, 1998
RESOURCE AMERICA, INC.
By: /s/ Steven J. Kessler
---------------------------------------
Steven J. Kessler, Senior Vice
President and Chief Financial Officer
