FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE
REQUIRED)
For the transition period from to
Commission file number 0-17538
WESTAMERICA CORPORATION
(Exact name of the registrant as specified in its
charter)
Oklahoma 73-1323822
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification
No.)
P.O. Box 40; Highway 75 North Dewey, Oklahoma 74029
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 918-534-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which
registered
None Not Applicable
Securities registered pursuant to section 12(g) of the Act:
(Title of class)
(Title of class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange during the past 12 months
(or for such shorter period that the registrant was required to file
such report), 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 and Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of the registrant's
knowledge in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB.[X]
State the issuer's revenues for its most recent fiscal year
$4,872,000.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the NASDAQ average bid and
asked price of such stock, as of June 28, 1996, was $2,267,436.
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Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the
aggregate market value of the common equity held by non-affiliates on
the basis of reasonable assumptions, if the assumptions are stated.
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State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical date 3,005,361 .
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I,
Part II, etc.) into which the document is incorporated: (1) any
annual report to security holders; (2) any proxy or information
statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c)
of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended
December 24, 1990).
The Proxy Statement for Registrant's 1996 Annual Meeting of
Stockholders is incorporated by reference insofar as it relates to
Part III, Item 9, 10, 11, and 12.
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ITEM I. BUSINESS
(a) Business Development
The Registrant was incorporated May 4, 1988 to consolidate the oil and
gas businesses, assets and operations of its predecessor corporation
with those of 11 limited partnerships.
Effective June 28, 1993 and September 10, 1993, the Registrant
purchased 121,409 and 242,119 shares respectively , of WestAmerica
Investment Group, Inc. bringing it's total ownership to 485,045
shares, which represents 96.2% of the Class A voting common stock and
96% of all outstanding common stock of WestAmerica Investment Group,
Inc. The Registrant issued 200,000 and 398,763 shares of it's common
stock on June 28, 1993 and September 10, 1993, respectively to effect
the purchase. On June 21, 1994 the Registrant acquired 4% of the
outstanding common stock of WestAmerica Investment Group, Inc.
bringing ownership in WestAmerica Investment Group, Inc. to 100%. The
financial statements of WestAmerica Investment Company, Inc. have been
consolidated in the accompanying financial statements. WestAmerica
conducts, through a wholly owned subsidiary, WestAmerica Investment
Company, Inc. (WIC) a registered broker-dealer and investment advisor
business which is headquartered in Scottsdale, Arizona.
Effective March 10, 1994, the Registrant concluded a series of
agreements to sell certain assets of it's wholly owned subsidiary,
Impulse Gifts and Accessories, Inc. In consideration of the
consignment and sale the Registrant was paid $108,000 and will receive
each quarter a royalty equalling 3.5% of the sale revenue derived from
the sale of Impulse products for 5 years.
Effective April 18, 1994, the name of the Registrant (formerly ECC
Energy Corporation) was changed to WestAmerica Corporation (NASDAQ
symbol - WACC).
On December 30, 1994, the Company closed Oklahoma Resources General
Partnership (the Partnership) in which Additional General Partners
contributed $407,500 to the Partnership's capital and loaned the
Partnership $407,500 repayable in quarterly installments, plus
interest at 10.25% over three years. A wholly owned subsidiary of the
Company is the Managing General Partner, and the Partnership notes
have been guaranteed by the Company. The proceeds from the
Partnership offering will be used primarily to fund a turnkey drilling
contract with the Company for the drilling of the wells. The Managing
General Partner is responsible for the leasehold and tangible
equipment on the wells drilled by the Partnership, and contributed
three producing gas wells to the Partnership. Partnership revenue and
expenses are allocated 50% to the Managing General Partner and 50% to
the Additional General Partners.
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During the last half of calendar 1994, the Company acquired the entire
oil and gas leasehold interest in 7,448 contiguous acres in
Washington, Nowata and Rogers counties in Northeastern Oklahoma. The
Company currently holds in excess of 25,000 acres of oil and gas
leases in the area, which include 119 wellbores with the potential for
successful completion in coalbed formations. Production from those
wellbores will qualify for tax credits under Section 29 of the
Internal Revenue Code.
On May 24, 1996, the Company issued 5,680,514 common shares
(approximately 65% of the outstanding common shares) in exchange for
606,061 common shares of Casmyn Corp. ("Casmyn"). The shares issued
are restricted from trading and are subject to a repurchase agreement
whereby the Company may, until May 24, 1997, repurchase the common
shares it issued by returning the Casmyn shares. The Company and
Casmyn have also executed a proxy agreement whereby the Company's
president may vote the shares owned by Casmyn.
The Company's investment in Casmyn, representing approximately 7% of
Casmyn's outstanding common stock, is valued at approximately
$6,970,000, representing $1.23 per share of the Company's common
stock. This value reflects a discount from the recent average trading
price of the company's common stock due to the restricted nature of
the shares issued in this transaction.
(b) Business of Issuer
The Registrant is engaged in the oil and gas exploration and
production business primarily in the states of Oklahoma and Texas.
The Registrant also engages in the securities and investment banking
businesses through it's ownership of WestAmerica Investment Group,
Inc. and it's subsidiary WIC, a registered broker dealer.
CUSTOMERS AND MARKETS
Oil and Gas
The market for oil and gas production is dependent upon numerous
factors, including the availability of other domestic production,
crude oil imports, the marketing of competitive fuels, the proximity
of pipelines, general market conditions and fluctuation in supply and
demand for such production. The sale of reserves found and produced
will be affected by fluctuating market conditions. The oil production
of the Registrant is sold generally at or near the respective wells
where produced under short-term contracts at prevailing market prices.
The gas production of the Registrant is sold under short term
contracts on varying terms, subject to the demand for gas.
Historically, sales of natural gas have been made primarily to
pipelines marketing gas in the south central and southwest United
States to residential, commercial and light industrial purchasers.
The Registrant does not believe the loss of any current oil and gas
purchasers would have a materially adverse effect on its anticipated
operations.
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Broker-dealer and Investment Advisory Services
A major portion of WIC's revenues is derived from customer commissions
on brokerage transactions. WIC attracts new customers and introduces
new products and services primarily through direct response marketing
methods. WestAmerica advertises in financially-oriented newspapers
and occasionally in general circulation publications, and broadcast
media.
Each WIC customer has a brokerage account through which he or she may
purchase and sell any of the securities available through WIC, paying
for each purchase, and delivering securities sold, generally within
three business days after an order is executed. WIC clears its
transactions through Correspondent Services Corporation (CSC), a
wholly owned subsidiary of PaineWebber.
A customer buying securities in a cash-only brokerage account is
required to make payment by settlement date, usually three business
days after the trade is executed. When selling securities, a customer
is required to deliver the securities, and is entitled to receive the
proceeds, on the settlement date. If approved for margin
transactions, a customer may borrow a portion of the price of
securities purchased through WIC or sell borrowed securities
("short"). In an account authorized for margin trading, WIC's
correspondent firm may lend its customer a portion of the purchase
price or market value of certain securities up to the limit imposed by
the Federal Reserve Board, which for most equity securities is
currently 50%. Such loans are collateralized by the securities in the
customer's account. In permitting a customer to purchase on margin,
WIC takes the risk of a customer's failure to repay the resulting
obligation due to a decline in the value of its collateral below the
amount of the customer's indebtedness. Under the applicable rules and
regulations, in the event of a decline in the market value of the
securities in a margin account subsequent to purchase, WIC must
require the customer to deposit additional securities or cash in order
that the amount owed by the customer is never greater than 75% of the
value of the securities in the account. Under the terms of its Margin
Account Agreement, WIC may unilaterally liquidate a customer's
securities in the event margin collateral is insufficient.
COMPETITION
Oil and Gas
The oil and gas industry is highly competitive in all phases. The
competitors of the Registrant in the exploration, development and
production of oil and gas include major oil companies in addition to
numerous independent oil and gas companies, individual proprietors,
and publicly traded limited partnerships. Many of these competitors
possess and employ financial and personnel resources exceeding those
which are available to the Registrant.
Broker-Dealer and Investment Advisory Services
WIC encounters competition from other full-commission and discount
brokerage firms, as well as from financial institutions and other
organizations. Some of these competitors are larger, more
diversified, and have greater resources than WIC. In many instances,
WIC is competing with such organizations for the same customers and
market share. The Company believes that WIC's main competitive
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factors are quality of service, convenience, price of services, and
financial products offered.
GOVERNMENT REGULATION
General. The Registrant's operations are affected from time to time
in varying degrees by political developments, laws and regulations.
The Registrant is subject to general laws, rules and regulations that
govern all employers in the United States and in the states in which
it operates.
Oil and Gas The Registrant's oil and gas production operations are
affected by changes in tax and other laws relating to the petroleum
industry and by constantly changing administrative regulations. Rates
of production of oil and gas have, for many years, been subject to
conservation laws and regulations, and the petroleum industry has been
subject to tax laws dealing specifically with it. In addition, oil
and gas operations are subject to extensive regulation and to the
interruption thereof by government authorities because of ecological
and other considerations. All of the jurisdictions in which the
Company operates have statutes and administrative regulations
governing the drilling and production of oil and gas.
Broker-Dealer and Investment Advisory Services The securities
industry in the United States is subject to extensive regulation under
both federal and state laws. The SEC is the federal agency charged
with administration of the federal securities laws. Much of the
regulation of broker/dealers has been delegated to self-regulatory
organizations, principally the National Association of Security
Dealers (NASD) and the National Securities Exchanges. Securities
firms also are subject to regulation by state securities commissions
in the states in which they do business.
The regulations to which broker/dealers are subject cover all aspects
of the securities business, including sales methods, trade practices
among broker/dealers, uses and safekeeping of customers' funds and
securities, capital structure of securities firms, record keeping and
the conduct of directors, officers and employees. Additional
legislation, changes in rules promulgated by the SEC and by self-
regulatory organizations, or changes in the interpretation or
enforcement of existing laws and rules may directly affect the method
of operation and profitability of broker/dealers. The SEC, self-
regulatory organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fine, issuance
of cease and desist orders, or suspension or expulsion of a
broker/dealer, its officers or employees. The principal purpose of
regulations and discipline of broker/dealers is the protection of the
customers and the securities markets, rather than protection of
creditors and stockholders of broker/dealers. As a registered
broker/dealer, WIC is required by federal law to belong to the
Securities Investor Protection Corporation ("SIPC") which, in the
event of the liquidation of a broker/dealer, provides protection for
customer accounts held by the firm of up to $500,000 per customer,
subject to a limitation of $100,000 on claims for cash balances. SIPC
is funded through assessments on registered broker/dealers, which may
not exceed 1% of a broker/dealer's gross revenues. Customer accounts
at WIC are further insured for at least $4,500,000 per customer
through insurance provided by Aetna Casualty and Surety Company and
Asset Guarantee Reinsurance Company.
Margin lending by WIC is subject to the margin rules of the Board of
Governors of the Federal Reserve System. Under such rules, WIC is
limited in the amount it may lend in connection with certain purchases
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of securities and is also required to impose certain maintenance
requirements on the amount of securities and cash held in margin
accounts. In addition, WestAmeica may impose more restrictive margin
requirements than required by such rules.
As a registered broker/dealer, WIC is subject to the Uniform Net
Capital Rule promulgated by the SEC (Rule 15c3-1) (the "Net Capital
Rule"). The Net Capital Rule specifies minimum net capital
requirements for such broker/dealers and is designed to measure
financial integrity and liquidity. Failure to maintain the required
net capital may subject a firm to suspension or expulsion, certain
punitive actions by the SEC, and other regulatory bodies, and
ultimately may require its liquidation any of which actions would have
an adverse effect upon the Company.
Net Capital is defined as net worth (assets, minus liabilities), plus
qualifying subordinated borrowing and minus certain mandatory
deductions of assets that are excluded or reduced by virtue of being
not readily convertible into cash and reductions of values of certain
other assets in order to record them conservatively. Among these
reductions are adjustments in the market value of securities to
reflect the possibility of a market decline prior to disposition.
Compliance with applicable net capital rules could limit WestAmerica's
operations and WIC's ability to pay dividends to the Company, which in
turn could limit the Company's ability to pay dividends, repay debt,
and redeem or purchase shares of its outstanding stock.
As of March 31, 1996, WIC was required to maintain minimum net capital
under the Net Capital Rule of $100,000 and had total regulatory net
capital of $256,857.
Contracts. The only parts of the Registrant's business which may be
subject to renegotiation of profits or termination of contracts or
subcontracts at the elections of the government are the oil and gas
leases granted by the United States of America, various states, and
other governmental authorities, such as the Bureau of Indian Affairs,
from which the Registrant's Osage County, Oklahoma leases have been
obtained.
Environmental Controls. Governmental agencies of all states and the
United States maintain a close watch on the ecological impact of oil
and gas exploration and development activities and from time to time
require companies to take exceptional measures to prevent the
possibility of ecological disturbances. Such measures may
substantially increase the cost of exploring for, developing and
producing oil and gas and may prevent or delay the commencement or
continuance of a given operation. The existence of such controls has
not materially affected the Registrant's operations and the cost of
such compliance has not been significant to date.
Employees
The Registrant employs 54 persons, 10 of which are employed in the
Registrant's oil and gas operations, including one supervisor, three
accounting personnel, one chief executive officer and five field
personnel. The Registrant also employs, on an as-needed basis, three
consultants: one certified public accountant, one geologist, one
geophysicists/geologist and one petroleum engineer.
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Of the Registrant's 54 employees, WIC employs 44 persons, including
one chief executive officer, one controller, eight administrative
personnel and 34 investment consultants.
ITEM 2. PROPERTIES
The Registrant maintains offices in Dewey, Oklahoma which consist of
6,000 square feet of office space, 5,000 square feet of shop and
equipment repair space and 3,000 square feet of warehouse space, all
of which are located on 9.5 acres of land which includes equipment and
supply storage space.
WIC has three offices which are located at 4141 N. Scottsdale Road,
Suite 100, Scottsdale, Arizona 85251 and 17220 Boswell Boulevard,
Suite 125, Sun City, Arizona 85373, and 440 North Alvernon, Suite 104,
Tucson, Arizona 85711. WIC leases approximately 12,543 square feet
under a lease that expires on September 1, 1998 at the Scottsdale
office. The current rental is $191,000 per year, subject to
obligations to pay certain expenses. In Sun City, WIC leases
approximately 896 square feet under a lease that expires on August 31,
1996 at a monthly rental of $896, plus certain expenses. The Tucson
office is rented by a WIC employee who is solely responsible for the
leasehold expenses.
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Quantities of proved Reserves. The Registrant's net quantities of
proved developed and undeveloped oil and gas reserves all of which are
located in the United States are listed below. Reserves were
estimated by Charles L. Simons, Independent Petroleum Engineer (see
also disclosures under Oil and Gas Reserves Information included in
accompanying notes to financial Statements).
Proved developed reserves of oil (bbls.)
March 31, 1996 62,000
March 31, 1995 93,000
March 31, 1994 96,000
Proved developed and undeveloped reserves of gas (MCF)
March 31, 1996 6,551,000
March 31, 1995 1,594,000
March 31, 1994 274,000
Present Value of Proved Reserves. The present value of the foregoing
quantities of oil and gas reserves as estimated by Charles L. Simons
at constant year-end prices discounted at 10%, net of applicable
income taxes, were as follows:
March 31, 1996 $ 4,232,000
March 31, 1995 $ 928,000
March 31, 1994 $ 452,000
Production. The Registrant's net oil and gas production for the time
periods specified below was from properties located within the United
States.
OIL (BBLS) GAS (MCF)
Year Ended March 31, 1996 7,000 75,000
Year Ended March 31, 1995 8,000 73,000
Year Ended March 31, 1994 12,000 55,000
Average sales price and production cost. The Registrant's average
sales price per barrel of oil and MCF of gas and average production
cost per barrel(1) during the years specified were as follows:
AVERAGE
PRODUCTION
AVERAGE SALES PRICE COST PER
OIL (BBLS) GAS (MCF BARREL (1)
Year Ended March 31, 1996 $ 16.96 $ 1.01 $ 12.70
Year Ended March 31, 1995 17.02 1.66 10.23
Year Ended March 31, 1994 15.27 1.62 6.39
(1) Gas converted to oil on a BTU basis of 6,000 cubic feet per
barrel.
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Productive wells and acreage. As of March 31, 1996, the Registrant
held interests in 99 gross productive wells (85 net productive wells)
including 10 gross productive oil wells (10 net oil wells), 89 gross
productive gas wells (75 net gas wells). The productive wells are
located on 16,637 gross productive acres (13,518 net productive
acres).
Major oil and gas properties. The following table provides
information regarding the Registrant's major oil and gas properties:
STATE
AND PERCENT OF
FIELD PRODUCING WELLS WESTAMERICA
NAME GROSS WELLS NET WELLS RESERVES
Oklahoma
Osage 6 6.00 2.00%
Smokerise 21 21.00 3.00%
Oglesby 65 52.50 89.00%
Texas
Rice Institute 5 5.00 3.00%
All Other Fields 2 .51 3.00%
Drilling activities. The Registrant engages in exploration and
development drilling both for itself and in association with third
parties. Actual drilling operations are not conducted by the
Registrant and are usually conducted by third party drilling
contractors. The Registrant may act as operator of the projects.
The following table provides information regarding the Registrant's
drilling activity:
Drilling Results
WELLS
DRILLED NET EXPLORATORY NET DEVELOPMENT
OR
RECOMPLETED
GROSS NET PRODUCTIVE DRY PRODUCTIVE DRY
Year Ended 3-31-96 47.00 35.00 -0- -0- 34 -1-
Year Ended 3-31-95 14.00 7.00 -0- -0- 7 -0-
Year Ended 3-31-94 5.00 5.00 -0- -0- 4 -1-
ITEM 3. LEGAL PROCEEDINGS
As of March 31, 1996, no legal actions of potential import to the
Registrant were pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is traded on the over-the-counter market
on the NASDAQ System under the symbol "WACC". At March 31, 1996 the
Registrant had approximately 775 shareholders of record of its common
stock. No dividends have been declared on the Registrant's common
stock and there are no plans to pay dividends in the foreseeable
future.
The high and low bid price for each quarter in the two fiscal years
ended March 31, 1996 reported by NASDAQ was as follows:
Quarter Ended High Bid Low Bid
March 31, 1996 1 5/8 1 1/2
December 31, 1995 1 5/8 1
September 30, 1995 1 1/2 1 1/8
June 30, 1995 1 5/8 1 1/2
March 31, 1995 1 1/2 1 1/4
December 31, 1994 2 3/8 1 1/2
September 30, 1994 3 2 1/4
June 30, 1994 2 1/2 1 1/8
The foregoing quotations reflect inter-dealer prices without retail
markup/markdown or commissions and may not represent actual
transactions.
The Registrant's Series A Preferred Stock, Series B Preferred Stock
and Conditional Common Stock Purchase Warrants are not traded on any
exchange.
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ITEM 6.(B) MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Liquidity and Capital Resources. A comparison of the Registrant's
balance sheet at March 31, 1996 with its balance sheet at March 31,
1995 shows that current assets increased from $1,179,000 to
$1,944,000. Cash and cash equivalents increased from $574,000 to
$1,025,000, current liabilities increased from $846,000 on March 31,
1995 to $1,544,000 on March 31, 1996. The current ratio was 1.26:1 on
March 31, 1996 compared with 1.39:1 on March 31, 1995. The decrease
in liquidity resulted from the acquisition of property and equipment
and an increase in accounts payable, primarily prepaid drilling
contracts which will be completed during the fiscal year ending March
31, 1997. The property acquisitions increased the Registrant's
acreage under lease from 14,789 gross acres on March 31, 1995 to
23,802 gross acres on March 31, 1996.
During 1996, the Company issued 97.7 Stock Units and 93.7 Partnership
Units in a private placement. Each stock unit consists of 1,000
shares of $.90 cumulative non-convertible Series B Preferred Stock and
1,000 Series A Conditional Common Stock Purchase Warrants. Each
Partnership Unit is comprised of a general partner interest in
WestAmerica Production Partnership. Proceeds of the Stock Units were
$824,882, net of commissions and offering expenses. Proceeds of the
Partnership Units were $87,141, net of expenses.
The Series B Preferred Shares have a liquidation preference of $9 per
share and are redeemable at the option of the Company, commencing
December 1, 1996, in whole or in part, initially at a redemption price
of $10 per share and thereafter at prices declining to $9 per share,
on or after December 1, 2006.
The Common Stock Purchase Warrants entitle the holder, conditioned
upon compliance with applicable securities laws at the time of
exercise, to purchase common shares for $3 per share, subject to
adjustment in certain circumstances, through December 31, 1998.
The Series A convertible preferred share have a liquidation preference
of $10 per share and are convertible at any time, unless previously
redeemed, into common share of the Company at the rate of 5.6 common
shares for each convertible preferred share. The Series A preferred
shares are redeemable at the option of the Company, at any time, in
whole or in part, initially at a redemption price of $11 per share and
thereafter at prices declining to $10 per share, on or after January
1, 2004.
Dividends on the shares of Series A and Series B preferred stock
cumulative and payable quarterly at an annual rate of $.90 per share.
Cash flows from operating activities improved to $503,000 in 1996
compared to cash used in operating activities of $13,000 in 1995. The
improvement is largely due to the Section 29 income tax credit program
in which the Company sells "coal seam gas" reserves to investors for
cash and retains a portion of the proceeds from gas produced from the
property.
Results of operations Year ended March 31, 1996 compared to Year Ended
March 31, 1995. Total revenues increased from $2,746,000 for the year
ended March 31, 1995 to $4,872,000 for the year ended March 31, 1996,
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primarily as a result of $1,185,000 increase in commission income from
WestAmerica Investment Company (WIC) as well as a $1,002,000 increase
in drilling, recompletion and service income at WestAmerica
Corporation. The increase in commission income was attributable to an
increase in the number of Registered Representatives employed by WIC
as well improved average gross income per Registered Representative
for the year ended March 31, 1996. The increase in revenue in
WestAmerica Corporation's oil and gas segment was primarily
attributable to the completion of a drilling contract entered into on
December 29, 1994 and increased sales of gas well recompletion and
servicing contracts. For the year ended March 31, 1996 WIC reported
revenue of $3,358,000 and an operating loss of $45,000. Revenue from
the oil and gas business segment totaled $1,514,000 for the year ended
March 31, 1996, an increase of $976,000 from revenue of $538,000
reported for the year ended March 31, 1995. Operating income for the
oil and gas segment was $381,000 for the year ended March 31, 1996,
versus a loss of $284,000 for the year ended March 31, 1995. Proved
reserves of natural gas totaled 6.5 billion cubic feet at March 31,
1996 versus 1.6 billion cubic feet at ended March 31, 1995. Reserves
of crude oil were 62,000 barrels at March 31, 1996, versus 93,000
barrels at March 31, 1995. The increase in gas reserves was the
result of property acquisitions made during both fiscal years and the
increase in drilling and recompletion activity during the year ended
March 31, 1996. A total of 47 wells were drilled or recompleted
during the year ended March 31, 1996. This increased level of
acquisition and development activity was financed by a partnership
offering concluded on December 29, 1994 and two preferred stock
offerings, one during the fiscal year ended March, 1994 and a second
during the fiscal year ended March, 1996. The partnership transaction
in December 1994, raised total capital of $815,000. The series A
Convertible Preferred Stock offering during fiscal 1994, raised total
net capital after offering costs of $910,000, while the series B
Preferred Stock Warrant and Partnership offering concluded during
fiscal 1996, raised $912,000 net of commissions and offering expenses.
The Registrant plans to continue the development of its expanded
leasehold position in Washington, Nowata and Rogers counties in
Oklahoma by drilling new wells to the productive coal seams underlying
those leases and by recompleting abandoned wells which have penetrated
various coal seams.
Selling, general and administrative expenses increased from $255,000
for the year ended March 31, 1995 to $338,000 for the year ended March
31, 1996, primarily as a result of a higher level of business
activity.
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ITEM 7. FINANCIAL STATEMENTS
See financial statements which follow pages F-1 through F-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
NONE
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Registrant's proxy statement for
its 1996 annual meeting of stockholders.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrant's proxy statement for
its 1996 annual meeting of stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the Registrant's proxy statement for
its 1996 annual meeting of stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrant's proxy statement for
its 1996 annual meeting of stockholders.
ITEM 13. Exhibits.
No exhibits are required to be filed as part of this report.
(b). Reports on Form 8-K
1. Form 8-K filed October 19, 1993 reported on the
acquisition of shares of WestAmerica Investment
Group, Inc.
2. Form 8-K filed on March 25, 1994 reporting on the
sale of certain assets of it's wholly owned
subsidiary, Impulse Gifts and Accessories, Inc.
3. Form 8-K filed on June 7, 1996 reporting acquisition
of restricted common stock of Casmyn Corporation.
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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.
WESTAMERICA CORPORATION
BOARD OF DIRECTORS
July 1, 1996 /s/ E.R. Foraker
Dated E.R. Foraker, President
/s/ William F.Groszkruger
William F. Groszkruger
/s/ Thomas P. Delnoce
Thomas P. Delnoce
/s/ Michael C. Pryor
Michael C. Pryor
/s/ Robert M. Coleman
Robert M. Coleman
-14-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Board of Directors
WestAmerica Corporation
We have audited the accompanying consolidated balance sheet of
WestAmerica Corporation as of March 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash
flows for the two years in the period then ended. 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 did not audit the financial statements of
WestAmerica Investment Company, a subsidiary owned 100% by WestAmerica
Corporation. WestAmerica Investment Company's statements reflect
total assets and revenues constituting 15% and 69%, respectively, of
the related consolidated totals for the year ended March 31, 1996.
WestAmerica Investment Company's statements were audited by another
auditor whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for WestAmerica
Investment Company, is based solely on the reports of the other
auditor.
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 and reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of another
auditor, the financial statements referred to above present fairly, in
all material respects, the financial position of WestAmerica
Corporation as of March 31, 1996 and the results of its operations and
its cash flows for the two years in the period then ended in
conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements,
effective April 1, 1995, WestAmerica Corporation changed its method of
accounting for the consolidation of WestAmerica Investment Company.
TULLIUS TAYLOR SARTAIN & SARTAIN
/s/ Tullius Taylor Sartain & Sartain
Tulsa, Oklahoma
June 18, 1996
F-1
<PAGE>
George Brenner
CERTIFIED PUBLIC ACCOUNTANT
9300 WILSHIRE BOULEVARD, SUITE 550
BEVERLY HILLS, CALIFORNIA 90212
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors
WestAmerica Investment Company
Scottsdale, Arizona
I have audited the accompanying statement of financial condition of
WestAmerica Investment Company (DBA WestAmerica Investment Group) as
of December 31, 1994 and related statements of income (loss), cash
flows, and changes in shareholder's equity for the year ended December
31, 1994. These financial statements are being filed pursuant to Rule
17a-5 of the Securities Exchange Act of 1934 and include the
supplemental schedule of the net capital computation required by rule
15c3-1.
These financial statements are the responsibility of WestAmerica
Investment Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with the generally accepted
auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable
basis for my opinion
In my opinion, such financial statements present fairly, in all
material respects, the financial condition of WestAmerica Investment
Company as of December 31, 1994 and the results of it's operations
cash flows and changes in stockholder's equity for the year ended
December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ George Brenner
George Brenner, C.P.A.
February 3, 1995
Beverly Hills, California
F-2
<PAGE>
George Brenner
CERTIFIED PUBLIC ACCOUNTANT
9300 WILSHIRE BOULEVARD, SUITE 550
BEVERLY HILLS, CALIFORNIA 90212
TELEPHONE (310)276-8845
FAX (310)276-5933
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors
WestAmerica Investment Company
Scottsdale, Arizona
I have audited the accompanying statement of financial condition of
WestAmerica Investment company (DBA WestAmerica Investment Group) as
of March 31, 1996 and related statements of income, cash flows, and
changes in shareholder's equity for the fifteen months ended March 31,
1996. These financial statements are being filed pursuant to Rule 17
a-5 of the Securities Exchange Act of 1934 and include the
supplemental schedule of the net capital computation required by rule
15c3-1.
These financial statements are the responsibility of WestAmerica
Investment Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with the generally accepted
auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, such financial statements referred to above present
fairly, in all material respects, the financial condition of
WestAmerica Investment Company as of March 31, 1996 and the
supplemental schedule of net capital computation at March 31, 1996 and
the results of its operations, cash flows, and changes in
stockholder's equity for the fifteen months then ended in conformity
with the generally accepted accounting principles.
/s/ George Brenner
George Brenner, C.P.A.
Beverly Hills, California
May 3, 1996
F-3
<PAGE>
WESTAMERICA CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
Assets March 31, 1996
Current assets:
Cash and cash equivalents $ 1,025
Marketable securities 70
Accounts receivable:
Trade 368
Related party 151
Other 11
Notes receivable 89
Inventories 230
Total current assets 1,944
Property and equipment:
Oil and gas properties, successful efforts method 3,831
Transportation, drilling and other equipment 599
Land and buildings 950
Less accumulated depreciation, depletion and
amortization (3,449)
1,931
Goodwill 387
Other assets 250
Total assets $ 4,512
See notes to consolidated financial statements.
F-4
<PAGE>
WESTAMERICA CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
March 31, 1996
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - banks $ 398
Notes payable - stockholders 45
Accounts payable 424
Accrued expenses 270
Prepaid drilling
and well recompletion contracts 407
Total current liabilities $ 1,544
Deferred income 29
Notes payable - banks 88
Notes payable - stockholders 146
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized:
Series A convertible preferred stock
redeemable and cumulative, 100,000 shares
outstanding, $1,000,000 liquidation
preference 1
Series B preferred stock redeemable
and cumulative, 97,700 shares
outstanding, $879,300 liquidation
preference 1
Common stock, $.01 par value, 10,000,000
shares authorized; issued
3,007,291, outstanding
3,005,361 30
Additional paid-in capital 6,326
Deficit (3,651)
Treasury stock, at cost -
1,930 shares (2)
Total stockholders' equity 2,705
Total liabilities and
stockholders' equity $ 4,512
See notes to consolidated financial statements
F-5
<PAGE>
WESTAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
Year ended March 31,
1996 1995
Revenues:
Commission income $ 3,358 $ 2,173
Oil and gas sales 192 204
Drilling, recompletion
and service income 1,258 256
Interest and other 64 113
4,872 2,746
Costs and expenses:
Broker commissions and clearing
broker charges 1,950 1,050
Brokerage operating expenses 1,316 1,162
Oil and gas operations 639 381
Expired and surrendered leases 65 -
Selling, general and administrative 338 255
Depreciation, depletion and amortization 160 153
Interest 52 51
Other 16 12
4,536 3,064
Income (loss) from continuing operations before
cumulative effect of an accounting change 336 (318)
Discontinued operations - loss on disposal of
business - (101)
Income (loss) before cumulative effect of an
accounting change 336 (419)
Cumulative effect of an accounting change (94) -
Net income (loss) $ 242 $ (419)
Earnings (loss) per common share:
Income (loss) from continuing operations
before cumulative effect of an
accounting change $:07 $(:11)
Income (loss) before cumulative effect of
an accounting change $:07 $(:14)
Net income (loss) $:04 $(:14)
Weighted average shares outstanding 2,967,523 2,936,490
See noted to consolidated financial statements.
F-6
<PAGE>
WEST AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Retained
Preferred Common Paid-in Earnings Treasury
Stock Stock Capital (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994 $ 1 $ 29 $5,604 $(3,474) $(44) $2,116
Issuance of preferred stock - - 87 - - 87
Issuance of treasury stock - - (1) - 26 25
Repurchase of common stock - - - - (1) (1)
Preferred stock dividend - - (88) - - (88)
Net loss for the year - - - (419) - (419)
Balance, March 31, 1995 1 29 5,602 (3,893) (19) 1,720
Issuance of preferred stock 1 - 808 - - 809
Issuance of common stock - 1 50 - - 51
Cancellation of treasury stock - - (17) - 17 -
Preferred stock dividends - - (117) - - (117)
Net income - - - 242 - 242
Balance, March 31, 1996 $ 2 $ 30 $6,326 $(3,651) $ (2) $2,705
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
WESTAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Year ended March 31,
1996 1995
Cash Flows from Operating Activities
Net income (loss) $ 242 $ (419)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities
Depreciation, depletion and
amortization 160 153
(Gain) loss on sales of assets 59 (23)
Increase in receivables (235) (212)
Decrease (increase) in other assets 9 (71)
Increase in accounts payable,
drilling and well completion advances
and accrued expenses 268 546
Other - 13
Net cash provided by (used in)
operating activities 503 (13)
Cash Flows from Investing Activities
Purchases of marketable securities (68) (604)
Proceeds from sales of marketable
securities 13 760
Expenditures for property and
equipment (946) (369)
Proceeds from sales of property
and equipment 119 45
Net cash used in investing
activities (882) (168)
Cash Flows from Financing Activities
Repayment of bank borrowing (21) (2)
Proceeds from bank borrowing 108 -
Decrease in notes payable to stockholder - (4)
Proceeds from preferred stock offering 860 87
Dividends paid (117) (88)
Net cash used in financing activities 830 (7)
Net increase (decrease) in cash and
cash equivalents 451 (188)
Cash and cash equivalents, beginning
of year 574 762
Cash and cash equivalents, end of year $ 1,025 $ 574
See notes to consolidated financial statements.
F-8
<PAGE>
WESTAMERICA CORPORATION
NOTES TO Consolidated FINANCIAL STATEMENTS
TWO YEARS IN THE PERIOD ENDED MARCH 31, 1996
Note 1 - Summary of Significant Accounting Policies
Basis of presentation and accounting change
The consolidated financial statements include the accounts of
WestAmerica Corporation (the "Company"), its wholly owned subsidiaries
and its general partner interests in oil and gas producing
partnerships.
The Company owns 100% of WestAmerica Investment Group, Inc., which
owns 100% of the outstanding stock of WestAmerica Investment Company
("WIC"), an investment brokerage business headquartered in Scottsdale,
Arizona. The consolidated financial statements for the year ended
March 31, 1995 includes WIC's results of operations and cash flows for
its year ended December 31, 1994. Effective April 1, 1995, the
Company changed the year end of WIC to March 31, the Company's year
end. WIC's net loss for the three months ended March 31, 1995 of
$94,279 is included in the statement of operations for the year ended
March 31, 1996 as the cumulative effect of an accounting change. If
the accounting change had been applied effective April 1, 1994, the
consolidated net loss for the fiscal year ended March 31, 1995 would
have been $492,000.
All significant intercompany transactions and balances have been
eliminated.
Management 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 revenue
and expenses during the reporting period.
Inventories
Inventories consist of oil field supplies and are carried at the lower
of average cost or market.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for
oil and gas producing activities. Under this method, proved property
acquisition costs, costs of productive exploratory wells and all
developments costs (including lease acquisition, tangible and
intangible costs) are capitalized. The costs of drilling exploratory
wells are initially capitalized as wells in progress and are expensed
F-9
<PAGE>
if the wells are determined to be nonproductive. Upon the sale of
property, the cost of the property and accumulated depreciation,
depletion and amortization are removed from the accounts and any gain
or loss is recognized. Depreciation, depletion and amortization of
oil and gas properties is computed on a property-by-property basis
using the unit-of-production method based upon estimated proved oil
and gas reserve quantities determined by a petroleum engineer.
Valuation allowances are provided if the net capitalized costs of oil
and gas properties exceed their estimated realizable values based on
the undiscounted future net revenues.
Land, buildings and equipment
Land, buildings and equipment are stated at cost. Depreciation of
buildings and non-oil and gas producing equipment is determined using
the straight-line and accelerated methods over their estimated useful
lives.
Intangible assets
Intangible assets, consisting primarily of goodwill, are amortized
using the straight-line method over 30 years.
Revenue recognition for drilling and recompletion contracts
Revenues from fixed-price drilling contracts are recognized on the
percentage of completion method commencing when progress reaches a
point where experience is sufficient to reasonably estimate final
results. Percentage-of-completion is measured by the percentage of
costs incurred to date to estimated total costs for each contract.
The Company sells gas producing properties subject to the obligation
to recomplete the wells located thereon. Revenue is recognized when
the wells have been successfully recompleted and are ready to produce.
Commission income
Commission income is reported on a settlement date basis.
Income taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes."
Deferred income taxes are provided for differences between the basis
of assets and liabilities for financial statement and income tax
purposes. These differences result primarily from capitalization of
intangible drilling costs only for financial statement purposes, and
differences between depreciation, depletion and amortization recorded
in the financial statements and in the tax return. The Company will
recognize the benefits of net operating loss and investment tax credit
carryforwards in the year the tax benefits are realized unless
realization is determined to be probable in an earlier year.
F-10
<PAGE>
Statement of cash flows
For the purposes of the statement of cash flows, the Company considers
all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Amounts paid for interest were $52,000 and $51,000 for the years ended
March 31, 1996 and 1995, respectively.
During 1996, the Company exchanged a vehicle with a stockholder for a
reduction, equal to the cost of the vehicle, in the Company's note
payable to the stockholder. In addition, oil and gas property
additions of $96,700 were financed through a note payable to the
stockholder.
Earnings (loss) per common share
Net income (loss) per common share is computed based on the weighted
average number of common and common equivalent shares outstanding.
The effects of warrants and convertible preferred stock would be
antidilutive and therefore are not considered in the computations.
Accounting standards recently issued by the Financial Accounting
Standards Board
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," is effective for the Company's fiscal year ending March
31, 1997. It requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Management
has not determined the effect of SFAS No. 121 had it been adopted at
March 31, 1996.
Note 2 - Notes Payable
Notes payable consist of the following (dollars in thousands):
Floating rate (10.5% at March 31, 1996) bank note
payable in monthly installments of $3,785 including
interest, due March, 1997, collateralized by the
Company's real estate and 341,466 shares of the
Company's common stock owned by the Company's
president $376
Bank note payable in installments of $2,129,
including interest at 10% due April 1, 2000,
collateralized by equipment 83
Other 27
486
Less amount due in one year 398
Notes payable - noncurrent $ 88
F-11
<PAGE>
Notes payable -stockholder consist of the following (dollars in
thousands):
Note due January 2, 1998 requiring monthly
payment of $4,465 including interest at
9%, collateralized by equipment $ 97
Note bearing interest at 10% without stated
repayment terms, classified as noncurrent 94
191
Less amount due in one year 45
Notes payable to stockholder - noncurrent $146
Annual maturities are (in thousands): 1997 - $443; 1998 - $179; 1999 -
$25; 2000 - $30.
Note 3 - Income Taxes
At March 31, 1996, tax net operating loss carryforwards of
approximately $3,000,000 expiring in 2002 through 2011, percentage,
depletion carryforwards of approximately $670,000 and approximately
$83,000 of investment tax credit carryforward are available to reduce
income taxes in future years. Approximately $755,000 of the net
operating loss carryforward is subject to separate return limitation
rules.
For financial reporting purposes, net operating losses not utilized to
reverse previously provided deferred taxes are approximately
$4,025,000. The percentage depletion and investment tax credit
carryforwards available for income tax purposes will also reduce the
financial tax provision when they are realized.
Any deferred tax asset resulting from these tax carryforwards would be
eliminated by a valuation allowance since realization does not meet
the "more probable than not" criteria of Statement of Accounting
Financial Standards No. 109.
Note 4 - Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents
and accounts receivable. Uninsured, interest bearing cash deposits
with a brokerage firm are $626,332. Approximately $243,000 of
accounts receivable result from WIC customers' securities
transactions. WIC closely monitors the credit worthiness of its
customers. For the year ended March 31, 1996, WIC's bad debt expenses
were less than 2% of brokerage operating expenses.
F-12
<PAGE>
Note 5 - Stockholders' Equity
During 1996, the Company issued 97.7 stock Units and 93.7 Partnership
Units in a private placement. Each stock unit consists of 1,000 share
of $.90 cumulative non-convertible Series B Preferred Stock and 1,000
Series A Conditional Common Stock Purchase Warrants. Each Partnership
Unit is comprised of a general partner interest in WestAmerica
Production Partnership. Proceeds of the Stock Units were $824,882,
net of commissions and offering expenses. Proceeds of the Partnership
Units were $87,141, net of expenses.
The Series B preferred shares have a liquidation preference of $9 per
share and are redeemable at the option of the Company, commencing
December 1, 1996, in whole or in part, initially at a redemption price
of $10 per share and thereafter at prices declining to $9 per share,
on or after December 1, 2006.
The Common Stock Purchase Warrants entitle the holder, conditioned
upon compliance with applicable securities laws at the time of
exercise, to purchase common shares for $3 per share, subject to
adjustment in certain circumstances, through December 31, 1998.
The Series A convertible preferred shares have a liquidation
preference of $10 per share and are convertible at any time, unless
previously redeemed, into common shares of the Company at the rate of
5.6 common shares for each convertible preferred share. The Series A
preferred shares are redeemable at the option of the Company, at any
time, in whole or in part, initially at a redemption price of $11 per
share and thereafter at prices declining to $10 per share, on or after
January 1, 2004.
Dividends on the shares of Series A and Series B preferred stock are
cumulative and payable quarterly at an annual rate of $.90 per share.
Note 6 - Net Capital Requirement
Pursuant to the net capital provisions of Rule 15c3-1 of the
Securities and Exchange Act of 1934, WIC is required to maintain a
minimum net capital as defined under such provisions, in the amount of
$100,000 at March 31, 1996. WIC was in compliance with such
requirements at March 31, 1996.
Note 7 - Oil and Gas Partnerships
During 1995, Oklahoma Resources General Partnership (the Partnership)
was formed with Oklahoma Resources Corporation (ORC), a wholly owned
subsidiary of WestAmerica, as the Managing General Partner. Under the
Partnership agreement, the Managing General Partner bears the cost of
all leasehold and equipment while the Additional General Partners bear
the intangible development costs. ORC contributed leasehold and
equipment costing approximately $180,000 to the Partnership in
exchange for its 50% Partnership interest. Additional General
Partners contributed $407,500 for their 50% Partnership interests and
loaned the Partnership $407,500. The notes bear interest at 10.25%
per annum, are repayable in quarterly installments over three years,
and
F-13
<PAGE>
are guaranteed by the Managing General Partner. ORC will be
reimbursed for the administrative costs and overhead expenses directly
related to management and operations of the Partnership, up to 3% of
the total gross revenue of the Partnership.
The Partnership has entered into a drilling contract with WestAmerica
to drill 26 wells for the Partnership for $769,000. In 1996 and 1995,
WestAmerica recorded drilling contract revenue of $509,000 and
$192,000 and drilling costs of $298,000 and $118,000, respectively,
exclusive of indirect costs.
During 1996, most of the partnership's gas wells were shut-in awaiting
pipeline connection, and the Partnership had insufficient cash flow to
make the additional General Partner loan payments. The Company
advanced the Partnership approximately $121,000, included in accounts
receivable - related parties, to meet the additional General Partner
loan obligations. The advances are recoupable from future Partnership
cash flow.
The objective of the WestAmerica Production Partnership (see Note 5)
is to invest in producing natural gas properties, production from
which qualifies for federal income tax credits for the production of
coal seam gas pursuant to Section 29.
Note 8 - Section 29 Income Tax Credit Program
During 1996, the Company began a program of leasing properties upon
which existing non-producing wells are located, the gas production
from which is "coal seam gas" qualifying for tax credits under Section
29 of the Internal Revenue Code. The Company sells the working
interests in these properties for cash and the right to retain a
portion of the proceeds from the gas produced from the property. The
Company is obligated to recomplete the wells into the coal seam.
After recompletion and testing to determine the production capability
of the well, the Company records the revenue on the property sale, net
of well recompletion costs. In 1996, the Company recorded $754,000 of
revenue from the sales of Section 29 tax credit properties. In
addition, the current liability for prepaid drilling and well
completion contracts includes $242,000 of proceeds from such sales for
which the recompletion obligations had not been met as of March 31,
1996.
Note 9 - Discontinued Operations
In December, 1993, the Company assigned all trademarks, trade names,
copyrights and inventories of Impulse Gifts and Accessories, Inc., a
wholly-owned subsidiary, (Impulse), to an unrelated party. In fiscal
1995, the carrying value of Impulse's remaining net assets was further
reduced by $101,000 to estimated realizable value.
Note 10 - Commitments
At March 31, 1996 the Company was committed for office leases
requiring minimum annual rentals as follows:
F-14
<PAGE>
Years ending March 31,
1997 $199,000
1998 192,000
1999 80,000
$471,000
Note 11 - Business Segment Information
The Company operates primarily in the oil and gas producing and
investment brokerages businesses in the United States. The oil and
gas producing segment information below includes drilling,
recompletion and service income and expenses, related general and
administrative expenses, and identifiable assets not included in Note
12 - Oil and Gas Information. Revenue, operating income, identifiable
assets, capital expenditures, and depreciation and amortization
pertaining to the Company's two business segments are presented below
(dollars in thousands):
Year ended March 31,
1996 1995
Revenue:
Investment brokerage segment $ 3,358 $ 2,208
Oil and gas producing segment 1,514 538
$ 4,872 $ 2,746
Operating income (loss):
Investment brokerage segment $ (45) $ (34)
Oil and gas producing segment 381 (284)
$ 336 $ (318)
Capital expenditures:
Investment brokerage segment $ 11 $ 17
Oil and gas producing segment 935 352
$ 946 $ 369
Depreciation and amortization:
Investment brokerage segment $ 14 $ 14
Oil and gas producing segment 146 139
$ 160 $ 153
Identifiable assets:
Investment brokerage segment $ 1,039
Oil and gas producing segment 3,473
$ 4,512
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<PAGE>
Note 12 - Oil and Gas Information
Capitalized costs relating to oil and gas producing activities are as
follows (dollars in thousands):
March 31,
1996 1995
Proved oil and gas properties $3,821 $3,146
Less accumulated depreciation,
depletion and amortization 2,189 2,276
Net capitalized costs $1,632 $ 870
Costs incurred in oil and gas producing activities are as follows
(dollars in thousands):
Year ended March 31,
1996 1995
Exploration and development
costs $ 935 $ 188
Property acquisition costs $ - $ 150
Results of operations for oil and gas producing activities are as
follows (dollars in thousands):
Year ended March 31,
1996 1995
Oil and gas sales $ 192 $ 204
Lease Operating costs (212) (127)
Production taxes (9) (13)
Depreciation, depletion, and
amortization (80) (73)
Results of operations
for oil and gas
producing activities
(excluding overhead and
financing costs) $ (109) $ (9)
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<PAGE>
Note 13 - Oil and Gas Reserves Information (Unaudited)
Following are the Company's estimates of proved oil and gas reserves.
All reserves are located in the United States and were estimated in
accordance with guidelines established by the Securities and Exchange
Commission which require that reserve estimates be prepared under
existing economic and operating conditions with no provision for price
and cost escalations except by contractual arrangements.
Company management emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the
estimates are expected to change as additional information becomes
available in the future.
The following table sets forth the Company's proved oil and gas
reserves at March 31, 1996 and 1995 together with the changes therein:
Changes in Proved Reserves (Unaudited)
1996 1995
Oil Gas Oil Gas
(Bbl) (Mcf) (Bbl) (Mcf)
(In Thousands)
Proved reserves,beginning of year 93 1,594 96 274
Revisions of previous estimates (24) (48) 5 (29)
Extensions and discoveries - 5,100 - 1,044
Purchases of minerals in place - - - 378
Production (7) (75) (8) (73)
Sales of minerals in place - (20) - -
Proved reserves, end of year 62 6,551 93 1,594
Proved developed reserves:
Beginning of year 93 617 96 274
End of year 62 6,551 93 617
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<PAGE>
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Reserves (Unaudited)
1996 1995
(In Thousands)
Future cash inflows $11,229 $ 3,420
Future production and
development costs (3,858) (1,962)
Future income tax expense - -
Future net cash flows 7,371 1,458
Annual discount (10%) for
estimated timing of cash flows (3,139) (530)
Standardized measure of discounted
future net cash flows $ 4,232 $ 928
Changes in Standardized Measure of Discounted Future Net Cash
Flows from Proved Reserves (Unaudited)
Year ended March 31,
1996 1995
(In Thousands)
Sales of oil and gas produced,
net of production costs $ (55) $ (51)
Net changes in price and
production costs 297 57
Revisions of quantity estimates (84) 4
Extensions and discoveries 3,163 413
Net changes from purchases and
sales of minerals in place (2) 39
Accretion of discount 93 45
Other (108) (31)
Changes in standardized measure 3,304 476
Standardized measure, beginning
of period 928 452
Standardized measure, end of
period $4,232 $928
F-18
<PAGE>
The standardized measure of discounted future net cash flows from
proved reserves is computed by applying year-end prices of oil and gas
(with consideration of price changes only to the extent provided by
contractual arrangements) to the estimated future production of proved
oil and gas reserves. Estimated future expenditures to be incurred in
producing the reserves are based on year-end costs. Estimated future
income tax expenses to be incurred on pretax net cash flows less tax
basis of the properties and available carryforwards and credits are
based on end of period statutory tax rates. The estimated future net
cash flows are discounted at ten percent a year to reflect estimated
timing of future cash flows.
Note 14 - Subsequent Events
On May 24, 1996, the Company issued 5,680,514 common shares
(approximately 65% of the outstanding common shares) in exchange for
606,061 common shares of Casmyn Corp. ("Casmyn"). The shares issued
are restricted from trading and are subject to a repurchase agreement
whereby the Company may, until May 24, 1997, repurchase the common
shares it issued by returning the Casmyn shares. The Company and
Casmyn have also executed a proxy agreement whereby the Company's
president may vote the shares owned by Casmyn.
The Company's investment in Casmyn, representing approximately seven
percent of Casmyn's outstanding common stock, is valued at
approximately $6,970,000, representing $1.23 per share of the
Company's common stock. This value reflects a discount from the
recent average trading price of the Company's common stock due to the
restricted nature of the shares issued in the transaction.
In 1996, the Company invested an immaterial amount for a 51% interest
in a newly formed corporation which is the general partner in a
limited partnership it formed to construct restaurant facilities. The
Company has invested $77,000 as a limited partner in the partnership.
On May 26, 1996, the Company became the sole guarantor of $1,268,000
of a limited partnership indebtedness, which is also secured by
partnership property appraised at $1,800,000.
F-19
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1995
<CASH> 1025
<SECURITIES> 70
<RECEIVABLES> 619
<ALLOWANCES> 0
<INVENTORY> 230
<CURRENT-ASSETS> 1944
<PP&E> 5380
<DEPRECIATION> 3449
<TOTAL-ASSETS> 4512
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<BONDS> 0
<COMMON> 30
0
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<OTHER-SE> 2673
<TOTAL-LIABILITY-AND-EQUITY> 4512
<SALES> 4808
<TOTAL-REVENUES> 4872
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<OTHER-EXPENSES> 498
<LOSS-PROVISION> 0
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<EPS-PRIMARY> .04
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