<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File No. 33-26936-D
EXCEL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0460769
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 Bagby, Suite 2400
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 659-5556
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (or for such shorter period that the
registrant was required to file such reports), and has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [ ]
Shares outstanding of the Registrant's common stock as of December 31,
1996: 11,309,552
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PART I
Item 1. Description of Business
Certain Definitions
As used in this Form 10-KSB, the terms set forth below have the
following meanings:
Mcf thousand cubic feet
Mcfd thousand cubic feet per day
MMcf million cubic feet
MMcfd million cubic feet per day
Bcf billion cubic feet
Btu British Thermal Unit
MMBtu million British Thermal Units
Tcf trillion cubic feet
NRI net revenue interest
WI working interest
General
Excel Resources, Inc., formerly named Dover Capital Corp. (together with
its direct and indirect subsidiaries, the "Registrant" or the "Company"), was
incorporated under the laws of the State of Nevada on December 1, 1988. The
Company was initially organized to identify, investigate and acquire suitable
assets, properties or other business opportunities that management believed to
have good business potential. Upon formation, the Company issued 2,875,000
shares of common stock, $.001 par value per share (the "Common Stock"),
constituting all of its then issued shares of Common Stock, to Frisco, Inc.
("Frisco"). On or about December 31, 1991, Frisco distributed all of the
Company's outstanding Common Stock to the shareholders of Frisco at no cost.
Effective July 12, 1993, in exchange for 5,100,000 shares of Common Stock, the
Company acquired all of the outstanding shares of common stock of Excel
Resources, Inc., a privately-held Texas corporation ("Excel Texas"). On or
about this time, the Company changed its corporate name to Excel Resources,
Inc.
Excel Texas engages primarily in the production of natural gas in the
Gulf Coast region of the United States. In addition, Excel Texas is involved
in designing, installing and operating pipelines and gathering systems.
As of December 31, 1996, the Company had seven employees, all employed
in Texas. The Company considers its relationship with its current employees
to be good.
Marketing
The natural gas marketing activities in connection with gas purchased by
Excel Gas Marketing, Inc., an affiliate of the Company, from third-party
producers were discontinued in June, 1996. The revenues from Excel Gas
Marketing's activities through June, 1996, as well as the costs and expenses
associated therewith, were inconsequential, and therefore had no significant
impact on the Consolidated Financial Statements.
Except as described above, the Company does not have any patents,
trademarks, franchises or concessions, the loss of which would have a material
adverse effect on the Company's finances.
Competitive Conditions
Competition in the oil and gas industry is intense, particularly in
connection with the acquisition of producing properties and proved undeveloped
acreage. Major and independent companies actively bid for desirable oil and
gas properties. In many instances the major producers and the larger
independent producers enjoy a competitive advantage over smaller and
medium-sized companies such as the Company, because of their greater
financial, technical and other resources.
The Company has focused its reserve acquisition effort in the Gulf Coast
region, and now owns natural gas and oil reserves in federal waters located
offshore Texas, Louisiana, Mississippi, Alabama, and Florida. The Company
continues to pursue additional reserve acquisitions, as well as the
acquisition of other oil and gas assets including pipelines, processing
facilities, and gathering systems consistent with the Company's long-term
business strategy. To the extent the Company's acquisition and production
budget is lower than that of certain of its competitors, the Company may be
disadvantaged in effectively competing for such acquisitions. However, the
Company believes that the continuing deregulation of the natural gas industry
will enable it to compete more effectively. See "Business-Regulation." Many
of the larger companies are burdened with comparatively higher overhead costs
and higher return requirements than those of the Company. The Company's
considerably lower overhead costs and its more modest profit expectations
could enable it to be profitable with smaller margins, thereby giving it a
potential competitive advantage.
Regulation
Domestic Regulation of Natural Gas and Crude Oil Production. Natural
gas and crude oil production, marketing, transportation and gathering
operations are subject to various types of regulation, including regulation in
the United States by state and federal agencies.
Domestic legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Also, numerous departments and
agencies, both federal and state, are authorized by statute to issue, and have
issued, rules and regulations which, among other things, require permits for
the drilling of wells, regulate the spacing of wells, prevent the waste of
natural gas and crude oil resources through proration, require drilling bonds
and regulate environmental and safety matters. These regulatory burdens on
the oil and gas industry increase its cost of doing business; thereby
affecting overall profitability.
Operations conducted by the Company on federal oil and gas leases such
as the Company's operations on the Mafla Field and Bounty Properties must
comply with numerous statutory and regulatory restrictions. Certain
operations must be conducted pursuant to appropriate permits issued by various
government agencies and authorities.
The transportation and sale for resale of natural gas in interstate
commerce are regulated pursuant to the Natural Gas Act of 1938 (the "NGA") and
the Natural Gas Policy Act of 1978 (the "NGPA"). These statutes are
administered by the Federal Energy Regulatory Commission ("FERC"). Effective
January 1, 1993, the Natural Gas Wellhead Decontrol Act of 1989 deregulated
natural gas prices for all "first sales" of natural gas, which includes all
sales by the Company of its own production. Consequently, sales of the
Company's natural gas currently may be made at market prices, subject to
applicable contract provisions.
Since 1985, the FERC has endeavored to make natural gas transportation
more accessible to gas buyers and sellers on an open and non-discriminatory
basis. These efforts have significantly altered the marketing and pricing of
natural gas. The FERC's actions in this area have been the promulgation and
implementation of the Order No. 636 series of orders issued since April 1992,
and various other orders such as Order No. 547 and Order No. 497-E. The net
result of these orders has been to increase the competition within the natural
gas industry and to enhance the Company's ability to market and transport its
natural gas production.
The Outer Continental Shelf Lands Act (OCSLA) requires that all
pipelines operating on or across the Outer Continental Shelf (OCS) provide
"open-access" non-discriminatory service. Although the FERC has opted to not
impose the regulations of Order No. 509, in which order the FERC implemented
the OCSLA, on gathering facilities and other non-jurisdictional facilities, it
has retained the authority to exercise jurisdiction over those facilities if
necessary to permit non-discriminatory access to service on the OCS. The FERC
has, however, issued a series of orders in various individual cases that
delineate its new gathering policy. Among other matters, the FERC has
slightly narrowed its statutory tests for establishing gathering status and
has reaffirmed that, except in situations in which the gathering entity acts
in concert with an interstate pipeline affiliate to frustrate the FERC's
transportation policies, it does not generally have jurisdiction over natural
gas gathering facilities and services and that such facilities and services
located in state jurisdictions are properly regulated by state authorities.
State regulation of gathering facilities generally includes various safety,
environmental, and, in some circumstances, non-discriminatory take
requirements, but does not generally entail rate regulation. Natural gas
gathering may become the subject of closer scrutiny by regulatory authorities
at both the state and federal levels as the pipeline restructuring is
completed.
The Company cannot predict the effect that any of the aforementioned
orders or the challenges to such orders will ultimately have on the Company's
operations. Additional proposals and proceedings that might affect the
natural gas industry are pending before Congress, the FERC and the courts.
The Company cannot predict when or whether any such proposals or proceedings
may become effective. It should also be noted that the natural gas industry
historically has been very heavily regulated; therefore, there is no assurance
that the less regulated approach currently being pursued by the FERC will
continue indefinitely.
Environmental Regulation. Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
Company's operations and costs as a result of their effect on natural gas
production, transportation, gathering and marketing operations. It is not
anticipated that the Company will be required in the near future to expend
material amounts by reason of environmental laws and regulations, but inasmuch
as such laws and regulations are frequently changed, the Company is unable to
predict the ultimate cost of compliance.
Seasonality
The Company's results of operations fluctuate from quarter to quarter,
due in part to the impact of seasonal factors on the prices and sales volumes
of natural gas. Such prices usually increase during the winter due to greater
heating requirements. Demand is also typically higher in the summer than in
the spring and fall, reflecting use by electric utilities for air
conditioning. In addition, demand related to weather conditions may vary
significantly over short periods of time if, for example, temperatures change
suddenly.
Recent Acquisitions and Dispositions
The Company did not make any significant or material acquisitions or
dispositions in 1996.
Additional Equity Financing
The Company pursued debt and equity financing throughout 1996, with its
efforts being concentrated on the United States and regional financial
markets. These efforts yielded only modest results. A total of $150,000 was
realized from these efforts through July, 1996. Additional funds equal to
$236,000 were received from a Company officer through repayment of a
stockholder note. See Management's Discussion and Analysis of Financial
Condition for more information on the Company's equity funding efforts.
Item 2. Description of Properties
Excel Texas entered into a ten year office lease agreement March 8, 1990
in the Texaco Heritage Plaza building in downtown Houston, Texas. The lease
was amended effective March 1, 1993, with Excel Texas relocating to a larger
space. The new lease covers 8,866 square feet. The lease was amended again
in March, 1997. The lease terms as amended by the 1993 Amendment and the 1997
Amendment provide for annual base rent payments of approximately $73,000 for
the lease-year ended February 29, 1996, $67,000 for the lease year ended
February 28, 1997, $52,000 for the lease year ended February 28, 1998, $89,000
for the lease year ended February 28, 1999, and $93,000 for the lease year
ended February 29, 2000. See "Business - Recent Acquisitions and
Dispositions" for additional information about the Company's properties.
Item 3. Legal Proceedings
The Company and Excel Gas Marketing, Inc., an affiliate of the Company,
are either individually or jointly involved in a number of claims, as well as
litigation, for breach of contract primarily arising from the nonpayment for
natural gas purchased. Liquidity problems encountered by both the Company and
Excel Gas Marketing, Inc. during 1994 were the primary factors giving rise to
such claims. Management believes that the outcome of such litigation will not
have a material adverse effect upon the Company, since all claims are properly
reflected in the consolidated financial statements. The Company is continuing
its efforts to secure funding sufficient to pay the amounts for which it is
liable. The following is a listing of those legal actions:
- - July 6, 1994, Scana Hydrocarbons, Inc. filed suit against Excel Gas
Marketing, Inc. ("Excel Gas Marketing") in the Judicial District Court of
Harris County, Texas, for breach of contract for nonpayment of $252,818.00
plus interest and legal costs. The suit also claimed fraud on the part of
Excel Gas Marketing for failure to place gas sales contract proceeds into an
escrow account. Excel Gas Marketing and the Company have finalized a
settlement of this suit, which settlement provides for amounts remaining due
to Scana to be paid in monthly installments over a one-year period beginning
March 15, 1996. Neither the March payment nor any subsequent payment due
thereafter has been made.
- - July 19, 1994, Entex, a division of NorAm Energy Corporation filed a
Petition of Interpleader in the Judicial District Court of Harris County,
Texas, against the Company and Excel Gas Marketing. The action caused a total
of $1,969,349.49 of accounts receivable due to the Company to be placed with
the clerk of the court for distribution to the appropriate parties. The
Interpleader was filed by Entex to make payments to other parties of the funds
owed to the Company and Excel Gas Marketing. These claims were made due to
the Company's and Excel Gas Marketing's failure to pay outstanding natural gas
purchases. The mediation for the Petition of Interpleader was held on July
27, 1995, with all parties to the action agreeing to the distribution of the
above mentioned funds. Two major creditors received a total of $1,700,000.
The balance of the funds were distributed on a pro-rata basis among the
remaining creditor parties to the action. In addition, in connection with the
mediation process, Cypress Operating Company obtained an agreed judgment
against Excel Gas Marketing, Inc. for $117,648.56 plus interest and attorneys'
fees. Mobil Natural Gas, Inc. was granted an agreed judgment against Excel
Gas Marketing and Excel-Texas in the amount of $2,911,754.00 plus post
judgment interest. The amounts due in connection with the judgments have not
been fully paid, but Excel-Texas and Excel Gas Marketing are working with the
respective parties to satisfy same.
- - August 8, 1994, Gas Marketing & Transportation Co. filed suit against Excel
Gas Marketing for breach of contract due to nonpayment of gas purchases of
$290,386 plus interest and legal costs. The suit was filed in the Judicial
District Court of Nueces County, Texas. This matter was settled on November
28, 1994, between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay Gas Marketing
& Transportation Co., Inc. $246,353.97 by December 28, 1994. Such required
amount was not paid by the specified date and has not been paid as of the date
hereof; however, payments have been made to reduce such amount.
- - August 11, 1994, Oxy U.S.A. filed suit against the Company in the Judicial
District Court of Harris County, Texas, for breach of contract. Oxy U.S.A.
sought to collect from Excel-Texas $171,139.36 plus interest at 18% per annum.
They also sought recovery of attorneys' fees and court costs. This matter was
settled on April 18, 1995, between the respective parties. Under the
provisions of the Mutual Release and Settlement Agreement, Excel-Texas was to
pay to Oxy U.S.A. $171,139.36 by May 27, 1995. Such required amount was not
paid by the specified date and has not been paid as of the date hereof;
however, payments have been made to reduce such amount.
- - August 16, 1994, J. M. Huber Corporation filed suit against Excel Gas
Marketing in the Judicial District Court of Harris County, Texas, for breach
of contract, seeking $346,499.12 plus interest, attorneys' fees and court
costs. This matter was settled on October 31, 1994, between the respective
parties. Under the provisions of the Mutual Release and Settlement Agreement,
Excel Gas Marketing was to pay J. M. Huber Corporation $320,605.44 by December
15, 1994. Such required amount was not fully paid by the specified date and
has not been paid as of the date hereof; however, payments have been made to
reduce such amount.
- - September 2, 1994, Sonat Marketing Co. filed suit against the Company and
Excel Gas Marketing in the Judicial District Court of Harris County, Texas,
for breach of contract. Sonat sought $1,280,937.62 plus interest, attorneys'
fees and court costs. This matter was settled on January 25, 1995, between
the respective parties. Under the provisions of the Mutual Release and
Settlement Agreement, Excel Gas Marketing was to pay to Sonat Marketing Co.
$1,247,034.72 on July 20, 1995. Such required amount was not paid by the
specified date and has not been paid as of the date hereof; however, payments
have been made to reduce such amount.
- - September 11, 1994, Chevron USA, Inc. filed suit against the Company for
breach of contract due to nonpayment of purchases of $365,855.46 plus interest
and legal costs. The suit was filed in the Judicial District Court of Harris
County, Texas. This matter was settled on February 19, 1996, between the
respective parties. Under the provisions of the Mutual Release and Settlement
Agreement, Excel-Texas was to pay to Chevron USA, Inc. $365,855.46 on or
before March 26, 1996. Such required amount was not paid by the specified
date and has not been paid as of the date hereof.
- - September 16, 1994, Global Petroleum Corporation filed suit against the
Company and Excel Gas Marketing in the Judicial District Court of Harris
County, Texas, for breach of contract, breach of guaranty and negligent
misrepresentation. Global Petroleum Corporation sought damages of $358,838.58
plus interest and attorneys' fees. This matter was settled between the
respective parties. Under the provisions of the Mutual Release and Settlement
Agreement, Excel-Texas was to pay to Global Petroleum Corporation $338,875.00
by December 19, 1994. Such required amount was not paid by the specified date
and has not been paid as of the date hereof; however, payments have been made
to reduce such amount.
- - October 6, 1994, Anson Gas Marketing filed suit against Excel Gas Marketing
in the Judicial District Court of Caddo County, State of Oklahoma, for breach
of contract. This matter was settled on January 24, 1995, between the
respective parties. Under the provisions of the Mutual Release and Settlement
Agreement, Excel Gas Marketing was to pay Anson Gas Marketing $86,265 by
February 24, 1995. Such required amount was not paid by the specified date
and has not been paid as of the date hereof; however, payments have been made
to reduce such amount.
- - November 23, 1994, Phillips Petroleum Company filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$534,921.01 plus interest and legal costs. The suit was filed in the Judicial
District Court of Harris County, Texas. This matter was settled on February
21, 1995, between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay to Phillips
Petroleum Company $554,251.81 by April 21, 1995. Such required amount was not
paid by the specified date and has not been paid as of the date hereof;
however, payments have been made to reduce such amount. On March 23, 1996, a
Turnover After Judgment hearing for Excel Gas Marketing, Inc. was held in the
Judicial District Court of Harris County, Texas for the application made by
Phillips Petroleum Company. The result of this hearing was an order for the
appointment of a Receiver effective with the execution of the Order. The
Order was executed with the appointment of the Receiver and the posting of the
Bond of the Receiver on May 13, 1996.
- - December 2, 1994, Enserch Gas Company, et al. filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$97,194.28 plus interest and legal costs. The suit was filed in the Judicial
District Court of Dallas County, Texas. This matter was settled on July 18,
1995, between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay to Enserch
Gas Company $97,194.28 by July 25, 1995. Such required amount was not paid by
the specified date and has not been paid as of the date hereof; however,
payments have been made to reduce such amount.
- - December 29, 1994, Hadson Gas Systems, Inc. filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$161,838.74 plus interest and legal costs. The suit was filed in the Judicial
District Court of Harris County, Texas. This matter was settled on February
16, 1995, between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay to Hadson Gas
Systems, Inc. $161,838.74 by April 17, 1995. Such required amount was not
paid by the specified date and has not been paid as of the date hereof;
however, payments have been made to reduce such amount.
- - January 4, 1995, Gulf Coast Marketing Co. filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas purchases of
$48,486.39 plus interest and legal costs. The suit was filed in the Judicial
District Court of Harris County, Texas. This matter was settled between the
respective parties. Under the provisions of the Mutual Release and Settlement
Agreement, Excel Gas Marketing was to pay to Gulf Coast Marketing Co.
$48,486.39 by February 28, 1995. Such required amount was not paid by the
specified date and has not been paid as of the date hereof; however, payments
have been made to reduce such amount.
- - February 10, 1995, NorAm Gas Transmission filed suit against Excel Gas
Marketing for breach of contract due to nonpayment of gas transportation costs
of $274,163.51 plus interest and legal costs. This suit was filed in the
First Judicial District Court of Caddo Parish, Louisiana. This matter was
settled between the respective parties. Under the provisions of the Mutual
Release and Settlement Agreement, Excel Gas Marketing was to pay to NorAm Gas
Transmission $252,029.66 in installments beginning July 15, 1995. The July
15, 1995, installment was paid by Excel Gas Marketing. Subsequent required
installment amounts have not been paid by the specified dates and have not
been paid as of the date hereof.
- - March 10, 1995, American Exploration Gas System Corporation filed a suit
against Excel Gas Marketing for breach of contract due to nonpayment of gas
purchases of $122,890.89 plus interest and legal costs. The suit was filed in
the Judicial District Court of Harris County, Texas. This matter was settled
between the respective parties. Under the provisions of the Mutual Release
and Settlement Agreement, Excel Gas Marketing was to pay to American
Exploration Gas System Corporation $122,890.89 by May 9, 1995. Such required
amount was not paid by the specified date and has not been paid as of the date
hereof; however, payments have been be made to reduce such amount.
- - April 17, 1995, H & N Gas, Limited Partnership d/b/a H & N Gas Ltd. filed
suit against the Company for breach of contract due to nonpayment of gas
purchases of $34,624.36. The suit was filed in the County Civil Court of
Harris County, Texas. Under the provisions of the Mutual Release and
Settlement Agreement, the Company was to pay to H & N Gas Ltd. $36,624.36 by
July 17, 1995. Such required amount was not paid by the specified date and
has not been paid as of the date hereof; however, payments have been made to
reduce such amount.
- - September 1, 1995, Marathon Oil Company filed suit against the Company and
Excel Gas Marketing in the Judicial District Court of Harris County, Texas,
for breach of contract due to nonpayment of gas purchases of $124,486.31 plus
interest, attorneys' fees and court costs. This matter was settled on March
14, 1996, between the respective parties. Under the terms of the Settlement
Agreement Marathon agreed not to execute on the agreed judgment until June 18,
1996. The Company and Marathon are negotiating arrangements whereby the
balance due Marathon would be repaid in monthly installments by the Company.
- - October 26, 1995, American Prudential Capital d/b/a Texas Partners Fund
(American) filed suit against the Company in the Judicial District Court of
Harris County, Texas, seeking, inter alia, a declaratory judgment that its
rights in certain accounts receivable purchased from the Company, the
aggregate amount of which the Company subsequently paid to American, were and
are superior to the rights of Mobil Natural Gas, Inc. (MNGI), if any, in such
accounts. MNGI is an additional named defendant in such action and is the
party against whom the suit was originally filed. American's suit also seeks
to recover from the Company (i) an unspecified amount of damages on the basis
of breach of contract and fraud and (ii) attorneys' fees. Although the
Company believes it has met all its obligations in connection with the subject
matter of this action, we cannot predict the outcome of the suit.
- - November 22, 1995, Entex Gas Marketing Company filed suit against Excel Gas
Marketing in the Judicial District Court of Harris County, Texas, for breach
of contract due to nonpayment of gas purchases of $231,216.20 plus interest,
attorneys' fees and court costs. This matter was settled between the
respective parties on November 26, 1996. The terms of the Mutual Release and
Settlement provide for Excel Gas Marketing to pay the settlement sum of
$218,330.71 (plus interest at an annual rate of 10%) to Extex in accordance
with an agreed schedule ending June 15, 1998.
- - December 28, 1995, Bounty Group, Inc. filed suit against the Company in the
Judicial District Court of Harris County, Texas, for breach of contract due to
failure to make certain payments as they became due under the provisions of a
promissory note originally executed for an amount equal to one hundred eighty
thousand dollars ($180,000.00). Bounty was seeking to recover the unpaid
principal and interest, the aggregate of which bounty claims to be $66,493.59
as of December 31, 1995, together with subsequent interest applicable to such
amounts, court costs and attorneys' fees. This matter was settled on
September 23, 1996, between the respective parties. Under the terms of the
Settlement Agreement, the Company issued a promissory note to Bounty and
Bounty agreed to abate the suit against the Company.
- - May 8, 1996, Williams Energy Services Company, formerly Williams Gas
Marketing Company, filed suit against the Company in the Judicial District
Court of Tulsa County, Oklahoma, for breach of contract due to nonpayment of
gas purchases of $10,635.20 plus attorneys' fees and court costs. This matter
was settled on June 28, 1996, between the respective parties. The terms of
the settlement included, inter alia, an Agreed Journal Entry of Judgment in
favor of Williams.
- - June 24, 1996, CNG Producing Company filed suit against Bounty Group, Inc.
and the Company in the Civil District Court for Orleans Parish, Louisiana, for
the recoupment of the cash value of a production imbalance attributable to the
overproduction by Bounty and its predecessors-in-interest that allegedly
became due and payable to CNG by the overproduced working interest owner upon
the cessation of production from a gas well that ceased gas production within
a very short period after the effective date of the property purchase by the
Company from Bounty. CNG sought payment of the value of the gas imbalance,
which amount is claimed to be $84,324.01, interest on such amount, court costs
and attorney's fees. This matter was settled on September 23, 1996, between
the respective parties. Under the terms of the Settlement Agreement, a
promissory note was issued to CNG by the Company and Bounty, and CNG agreed to
stay the prosecution of the suit against the Company.
- - July 23, 1996, NorAm Gas Transmission Company filed suit against Excel Gas
Marketing and the Company in the First Judicial District Court of Caddo
Parish, Louisiana, for breach of contract for the failure of Excel Gas
Marketing / Excel-Texas to fully pay certain amounts due under the terms of a
promissory note executed in favor of NorAm in the amount of $252,029.66, which
note arose out of the Mutual Release and Settlement Agreement entered into in
connection with the settlement of the February 10, 1995, NorAm action set
forth above. The instant action has been settled between the respective
parties. In connection with such settlement, a Consent Judgment was entered
on February 7, 1997, awarding NorAm a sum of $227,029.66 (the unpaid balance
on the referenced note) plus interest and court costs.
- - October 14, 1996, Koch Gateway Pipeline Company filed suit against the
Company in the Civil County Court of Law #1, Harris County, Texas, for breach
of contract for failure to pay certain amounts billed by Koch to Excel-Texas
as gas transportation imbalance "cash-out" fees. Koch sought to recover from
Excel-Texas a principal amount equal to $11,369.22 plus amounts for interest,
court costs and attorney fees. A judgment in favor of Koch for the amounts
prayed for was entered by the Court in this action on December 6, 1996.
- - October 18, 1996, Koch Gateway Pipeline Company filed suit against Excel Gas
Marketing in the Justice Court, Precinct 1, Pos.II, Harris County, Texas, for
breach of contract for failure to pay certain amounts billed by Koch to Excel
Gas Marketing as gas transportation imbalance "cash-out" fees. Koch sought to
recover from Excel Gas Marketing a principal amount equal to $2,086.37 plus
amounts for interest, court costs and attorney fees. A judgment in favor of
Koch for the amounts prayed for was entered by the Court in this action on
December 3, 1996.
- - November 16, 1996, Liddell, Sapp, Zivley, Hill & LaBoon, L.L.C. filed suit
against the Company in the Judicial District Court of Harris County, Texas,
for breach of contract arising out of the failure of the Company to pay
amounts due for certain legal services and expenses during the period from
May, 1995 through June, 1996, which amounts claimed total approximately
$339,496. This matter was settled between the respective parties, and an
Agreed Judgment awarding Liddell, Sapp, Zivley, Hill & LaBoon the total amount
prayed for (plus interest at an annual rate of 10%) was entered by the Court
on February 3, 1997.
- - March 11, 1997, Encore Energy, Inc. filed suit against "Excel Resources,
Inc. [Excel-Texas] d/b/a Excel Gas Marketing, Inc., a Texas corporation, " in
the Judicial District Court of Tulsa County, Oklahoma, for breach of contract
arising out of the failure of Excel Gas Marketing to pay for certain gas
purchased. Encore is seeking to recover $686,918.35, which amount represents
the sum of the claimed principal amount due and accrued interest, plus
additional interest, costs and attorney fees. Excel-Texas filed its
answer in this proceeding on April 21, 1997, which answer denied
responsibility in connection with Encore's claim.
Because of the foregoing claims, the ability of Excel-Texas and Excel
Gas Marketing, an affiliate of the Company, each to continue operations as a
"going concern" is substantially in doubt. See the caption "Financial
Statements and Financial Statement Schedules" of this Report.
Subsequent Events
On April 15, 1997, Randy P. Matye resigned from the Company's Board of
Directors. This resignation was fully disclosed in the Form 8-K which was
filed with the Securities and Exchange Commission on May 1, 1997, and which is
incorporated herein by reference. See the Exhibit Index, Item 13 of this
report.
On April 25, 1997, Excel Resources, Inc., a Nevada Corporation (the
"Company"), filed its voluntary petition in bankruptcy under Chapter 11 of the
Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of
Texas. This event was fully disclosed in the Form 8-K which was filed with
the Securities and Exchange Commission on May 1, 1997, and which is
incorporated herein by reference. See the Exhibit Index, Item 13 of this
Report.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for the Company's Common
Stock. The number of holders of record of the Company's Common Stock as of
December 31, 1996, is 498. The Company has not paid any dividends on its
Common Stock. Although the Company intends to invest future earnings in its
business, it may determine at some future date that payment of cash dividends
on Common Stock would be desirable. The payment of any such dividends would
depend, among other things, upon the earnings and the financial condition of
the Company.
The Company's common stock is quoted on the "OTC Bulletin Board" of the
National Association of Securities Dealers, Inc. ("NASD"). The range of high
and low bid quotations for the Company's common stock during each quarter of
the calendar year ended December 31, 1995 and each quarter of the calendar
year ended December 31, 1996, is shown below. Prices are inter-dealer
quotations as reported by the NASD and do not necessarily reflect
transactions, retail markups, markdowns or commissions.
STOCK QUOTATIONS*
BID BID
---- ----
Quarter ended: High Low Quarter ended: High Low
--------------- ---- ---- ---------------- ---- ----
March 31, 1995 9-1/2 1 March 31, 1996 1-1/4 5/8
June 30, 1995 8-7/8 2 June 30, 1996 9/16 5/16
September 30, 1995 3-1/2 2-1/2 September 30, 1996 5/16 1/4
December 31, 1995 2-1/2 1/2 December 31, 1996 1/2 3/16
March 31, 1997 13/32 9/32
* The future sale of presently outstanding "unregistered" and "restricted"
common stock of the Company by present members of management and persons who
own more than five percent of the outstanding voting securities of the Company
may have an adverse effect on any market that may develop in the shares of
common stock of the Company.
Recent Sales of Unregistered Securities
The following table provides information with respect to the sale of all
"Unregistered" and "Restricted" Securities sold by the Company during the past
three years which were not registered under the 1933 Act.
Title of Date Number Aggregate
Name of Owner Securities Acquired of shares Consideration
- ---------------------------- ---------- -------- --------- -------------
Bounty Group, Inc. common stock 01/26/94 100,000 $ 600,000
Leedbury International, Ltd. common stock 04/10/95 100,000 Services
Leedbury International, Ltd. common stock 04/10/95 400,000 $2,000,000
Leedbury International, Ltd. common stock 08/23/95 141,000 Services
Leedbury International, Ltd. common stock 04/10/95 279,300 $1,396,500
Cedres common stock 08/23/95 41,200 $ 206,000
David Brenza common stock 09/05/95 100,000 Services
Thomas J. Lafosse common stock 09/06/95 10,000 Services
Roger D. Case common stock 09/22/95 500,000 Services
Robert S. Copeland common stock 09/22/95 100,000 Services
Jeanette R. Boone common stock 09/22/95 25,000 Services
Thomas J. Lafosse common stock 09/22/95 15,000 Services
Jay A. Reppond common stock 09/22/95 10,000 Services
Leedbury International, Ltd. common stock 10/23/95 106,129 Services
Patrick Clermon common stock 10/23/95 4,028 $ 20,140
Elisabeth Bauer common stock 10/23/95 2,014 $ 10,070
Jean-Paul Liminana common stock 10/23/95 2,014 $ 10,070
Jean Lamay common stock 10/23/95 2,014 $ 10,070
Pierre Desreumeaux common stock 10/23/95 2,014 $ 10,070
Jean-Paul Bonvarlet common stock 10/23/95 2,014 $ 10,070
Maurice Sivigny common stock 10/23/95 4,028 $ 20,140
Martine Duclos common stock 10/23/95 4,028 $ 20,140
Catherine Lenoir common stock 10/23/95 10,069 $ 50,345
Dominique Robin common stock 10/23/95 10,069 $ 50,345
Hubert Paillet common stock 10/23/95 2,014 $ 10,070
Nicole Dubois common stock 10/23/95 3,021 $ 15,105
Marcus daCuhna common stock 11/07/95 10,000 Services
Carolyn Higgs common stock 11/07/95 10,000 Services
Jay A. Reppond common stock 11/07/95 10,000 Services
Kimberly D. Whitmire common stock 11/07/95 10,000 Services
West Dominion Energy common stock 04/29/96 100,000 $ 100,000
Catherine Lenior common stock 04/29/96 8,000 $ 40,000
Dominique Robin common stock 04/29/96 8,000 $ 40,000
Robert S. Copeland common stock 05/31/96 150,000 Services
David W. Russell common stock 09/19/96 25,000 Services
Thomas J. Duderstadt common stock 09/19/96 25,000 Services
Arthur E. Ensley common stock 12/26/96 30,000 Services
James A. Dewhurst common stock 12/26/96 20,000 Services
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis is intended to assist in an
understanding of the Company's financial position and its results of
operations for each of the years reported, and should therefore be read in
conjunction with the Company Consolidated Financial Statements and the notes
thereto beginning with page F-1.
General
As an independent oil and gas producer, the Company's revenue,
profitability, and future rate of growth are substantially dependent upon
prevailing prices for natural gas, oil and condensate, which prices are
dependent upon numerous factors beyond the Company's control, including
economic, political and regulatory developments and competition from other
sources of energy. The energy markets have historically been extremely
volatile, and there can therefore be no assurance that oil and gas prices will
not be subject to substantial fluctuations in the future. A substantial
decline in gas prices could have a material adverse affect on the Company's
financial position, operating results, cash flows, and access to capital.
Notwithstanding these potential future uncertainties, the Company's
Management believes that the long-term opportunities for natural gas are
numerous and that the future outlook remains bright for the gas industry as
well as for the overall energy industry. The new record set in 1996 for total
United States gas demand adds support to this optimistic outlook.
Furthermore, overall gas demand is projected to increase by thirty percent
(30%) over the next twenty years.
In addition to Company Management's positive views regarding the overall
fundamental factors for the natural gas industry as a whole, Management
continues to hold a very positive view regarding future prices for natural
gas. Natural gas prices have recovered from the $1.40 to $1.50 per MMBtu
range of the fall of 1995, rising well above $2.00 during the 1995-1996 winter
season (the Gulf Coast wellhead price exceeding $3.50/MMBtu at times), and
remaining in a range of between about $2.20 - $2.80 during the second quarter
of 1996. Summer, 1996 gas prices peaked above $4.00 in July, and thereafter
gradually fell until reaching the $1.80s for the month of October, 1996.
Prices started regaining strength in November; rising into the $2.70 range.
Highs well over $4.00 per MMBtu prevailed during December, 1996 and January,
1997. Prices then fell slightly below $3.00 during the month of February,
1997, and reached the $1.80 range in April, 1997. Company Management expects
a gradual recovery in natural gas prices during the remainder of 1997, with
the average price for the year ranging between about $2.30 per MMBtu and $2.50
per MMBtu.
Structural realignment in the natural gas industry continued throughout
1996. Numerous competitive factors, as well as the general market perception
regarding supply availability and reliability, flexibility in services, and
pricing among both energy providers and consumers, have continued to generate
change throughout both the oil and gas segment and the electricity segment of
the energy industry. Among these changes are the reassessment and
redefinition of producer risk and strategy and increased activity in
connection with acquisitions, mergers, consolidations, and strategic alliances
among and/or between different types of oil and gas companies (including gas
producers, gatherers, pipelines, and various other types of service providers)
and between oil and gas companies and companies providing various electric
services.
The redeployment of assets in the gathering, processing, and marketing
functions continued throughout 1996 This trend has been fueled by numerous
"spin-downs" and divestitures by regulated interstate pipeline companies of
various gathering assets into either non-regulated businesses or business
units. Also, as state utility commissions in many jurisdictions promulgate
rules and regulations to introduce market competition at the local distributor
level (behind the city gate), realignment in the gas marketing segment of the
industry continues to accelerate. Several state jurisdictions are also moving
toward deregulation of electricity.
The recent price cycle of natural gas and the price expectations for the
near-term future, coupled with the numerous structural changes underway, have
caused significant changes regarding who the industry participants are and the
manner in which business is being, and will be, conducted. Several major
energy companies have already redefined the nature and focus of their
businesses, and have therefore become participants in one or more of the
several very large mergers, acquisitions, joint venture partnerships and
strategic alliances. These have been characterized by the pooling of
significant financial and productive resources. Company Management believes
the continuing structural changes in the industry, the ongoing deregulation of
the natural gas segment, and the eminent deregulation of the electricity
segment within the next few years will either directly or indirectly yield
several new opportunities for the Company, including opportunities to acquire
both production properties and pipeline facilities to achieve the Company's
vision. Nevertheless, the Company cannot take advantage of these
opportunities without significantly improving its financial condition,
including securing additional debt and/or equity financing.
Results of Operations for the Year Ended December 31, 1996,
Compared to the Year Ended December 1995
Gross revenues for fiscal year 1996 of $5.0 million increased by $1.3
million, or 30%, from 1995. This increase was offset by an increase in the
cost of sales of $0.9 million, or 51%, from 1995. The cost of sales consists
primarily of lease operating expenses for Company-owned production. The
increase in sales revenues was attributable primarily to increased natural gas
prices throughout 1996 - although total sales volumes declined slightly - as
compared to the lower natural gas prices that prevailed throughout most of
1995. The gross margin was $351,796 in 1996, compared to $131,335 in 1995.
General and administrative expenses which consist primarily of salaries,
office rent, advertising, professional fees for legal and accounting services,
financing activity expenses and other general operating expenses decreased by
$2.7 million, or 81%, from 1995 to 1996. The decrease is attributable
primarily to decreased salaries and wages, decreases in legal services and
fees and travel expenses incurred in connection with the pursuit of additional
capital funding for the Company, and decreases in general office expenses.
Net non-operating expenses of the Company decreased by $223,735 from
$1,246,097 in 1995, to $1,022,362 in 1996, primarily due to decreases both in
interest expense and in losses on disposition of assets.
Results of Operations for the Year Ended December 31, 1995,
Compared to the Year Ended December 31, 1994
Gross revenues for fiscal year 1995, of $3.7 million decreased by $31.4
million, or 89%, from 1994. This decrease was offset by a decrease in the
cost of sales of $32.4 million, or 95% from 1994. The cost of sales consists
primarily of purchases of third-party natural gas and lease operating expenses
for Company-owned production. The decrease in sales was due primarily to the
smaller volume of gas marketed by the Company's affiliate, Excel Gas
Marketing, Inc., and the decrease in natural gas prices the majority of the
year. The decrease in sales can also be attributed to the Company's liquidity
problems which began in 1994. The gross margin was $131,335 in 1995, compared
to a gross margin deficit of $2,098,017 in 1994.
Selling, general and administrative expenses which consist primarily of
salaries, office rent, advertising, professional fees for legal and accounting
services, financing activity expenses and other general operating expenses
increased by $508,964, or 18%, from 1994 to 1995. The increase is
attributable primarily to increased legal services fees and travel expenses
incurred in connection with the pursuit of additional capital funding for the
Company. Salaries and wages expense decreased slightly during 1995.
Net non-operating expenses of the Company decreased by $973,057 from
$2,219,154 in 1994, to $1,246,097 in 1995, primarily due to decreases in
interest expense, decrease in losses on disposition of assets and the
elimination of factoring fees.
Liquidity and Capital Resources
The primary sources of cash for the Company for fiscal 1996 included
funds generated from current and past operations and from debt and equity
financing proceeds.
Net cash flow provided by operations was $1,224,475 in 1996, as compared
to cash flow used in operations of $2,679,798 in 1995. The primary reasons
for the positive cash flow in 1996 were an increase in total gas sales
revenues, a decrease in accounts receivable, an increase in accounts payable,
and an increase in accrued expenses.
Net cash provided by investing activities during 1996 was $562,960,
consisting primarily of the reduction in the note receivable from stockholder
of $503,577. This compares to net cash provided by investing activities in
1995 of $384,516, consisting primarily of proceeds from the sale of property
and equipment.
Net cash used by financing activities in 1996 was $1.8 million. This is
primarily attributable to the repayment of notes payable. Proceeds from
borrowing in 1996 were $3,026,865.
The Company's current trade receivables and other current assets are
less than the Company's current liabilities, with the total current assets
being $16,366 and current liabilities being $11.3 million as of December 31,
1996.
During 1996, the Company received $150,000 in debt financing from West
Dominion Energy Partners, L.L.C. of San Antonio, Texas, a private investment
firm. The Company continues to seek funds in the United States debt and
equity markets, as well as those of Europe.
The Company also is currently seeking additional sources of both equity
and debt financing to fund current and future acquisitions. Each acquisition
is evaluated and judged on its future potential cash flows. It is the
objective of the Company that each acquisition generate cash flows sufficient
to fund the particular acquisition' operations and its associated debt.
The Company's independent auditors have included an explanatory
paragraph in their report on the Company's consolidated financial statement as
of and for the year ended December 31, 1996, to the effect that the Company's
ability to continue as a going concern is dependent upon its ability to obtain
additional debt or equity financing to fund its operations and future
acquisitions. In the event the Company is unable to obtain additional debt or
equity financing, the Company most likely will not be able to sustain
operations and will be forced to cease doing business. See "Report of
Independent Certified Public Accountants."
The Company currently has 5,000,000 authorized but unissued shares of
preferred stock and nearly 89,000,000 shares of authorized but unissued common
stock. The Company will continue to pursue opportunities to acquire
properties in exchange for its stock.
Item 7. Financial Statements
The financial statements and information described below regarding the
Company, its subsidiaries and its affiliate are attached hereto and are
incorporated herein by reference.
Consolidated Financial Statements for the years ended December 31,
1996, and December 31, 1995
Report of Independent Certified Public Accountants
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended
December 31, 1996 and December 31, 1995
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and December 31, 1995
Notes to Consolidated Financial Statements
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
BDO Seidman, Certified Public Accounts, of Houston, Texas, audited the
financial statements of the Company for the years ended December 31, 1994 and
1993.
Jones, Jensen, Orton & Co., Certified Public Accountants, of Salt Lake
City, Utah were engaged as the Company's Accountant on June 24, 1996, and
audited the financial statements of the Company for the year ended December
31, 1995.
This change of accountants was fully disclosed in the Form 8-K which was
filed with the Securities and Exchange Commission on July 2, 1996, and which
is incorporated herein by reference. See the Exhibit Index, Item 13 of this
Report.
PART III
Item 9. Directors and Executive Officers of the Registrant
Directors
Date of Date of
Position and Election or Termination or
Name Age Company Offices Designation Resignation
- -------- ---- ---------------- ------------ ---------------
Francis H. Brinkman 49 Chairman of the Board, 7/93 *
Chief Executive Officer
and Director
Donald R. Dwight 65 Director 10/93 4/96
Roger D. Case 55 President, Chief Operating 8/94 *
Officer and Director
Jerome C. Cle 31 Director 1/95 1/96
Randy P. Matye 37 Director 9/96 4/97
* These persons presently serve in the capacities indicated opposite their
respective names.
Francis ("Fritz") Brinkman, age 49, has been a director and the Chairman,
Chief Executive Office and President of the Company since July 1993. Mr.
Brinkman resigned from the office of President in August 1994, but continues
to hold the offices of Chairman of the Board and Chief Executive Officer of
the Company. He has held such positions with Excel Texas, which is now a
wholly-owned subsidiary of the Company, but prior to July 1993, was separate
of the Company, since he founded that company in January 1986. Mr. Brinkman
has been involved in the natural gas industry for the past twenty-seven years.
He spent thirteen years with Northern Natural Gas in various operational
positions, including compressor maintenance, gas control, and transportation
and exchange. He then joined Tennessee Gas Transmission as Manager of
Transportation and Exchange, holding this position for three years. He was
Senior Vice President of Cenergy Corporation in 1985, prior to starting
Excel-Texas in 1986.
Roger D. Case, age 55, has been a director of the Company since August
1994. He joined the Company from Multi-Option Systems, Inc. of Omaha,
Nebraska, where he was co-founder and President of the software development
and consulting firm since it's inception in April, 1987. Prior to founding
Multi-Option Systems he worked for Northern Natural Gas Co. (Enron) in Omaha
for 23 years, starting as an engineer and holding executive positions in
facility planning and design, gas control, transmission planning and
production, storage development, operations, marketing and administration.
Randy P. Matye, age 37, has been a director of the Company since
September, 1996. He is currently President and CEO of West Dominion Energy
Partners, L.L.C. Randy also holds the current position of President and CEO of
Monikers, L.L.C. He is trustee of the RPM Trust, Oil and Gas Division. Randy
has over fifteen years of business and investment experience through his
ownership in sixteen separate business ventures. Mr. Matye resigned from the
Company's Board of Directors on April 15, 1997. See Subsequent Events
reported under Item 3 of this Report.
Executive Officers
Set forth below are the executive officers of the Company. The age,
office held and length of service with the Company are indicated opposite each
name.
Date of Date of
Election or Termination
Name Age Positions Held Designation or Resignation
- ------------------- ---- ----------------- ------------- --------------
Francis H. Brinkman 49 Chairman of the Board 7/93 *
and Chief Executive
Officer
Roger D. Case 55 President, Chief Operating 8/94 *
Officer and Assistant
Corporate Secretary
David J. Brenza 54 Executive Vice President, 7/95 4/96
Chief Financial Officer,
and Corporate Secretary
Robert S. Copeland 44 Executive Vice President 6/95 *
* These persons presently serve in the capacities indicated opposite their
respective names.
Robert S. Copeland, age 44, was elected to the office of Executive Vice
President, Marketing and Supply, in June 1995. Mr. Copeland, who is also an
attorney, has over 20 years of experience in the marketing, supply
procurement, transportation, regulatory and accounting areas of natural gas.
He joined the Company after serving two years at Scana Hydrocarbons, Inc. as
Account Executive and as Director - Supply & Transportation. Preceding Scana
he spent two years at Enermax, a division of Nukem, Inc., as Director of
Supply and Transportation. Mr. Copeland held the position of Vice President
of Transportation and Exchange at Equitable Resources Marketing Co. during the
period 1989-1991. He started his career in the natural gas industry in 1975
with Columbia Gulf Transmission Company, followed by service with Southern
Natural Gas Company and Exxon Company, U.S.A. in positions of increasing
responsibility.
Significant Employees
There are no persons who are not executive officers of the Company but
who are expected to make a significant contribution to its business.
Family Relationships
There are no family relationships among any directors or executive
officers of the Company, whether by blood or marriage.
Involvement in Certain Legal Proceedings
Except as indicated under the caption "Subsequent Events" and to the
knowledge of management, during the past five years, no present or former
director, person nominated to become a director, executive officer, promoter
or control person of the Company:
(1) Was a general partner or executive officer of any business by
or against which any bankruptcy petition was filed, whether at
the time of such filing or two years prior thereto;
(2) Was convicted in a criminal proceeding or named the subject of
a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
him from or otherwise limiting his involvement in any type of
business, securities or banking activities; or
(4) Was found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the
Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated.
Item 10. Executive Compensation
Director Compensation
During 1996, directors who were not employees of the Company did not
receive any compensation for their service as a director. Directors who were
employees of the Company received no additional compensation for their service
as a director.
Summary Compensation Table
Annual Compensation
All Other
Name and Principal Position Year Salary Compensation
Francis H. Brinkman 1996 (1) $250,000* $ 0.00
Chairman of the Board, 1995 $250,000 $ 0.00(2)
Chief Executive Officer 1994 (1) $350,000 $33,333.33(2)
Roger D. Case 1996 $150,000* $ 0.00(3)
President, Chief Operating 1995 $150,000 $45,000.00(3)
Officer 1994 $ 62,500 $10,000.00(3)
Robert S. Copeland 1996 $125,040* $ 0.00
Executive Vice President 1995 $ 47,000 $ 0.00
* Except as set forth in Item 12. hereof, such salaries were accrued
but not paid.
(1) Mr. Brinkman has served as Chairman of the Board, Chief Executive Officer
and President of the Company since July 1993. He resigned from the office of
President in August 1994. In July 1993, he acquired control of the Company as
a result of the Change in Control. Prior to that time, he was Chairman of the
Board, Chief Executive Officer and President of Excel Texas, which is now a
wholly-owned subsidiary of the Company, but, prior to July 1993, was not
affiliated with the Company.
(2) Mr. Brinkman did not receive any form of Other Compensation in 1995 or
1996. The amount for 1994 represents the yearly premiums that the Company
paid for a split-dollar life insurance contract, of which Mr. Brinkman is the
indirect beneficiary.
(3) Payments to Mr. Case in 1994 and 1995 in the form of Other Compensation
pertain to initial compensation provided for in the July, 1994 Employment
Contract between the Company and Mr. Case. These payments represent partial
payment of the contract with the remaining balance being $45,000.
Compensation Committee Interlocks and Insider Participation
During 1996, no executive officer of the Company served as (i) a member
of the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served on the
Board of Directors of the Company or (ii) a director of another entity, one of
whose executive officers served on the Board of Directors of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following information is furnished, as of December 31, 1996, with
respect to persons known by the Company to be the beneficial owner of more
than five percent of the Company's outstanding Common Stock, the only class of
voting securities outstanding:
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
Francis H. Brinkman 4,100,000 36.3
1111 Bagby, Ste. 2400
Houston, TX 77002
Randy P. Matye 1,100,000 9.7
8181 Tezel Rd., Ste. 10250
San Antonio, TX 78250
Securities Ownership of Directors and Executive Officers
The following information is furnished, as of December 31, 1996, with
respect to the outstanding Common Stock of the Company beneficially owned by
all individual directors and executive officers of the Company and the
directors and executive officers as a group:
Name of Address Amount of Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
Francis H. Brinkman 4,100,000 36.3
1111 Bagby, Ste. 2400
Houston, Texas 77002
Randy P. Matye 1,100,000 9.7
8181 Tezel Rd., Ste. 10250
San Antonio, TX 78250
Roger D. Case 500,000 4.4
1111 Bagby, Ste. 2400
Houston, Texas 77002
Robert S. Copeland 250,000 2.2
1111 Bagby, Ste. 2400
Houston, Texas 77002
All directors and executive 5,950,000 52.6
officers as a group (four persons)
There are no arrangements, including pledges by any person of securities
of the Company, which may at a subsequent date result in a change in control
of the Company.
Item 12. Certain Relationships and Related Transactions
Francis H. Brinkman, a director and executive officer of the Company,
has borrowed money from Excel Texas, at an interest rate of 6%, primarily for
the purpose of acquiring shares of Excel Texas owned by a former officer of
Excel Texas and for certain personal uses. The maximum amount of such
borrowings outstanding during the last fiscal year was $503,577. The
remaining balance was paid in-full during 1996 through direct payments and
salary credits. The note has therefore been retired.
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) & (2) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements" as set forth in Item 7 of
this Report.
(a)(3) Exhibits
None.
(b) Reports on Form 8-K
Current Report on Form 8-K, filed July 2, 1996.
Current Report on Form 8-K, filed May 1, 1997.
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.
EXCEL RESOURCES, INC.
Date: 5/13/97 By /s/ Francis H. Brinkman
---------------- ------------------------
Francis H. Brinkman
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant and in the capacities with the Registrant indicated.
EXCEL RESOURCES, INC.
Date: 5/13/97
---------------- By /s/ Francis H. Brinkman
------------------------
Francis H. Brinkman
Chairman of the Board, Chief Executive
Officer and Director (Principal Executive
Officer)
Date: 5/13/97 By /s/ Roger D. Case
---------------- ----------------------
Roger D. Case
President, Chief Operating Officer,
Assistant Secretary and Director (Principal
Operating Officer)
EXCEL RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Excel Resources, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Excel
Resources, Inc., its subsidiaries and its affiliate as of December 31, 1996
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years ended December 31, 1996 and 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Excel Resources, Inc., its subsidiaries and its affiliate as of December
31, 1996 and the consolidated results of their operations and their cash flows
for the years ended December 31, 1996 and 1995 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note
7 to the consolidated financial statements, the Company has suffered recurring
losses and has a working capital deficit and a capital deficit which together
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note
7. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Jones, Jensen & Company
April 11, 1997
<TABLE>
EXCEL RESOURCES, INC.
Consolidated Balance Sheet
<CAPTION>
ASSETS
December 31,
1996
<S> <C>
CURRENT ASSETS
Cash $ 752
Accounts receivable - trade, net 15,614
Total Current Assets 16,366
FIXED ASSETS (Note 1)
Transmission equipment 144,534
Office furniture and equipment 104,853
Leasehold improvements 6,452
Less: accumulated depreciation (169,555)
Total Fixed Assets 86,284
OIL AND GAS PROPERTIES (Notes 2 and 10) 2,570,562
OTHER ASSETS
Long-term accounts receivable (Note 1) 98,737
Investments 15,621
Total Other Assets 114,358
TOTAL ASSETS $ 2,787,570
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable - trade $ 8,483,256
Accounts payable - related (Note 4) 76,519
Accrued expenses 635,950
Notes payable - current portion (Note 3) 2,122,311
Total Current Liabilities 11,318,036
LONG-TERM LIABILITIES
Notes payable (Note 3) 87,919
Deferred revenue (Note 1) 177,705
Total Long-Term Liabilities 265,624
Total Liabilities 11,583,660
COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock: 5,000,000 shares authorized at
$0.001 par value, no shares issued and outstanding -
Common Stock: 100,000,000 shares authorized at
$0.001 par value, 11,309,552 shares issued and
outstanding 11,310
Additional paid-in capital 5,546,998
Accumulated deficit (14,354,398)
Total Stockholders' Equity (Deficit) (8,796,090)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $2,787,570
</TABLE>
<TABLE>
EXCEL RESOURCES, INC.
Consolidated Statements of Operations
<CAPTION>
For the Years Ended
December 31,
1996 1995
<S> <C> <C>
OIL AND GAS SALES $4,864,717 $3,745,737
COSTS AND EXPENSES
Cost of oil and gas sales 2,700,276 1,786,248
Selling, general and administrative 615,922 3,283,789
Salaries and wages 793,340 917,991
Depreciation, depletion and amortization
(Note 10) 1,835,974 1,861,862
Total Costs and Expenses 5,945,512 7,849,890
INCOME (LOSS) FROM OPERATIONS (1,080,795) (4,104,153)
OTHER INCOME (EXPENSE)
Interest expense (1,044,400) (1,149,150)
Gain (loss) on disposition of assets 22,038 (96,947)
Total Other Income (Expense) (1,022,362) (1,246,097)
NET LOSS $(2,103,157)$(5,350,250)
NET LOSS PER SHARE $ (0.18)$ (0.55)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 11,547,708 9,699,941
</TABLE>
<TABLE>
EXCEL RESOURCES, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
<CAPTION>
Note
Additional Receivable
Common Shares Paid-in Accumulated From
Shares Amount Capital Deficit Stockholder Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994 8,775,000 $ 8,775 $ 779,225 $(6,900,991) $(541,276)$(6,654,267)
Common stock
issued for
services
rendered 800,000 800 1,094,234 - - 1,095,034
Common stock
issued for
proposed
acquisition
(Note 8) 1,334,000 1,334 (1,334) - - -
Common stock
issued for
cash 1,114,956 1,115 3,594,085 - - 3,595,200
Payment of note
receivable from
stockholder - - - - 37,699 37,699
Net loss for the
year ended
December 31,
1995 - - - (5,350,250) - (5,350,250)
Balance,
December 31,
1995 12,023,956 $ 12,024 $5,466,210$(12,251,241)$(503,577)$(7,276,584)
Common stock
issued for
cash received
in 1995
(Note 8 ) 216,000 216 (216) - - -
Common stock
issued for
services
rendered 303,596 304 49,770 - - 50,074
Common stock
issued in lieu
of interest 100,000 100 29,900 - - 30,000
Common stock
cancelled
(Note 8 ) (1,334,000) (1,334) 1,334 - - -
Payment of note
receivable from
stockholder - - - - 503,577 503,577
Net loss for the
year ended
December 31,
1996 - - - (2,103,157) - (2,103,157)
Balance,
December 31,
1996 11,309,552 $ 11,310 $5,546,998 $(14,354,398) $ - $(8,796,090)
</TABLE>
<TABLE>
EXCEL RESOURCES, INC.
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended
December 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(2,103,157) $(5,350,250)
Adjustments to Reconcile Net Loss
to Net Cash Provided (Used) by Operating
Activities:
Depreciation, depletion and amortization 1,835,974 1,861,862
Deferred revenue 30,856 (202,729)
(Gain) loss on sale of assets (22,038) 96,947
Common stock issued for services 50,074 1,095,034
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable 639,017 4,659,896
Decrease (increase) in deposits - 101,808
Decrease (increase) in prepaid expenses - 64,265
Decrease (increase) in investments - 1,279
Increase (decrease) in accounts payable 613,229 (4,301,102)
Increase (decrease) in accrued expenses 180,520 (706,808)
Net Cash Provided (Used) by
Operating Activities 1,224,475 (2,679,798)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Collections on note receivable from stockholder 503,577 37,699
Capital expenditures - (1,388)
Proceeds from sale of property and
equipment 59,383 348,205
Net Cash Provided (Used) by
Investing Activities 562,960 384,516
CASH FLOWS FROM FINANCING
ACTIVITIES:
Note payable to stockholder 26,559 49,960
Sale of common stock - 3,595,200
Principal payments on long-term debt (4,843,996) (2,361,452)
Proceeds from borrowings 3,026,865 998,964
Net Cash Provided (Used) by
Financing Activities $(1,790,572) $ 2,282,672
NET INCREASE (DECREASE) IN CASH $ (3,137) $ (12,610)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,889 16,499
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 752 $ 3,889
CASH PAID FOR:
Interest $ 550,811 $ 887,216
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 50,074 $ 1,095,034
Common stock issued in lieu of interest payments$ 30,000 $ -
</TABLE>
EXCEL RESOURCES, INC.
Notes to the Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was originally incorporated in the State of Nevada on
December 1, 1988 under the name of Dover Capital Corporation. The
Company's primary business activity is the production and
transportation of natural gas and related products.
On July 12, 1993, the Company acquired Excel Texas in a business
combination accounted for as a pooling of interests. As a result,
Excel Texas, which also engages in the transportation of natural gas
and related products, became a wholly-owned subsidiary of the Company
through the exchange of 5,100,000 shares of the Company's common stock
for all of the outstanding stock of Excel Texas. A further 700,000
shares of the Company's common stock were issued in payment of certain
fees incurred in connection with the combination.
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The full cost method of accounting is used for
oil and gas property acquisitions, exploration and production
activities as defined by the Securities and Exchange Commission,
whereby all costs incurred in connection with the properties,
productive or nonproductive, are capitalized. Capitalized costs
related to proved properties and estimated future costs to be incurred
in the development of proved reserves are amortized using the unit-of-
production method. Capitalized costs are annually subjected to a test
of recoverability by comparison to the present value of future net
revenues from proved reserves. Any capitalized costs in excess of the
present value of future net revenue from proved reserves, adjusted for
the cost of certain unproved properties, are expensed in the year in
which such an excess occurs. The Company has elected a calendar year
end.
c. Loss per Share of Common Stock
The loss per share of common stock is based on the weighted average
number of shares issued and outstanding during the year.
d. Provision for Taxes
At December 31, 1996, the Company had net operating loss carryforwards
of approximately $12,200,000 that may be offset against future taxable
income through 2011. No tax benefit has been reported in the financial
statements, because the potential tax benefits of the net operating
loss carryforwards are offset by a valuation allowance of the same
amount.
e. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
f. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, Excel Resources, Inc., a Texas
Corporation, ("Excel Texas"), Excel Texas' wholly-owned subsidiaries,
Excel Gas Gathering, Inc., Excel Consulting and Management Company,
Inc., Excel Pipeline, Inc., and Excel Ventures, Inc. They also include
the accounts of Excel Gas Marketing, Inc., an affiliate of Excel Texas
through common ownership. All significant intercompany transactions
have been eliminated.
g. Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight-line method for financial reporting purposes
and accelerated methods for income tax purposes.
The estimated useful lives are as follows:
Lives
Class (Years)
Transmission equipment 22
Office furniture and equipment 10-12
Leasehold improvements 3-5
Depreciation expense for the years ended December 31, 1996 and 1995 was
$23,329 and $33,708, respectively.
h. Deferred Revenue
The Company recognizes income on production quantities only on its
entitlement sales. Payment for surpluses over entitlements are credited
to deferred revenues to offset future deficiencies. If the Company's
take of production is less than the entitlement, the Company recognizes
revenue on its full entitlement and charges long-term receivables. At
December 31, 1996 and 1995, the Company had long-term gas balancing
receivables of $98,737 and $491,287, respectively, and offsetting long-
term gas balancing payables of $177,705 and $146,849, respectively.
i. Revenue Recognition
Revenues are recognized when the gas products are delivered to
customers. In the movement of natural gas, it is common for differences
to arise between volumes of gas contracted or nominated, and volumes of
gas actually received or delivered. These situations are the result of
certain attributes of the natural gas commodity and the industry itself.
Consequently, the credit given to the Company by a pipeline for volumes
received from producers may be different than volumes actually delivered
by a pipeline. When all necessary information, such as the final
pipeline statement for receipts and deliveries are available, these
differences are resolved by the Company.
The Company records imbalances based on amounts received and classifies
the imbalances as adjustments to the trade accounts receivable or trade
accounts payable, as appropriate.
j. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - PURCHASE OF OIL AND GAS LEASES
The purchased properties include fourteen off shore wells in Louisiana
and Texas, subject to operating agreements with third party operators.
Effective January 1, 1994, the Company acquired working interests in
certain oil and gas properties from three unrelated entities for a total
purchase price of $7,692,027 net of gas imbalance positions. In order
to complete the acquisition, the Company entered into a purchase note
agreement with a customer (see Note 3). During the year ended December
31, 1994, the Company incurred additional costs associated with the
acquisition of $1,050,722. The total costs of $8,742,749 were added to
the full cost pool.
On December 1, 1993, the Company acquired certain oil and gas properties
from an unrelated entity for a purchase price of $830,000, comprising
100,000 shares of the Company's common stock, a note payable of $180,000
and cash of $50,000. According to the original agreement, if during the
last 60 trading days prior to the end of two years, the average price
per share times 75,000 of the 100,000 shares did not equal at least
$600,000, then the Company would be required to issue additional shares
or pay cash for the amount of the shortfall. At December 31, 1995, the
total 100,000 shares of common stock had a value of approximately
$50,000. During 1996, the Company signed an additional note payable in
the amount of $160,000 which will be repaid through overriding royalties
from the Company's working interests in their oil and gas offshore
properties at $20,000 per month commencing after a separate purchase
note payable is paid in full, and continuing until the $160,000 is paid
in full (See Note 3). Any remaining shortfall amount has not been
determined by management as of the date of this audit report. If an
additional amount is determined to be owing, the liability will be
recorded with a corresponding increase in the cost of the oil and gas
properties.
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at December 31, 1996:
December 31,
1996
Purchase note payable, in default, payable on demand,
currently being repaid from future production from oil
and gas properties and/or dedicated natural gas trades,
interest imputed at 20%. $1,779,794
Interest-free note payable to a company, effective
interest rate approximately 8%, payments of $5,000
due monthly, final payment due November, 1997. 62,629
Interest-free notes payable to a company, effective interest
rate approximately 6%, to be repaid through overriding
royalties from the Company s working interest in the
offshore properties at $20,000 per month, commencing
no later than September 1997, until paid (Note 2). 232,365
Note payable to a company, interest at 12% per annum,
payments of $4,982 due monthly, final payment due
August, 1999. 135,442
2,210,230
Less current maturities (2,122,311)
Notes payable - long-term $ 87,919
Maturities of long-term debt are as follows:
Year Ending December 31, Amount
1997 $2,122,311
1998 52,039
1999 35,880
2000 -
2001 and thereafter -
Total $2,210,230
NOTE 4 - RELATED PARTY TRANSACTIONS
At December 31, 1996, there were related party accounts payable to two
of the Company s officers and shareholders. The amount is for services
and expenses paid on the Company's behalf. The amount payable at
December 31, 1996 totaled $76,519.
NOTE 5 - MAJOR CUSTOMERS AND SUPPLIERS
93% and 83% of the total sales in 1996 and 1995, respectively, were
related to sales of Company owned production to one customer who in
turn sold to various other parties. Purchases of all third party
production were from one major supplier during 1996 and 1995.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
a. Noncancellable Operating Leases
The Company leases office space and certain equipment under operating
lease agreements. At December 31, 1996, the estimated future minimum
rental payments required under the leases were:
Year Ending December 31, Amount
1997 $ 43,111
1998 88,837
1999 92,532
2000 23,318
2001 and thereafter -
Total $ 247,798
Rental expense for the years ended December 31, 1996 and 1995 was
approximately $144,000 and $153,000, respectively.
b. Outstanding Claims and Judgments
The Company has a number of outstanding claims against it, alleging
breach of contract due to non-payment for natural gas purchased. Most
of these claims have been the subject of litigation. Settlement
agreements and agreed judgments have been reached on most claims.
Management believes that the outcome of such litigation will not have
a material adverse effect upon the Company since all claims, excluding
legal fees applicable to some of such claims which the Company believes
will be immaterial in amount, are fully accrued for in the consolidated
financial statements. The Company is currently attempting to obtain
financing to enable it to pay all of the outstanding claims.
c. Royalty Payments
The Company, as a working interest owner in offshore gas wells, is
required to pay a percentage of the production revenues (royalty
payments) to the mineral management service and overriding royalty
owners.
d. Consulting Agreements
The Company has entered into an agreement with a consultant whereby the
Company has agreed to pay $125,000 over five years ($2,083 per month)
for assistance in reviewing all operating and financial matters as
requested. The consultant may receive additional compensation based
upon the performance of the consultant as determined by the Company.
The agreement expires on September 30, 2001.
The Company has entered into a separate agreement with a consulting
company to provide certain oil and gas identification evaluation and
acquisition services in connection with oil and gas producing
properties, leases and other oil and gas related assets. As needed and
requested, the consulting company will provide experienced geoscience
and engineering personnel to fully evaluate each opportunity. The
Company issued 50,000 shares of its common stock during 1996 as part
of the agreement. Upon completion of any future transactions involving
the consulting company, the Company has agreed to pay the consulting
company as follows:
- 4% of transaction amount up to and including $1,000,000, plus
- 3% of transaction amount from $1,000,001 to $2,000,000, plus
- 2% of transaction amount from $2,000,001 to $3,000,000, plus
- 1% of transaction amount over $3,000,000.
The agreement expires on December 31, 1997
NOTE 7 - GOING CONCERN
The Company incurred a net loss for the year ended December 31, 1996
of $2,103,157 resulting in a capital deficit at December 31, 1996 of
$8,796,090. The Company has also had difficulties in meeting its
current obligations, and at December 31, 1996, its current liabilities
exceeded its current assets by $11,301,670. Several unsatisfied
judgments stemming from lawsuits alleging breach of contract for non-
payment of certain debts are outstanding against the Company. In order
for it to be able to continue as a going concern, it will be necessary
for the Company to obtain sufficient financing to meet its current
obligations and ultimately to achieve profitable operations.
Due to the significant losses and cash flow problems incurred by the
Company during 1996 and 1995, the Company has significantly reduced its
operations. The Company negotiated deferred payment terms on several
of its trade payables during 1996 and 1995, pending the outcome of the
Company's financing efforts. These efforts have provided a temporary
measure of relief for the Company's cash flow problems. Management
intends to continue exploring other financing alternatives or to
negotiate additional deferred payment terms on its liabilities.
NOTE 8 - COMMON STOCK
During 1995, the Company entered into negotiations to acquire certain
property, pipelines and related facilities in the Gulf Coast area.
1,334,000 shares of the Company's common stock were issued pending the
completion of the agreement. The negotiations ceased during 1996 and
the 1,334,000 shares were cancelled.
The Company also issued 216,000 shares of common stock during 1996
related to a stock sale in 1995. The Board of Directors approved the
additional shares in 1996 to be issued to the original investors based
on the incorrect amount during 1995. Management's original share
calculations in 1995 were renegotiated with the investors during 1996
and the additional 216,000 shares were approved to be issued. Since
no additional consideration was received for the shares in 1996, the
shares are being recorded at a $0 value.
NOTE 9 - SUBSEQUENT EVENT
On April 25, 1997, Excel Resources, Inc., the parent company,
voluntarily filed petitions under Chapter 11 of the Bankruptcy laws.
This generally delays payment of liabilities incurred prior to filing
those petitions while the Company develops a plan of reorganization
that is satisfactory to its creditors and allows it to continue as a
going concern. The carrying amounts of assets and liabilities are
unaffected by the proceedings, but liabilities are presented according
to the status of the creditors.
NOTE 10 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31,
1996
Proved oil and gas properties
and related lease equipment:
Developed $7,585,114
Non-developed 1,748,549
9,333,663
Accumulated depreciation and
depletion (6,763,101)
Net Capitalized Costs $2,570,562
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the
Year Ended
December 31,
1996
Acquisition of Properties
Proved and Unproved $ -
Exploration Costs -
Development Costs -
(3) Results of Operations for
Producing Activities
December 31,
1996 1995
Production revenues $4,637,483 $3,373,220
Production costs (1,592,600) (1,299,314)
Depreciation and depletion (1,812,645) (1,828,154)
Results of operations for
producing activities
(excluding coporate
overhead and interest costs) $1,232,238 $ 245,752
(4) Reserve Quantity Information
The following schedule presents estimates of proved oil and natural
gas reserves attributable to the Company, all of which are located
offshore from the continental United States. Proved reserves are
estimated quantities of oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved - developed reserves are
those which are expected to be recovered through existing wells with
existing equipment and operating methods. Reserves are stated in
barrels of oil (Bbls) and millions of cubic feet of natural gas
(Mmcf). Geological and engineering estimates of proved oil and
natural gas reserves at one point in time are highly interpretive,
inherently imprecise and subject to ongoing revisions that may be
substantial in amount. Although every reasonable effort is made to
ensure that the reserve estimates reported represent the most accurate
assessments possible, these estimates are by their nature generally
less precise that other estimates presented in connection with
financial statement disclosures.
Oil Gas
(Bbls) (Mmcf)
Proved developed reserves:
Balance, December 31, 1994 8,589 7,516
Quantity estimates made - 2,511
Production (2,792) (2,198)
Balance, December 31, 1995 5,797 7,829
Quantity estimates made (2,019) (4,125)
Production (3,778) (2,034)
Balance, December 31, 1996 - 1,670
In addition to the proved developed producing oil and gas reserves
reported in the geological and engineering reports, the Company holds
ownership interests in various proved - undeveloped properties. The
reserve and engineering reports performed for the Company by an
independent engineering consulting firm reflect additional proven
reserves equal to approximately 4 Bcf of natural gas for these
undeveloped properties. Although wells have been drilled and
completed in each of these four properties, certain production and
pipeline facilities must be installed before actual gas production
will be able to commence. The most recent development plan for these
properties indicates that facilities installation and commencement of
production will be in 1997. However, such timing as well as the
actual financing arrangements that will be secured by the Company are
uncertain at this time. Therefore, these proven undeveloped reserves
are not being included in the presentation of the oil and gas reserves
at December 31, 1996, nor are such undeveloped reserves being
considered in calculating depreciation, depletion and amortization
expense for the year. Accordingly, these amounts are being calculated
for the year based on the December 31, 1996 balance of the proven
developed producing reserves set forth above.
Proved developed reserves:
Oil Gas
(Bbls (Mmcf)
Beginning of the year 1995 8,589 7,516
End of the year 1995 5,797 7,829
Beginning of the year 1996 5,797 7,829
End of the year 1996 - 1,670
The following schedule presents the standardized measure of estimated
discounted future net cash flows from the Company's proved developed
reserves for the years ended December 31, 1996 and 1995. Estimated
future cash flows were based on independent reserve data. Because the
standardized measure of future net cash flows was prepared using the
prevailing economic conditions existing at December 31, 1996 and 1995,
it should be emphasized that such conditions continually change.
Accordingly, such information should not serve as a basis in making
any judgment on the potential value of the Company's recoverable
reserves or in estimating future results to operations.
Standardized measures of discounted future net cash flows:
December 31,
1996 1995
Future production revenues $6,455,445 $15,657,841
Future plugging costs 317,750 1,010,602
Future production costs 1,196,873 5,393,469
Total future costs 1,514,623 6,404,071
Future cash flows before
income taxes 4,940,822 9,253,770
Future income tax (benefits) (864,644) (1,619,410)
Future net cash flows 5,805,466 10,873,180
Effect of discounting future
annual net cash flows at 10% 729,507 1,522,245
Standardized measure of
discounted future net cash
flows $5,075,959 $9,350,935
Summary of changes in the standardized measure of discounted future
net cash flows:
December 31,
1996 1995
Future net cash flows, beginning of year $9,350,935 $6,247,260
Net change in expected future income tax
benefit 754,766 (537,725)
Sales of oil and natural gas produced,
net of production costs (2,164,441) (1,959,489)
Revisions of previous quantity estimates (2,501,408) 4,595,839
Changes in future development costs 692,852 -
Net changes in prices and production
costs (1,056,745) 1,005,050
Standardized measure of discounted
future net cash flows, end of year $5,075,959 $9,350,935
December 31,
1996 1995
Weighted average outstanding
shares based on primary
earnings per share 11,547,708 9,699,941
Primary earnings per share $ (0.18) $ (0.55)
Weighted average outstanding
shares based on fully diluted
earnings per share 11,547,708 9,699,941
Fully diluted earnings per share $ (0.18) $ (0.55)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 752
<SECURITIES> 0
<RECEIVABLES> 15614
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16366
<PP&E> 255839
<DEPRECIATION> 169555
<TOTAL-ASSETS> 2787570
<CURRENT-LIABILITIES> 11318036
<BONDS> 0
0
0
<COMMON> 11310
<OTHER-SE> (8807400)
<TOTAL-LIABILITY-AND-EQUITY> 2787570
<SALES> 4864717
<TOTAL-REVENUES> 4864717
<CGS> 2700276
<TOTAL-COSTS> 5945512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1044400
<INCOME-PRETAX> (2103157)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2103157)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
