FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 0-18981
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UNITED STATES EXPLORATION, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1120323
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 New Street, Independence, Kansas 67301
- -------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(316) 331-8102
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class of Stock Amount Outstanding
---------------- -----------------------------
$.0001 par value 7,636,558 shares outstanding
Common Stock at November 15, 1996
<PAGE>
UNITED STATES EXPLORATION, INC.
Index
-----
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements............................... 1 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................... 8 - 10
Part II - OTHER INFORMATION.......................................... 11
SIGNATURES........................................................... 12
<PAGE>
<TABLE>
<CAPTION>
United States Exploration, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, March 31,
1996 1996
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 61,165 $ 169,965
Restricted cash 6,000,000 74,697
Accounts receivable 493,397 384,571
Due from related parties 30,455 23,095
Inventories 163,570 161,186
Prepaid expenses and other 13,422 25,081
----------------- -----------------
Total current assets 6,762,009 838,595
PROPERTY AND EQUIPMENT, AT COST
Oil and gas property and equipment -
full cost method 8,037,775 8,208,034
Natural gas gathering systems 1,205,907 1,269,221
Building and equipment 872,383 1,019,909
----------------- -----------------
10,116,065 10,497,164
OTHER ASSETS
Crude oil refinery held for sale 1,775,011 1,775,011
Natural gas stripping plant held for sale, less
valuation allowance of $44,000 80,000 80,000
Investment in joint ventures 389,374 325,139
Pipeline lease agreement, less accumulated
amortization of $122,091 at March 31, 1996 and
$134,721 at September 30, 1996 572,587 597,847
Goodwill 66,973 69,684
Other 30,710 40,710
----------------- -----------------
2,914,655 2,888,391
----------------- -----------------
$ 19,792,729 $ 14,224,150
================= =================
The accompanying notes are an integral part of these statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, March 31,
1996 1996
----------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 6,035,440 $ 1,196,947
Accounts payable and accrued liabilities 439,452 423,363
Due to related parties 80,798 175,926
----------------- -----------------
Total current liabilities 6,555,690 1,796,236
LONG-TERM DEBT - 5,427,853
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value
Authorized - 100,000,000 shares
Issued and outstanding
Series A Cumulative Convertible - 250,000
shares - converted September 30, 1996 - 1,250,000
Series B Cumulative Convertible - 104,000
shares - converted September 30, 1996 - 520,000
Series C Cumulative Convertible - 1,000,000
shares (liquidation preference
of $6,000,000) 6,000,000 -
Common stock - $.0001 par value
Authorized - 500,000,000 shares
Issued and outstanding - 7,636,558 shares at
September 30, 1996 and 6,469,404 shares at
March 31, 1996 764 647
Paid in capital 10,714,995 8,581,466
Accumulated deficit (3,478,720) (3,352,052)
----------------- -----------------
13,237,039 7,000,061
----------------- -----------------
$ 19,792,729 $ 14,224,150
================= =================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
United States Exploration, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
September 30, September 30,
--------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Sale of purchased gas $ 319,430 $ 204,201 $ 460,051 $ 377,344
Sale of company produced
oil and gas 583,419 155,906 1,173,530 177,395
Contracting, drilling and
oil field supplies 107,075 96,218 215,399 195,248
Equity in earnings of joint
ventures 87,753 -- 87,753 --
Other 7,831 4,481 15,497 9,399
----------- ----------- ----------- -----------
1,105,508 460,806 1,952,230 759,386
Costs and expenses
Gas acquisition costs 224,356 117,108 315,299 227,414
Gas transportation costs 170,179 75,430 247,710 125,915
Production costs - oil
and gas 240,697 75,585 521,771 84,693
Cost of sales - contracting,
drilling and oil field supplies 38,430 41,566 81,683 103,855
Depreciation, depletion and
amortization 223,661 142,307 418,609 252,525
Interest expense 134,293 71,309 271,347 82,627
General and administrative 103,593 133,893 222,479 272,192
----------- ----------- ----------- -----------
1,135,209 657,198 2,078,898 1,149,221
----------- ----------- ----------- -----------
NET LOSS $ (29,701) $ (196,392) $ (126,668) $ (389,835)
=========== =========== =========== ===========
Loss per common share $ (.01) $ (.06) $ (.02) $ (.11)
=========== =========== =========== ===========
Weighted average shares
outstanding 6,730,500 4,109,568 6,620,994 4,105,142
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
United States Exploration, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended September 30,
Increase (decrease) in cash
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $ (126,668) $ (389,835)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation, depletion and amortization 418,609 252,525
Equity in earnings of joint ventures (87,753) -
Loss on sale of equipment 9,819 -
Provision for doubtful accounts - 13,964
Increase in accounts receivable (108,826) (118,939)
Increase in due from related parties (7,360) (4,144)
(Increase) decrease in inventory (2,384) 15,860
(Increase) decrease in prepaid expenses and
other 11,659 (16,881)
Increase in accounts payable and accrued
expenses 26,089 174,198
Increase in due to related parties 64,872 8,791
---------------- ----------------
Net cash provided by (used in) operating
activities 198,057 (64,461)
Cash flows from investing activities
Increase in restricted cash (5,925,303) -
Capital expenditures (5,430) (102,814)
Acquisition of companies, net of cash received - (6,162,145)
---------------- -----------------
Net cash used in investing activities (5,930,733) (6,264,959)
Cash flows from financing activities
Proceeds from issuance of preferred stock 6,000,000 -
Proceeds from term debt - 6,800,000
Repayment of note payable to bank - (397,000)
Repayment of term debt (579,770) (3,027)
Proceeds from exercise of stock options 203,646 16,500
---------------- -----------------
Net cash provided by financing activities 5,623,876 6,416,473
---------------- -----------------
Net increase (decrease) in cash (108,800) 87,053
Cash, beginning of period 169,965 77,006
---------------- -----------------
Cash, end of period $ 61,165 $ 164,059
================ =================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - COMPANY HISTORY AND BASIS OF PRESENTATION
United States Exploration, Inc. was incorporated on January 9, 1989. The
Company operates as a producer of oil and gas and as an operator of gas
gathering systems. All of the Company's operations are located in southeast
Kansas and northeast Oklahoma with the exception of one insignificant lease
which is located in Alberta, Canada. Development of the Company's
properties has been limited, however, due to the Company's limited
investment capital.
The consolidated financial statements include the Company and its
wholly-owned subsidiaries USX Operating Co., Inc. and Producers Service
Incorporated. In addition, effective September 1, 1995, the Company
acquired all the outstanding stock of Performance Corporation and Pacific
Osage, Inc. Operations of these two subsidiaries for the period since
September 1, 1995 are included in the consolidated financial statements.
The foregoing financial information is unaudited. The Company believes
however that they have made all adjustments necessary to reflect properly
the results of operations for the interim periods presented. The
adjustments consist only of normal reoccurring accruals. The results of
operations for the six months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the year ending March 31,
1997.
NOTE B - FINANCIAL STATEMENTS
Management has elected to omit substantially all footnotes relating to the
condensed financial statements of the Company. For a complete set of
footnotes, reference is made to the Company's Form 10-KSB as filed with the
Securities and Exchange Commission for the year ended March 31, 1996 and
the audited financial statements filed therewith.
NOTE C - LOSS PER COMMON SHARE
Loss per common share has been computed by dividing net loss, after reduction
for preferred stock dividends applicable to the period, by the weighted
average number of common shares outstanding during the year.
NOTE D - STOCK OPTION PLANS
Following is a summary of stock options issued, exercised and canceled during
the six months ended September 30, 1996:
<TABLE>
<CAPTION>
Shares Price
---------------------------------- range
The Plan NQSOP per share
-------- ----- ---------
<S> <C> <C> <C> <C>
Outstanding at March 31, 1996 262,800 1,545,500 $ .55 - 3.00
Issued - - $ - -
Exercised (148,900) (191,000) $ .55 2.50
Canceled - (125,000) $ - 2.50
------------ --------------
Outstanding at September 30, 1996 113,900 1,229,500 $ .55 - 3.00
============ ==============
</TABLE>
5
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - PRIVATE PLACEMENT OF PREFERRED STOCK
The Company at September 30, 1996 was offering through a private placement
memorandum up to 4,000,000 shares of Series "C" Convertible Preferred
Stock. The stock, which is being offered at $6.00 per share, carries an 8%
cumulative per annum dividend and is convertible at the option of the
holder into two shares of Company common stock for each share of Series C
Preferred Stock. This conversion rate is subject to adjustment in certain
events. The Series C Preferred Stock has a liquidation preference of $6.00
per share, plus accrued and unpaid dividends. The Company may redeem the
stock, subsequent to March 17, 1997, at the price of $6.00 per share plus
accrued and unpaid dividends.
At September 30, 1996, the Company had sold 1,000,000 shares of the Series
C Preferred Stock. Effective November 6, 1996, the Company completed the
private placement with a total of 4,000,000 shares being issued for total
gross proceeds of $24,000,000. Proceeds of the sale of the initial
1,000,000 shares were considered restricted in accordance with the terms of
a loan agreement between the Company and its lender. Subsequent to
September 30, 1996, the Company used the restricted portion of the proceeds
to retire $6,035,440 of Company debt.
NOTE F - CONVERSION OF PREFERRED STOCK
Effective September 30, 1996, the holder of all the Company Series A and
Series B Preferred Stock converted all 354,000 outstanding shares into
786,667 shares of Company common stock. The Company also issued 40,587
shares of Company common stock in satisfaction of $190,000 of unpaid
dividends on the previously outstanding preferred stock.
NOTE G - JOINT VENTURE INCOME
During the three months ended September 30, 1996 a joint venture, in which
the Company is a 49% participant, settled a claim against a gas purchaser.
The joint venture income of $87,753 recognized in the three months ended
September 30, 1996 primarily relates to the settlement of that claim.
NOTE H - SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest of $274,029 and $86,924 was paid during the six months ended
September 30, 1996 and 1995, respectively. A supplemental schedule of noncash
investing and financing activities for the six months ended September 30,
1996 follows:
Issuance of 786,667 shares of Company
common stock upon conversion of the
Company's Series A and Series B
Cumulative Convertible Preferred Stock $ 1,770,000
Issuance of 40,587 shares of Company
common stock in satisfaction of unpaid
preferred stock dividends 190,000
Transfer of accrued salary to paid in capital 160,000
6
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE I - PAID IN CAPITAL
In connection with substantial changes in the capitalization of the Company,
the Company entered into a comprehensive agreement with its former President
on September 17, 1996. As a part of the agreement, the President resigned
his position and released the Company from payment for past services.
Accordingly, the Company transferred $160,000 of accrued salary to paid in
capital.
7
<PAGE>
UNITED STATES EXPLORATION, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The financial position of United States Exploration, Inc. ("Company")
improved substantially during the three month period ended September 30, 1996.
Working capital increased from a deficit of $957,641 at March 31, 1996 to a
positive $206,319 at September 30, 1996, an increase of $1,163,960. Both current
assets and current liabilities increased during the quarter, although current
assets increased in a greater amount. Capital available from sources other than
current assets remained basically unchanged during the second quarter of fiscal
1997.
The substantial increase in current assets is attributable to the proceeds
of a private placement of equity securities. The Company offered an aggregate of
4,000,000 shares of a newly created Series "C" Preferred Stock to qualified
investors pursuant to an exemption from the registration requirements of Federal
and state securities laws. At September 30, 1996, the Company had sold 1,000,000
shares of this Preferred Stock for proceeds of $6,000,000. Subsequent to the end
of the quarter, the Company completed the balance of the offering for additional
gross proceeds of $18,000,000. In the estimation of management, and based upon
the Company's capital requirements as of the filing of this Report, the Company
will have sufficient liquidity and working capital for the balance of fiscal
1997, and at least the first six months of fiscal 1998.
In addition to the completion of the private placement, the Company's
operating activities also contributed a modest amount of cash to its working
capital needs. Cash flow from operating activities for the six-month period
ended September 30, 1996, after reconciling the net loss for that period to net
cash used in operating activities, provided $198,057 to the Company's working
capital. This compares to $64,461 cash used by operating activities during the
comparable period ending September 30, 1995. The cash generated by operating
activities was utilized to repay debt during the quarter. Nonetheless, with the
repayment of all outstanding term debt subsequent to September 30, 1996, and
assuming no other extraordinary transactions, management anticipates that the
Company's operations will provide cash for the balance of fiscal 1997.
Initial proceeds of the private placement were placed in a restricted
account on the Company's behalf. Such restriction arises from a loan agreement
to which the Company is party, by which the proceeds of any equity offerings
were restricted pending repayment of a term loan acquired by the Company in
connection with the acquisition of Performance Petroleum Corporation and Pacific
Osage, Inc. This debt, which would have matured in July, 1997, was repaid in
full subsequent to end of the quarter and accordingly, the balance of
$18,000,000 from the private placement will be available for acquisitions and
8
<PAGE>
other general corporate purposes. Management anticipates that such proceeds will
be utilized to develop existing oil and gas properties of the Company, and for
acquisition of additional developed and undeveloped reserves. The Company's long
term objective is to become a major independent producer of oil and natural gas
in the south-central United States.
Also during the quarter, the Company consummated an agreement to convert
previously outstanding Preferred Stock into Common Stock and satisfy a dividend
obligation associated with that Preferred Stock. Pursuant to an agreement
effective September 30, 1996, the Company issued 786,667 shares of Common Stock
and agreed to issue 40,587 additional shares of Common Stock in satisfaction of
an accrued dividend of $190,000 in exchange for the cancellation of 250,000
shares of Series "A" and 104,000 shares of Series "B" Cumulative Convertible
Preferred Stock. Of that amount, 636,667 shares were acquired by previous Common
Stock holders of the Company, and the balance of 190,587 shares were retained by
the previous holder of the Series "A" and Series "B" Preferred Stock. All of the
Common Stock was issued pursuant to an exemption from the registration
requirements of Federal and state securities law, although the Company granted
certain registration rights to the previous holder of the Preferred Stock. This
transaction essentially facilitated completion of the recent private placement
by removing the liquidation preference and other rights associated with the
Series "A" and Series "B" Preferred Stock.
Finally, subsequent to completion of the quarter, the Company acquired the
interest of its partner in an oil and gas venture organized to operate certain
oil and gas assets. This joint venture produced revenues of $150,000 during the
quarter, of which the Company was allocated $87,753 for financial statement
reporting purposes. (See "Results Of Operations").
Results of Operations
The Company's operating results for the three and six month periods ended
September 30, 1996, showed substantial improvement over the comparable periods
ended September 30, 1995. Revenues for the three month period ended September
30, 1996 were $1,105,508, representing a 140% increase over the comparable
period in 1995. Revenues for the six month period ended September 30, 1996 were
$1,952,230, a 157 % increase for the comparable period of 1995. The net loss of
$29,701 for the three months ended September 30, 1996 is the smallest in Company
history and demonstrates the results of management's efforts to increase
revenues while holding nonoperating expenses generally constant. Management
anticipates that this trend of improved operations will continue during the
balance of fiscal 1997.
Operations of two of the Company's wholly owned subsidiaries, Performance
Petroleum Corporation and Pacific Osage, Inc., were integrated with the
Company's operations effective September 1, 1995. Accordingly, it is not
anticipated that the Company's revenues will continue to increase at the same
rate as has been the case for the past four quarters based on those
acquisitions. However, management is investigating additional acquisitions in a
continuing effort to increase revenues and achieve profitable operations.
9
<PAGE>
During the three and six months ended September 30, 1996, the Company's
operations were enhanced by a one time gain resulting from settlement of a
contractual dispute in one of its joint ventures. The joint venture received
$150,000 cash and $25,000 in equipment in settlement of a dispute with a
purchaser of natural gas. The Company's share in that settlement, together with
its portion of other earnings of the joint venture, contributed $87,753 in
revenues to the Company during the periods ended September 30, 1996.
Improving prices for oil and natural gas also contributed to improvement in
the Company's operations. The Company received an average of $23.20 per barrell
of oil and $1.67 per mmbtu for natural gas on September 30, 1996, compared to an
average of $17.40 per barrell and $1.42 per mmbtu at September 30, 1995. Based
on projections of industry experts and management's own estimate of market
factors affecting future sale of oil and natural gas, it is anticipated that
prices will continue at or above current levels for the balance of the Company's
current fiscal year.
Finally, management anticipates improved operating results for the
foreseeable future due to the elimination of interest associated with term debt
which was repaid subsequent to the end of the quarter.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No report required.
Item 2. Changes in Securities.
No report required.
Item 3. Defaults Upon Senior Securities.
No report required.
Item 4. Submission of Matters to a Vote of Security Holders.
No report required.
Item 5. Other Information.
No report required.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits: None.
B. Report of Form 8-K:
The Company filed the following Reports on Form 8-K
during the quarter ended September 30, 1996:
(i) Report dated September 16, 1996 regarding
change in the Company's Chief Executive
Officer and commencement of a private
placement.
(ii) Report dated September 30, 1996, regarding completion
of the minimum portion of a private placement.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
Date: November 19, 1996 By: /S/ DEMETRIE D. CARONE
------------------ ---------------------------------
Demetrie D. Carone, President and
Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 6,061,165
<SECURITIES> 0
<RECEIVABLES> 523,852
<ALLOWANCES> 0
<INVENTORY> 163,570
<CURRENT-ASSETS> 6,762,009
<PP&E> 10,116,065
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,792,729
<CURRENT-LIABILITIES> 6,555,690
<BONDS> 0
0
6,000,000
<COMMON> 764
<OTHER-SE> 7,236,275
<TOTAL-LIABILITY-AND-EQUITY> 19,792,729
<SALES> 1,848,980
<TOTAL-REVENUES> 1,952,230
<CGS> 1,166,463
<TOTAL-COSTS> 1,166,463
<OTHER-EXPENSES> 912,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271,347
<INCOME-PRETAX> (126,668)
<INCOME-TAX> 0
<INCOME-CONTINUING> (126,668)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,668)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
