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 June 30, 1996
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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
---------------
(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
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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 6,649,104 shares outstanding
Common Stock at August 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 - 9
Part II - OTHER INFORMATION...............................................10
SIGNATURES................................................................11
<PAGE>
United States Exploration, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, March 31,
1996 1996
------- --------
CURRENT ASSETS
Cash $ 169,714 $ 169,965
Restricted cash - 74,697
Accounts receivable 329,086 384,571
Due from related parties 25,380 23,095
Inventories 154,257 161,186
Prepaid expenses and other 59,820 25,081
---------- ----------
Total current assets 738,257 838,595
PROPERTY AND EQUIPMENT, AT COST
Oil and gas property and equipment -
full cost method 8,127,977 8,208,034
Natural gas gathering systems 1,237,564 1,269,221
Building and equipment 958,991 1,019,909
---------- ----------
10,324,532 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 322,239 325,139
Pipeline lease agreement, less
accumulated amortization of
$122,091 at March 31, 1996
and $109,461 at June 30, 1996 585,217 597,847
Goodwill 68,328 69,684
Other 40,710 40,710
------------ -----------
2,871,505 2,888,391
------------ -----------
$ 13,934,294 $14,224,150
============ ===========
The accompanying notes are an integral part of these statements.
Page #1
<PAGE>
United States Exploration, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
1996 1996
-------- ----------
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,214,222 $ 1,196,947
Accounts payable and accrued liabilities 433,770 423,363
Due to related parties 193,764 175,926
----------- -----------
Total current liabilities 1,841,756 1,796,236
LONG-TERM DEBT 5,123,444 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 (liquidation
preference of $1,372,089) 1,250,000 1,250,000
Series B Cumulative convertible -
104,000 shares (liquidation
preference of $570,789) 520,000 520,000
Common stock - $.0001 par value
Authorized - 500,000,000 shares
Issued and outstanding - 6,589,404 shares
at June 30, 1996 and 6,469,404 shares at
March 31, 1996 659 647
Capital in excess of par value 8,647,454 8,581,466
Accumulated deficit (3,449,019) (3,352,052)
----------- -----------
6,969,094 7,000,061
----------- -----------
$13,934,294 $14,224,150
=========== ===========
Page #2
<PAGE>
United States Exploration, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30,
---------------------------
1996 1995
---- ----
Revenues
Sale of purchased gas $ 140,621 $ 173,143
Sale of company produced oil and gas 590,111 21,489
Contracting and oil field supplies 108,324 99,030
Other 7,666 4,918
--------- ---------
846,722 298,580
Costs and expenses
Gas acquisition costs 90,943 110,306
Gas transportation costs 77,531 50,485
Production costs - oil and gas 281,074 9,108
Other operating expenses 43,253 62,289
Depreciation, depletion and amortization 194,948 110,218
Interest expense 137,054 11,318
General and administrative 118,886 138,299
--------- ---------
943,689 492,023
--------- ---------
NET LOSS $ (96,967) $(193,443)
========= =========
Loss per common share $ (.02) $ (.05)
========= =========
Weighted average shares outstanding 6,510,283 4,100,503
========= =========
The accompanying notes are an integral part of these statements.
Page #3
<PAGE>
United States Exploration, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended June 30,
---------------------------
1996 1995
--------- --------
Cash flows from operating activities
Net loss $ (96,967) $(193,443)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation, depletion and amortization 194,948 110,218
Provision for doubtful accounts - 7,733
Change in assets and liabilities
(Increase) decrease in accounts receivable 55,485 (19,459)
Increase in due from related parties (2,285) -
Decrease in inventory 6,929 1,550
Increase in prepaid expenses (34,739) (8,707)
Increase in accounts payable and
accrued expenses 10,407 41,786
Increase in due to related parties 17,838 671
--------- ---------
Net cash provided by (used in)
operating activities 151,616 (59,651)
--------- ---------
Cash flows from investing activities
Decrease in restricted cash 74,697 -
Capital expenditures (5,430) (4,659)
--------- ---------
Net cash provided by (used in)
investing activities 69,267 (4,659)
Cash flows from financing activities
Repayment of term debt (287,134) (1,518)
Proceeds from exercise of stock options 66,000 16,500
--------- ---------
Net cash provided by (used in)
financing activities (221,134) 14,982
--------- ---------
Net decrease in cash (251) (49,328)
Cash, beginning of period 169,965 77,006
---------- ---------
Cash, end of period $ 169,714 $ 27,678
========== =========
Supplemental disclosures of cash flow information
Interest expense paid $ 139,398 $ 11,172
========== ========
The accompanying notes are an integral part of these statements.
Page #4
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONDENSED 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 Petroleum Corporation and Pacific Osage,
Inc. Operations of these two subsidiaries for the period since August 31, 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 three
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the year ending March 31, 1997.
Page #5
<PAGE>
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 period.
Page #6
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE D - STOCK OPTION PLANS
Following is a summary of stock options issued, exercised and canceled
during the three months ended June 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 - (120,000) $ - $ .55
Canceled - (125,000) $ - $2.50
-------- ---------
Outstanding at June 30, 1996 262,800 1,300,500 $ .55 3.00
======== =========
</TABLE>
NOTE E - PREFERRED STOCK
Cumulative dividends on preferred shares that have not been declared or
paid are Series A of $122,089 ($.49 per share) and Series B of $50,789 ($.49 per
share).
Page #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")
remained basically unchanged at June 30, 1996 compared to fiscal year end March
31, 1996. Working capital decreased slightly from a deficit of $957,441 at March
31, 1996 to a deficit of $1,103,499 at June 30, 1996. Current assets decreased
approximately $100,000 during the period, while current liabilities increased
slightly, both contributing to the increase in working capital deficit. Capital
available from sources other than current assets remained basically unchanged
during the first quarter of fiscal 1997.
The Company continues to require additional working capital from outside
sources to satisfy existing obligations, including short term and long term debt
and to achieve profitable operation. During the first quarter of fiscal 1997,
despite an increase in cash flow from operations of approximately $200,000 from
the comparable period of fiscal 1996, the Company was unable to satisfy its
current obligations to reduce term debt from cash flow and relied on the
proceeds from exercise of stock options and restricted cash to meet these
obligations, thereby reducing term debt by $287,134 during the quarter.
The Company also requires additional working capital to satisfy long term
commitments. The greatest factor affecting working capital is the retirement of
debt associated with the acquisition of Performance Petroleum Corporation and
Pacific Osage, Inc.. Those acquisitions were financed with a term loan in the
amount of $6.8 million, of which approximately $6.3 million remains outstanding
and is payable at the rate of $141,000 per month, including principal and
interest, with the balance due and payable in July, 1997. The Company does not
have current working capital available to satisfy this debt when it matures.
Internal sources of capital include the proposed sale of a crude oil refinery
and adjacent real estate located in the state of Texas. The Company's efforts to
market these assets have continued since calendar 1994, with no definitive
agreement to date. External sources of working capital include proposed equity
offerings, however there is no assurance that such offerings can be completed or
that proceeds derived therefrom will be sufficient to retire the debt.
In an effort to address its working capital needs, the Company is currently
exploring options for private placement of its debt or equity securities. While
no specific plans have been finalized or efforts begun, it is anticipated that
the Company may offer a series of preferred stock for a minimum of $5,000,000 to
provide additional working capital to reduce debt and acquire additional
producing oil and gas assets. However, as of the date of filing this Report, no
specific agreements for financing have been reached.
Page #8
<PAGE>
Results of Operations
The Company's performance for the three month period ended June 30, 1996
showed substantial improvement over the same period last year. Total revenues
increased 184% to $846,722, compared to last year's revenues for the same period
of $298,580. This significant improvement is attributable to the increase in the
sale of Company produced oil and gas. Oil and gas sales during the three month
period increased 2,646% to $590,111. This compares to a three month total of
$21,489 for oil and gas sales during the first quarter of 1996. This increase is
a direct result of consolidating the Company's existing operations with those
operations generated by the Company's wholly owned subsidiaries, Performance
Petroleum Corporation and Pacific Osage, Inc., both acquired in September of
1995. Management anticipates that revenues for fiscal 1997 will continue to show
substantial improvement over the prior year, as oil and gas operations of
Performance Petroleum and Pacific Osage are consolidated with existing Company
operations for a full twelve month period.
Despite the substantial increase in Company produced oil and gas from the
first quarter of fiscal 1996 to the first quarter of fiscal 1997, production
actually decreased from the prior quarter ended March 31, 1996. However, oil
prices increased, producing a better margin for the Company. Lower production
during the first quarter of fiscal 1997 also resulted in reduced expenses for
depreciation, depletion and amortization from the prior quarter ended March 31,
1996.
Cash flow from field operations, defined as total revenues less operating
expenses (excluding depreciation, depletion, amortization, interest and general
and administrative expenses), generated an impressive 433% increase over the
first quarter of last year. Cash flow from field operations during the period
ended June 30, 1996 totaled $353,921, as compared to $66,392 during the same
period last year. Further, the Company generated cash flow for the period of
$151,616, compared to last year's first quarter, in which the Company used
$59,651. Notwithstanding this increase, the Company continued to experience an
overall net loss, as cash flow from operations remained insufficient to offset
non-cash charges such as depreciation, depletion and amortization. These
non-cash items increased 77% during the period to $194,948, versus $110,218
during the same period last year. The increase in these costs, as well as the
increase in interest expense, results from the consolidation of operations and
the increase in bank debt associated with the acquisition of the Company's
subsidiaries, Performance Petroleum Corporation and Pacific Osage, Inc..
Management anticipates that the Company will continue to show substantial
improvement in cash flow from operations as operations from its two new
subsidiaries are consolidated on the Company's future financial statements.
However, management expects that losses will continue to occur until such time
as the Company obtains sufficient revenue, through merger or acquisition, to
cover non-cash expenses such as depreciation, depletion and amortization. The
Company is continuing in its efforts to explore such acquisitions, although as
of the date of filing this Report, no agreements have been consummated.
Page #9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits: None.
B. Report of Form 8-K: None.
Page #10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
Date: By: /s/ TERRY L. CARROLL
-----------------------------------------
Terry L. Carroll, President
Chief Executive Officer, Chief
Financial and Accounting Officer,
Treasurer, Chief Operating Officer and
Director.
Page #11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The unaudited financial statements of the Company at June 30, 1996 and the
three month period then ended.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 169,714
<SECURITIES> 0
<RECEIVABLES> 329,086
<ALLOWANCES> 0
<INVENTORY> 154,257
<CURRENT-ASSETS> 738,257
<PP&E> 10,324,532
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,934,294
<CURRENT-LIABILITIES> 1,841,756
<BONDS> 0
0
1,770,000
<COMMON> 659
<OTHER-SE> 5,198,435
<TOTAL-LIABILITY-AND-EQUITY> 13,934,294
<SALES> 846,722
<TOTAL-REVENUES> 846,722
<CGS> 449,548
<TOTAL-COSTS> 687,749
<OTHER-EXPENSES> 118,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,054
<INCOME-PRETAX> (96,967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (96,967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (96,967)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
