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 December 31, 1996
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from
--------------------
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
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 8,312,358 shares outstanding
Common Stock at February 17,1997
<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>
United States Exploration, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 31, March 31,
1996 1996
------------ -----------
CURRENT ASSETS
Cash $18,565,460 $ 169,965
Restricted cash - 74,697
Accounts receivable 686,280 384,571
Due from related parties 45,775 23,095
Inventories 166,389 161,186
Prepaid expenses and other 14,242 25,081
----------- ----------
Total current assets 19,478,146 838,595
PROPERTY AND EQUIPMENT, AT COST
Oil and gas property and equipment -
full cost method 9,959,986 8,208,034
Natural gas gathering systems 1,582,976 1,269,221
Building and equipment 822,639 1,019,909
----------- ----------
12,365,601 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 185,014 325,139
Pipeline lease agreement, less accumulated
amortization of $122,091 at March 31, 1996
and $147,351 at December 31, 1996 559,957 597,847
Goodwill 66,972 69,684
Other 30,044 40,710
---------- ---------
2,696,998 2,888,391
---------- ---------
$34,540,745 $14,224,150
=========== ===========
The accompanying notes are an integral part of these statements.
1
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1996 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 1,196,947
Accounts payable and accrued liabilities 550,972 423,363
Contracts payable - acquisitions 2,060,000 -
Due to related parties - 175,926
----------- -----------
Total current liabilities 2,610,972 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 - 4,000,000
shares (liquidation preference
of $24,360,000) 24,000,000 -
Common stock - $.0001 par value
Authorized - 500,000,000 shares
Issued and outstanding - 8,302,358 shares at
December 31, 1996 and 6,469,404 shares at
March 31, 1996 830 647
Paid in capital 11,159,368 8,581,466
Accumulated deficit (3,230,425) (3,352,052)
----------- ------------
31,929,773 7,000,061
----------- ------------
$34,540,745 $ 14,224,150
=========== ============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
United States Exploration, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
December 31, December 31,
------------------------------ ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Sale of purchased gas $ 608,318 $ 180,958 $ 1,068,369 $ 519,229
Sale of company produced
oil and gas 767,309 622,838 1,940,839 839,306
Contracting, drilling and
oil field supplies 91,092 164,924 306,491 360,172
Equity in earnings of joint
ventures - - 87,753 -
Interest income 120,559 - 122,449 -
Other 5,453 5,279 19,060 14,678
----------- --------- ----------- ----------
1,592,731 973,999 3,544,961 1,733,385
Costs and expenses
Gas acquisition costs 421,516 135,005 736,815 362,419
Gas transportation costs 203,052 135,667 450,762 261,582
Production costs - oil
and gas 303,016 310,916 824,787 395,609
Other operating expenses 24,328 17,125 106,011 120,980
Depreciation, depletion and
amortization 219,517 218,576 638,126 471,101
Interest expense 35,708 155,875 307,055 238,502
General and administrative 137,299 158,945 359,778 431,137
---------- ---------- ----------- ----------
1,344,436 1,132,109 3,423,334 2,281,330
---------- ---------- ----------- ----------
NET EARNINGS (LOSS) $ 248,295 $ (158,110) $ 121,627 $ (547,945)
========== ========== =========== ==========
Loss per common share (.01) (.05) (.03) (.15)
==== ==== ==== ====
Weighted average shares
outstanding 8,022,907 4,135,149 7,089,995 4,132,648
========== ========== =========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
United States Exploration, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended December 31,
Increase (decrease) in cash
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 121,627 $ (547,945)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities
Depreciation, depletion and amortization 638,126 471,101
Equity in earnings of joint ventures (87,753) --
Loss on sale of equipment 9,819 --
Provision for doubtful accounts -- 18,604
Increase in accounts receivable (301,710) (174,585)
(Increase) decrease in due from related parties (22,680) 11,509
Increase in accounts payable and accrued
expenses 302,609 152,560
Increase (decrease) in due to related parties (175,926) 28,242
Other 31,302 8,867
------------ ------------
Net cash provided by (used in) operating
activities 515,414 (31,647)
Cash flows from investing activities
(Increase) decrease in restricted cash 74,697 (270,080)
Capital expenditures (227,491) (182,045)
Acquisition of companies, net of cash received -- (6,162,145)
------------ ------------
Net cash used in investing activities (152,794) (6,614,270)
Cash flows from financing activities
Proceeds from issuance of preferred stock 24,000,000 --
Proceeds from term debt -- 6,800,000
Repayment of note payable to bank -- (397,000)
Repayment of term debt (6,615,210) (4,497)
Proceeds from exercise of stock options 648,085 286,500
------------ ------------
Net cash provided by financing activities 18,032,875 6,685,003
------------ ------------
Net increase in cash 18,395,495 39,086
Cash, beginning of period 169,965 77,006
------------ ------------
Cash, end of period $ 18,565,460 $ 116,092
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
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., Producers Service
Incorporated, Performance Petroleum Corporation, Pacific Osage, Inc. and
ZCA Gas Gathering, Inc. Performance an
d Pacific Osage, Inc. were acquired
effective September 1, 1995 and ZCA effective October 1, 1996. Operations
of these subsidiaries are included in the consolidated financial statements
since their acquisition dates. All significant intercompany transactions
and balances have been eliminated.
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 nine months ended December 31, 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 periods
presented.
NOTE D - STOCK OPTION PLANS
Following is a summary of stock options issued, exercised and canceled
during the nine months ended December 31, 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) (856,800) $ .55 - 2.50
Canceled and expired -- (425,000) $1.50 - 3.00
-------- ---------
Outstanding at December 31, 1996 113,900 263,700 $ .55 - 3.00
======== =========
5
</TABLE>
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE E - PRIVATE PLACEMENT OF PREFERRED STOCK
During the period ended December 31, 1996 the Company completed a private
placement of 4,000,000 shares of Series "C" Convertible Preferred Stock at
$6.00 per share. Total proceeds received were $24,000,000. The stock
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.
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
During September 1996 a joint venture, in which the Company was a 49%
participant, settled a claim against a gas purchaser. The joint venture
income of $87,753 recognized in the nine months ended December 31, 1996
primarily relates to the settlement of that claim.
Effective October 1, 1996, the Company acquired the remaining 51% ownership
of the joint venture for approximately $160,000. The joint venture's
assets, liabilities and operations have been included in the consolidated
financial statements since October 1, 1996.
NOTE H - ACQUISITIONS
The Company acquired during the quarter ended December 31, 1996 oil and gas
leases located in the state of Oklahoma for total consideration of
$1,500,000. The Company also acquired effective October 1, 1996, 100% of
the common stock of ZCA Gas Gathering, Inc. for total consideration of
$560,000. ZCA owns oil and gas leases and owns and operates a gas gathering
system. The leases and ZCA were purchased from the Company's president and
another significant stockholder. The total amount due of $2,060,000 was
paid in January 1997.
6
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED
(Unaudited)
NOTE I - SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest of $279,737 and $238,502 was paid during the nine months ended
December 31, 1996 and 1995, respectively. A supplemental schedule of
noncash investing and financing activities for the nine months ended
December 31, 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 180,000
Acquisition of oil and gas leases and ZCA
Gathering included in contracts payable
at December 31, 1996 2,060,000
NOTE J - 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")
continued to show substantial improvement during the current fiscal year.
Working capital increased from a deficit of $957,641 at March 31, 1996 to a
positive $16,867,174 at December 31, 1996, an increase of $17,824,815. Current
assets increased from $838,595 at March 31, 1996 to $19,478,146 at December 31,
1996, reflecting receipt of proceeds by the Company from sale of a new class of
Preferred Stock in a private placement. In addition to a substantial increase in
cash, the increase in current assets was affected by an increase in accounts
receivable in the approximate amount of $300,000. Such increase results from
increased operations of the Company and reflects the increased sale of oil and
gas to third parties. Accounts payable and accrued liabilities also increased as
a result of this increase in operations, although in a smaller amount than the
increase in accounts receivable. The liability for contracts payable arose in
connection with two acquisitions discussed below and was satisified subsequent
to December 31, 1996.
Management is of the opinion that the Company has adequate liquidity and
working capital for the foreseeable future. Management's focus during the
remaining quarter of fiscal 1997 and fiscal 1998 will be to invest this capital
in the exploration and development of oil and gas properties in an effort to
increase cash flow and profitability.
The Company completed a private placement of equity securities during the
quarter ended December 31, 1996. The Company offered 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. During the quarter ended December
31, 1996, the Company completed the balance of the offering for additional gross
proceeds of $18,000,000. Proceeds of the offering are budgeted for development
of currently-owned property and acquisition and development of additional
property.
Operating activities also contributed a small, but an increasingly
significant, portion of cash flow during the nine months ended December 31,
1996. Cash flow from operating activities for the nine months then ended was
$515,414, compared to a use of $31,647 during the nine months ended December 31,
1995. That cash flow, together with a portion of the proceeds from the private
placement, was utilized to repay outstanding debt and finance development and
operating activities. As of December 31, 1996, the Company was debt free. With
its existing cash position, management believes the Company has available
substantial borrowing potential for additional acquisitions and developments,
should the need arise and circumstances dictate.
8
<PAGE>
In an effort to expand operations and increase cash flow, the Company
completed two acquisitions effective during the quarter ended December 31, 1996.
These acquisitions, discussed in more detail under "Results of Operations",
below, were completed for a payment of $2,060,000 in cash. Payment of such
amount was made at the final closing of these transactions in January, 1997. One
of these acquisitions included a 100% working interest in approximately 76,000
acres of primarily undeveloped natural gas leases located in northeast Oklahoma.
A portion of the proceeds of the private placement may be used to develop this
property. In addition, the Company may pursue other exploration and development
opportunities, while continuing efforts to explore acquisition of additional
producing properties.
Results of Operations
The Company realized a profit from operations for the first time in its
history during the three and nine month periods ended December 31, 1996. For the
three month period ended December 31, 1996, the Company realized net earnings of
$248,295 on revenues of $1,592,731. Comparable results for the nine month period
ended December 31, 1996 were $121,627 and $3,544,961, respectively. Management
anticipates that this trend of improving operations will continue during the
fourth quarter of fiscal 1997 and into fiscal 1998.
Company revenues doubled from the nine month period ended December 31, 1995
to the comparable period in 1996, from $1,733,385 to $3,544,961. The increase in
revenues for the three month periods ending in 1995 and 1996 were similar,
although not as substantial. Sale of purchased gas increased from $519,229 for
the nine months ended December 31, 1995 to $1,068,369 for the nine months ended
December 31, 1996, reflecting higher prices prevailing for natural gas and
increased volumes produced by third parties. Revenue from Company-produced oil
and gas also increased, from $839,306 for the nine months ended December 31,
1995 to $1,940,839 for the nine months ended December 31, 1996. This increase is
attributable to higher prices prevailing for oil and gas, together with
increased quantities produced.
One of the acquisitions effective in the third fiscal quarter included a
fifty percent (50%) interest in a ninety mile long natural gas pipe line,
associated gas processing equipment and a one hundred percent (100%) working
interest in oil and gas leases and approximately twenty five (25) producing
natural gas wells located in northeast Oklahoma. The production from this
acquisition added approximately $86,767 to the Company's revenues for the third
quarter of fiscal 1997. The other acquisition included four oil and gas leases,
also located in northeastern Oklahoma, and associated gas and oil production.
That acquisition contributed approximately $89,548 to the Company's revenues for
the three months ended December 31, 1996.
The Company also received revenues of approximately $122,000 during the
nine months ended December 31, 1996 on investment of proceeds from the private
placement.
9
<PAGE>
Contributing to the Company's profitability, expenses increased at a
smaller rate than revenues during the comparable periods from 1995 to 1996. Gas
acquisition costs and production costs for oil and gas increased proportionally
less than the corresponding items of revenue during the three and nine months
ended in December, 1995 to 1996. Depreciation, depletion and amortization also
increased from fiscal 1995 to 1996, although such increase was offset by an
increase in revenues. Finally, general and administrative expenses actually
decreased from 1995 to 1996, primarily as a result of the Company's president
serving without compensation.
Despite the Company's profitability for the three and nine month periods
ended December 31, 1996, the Company experienced a net loss per common share.
The net loss per common share includes provision for the eight percent (8%) per
annum cumulative dividend payable on the Series "C" Preferred Stock in
accordance with the provisions of that security. The dividend although not
declared or accrued, is considered when computing the Company's net loss per
share. The computed dividend for the three and nine months ended December 31,
1996 was $360,000. Preferred Stock may be converted into Common Stock
voluntarily by the holder beginning immediately and redeemed by the Company
beginning March 17, 1997. Conversion of the Preferred Stock into Common Stock
would eliminate this dividend in future periods.
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 December 31, 1996:
(i) Report dated November 6, 1996 regarding completion
of the private placement.
11
<PAGE>
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.
UNITED STATES EXPLORATION, INC.
Date: Feb. 18, 1997 By: /s/ DEMETRIE D. CARONE
---------------------------- --------------------------------
Demetrie D. Carone, President
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 18,565,460
<SECURITIES> 0
<RECEIVABLES> 732,055
<ALLOWANCES> 0
<INVENTORY> 166,389
<CURRENT-ASSETS> 19,478,146
<PP&E> 12,365,601
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,540,745
<CURRENT-LIABILITIES> 2,610,972
<BONDS> 0
0
24,000,000
<COMMON> 830
<OTHER-SE> 7,928,943
<TOTAL-LIABILITY-AND-EQUITY> 34,540,745
<SALES> 3,315,699
<TOTAL-REVENUES> 3,544,961
<CGS> 736,815
<TOTAL-COSTS> 2,012,364
<OTHER-EXPENSES> 1,103,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 307,055
<INCOME-PRETAX> 121,627
<INCOME-TAX> 0
<INCOME-CONTINUING> 121,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,627
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
