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, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number 1-13513
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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.)
1560 Broadway, Suite 1900, Denver, Colorado 80202
- ------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(303) 863-3550
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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 8,764,358 shares outstanding
Common Stock at November 17, 1997
<PAGE>
UNITED STATES EXPLORATION, INC.
Index
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements..................................1-6
Item 2. Management's Discussion and Analysis Or
Plan of Operation.....................................7-8
Part II - OTHER INFORMATION..............................................9-12
SIGNATURES............................................................... 13
<PAGE>
United States Exploration, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, March 31,
1997 1997
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $15,082,789 $15,323,038
Certificate of deposit 1,500,000 1,500,000
Accounts receivable 540,018 590,237
Due from related parties -- 4,300
Inventories 14,889 152,401
Prepaid expenses and other 48,837 23,449
----------- -----------
Total current assets 17,186,533 17,593,425
PROPERTY AND EQUIPMENT, AT COST, NET
Oil and gas property and equipment -
full cost method 9,337,947 9,636,527
Natural gas gathering systems 1,571,241 1,695,394
Building and equipment 321,495 478,949
----------- -----------
11,230,683 11,810,870
OTHER ASSETS
Assets held for sale
Crude oil refinery 700,000 1,775,011
Natural gas processing plant 20,000 40,000
Equipment 35,134 146,486
Pipeline lease agreement, less
accumulated amortization of
$185,241 at September 30, 1997
and $159,981 at March 31, 1997 522,067 547,327
----------- -----------
1,277,201 2,508,824
----------- -----------
$29,694,417 $31,913,119
=========== ===========
The accompanying notes are an integral part of these statements.
1
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, March 31,
1997 1997
------------- ------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 348,237 $ 515,788
Dividends payable 480,000 --
Due to related parties 54,658 15,215
------------ ------------
Total current liabilities 882,895 531,003
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value
Authorized - 100,000,000 shares
Issued and outstanding
Series C Cumulative Convertible
4,000,000 shares (liquidation
preference $24,000,000) 24,000,000 24,000,000
Common stock - $.0001 par value
Authorized - 500,000,000 shares
Issued and outstanding - 8,464,358 shares
at September 30, 1997 and
8,312,358 shares at March 31, 1997 846 831
Capital in excess of par value 11,530,602 11,370,867
Accumulated deficit (6,719,926) (3,989,582)
------------ ------------
28,811,522 31,382,116
------------ ------------
$ 29,694,417 $ 31,913,119
============ ============
2
<PAGE>
<TABLE>
<CAPTION>
United States Exploration, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
Revenues
<S> <C> <C> <C> <C>
Sale of purchased gas $ 291,419 $ 319,430 $ 597,499 $ 460,051
Sale of company produced
oil and gas 622,053 583,419 1,342,539 1,173,530
Contracting and oil field
supplies 29,486 107,075 101,733 215,399
----------- ----------- ----------- -----------
942,958 1,009,924 2,041,771 1,848,980
Costs and expenses
Gas acquisition costs 198,308 224,356 417,184 315,299
Gas transportation costs 175,571 170,179 320,778 247,710
Production costs - oil and gas 322,124 240,697 577,632 521,771
Other operating expenses 80,410 38,430 184,450 81,683
Depreciation, depletion and
amortization 230,622 223,661 522,032 418,609
Provision for impairment of
assets 1,276,008 -- 1,276,008 --
General and administrative 349,648 103,593 504,756 222,479
----------- ----------- ----------- -----------
2,632,691 1,000,916 3,802,840 1,807,551
----------- ----------- ----------- -----------
Earnings (loss) from operations (1,689,733) 9,008 (1,761,069) 41,429
Other income (expense)
Interest income 226,706 1,063 459,988 1,890
Interest expense (258) (134,293) (579) (271,347)
Equity in earnings of joint
ventures -- 87,753 -- 87,753
Other 5,308 6,768 11,316 13,607
----------- ----------- ----------- -----------
231,756 (38,709) 470,725 (168,097)
----------- ----------- ----------- -----------
NET LOSS (1,457,977) (29,701) (1,290,344) (126,668)
Preferred stock dividends
applicable to the period (480,000) (22,125) (960,000) (44,250)
----------- ----------- ----------- -----------
Net loss applicable to common
stockholders $(1,937,976) $ (51,826) $(2,250,344) $ (170,918)
=========== =========== =========== ===========
Loss per common share $ (.23) $ (.01) $ (.27) $ (.03)
=========== =========== =========== ===========
Weighted average shares
outstanding 8,373,966 6,730,500 8,343,330 6,620,994
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United States Exploration, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended September 30,
Increase (decrease) in cash and cash equivalents
1997 1996
------------ ------------
Cash flows from operating activities
<S> <C> <C>
Net loss $ (1,290,344) $ (126,668)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation, depletion and amortization 522,032 418,609
Stock issued as compensation 80,750 --
Equity in earnings of joint ventures -- (87,753)
Loss on sale of equipment 19,851 9,819
Provision for doubtful accounts 22,389 --
Provision for impairment of assets 1,276,008 --
(Increase) decrease in accounts receivable 27,830 (108,826)
(Increase) decrease in due from related parties 4,300 (7,360)
(Increase) decrease in inventory 137,512 (2,384)
(Increase) decrease in prepaid expenses and
deposits (25,388) 11,659
Increase (decrease) in accounts payable and
accrued expenses (167,551) 26,089
Increase in due to related parties 39,443 64,872
------------ ------------
Net cash provided by operating activities 646,832 198,057
Cash flows from investing activities
Increase in restricted cash -- (5,925,303)
Capital expenditures (152,421) (5,430)
Proceeds from sale of property and equipment 146,340 --
------------ ------------
Net cash used in investing activities (6,081) (5,930,733)
Cash flows from financing activities
Dividends paid on preferred stock (960,000) --
Proceeds from issuance of preferred stock -- 6,000,000
Repayment of term debt -- (579,770)
Proceeds from exercise of stock options 79,000 203,646
------------ ------------
Net cash provided by (used in) financing activities (881,000) 5,623,876
------------ ------------
Net decrease in cash and cash equivalents (240,249) (108,800)
Cash and cash equivalents, beginning of period 15,323,038 169,965
------------ ------------
Cash and cash equivalents, end of period $ 15,082,789 $ 61,165
============ ============
The accompanying notes are an integral part of these statements.
4
</TABLE>
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - COMPANY HISTORY AND NATURE OF OPERATIONS
United States Exploration, Inc. was incorporated on January 9, 1989. The
Company through its subsidiaries operates as a producer of oil and gas and
as an operator of gas gathering systems. The Company's operations are
located in southern Kansas and northern Oklahoma.
The consolidated financial statements include the accounts of United States
Exploration, Inc. and its wholly-owned subsidiaries USX Operating Co.,
Inc., Producers Service Incorporated, Performance Petroleum Corporation,
Pacific Osage, Inc., Argas, Inc. and ZCA Gas Gathering, Inc. Operations of
Argas, Inc. and ZCA Gas Gathering, Inc. are included as of October 1, 1996,
the effective date of their acquisitions. 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, including the
impairment reserves provided for in Note F. The results of operations for
the six months ended September 30, 1997 are not necessarily indicative of
the results to be expected for the year.
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, 1997 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 - CLOSING OF PARTS SUPPLY STORE
On July 31, 1997, the Company closed its oil field parts and supply store.
In connection with the liquidation of the store's inventory, the Company
wrote down the carrying value of the inventory $50,000 during the quarter
ended June 30, 1997 and an additional $25,805 during the quarter ended
September 30, 1997.
5
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - EMPLOYMENT AGREEMENT AND STOCK OPTIONS
On August 7, 1997, the Company entered into a three-year employment
agreement with Bruce D. Benson who was appointed the Company's president
and chief executive officer. In addition to his annual salary of $150,000,
Mr. Benson received the following stock options:
Shares Exercise price
------ --------------
1,000,000 $ 4.50 Exercisable immediately
1,000,000 6.00 Exercisable immediately
1,000,000 9.00 Exercisable after one year
1,000,000 12.00 Exercisable after one year
The Company on August 7, 1997 issued a total of 537,000 stock options to
the outside members of its board of directors. The options are exerciseable
at $4.125 per share. No compensation expense was recorded in connection
with the issuance of any of the options as the exercise price exceeded the
stocks traded price on the date of issuance.
NOTE F - IMPAIRMENT OF ASSETS
During the quarter ended September 30, 1997, the Company re-evaluated
certain assets held for sale and certain equipment held by the Company. The
Company recorded a provision for impairment of $1,276,008 to write these
assets down to their estimated fair value.
The majority of this provision, $1,075,011, relates to the oil refinery and
real estate located in Ingleside, Texas. Management has determined that the
refinery, which has been nonoperational since the early 1980's, has
negligible value. The real estate has been written down to its estimated
fair value of $700,000.
6
<PAGE>
UNITED STATES EXPLORATION, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Portions of this Report contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include, without limitation, statements regarding the
Company's need for working capital, future revenues and results of operations
and are identified by words such as "anticipates," "plans," "expects" and
"estimates." Factors that could cause actual results to differ materially
include, among others, the following: market prices for oil and gas, results of
drilling, recompletions and workovers undertaken by the Company, future
acquisitions, competition with other regional suppliers of oil and gas products,
relationships with third parties regarding utilization of Company-owned gas
gathering systems and the overall economic climate. Most of these factors are
beyond the control of the Company. Investors are cautioned not to put undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise.
Liquidity and Capital Resources
The liquidity and capital resources of United States Exploration, Inc.
("Company") remained stable at September 30, 1997. Working capital decreased
from $17,062,422 at March 31, 1997 to $16,303, 638 at September 30, 1997, a
decrease of $758,784. Current assets, including cash, decreased slightly during
that time, primarily as a result of payment of Preferred Stock dividends and
increased repair and maintenance costs. Current liabilities increased
approximately $350,000 during that time, attributable to accrued dividends
payable at September 30, 1997. The accrued dividends were paid immediately
subsequent to completion of the quarter.
Under present conditions, management remains of the opinion that the
Company has sufficient liquidity and working capital for the foreseeable future.
Anticipated expenditures for the remainder of the calendar year include repairs
to gas gathering systems and workovers of oil and gas wells. This work was
commenced in the quarter ended September 30, 1997, and is expected to continue
through the balance of the current calendar quarter. The Company also incurred
expenditures subsequent to the completion of the quarter in connection with
listing of its Common Stock on the American Stock Exchange. Finally, the Company
will continue to explore acquisitions of producing and nonproducing oil and gas
properties in an effort to expand operations.
The Company's oil and gas operations continue to provide cash. During the
six months ended September 30, 1997, the Company's operating activities provided
$646,832 in cash, compared to $198,057 for the six months ended September 30,
1996. However, cash provided by operations was more than offset by dividends
paid on the Preferred Stock, which amounted to $960,000 for the six months ended
September 30, 1997.
7
<PAGE>
Immediately subsequent to completion of the quarter, the Company completed
conversion of the first portion of its Series "C" Preferred Stock. At the
request of one holder of the Series "C" Preferred Stock, the Company converted
150,000 shares into 300,000 shares of Common Stock. Conversion of outstanding
Preferred Stock will proportionately reduce dividends payable during future
periods.
The Company's efforts to evaluate and dispose of non-essential assets
resulted in a provision for impairment of certain assets (See "Results of
Operations" below). The Company continues efforts to dispose of a crude oil
refinery and accompanying real estate located near the City of Corpus Christi,
Texas, plus a natural gas processing plant. All the equipment held for sale has
been sold subsequent to the end of the quarter.
Results of Operations
For the six months ended September 30, 1997, the Company realized a net
loss of $1,290,344, on total revenues of $2,041,771. This compares to a net loss
of $126,668 on revenues of $1,848,980 for the six months ended September 30,
1996. The net losses for the three months ended September 30, 1997 and 1996 were
$1,457,977 and $29,701, respectively. Taking into account the Preferred Stock
dividends applicable to the period, the net loss applicable to common
shareholders for the six months ended September 30, 1997 was $2,250,344, or
$(0.27) per share.
Revenues for the first six months of fiscal 1998 increased over the
comparable period for fiscal 1997 as a result of acquisitions completed by the
Company during fiscal 1997. However, revenues for the three months ended
September 30, 1997 decreased from the prior quarter ended June 30, 1997. The
Company continues workovers on oil and gas wells and repairs of its gas
gathering systems, which caused production costs to increase during the quarter.
The results of operations for the three and six months ended September 30,
1997 include provision for impairment of $220,997 for Company-owned equipment
and assets held for sale. The Company also recorded an impairment of the
refinery and real estate located near Corpus Christi in the amount of
$1,075,011.
General and administrative expenses increased substantially during the
three months ended September 30, 1997 compared to the comparable period ended
September 30, 1996. The increase of $246,055 from the second quarter of 1996 to
the second quarter of 1997 includes stock compensation paid to former officers,
directors and employees, a provision for bad debts, accounting fees and costs
associated with the management transition and the creation of a professional
staff.
8
<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.
The Company's Common Stock was admitted for listing on the
American Stock Exchange effective October 23, 1997.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits:
None.
B. Reports on Form 8-K:
None.
9
<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: November 19, 1997 By: /s/ Bruce D. Benson
------------------------------ -------------------------
Bruce D. Benson, President,
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: November 19, 1997 By: /s/ F. Michael Murphy
------------------------------ -------------------------
F. Michael Murphy, Vice President,
Secretary and Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 15,082,789
<SECURITIES> 1,500,000
<RECEIVABLES> 540,018
<ALLOWANCES> 0
<INVENTORY> 14,889
<CURRENT-ASSETS> 17,186,533
<PP&E> 11,230,683
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,694,417
<CURRENT-LIABILITIES> 882,895
<BONDS> 0
0
24,000,000
<COMMON> 846
<OTHER-SE> 4,810,676
<TOTAL-LIABILITY-AND-EQUITY> 29,694,417
<SALES> 2,041,771
<TOTAL-REVENUES> 2,041,771
<CGS> 1,315,594
<TOTAL-COSTS> 1,315,594
<OTHER-EXPENSES> 2,487,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (579)
<INCOME-PRETAX> (1,290,344)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,290,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,290,344)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
