10QSB 1 squarter.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 Commission File Number 0-13871 Pennsylvania 25-1349204 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10299 West Main Road, North East, Pennsylvania 16428-0391 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (814) 725-8742 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 [ X ] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, No Par Value - 5,325,562.50 shares as of June 30,2002 PART 1 - FINANCIAL INFORMATION CONDENSED BALANCE SHEETS VINEYARD OIL & GAS COMPANY
June 30, December 31, 2002 2001 (unaudited) ASSETS Current Assets Cash $ 554,891 $ 282,026 Accounts receivable 3,212,931 5,258,662 Inventories 53,482 49,569 Prepaid Expenses 45,573 78,442 ----------- ---------- Total Current Assets 3,866,877 5,668,699 Property, Plant and Equipment Land and land improvements 193,680 193,680 Building and improvements 267,618 260,087 Oil and gas properties 5,482,134 5,449,978 Drilling and other equipment 1,239,354 1,237,423 ----------- ---------- 7,182,786 7,141,168 Less accumulated depreciation (6,781,697) (6,725,438) ----------- ---------- 401,089 415,730 ----------- ---------- Leased Property Capital lease, less accumulated depreciation 41,250 48,750 ----------- ---------- Other Assets Long term trade receivable 200,000 200,000 Cash restricted for well plugging 251,218 249,929 Investments 90,894 94,743 ---------- ---------- 542,112 544,672 ---------- ---------- TOTAL ASSETS $ 4,851,328 $6,677,851 ---------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable Trade $2,640,833 $4,546,701 Limited Partnerships 144,134 188,007 Accrued expenses 45,017 69,471 Current portion of long term debt 10,106 9,754 ---------- ---------- Total Current Liabilities 2,840,090 4,813,933 Long-term liabilities Obligations under capital leases 45,306 50,449 Deferred revenue 394,852 393,563 ---------- ---------- Shareholder's Equity Common Stock, authorized 15,000,000 shares without par value, issued 5,325,562.5 shares at June 30, 2002, at stated value of $.05 266,278 263,778 Additional paid-in capital 4,965,430 4,967,930 ---------- ---------- 5,231,708 5,231,708 Retained earnings (deficit) (3,435,708) (3,586,882) ---------- ---------- 1,796,000 1,644,826 Less: cost of 67,944 shares held in treasury (224,920) (224,920) ---------- ---------- 1,571,080 1,419,906 ---------- ---------- $4,851,328 $ 6,677,851 ---------- ---------- See notes to condensed financial statements.
PART I. - FINANCIAL INFORMATION CONDENSED STATEMENTS OF INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED June 30, 2002 AND 2001 VINEYARD OIL & GAS COMPANY
3 Months 3 Months 6 Months 6 Months Ended Ended Ended Ended June 30, June 30, June 30, June30, 2002 2001 2002 2001 Earned revenues Gas and Electric Marketing $5,049,376 $7,996,800 $11,898,294 $21,039,818 Well Services 8,022 5,870 32,943 12,990 Production and Royalties 100,478 142,439 194,956 290,906 Equipment rental and service income 107,431 124,712 372,216 228,167 --------- --------- --------- --------- 5,265,307 8,269,821 12,498,409 21,571,881 Other Income Gain on sale -0- 1,000 -0- 1,000 Rent and other income 19,204 15,601 34,023 42,376 Equity in earnings of jointly owned company 13,904 20,452 23,007 47,654 --------- --------- --------- --------- 5,298,415 8,306,874 12,555,439 21,662,911 --------- --------- --------- --------- Cost and Expenses Direct costs of earned revenues Gas and electric marketing 5,019,454 7,768,896 11,545,538 20,777,590 Well services 23,690 24,470 43,593 47,684 Production 32,406 22,829 59,177 51,874 Equipment expenses 102,052 137,811 318,728 255,185 Depreciation/amortization 11,546 14,812 23,093 31,283 --------- --------- --------- --------- 5,189,148 7,968,818 11,990,129 21,163,616 General and Administrative 184,112 257,785 396,510 462,325 Depreciation 3,374 4,654 8,509 9,307 Interest 1,812 3,287 4,086 4,505 --------- --------- --------- --------- 5,378,446 8,234,544 12,399,234 21,639,753 --------- --------- --------- --------- Net income before income taxes (80,031) 72,330 156,205 23,158 --------- --------- --------- --------- Income taxes (Note 3) -0- -0- 5,031 -0- -------- --------- --------- -------- Net income (80,031) 72,330 151,174 23,158 --------- --------- --------- --------- Base earnings per common share (.015) .014 .028 .005 --------- --------- --------- --------- Diluted Earnings per common share (.015) .014 .028 .005 --------- --------- --------- --------- See Note to condensed financial statements
CONDENSED STATEMENTS OF CASH FLOWS VINEYARD OIL & GAS COMPANY (UNAUDITED) FOR THE SIX MONTHS ENDED June 30, 2002 AND 2001 3 Months 3 Months 6 Months 6 Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 Cash flow from operating activities: Income (loss) from operations $(80,031) 72,330 151,174 23,158 Adjustments To Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 14,920 19,466 31,602 40,590 Provision for losses on accounts receivable and inventories 6,000 124,000 12,000 190,000 Gain on sale of property -0- (1,000) -0- (1,000) Changes in operating assets and liabilities providing (using) cash: Accounts receivable 1,397,615 1,867,926 2,033,732 716,748 Inventories 2,258 (5,168) (3,913) (11,033) Prepaid expenses (4,160) (65,677) 32,869 47,516 Other assets (11,503) (18,052) 3,849 (20,028) Accounts payable (1,081,083) (1,626,896) (1,949,741)(1,469,477) Other current liabilities 11,275 (13,338) (24,454) (51,811) Deferred revenue 631 1,578 1,289 3,531 ---------- --------- --------- -------- Net cash provided by (used in) operating activities 255,922 355,169 288,407 (531,806) ---------- ---------- --------- -------- Cash flow from investing activities: capital expenditures (9,462) (10,146) (9,462) (24,760) Proceeds from asset sale -0- 1,000 -0- 1,000 --------- --------- --------- --------- Net cash used in investing (9,462) (9,146) (9,462) (23,760) activities --------- --------- --------- --------- Cash flow from financing activities: Principal payments on borrowings (2,417) (2,252) (4,791) (4,463) Proceeds from bank loans (150,000) -0- -0- -0- --------- --------- --------- --------- Net cash (used in) financing (152,417) (2,252) (4,791) (4,463) activities --------- --------- --------- --------- Increase (Decrease) in cash 94,043 343,771 274,154 (560,029) Cash at beginning of period 712,066 1,009,923 531,955 1,913,723 --------- --------- --------- ---------- Cash at end of period $ 806,109 $1,353,694 $ 806,109 $1,353,694 --------- --------- --------- ---------- See notes to condensed financial statements.
VINEYARD OIL & GAS COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 2002 1. In the opinion of the Company, the accompanying condensed (unaudited) financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the results for the six months ended June 30, 2002, and are not necessarily indicative of the results to be expected for the full year. 2. Primary earnings per share are determined by dividing net income by the weighted average number of common equivalent shares outstanding (5,325,562.50 in 2002 and 5,125,562.5 in 2001). 3. No federal income tax was due or paid during the periods ending June 30, 2002, and 2001, due to available operating loss carry forwards. 4. Cash is classified as follows for financial statement reporting purposes: For purposes of the statement of cash flows, cash includes demand deposits, certificates of deposit, and short term investments with original maturates of three months or less. Short-term investments consist of money market funds, and are reported at market value, which equals cost. The Company's non-cash investing and financing activities and cash payments for interest and income taxes were as follows: Cash paid during the six month period ending June 30, for: 2002 2001 ------ ------ Interest 4,086 4,505 Income Taxes 5,031 0
Cash consists of the following for the periods indicated:
June 30, 2002 December 31, 2001 Cash in bank $ 554,891 $ 282,026 Cash restricted for well plugging 251,218 249,929 ---------- ---------- $ 806,109 $ 531,955 ---------- ----------
4. LOAN PAYABLE June 30, 2002 December 31, 2001 Vehicle loan payable in monthly Installments to April , 2005 $ 55,412 $ 60,203 Less current portion 10,106 9,754 -------- -------- 45,306 50,449 -------- -------- 7.125% loan, secured by vehicle, payable in monthly installments of $1,143 including interest to April 2005, with a final payment of $25,956. Maturities of long term portion are as follows: Year ending June 30 Principal ----------- --------- 2004 10,848 2005 34,458 --------- $45,306 --------- 6. BUSINESS SEGMENT INFORMATION Description of the types of products and services from which each reportable segment derives its revenue The Company's three reportable business segments are gas marketing, well services and equipment rental and oil and gas production. The Company's gas marketing operation involves marketing gas from local producers and interstate pipeline sources, as well as marketing gas from the Company's managed limited partnerships, and selling that gas to industrial gas users through transportation arrangements on intrastate and interstate pipeline systems. In the well services and equipment rental operation, the Company rents well service equipment (e.g. for use in water hauling, pipeline installation, and welding) and provides workover and well tending services for producing wells. Revenues from oil and gas production operations are primarily derived from working and royalty interests in the sale of oil and gas production and for the transmission of such production. Measurement of segment profit or loss and segment assets The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit and loss from operations before income taxes not including nonrecurring gains and losses. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Factors management used to identify the Company's reportable segments The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technology and marketing strategies. The Company's segment profit or loss and assets are as follows: Well Services Gas & Electric and Equipment Oil & Gas All Marketing Rental Production Others Totals June 30, 2002 Revenues from external customers 11,898,294 405,159 194,956 -0- 12,498,409 Intersegment revenues -0- -0- -0- -0- -0- Other revenue -0- -0- -0- 57,030 57,030 Depreciation and amortization -0- 11,093 12,000 8,509 31,602 Segment profit 352,756 31,745 123,779 (357,106) 151,174 Segment assets 2,905,473 357,086 617,168 971,601 4,851,328 Expenditures for segment assets -0- -0- -0- 9,462 9,462 June 30, 2001 Revenues from external customers 21,039,818 241,157 290,906 -0- 21,571,881 Intersegment revenues -0- -0- -0- -0- -0- Other revenue -0- -0- -0- 91,030 91,030 Depreciation and amortization -0- 16,283 15,000 9,307 40,590 Segment profit 262,228 (77,995) 224,032 (385,107) 23,158 Segment assets 6,045,646 375,695 1,263,205 1,294,953 8,979,499 Expenditures for segment assets -0- 14,615 2,500 7,645 24,760 A) Revenue from segments below quantitative thresholds are attributed to the Company's equity in earnings of its jointly owned company and unallocated revenues such as interest income and gains recognized on the disposition of assets. General and administrative expenses are not allocated to the Company's three business segments. This activity is reported as "all others". 7. CURRENT EVENTS In May 2002, in a private transaction, Sabre Oil and Gas, Inc. acquired a 19.8% interest in the Company from a group of shareholders, which included four of the seven directors of the Company. Sabre and its affiliate, East Resources, Inc., are major suppliers of natural gas production sold under the Company's gas marketing segment. Sabre and East also collectively own 55% of Northern Pipeline, L.L.C. 8. CERTIFICATION OF DISCLOSURE IN QUARTERLY REPORT The following statements serve to certify that the President and Treasurer: 1.) have reviewed the report being filed. 2.) based on their knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report. 3.) based on their knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in the report. 4.) are responsible for establishing and maintaining disclosure controls and procedures and have or will: i. designed such disclosure controls and procedures to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the periodic reports are being prepared; ii. evaluated the effectiveness of the issuer's disclosure controls and procedures as of a date within 90 days prior to the filing date of the report ("Evaluation Date"); and iii. presented in the report their conclusions about the effectiveness of the disclosure controls and procedures based on their evaluation as of the Evaluation Date; 5.) have disclosed, based on their most recent evaluation, to the issuer's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function): i. all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer's ability to record, process, summarize and report financial data and have identified for the issuer's auditors any material weakness in internal controls; and ii. any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and 6.) have indicated in the report whether of not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PRINCIPAL AND FINANCIAL OFFICER'S SIGNATURES VINEYARD OIL & GAS COMPANY /s/ Stephen B. Millis STEPHEN B. MILLIS President /s/ James M. Reynard JAMES M. REYNARD Secretary/Treasurer MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN THE QUARTER ENDED JUNE 30, 2002 Material Changes in Financial Conditions Vineyard Oil & Gas Company's cash position increased $274,154 for the six month period ended June 30, 2002, and increased $94,043 for the three month period ended June 30, 2002. Cash from operations reported a $288,407 and $255,922 increase for the same periods, respectively. Of these amounts, accounts receivable and accounts payable decreases resulted in a net cash increase of $83,991 for the six month period and a net cash increase of $316,532 for the three month period. Inventory had minimal impact on cash for both periods decreasing cash by $3,913 for the six month period and increasing cash by $2,258 in the three month period. Prepaid and other assets accounted for an increase to cash totaling $36,718 for the six month period and caused a decrease in cash of $15,663 for the three month period. Current liabilities had a negative impact to cash totaling $24,454 for the six month period and increased cash by $11,275 for the three month period. Finally, deferred revenue had a positive impact of $1,289 and $631 to cash in both periods, respectively. Earned revenues decreased by $9,107,472 for the six month period ended June 30, 2002, over the same six month period in 2001. Gas marketing revenue decreased $9,141,524, during this period. Gas marketing term deals and spot deals maintained adequate levels, however gas prices remained dramatically lower in this period. Well services and equipment rental/service income increased revenue by $164,002. This was mainly the result of a large pipeline project included in 2002. Production and royalties decreased by $95,950. Gas price decreases accounted for the change while production remained relatively constant in relation to last year. Rent and other income decreased $8,353, due mainly to the decrease in interest rates on cash balances. Equity in earnings of a jointly owned company decreased $24,647, due to decreased activity in 2002. Cost of revenues decreased $9,240,519 over the similar period in 2001. Gas purchases decreased by $9,232,052 over this period. The dramatic drop in gas purchase price was directly related to the gas sale price decrease referred to above. Well services and equipment rental/service income expenses increased $59,452 over the comparable six month period in 2001. The increase was directly related to the additional costs incurred on the large pipeline project referred to above. Production costs increased a modest $7,303 over last year. General and administrative expenses decreased $65,815 over the same period in 2001. Primarily, the decrease is a result of bad debt expenses being reduced by $178,000 from the same period last year. This positive impact to general and administrative expenses was reduced by increases in several other accounts including officer salaries and accounting fees, which increased by $35,038 and $46,410, respectively. Net income of $151,174 represents an increase of $128,016 over the same period in 2001. The schedule of segment profit and loss shows the changes by reporting segment. Marketing shows a gross profit of $352,756 in 2002 as compared to $262,228 in 2001. The increase is attributable to improved margins on term deals and spot deals in 2002. Well services and equipment rental gross profit in 2002 was $31,745 compared to a loss in 2001 of $77,995. This is generally the result of the additional profit generated by the pipeline project in early 2002. Oil and gas production reported a gross profit of $123,779 in 2002. In comparison, this is a reduction in profit for this segment from the reported gross profit of $224,034 in 2001. Again, this was due to the decrease in gas sale prices for 2002. 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) REPORTS ON FORM 8-K ___________________ NONE.