SEC Form 10-Q Summary
Filing identity: The supplied filing is for EnerJex Resources, Inc., not Ageagle Aerial Systems Inc. Investors should verify the issuer before relying on these figures. The report covers the three months ended March 31, 2013, with comparisons to March 31, 2012. The company acquires, develops and produces onshore oil properties in Eastern Kansas and South Texas.
Financial Performance and Position
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Oil revenue | $2.337 million | $1.903 million | 22.8% increase |
| Income from operations | $369,055 | $160,459 | 130.0% increase |
| Operating margin | 15.8% | 8.4% | Improved |
| Net income (loss) | $20,036 | $(1.082) million | Improved by $1.102 million |
| Net loss attributable to common stockholders | $(172,851) | $(1.082) million | Improved by $909,000 |
| Operating cash flow | $(101,131) | $(1.347) million | Improved by $1.246 million |
| Ending cash | $464,404 | $667,979 | Q1 2013 decrease from $767,494 at year-end 2012 |
Net production increased to 26,537 barrels from 19,485 barrels, while the average sales price declined to $88.07 per barrel from $97.66. Direct operating costs increased to $782,072, primarily due to higher production, but production cost per barrel declined to $46.22 from $52.95. Direct lifting cost per barrel declined to $29.47 from $31.26.
Total assets were $37.608 million at March 31, 2013, including $34.292 million of oil properties. Total liabilities were $16.286 million, including $10.000 million of long-term debt, $625,000 of current note payable, and $1.829 million of derivative liabilities. Current assets of $3.025 million were below current liabilities of $3.998 million, resulting in a working-capital deficit of $973,926.
Material Changes Versus the Prior Period
- Revenue rose by $434,409, primarily because of increased oil production.
- Operating income increased by $208,596 as revenue growth exceeded the increase in operating and general expenses.
- The derivative loss declined to $239,941 from $1.187 million, materially improving pretax results. Management attributed the reduction primarily to completed contracts and changes in the WTI benchmark price.
- Interest expense increased to $118,245 from $67,660 because of greater borrowings under the credit facility.
- Salary expense increased by $112,129, while administrative expense decreased by $104,493.
- The company drilled four oil wells and seven secondary-recovery injection wells in its Southeast Kansas Mississippian Project and five oil wells in its Eastern Kansas Cherokee Project.
- Oil-property additions were $1.499 million, compared with $1.776 million in the prior-year quarter.
Liquidity, Debt and Cash Flow
Cash used in operating activities was $101,131 and cash used in investing activities was $1.502 million, primarily for oil-property development. Financing activities provided $1.300 million, including $1.500 million of borrowings and $200,000 of note-payable principal repayments. Cash therefore decreased by $303,090 during the quarter.
The senior secured revolving credit facility has a stated commitment of $50 million and matured on October 3, 2015, unless extended. The company had borrowed $10.0 million as of March 31, 2013, at a stated interest rate of 3.75%. On April 16, 2013, after the reporting date, Texas Capital Bank increased the borrowing base from $12.15 million to $19.5 million. Management expected a further review in the second or third quarter of 2013 and anticipated that increased production and maturing production could support an additional increase.
The remaining $625,000 promissory-note principal was scheduled to be repaid in three installments of $200,000, $200,000 and $225,000 by June 30, September 30 and December 31, 2013, respectively. The company also had a $50,000 irrevocable letter of credit in favor of the Texas Railroad Commission.
Outlook, Risks and Unusual Items
Management stated that it expected to fund near-term obligations and its 2013 capital program through operating cash flow and additional credit-facility borrowings. It planned normal purchases of production and field-service equipment and did not anticipate significant research and development expenditures.
- Commodity-price volatility affects revenue, reserves, property values and borrowing-base calculations. Hedging reduces price exposure but limits the benefit of higher oil prices and does not cover all production.
- The company reported crude-oil swaps with a total fair value liability of $1.829 million, covering monthly volumes of 1,873 barrels at $76.74 per barrel and 2,536 barrels at $83.70 per barrel through December 2015.
- Oil properties are accounted for under the full-cost method and are subject to SEC ceiling tests. Changes in reserve estimates or oil prices could result in material impairment charges.
- Asset-retirement obligations increased to $1.386 million, reflecting well-abandonment liabilities, new obligations and accretion.
- The company disclosed litigation against former attorneys and their law firm alleging approximately $50 million of economic loss. The defendants filed a counterclaim of approximately $492,134, which was recorded in accounts payable. The outcome and any recovery are uncertain.
- Management identified risks involving development capital, operating performance, secured-debt defaults, reserve estimates, oil prices, weather, regulation, personnel, interest rates and regional economic conditions.
- The company reported no material off-balance-sheet arrangements and stated that its disclosure controls were effective.
Investor Verification Points
- Confirm that the intended issuer is EnerJex Resources, Inc.; the request metadata identifies Ageagle Aerial Systems Inc., which does not match the supplied filing.
- Reconcile the company’s ability to fund the 2013 drilling program and scheduled note repayments against $464,404 of quarter-end cash and negative working capital.
- Review the credit agreement, borrowing-base requirements, financial covenants and the April 16, 2013 borrowing-base increase.
- Assess exposure to the $1.829 million derivative liability and the effect of hedges on future revenue and cash flow.
- Evaluate reserve estimates, full-cost ceiling-test sensitivity and potential oil-property impairment from lower oil prices or revised reserves.
- Monitor the disclosed litigation, the $492,134 counterclaim and the related accounts-payable balance.