Great American Resources cleaned out its downtown San Diego offices Tuesday night, laid off 20 employees when they showed up for work Wednesday morning and announced later in the day that it plans to "reorganize" the company and move administration east to Girard, Ohio, where it will be managed under contract by Eastern Petroleum Co.
The abrupt action was taken by GAR's board of directors in a bid to reduce administrative costs and to move management closer to GAR's oil and gas assets and operations in the Midwest. Also being relocated is Great American Partners (GAP), a publicly held master limited partnership, of which GAR is managing partner and 25% owner.
Frederick Smith, GAR senior vice president, said that he "can't answer that" when asked about the extent of the planned reorganization and whether a Chapter 11 filing under the federal bankruptcy code is being considered.
Robert Smallwood, Eastern Petroleum chief financial officer, also declined comment Wednesday on a possible Chapter 11 filing.
Eastern Petroleum was described by Smallwood as a closely held independent oil and gas operator based in Girard, Ohio, that controls 900 wells in Ohio and Pennsylvania. He would not comment on whether Eastern plans to acquire certain or all of GAR or GAP assets.
"This is just a contract to manage the company. The purpose (of Eastern's taking over) is hopefully to give (GAR) shareholders and (GAP) unit holders back something," Smallwood said.
The 20 employees laid off--all but three of GAR's staff, Smith said--were given their current paychecks but no severance pay. The three employees not laid off will be offered only temporary jobs, Smith said.
"When I walked in this morning, everything was gone," said data entry clerk Charlene Eskridge, standing in GAR's barren offices in the Union Bank building. "They just said the board had voted to move everything back to Ohio."
Other employees said layoffs of six or seven other GAR staffers in the last six months gave them an inkling that GAR was in financial trouble.
GAR and GAP have had continuing financial and legal difficulties, capped by the June disclosure in GAR's Form 10-K filing with the Securities and Exchange Commission that GAP may have violated SEC laws in connection with a unit offering in 1986. The offering involved GAP's issuance of 3.8 million partnership units, then valued at $13.2 million, to GAR in exchange for oil and gas properties, services and to satisfy debts.
The possible violations, which center on a prospectus prepared by GAR for the GAP offering, have created a "contingent liability" for both GAR and GAP, GAR said in its filing. Both entities could be subject to fines and penalties or be required to rescind the unit offering, Smith said Wednesday.
The SEC and GAR still have not settled the matter, Smith said.
GAR's auditors, Touche Ross & Co., qualified its opinion of the company's 1986 annual report, noting that GAR's shortage of working capital "indicate(s) that the company may be unable to to continue in existence."
In June, NASDAQ delisted GAR stock, Smith said, because of GAR's inadequate net equity of $300,000 and because it was late in filing required SEC documents. GAP units are traded publicly over the NASDAQ and traded Wednesday at about 15 cents per unit, down 35 cents on the day, Smith said. As recently as last December, the units were valued at more than $3.50 each.
GAR reported a net loss of $415,936 on revenues of $305,859 for the quarter ended March 31. For the full year ended Dec. 31, GAR lost $1,153,482 on revenues of $887.946.
For the six months ended June 30, GAP lost $1,072,000 on sales of $1,463,000. For the full year ended Dec. 31, GAP's loss was $6,270,000 on revenue of $2,522,000.
President Steve Vrable, an Ohio resident and GAR board member who replaced Gary Takessian as GAR chief executive in June, will stay on with the company. Smith said he plans to resign.