<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 2000
------------------
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ______________
Commission File No. 0-277443
BLUE RIDGE ENERGY, INC.
-------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 61-1306702
------------------------------- ------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
632 ADAMS STREET, SUITE 710, BOWLING GREEN, KY 42101
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(Address of Principal Executive Offices)
(270) 842-2421
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 5,810,794
---------------
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(a) FINANCIAL STATEMENTS OF REGISTRANT
INDEX NUMBER
Condensed Balance Sheets (Unaudited) as of June 30, 2000
and December 31, 1999. 2-3
Condensed Statements of Income (Unaudited) for the three
months and six months ended June 30, 2000 and 1999. 4
Condensed Statements of Cash Flows (Unaudited) for the
six months ended June 30, 2000 and 1999. 5
Notes to Condensed Financial Statements (Unaudited) 6-13
Report on Review by Independent Accountants 14
The condensed financial statements of the Registrant included herein have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Although certain information normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted, the Registrant believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Form 10- KSB of
the Registrant for its fiscal year ended December 31, 1999.
The condensed financial statements included herein reflect all adjustments
(consisting only of normal recurring accruals) which, in the opinion of
management, are necessary to present a fair statement of the results for the
interim periods.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for a full year.
b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS 15-19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K 20
1
<PAGE> 3
BLUE RIDGE ENERGY, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 204,729 $ 131,465
Accounts Receivable:
Managed Limited Partnerships 412,828 337,276
Trade and Other 136,511 74,275
Advances to Related Parties 82,545 627,304
---------- ----------
TOTAL CURRENT ASSETS 836,613 1,170,320
PROPERTY AND EQUIPMENT, NET 3,693,861 3,178,606
OTHER ASSETS 20,536 10,810
---------- ----------
TOTAL ASSETS $4,551,010 $4,359,736
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements
2
<PAGE> 4
BLUE RIDGE ENERGY, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 104,259 $ 90,835
Current Portion Long Term Debt 110,231 110,231
----------- -----------
TOTAL CURRENT LIABILITIES 214,490 201,066
LONG TERM DEBT 335,128 418,511
DEFERRED INCOME TAX LIABILITY 238,807 150,139
----------- -----------
TOTAL LIABILITIES 788,425 769,716
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS= EQUITY:
Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; 697,600 and 636,950 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively 698 637
Common Stock, $0.005 par value; 20,000,000 shares
authorized; 5,810,794 and 5,809,794 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively 29,054 29,049
Additional Paid-In Capital 4,398,426 4,208,735
Accumulated Deficit (665,593) (648,401)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,762,585 3,590,020
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,551,010 $ 4,359,736
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
3
<PAGE> 5
BLUE RIDGE ENERGY, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
OPERATING REVENUES: 2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Turnkey Contract Sales $ 836,806 $ 928,800 $ 1,697,418 $ 3,008,400
Management Fees 31,537 60,000 73,232 115,675
Drilling Services Sales 275,921 294,651 578,644 294,651
Oil and Gas Sales 52,191 7,485 121,036 14,190
----------- ----------- ----------- -----------
Total Operating Revenues 1,196,455 1,290,936 2,470,330 3,432,916
OPERATING COSTS AND
OTHER EXPENSES:
Turnkey Contract Costs 665,337 750,500 1,328,815 2,417,000
Drilling Services Costs 175,653 291,112 441,789 291,112
Lease Operating Costs 10,235 3,224 23,760 7,482
Depreciation, Depletion
and Amortization 36,000 17,221 72,000 20,253
Marketing Costs 3,629 56,462 3,629 180,911
General and Administrative Costs 170,171 56,057 307,092 77,787
----------- ----------- ----------- -----------
Total Operating Costs 1,061,025 1,174,576 2,177,085 2,994,545
----------- ----------- -----------
OPERATING INCOME 135,430 116,360 293,245 438,371
OTHER INCOME (EXPENSE):
Interest Income (Expense) (12,673) (7,841) (22,008) 16,364
----------- ----------- ----------- -----------
Total Other Income (12,673) (7,841) (22,008) 16,364
----------- ----------- ----------- -----------
INCOME BEFORE TAXES 122,757 108,519 271,237 454,735
Income Tax Provision (39,670) (30,041) (88,668) (144,281)
----------- ----------- ----------- -----------
NET INCOME $ 83,087 $ 78,478 $ 182,569 $ 310,454
=========== =========== =========== ===========
EARNINGS PER
COMMON SHARE:
Basic $ (0.00) $ 0.00 $ (0.00) $ 0.03
=========== =========== =========== ===========
Diluted $ (0.00) $ 0.00 $ (0.00) $ 0.03
=========== =========== =========== ===========
Weighted Average Common
Shares Outstanding 5,810,028 5,166,578 5,809,916 5,167,411
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
4
<PAGE> 6
BLUE RIDGE ENERGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
6 MONTHS ENDED
JUNE 30,
OPERATING REVENUES: 2000 1999
--------- -----------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income (Loss) $ 182,569 $ 310,454
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities:
Depreciation, Depletion and Amortization 72,000 20,253
Increase (Decrease) in Deferred Taxes 88,668 144,281
Decrease (Increase) in Accounts Receivable (137,789) 77,790
Increase (Decrease) in Accounts Payable
and Accrued Liabilities 13,424 (280,258)
--------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 218,872 272,520
CASH FLOWS FROM
INVESTING ACTIVITIES:
Decrease (Increase) in Advances to Affiliate 544,759 1,209,156
Decrease (Increase) in Other Assets (9,726) 54,873
Purchase of Drilling Equipment (116,711) (2,089,484)
Purchase of Oil and Gas Properties (470,545) (296,409)
--------- -----------
NET CASH PROVIDED (USED)BY
INVESTING ACTIVITIES (52,223) (1,121,864)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Additions to Notes Payable -- 587,603
Payments of Notes Payable (83,383) (141,000)
Issuance of Preferred Stock 188,577 227,425
Exercise of Common Stock Warrants 1,000 --
Retirement of Common Stock -- (15,000)
Payments of Preferred Stock Dividends (199,579) (147,923)
--------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (93,385) 511,105
--------- -----------
NET INCREASE (DECREASE) IN CASH 73,264 (338,239)
CASH AT BEGINNING OF PERIOD 131,465 480,952
--------- -----------
CASH AT END OF PERIOD $ 204,729 $ 142,713
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 24,067 $ 5,062
========= ===========
Cash Paid for Income Taxes $ -- $ --
========= ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
5
<PAGE> 7
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Blue Ridge Energy, Inc., (the Company), a Nevada corporation, was organized
in November, 1994, as Gem Source, Incorporated (Gem Source), and subsequently
changed the name of the Company to Blue Ridge Energy, Inc. in May, 1996. The
Company has offices at 632 Adams Street, Suite 710, Bowling Green, Kentucky,
42101
The Company is engaged in the oil and gas business primarily in Texas,
Kentucky, New Mexico and West Virginia. The Company sponsors oil and gas
drilling partnerships through which it raises money for the drilling of oil and
gas wells and participates for a 1% partnership interest as the managing general
partner of the oil and gas exploration partnerships. The Company also owns two
drilling rigs. These rigs are used to drill oil and gas wells for the sponsored
oil and gas drilling partnerships and also other non-affiliated oil and gas
companies. The rigs are operated on behalf of the Company by an affiliate, Blue
Ridge Group, Inc.
The Company also acquires direct working interest participation in oil and
gas properties. The participation includes both operated and non-operated
working interest in exploratory and development wells. These acquisitions are
funded by a combination of the profits earned from sponsoring oil and gas
drilling programs, the profit earned from contract drilling and from the
proceeds of private offerings of preferred stock.
The Company intends to maintain an active role in the oil and gas industry
as an operator of oil and gas wells, a sponsor of oil and gas drilling programs,
a participant in oil and gas programs, and as an independent producer of oil and
gas.
Principles of Consolidation
The accompanying financial statements include the accounts of Blue Ridge
Energy, Inc. and its investment in limited partnerships for which it acts as
managing general partner. As such, the Company has the sole and exclusive right
and power to manage and control the partnership. The Company accounts for its
investment in limited partnerships under the proportionate consolidation method.
Under this method, the Company's financial statements include its pro rata share
of assets and liabilities and revenues and expenses, respectively, of the
limited partnerships in which it participates. All material inter company
accounts and transactions have been eliminated in consolidation.
6
<PAGE> 8
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Drilling Rig Operations
The Company follows the completed contract method of accounting for turnkey
drilling arrangements. Under this method, all income under drilling contracts,
expenses under drilling contracts, all direct costs, and appropriate portions of
indirect costs related to contracts in progress are recognized as revenues and
expenses in the period the contracts are substantially complete. This accounting
method has been utilized by the Company based on the short term nature of the
drilling contracts, i.e. 5-10 days.
Working Interests
Oil and gas revenue from working interests the Company owns are recognized
at the point of sale.
Managed Limited Partnerships
The Company sponsors privately offered limited partnerships for which it
serves as the Managing General Partner. The purpose of these partnerships is to
acquire and develop oil and gas leases. The partnerships enter into turnkey
drilling contracts with the Company to drill, complete and equip, if warranted,
the oil and gas leases. The Company receives direct compensation, reimbursement
of costs and expenses, and revenues related to turnkey drilling contracts. The
Company normally participates for 1% of the Limited Partnerships as the Managing
General Partner.
The Company follows the industry practice of pro rata consolidation of its
investments in these partnerships. Accordingly, the Company records on its
financial statements its pro rata share of the assets, liabilities, revenues and
expenses of each partnership. In connection with the sponsorship of oil and gas
partnerships, the Company receives a management fee of approximately 5% of the
capital contributions. Such fees are credited to income as earned.
Property and Equipment
Property and equipment (other than oil and gas) are stated at cost.
Depreciation is recognized on the straight line method, after considering
salvage value, over the estimated useful lives of the assets as follows:
Lives (years)
-------------
Machinery and Equipment 10
Autos and Trucks 5
Furniture and Fixtures 10
The Company follows the successful efforts method of accounting for oil and
gas producing activities. Under the successful efforts method of accounting,
costs which relate directly to the discovery of oil and gas reserves are
capitalized. These capitalized costs include;
(1) the costs of acquiring mineral interest in properties,
(2) costs to drill and equip exploratory wells that find proved
reserves,
7
<PAGE> 9
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
(3) costs to drill and equip development wells and
(4) costs for support equipment and facilities used in oil and gas
producing activities.
These costs are depreciated, depleted or amortized on the unit of
productions method, based on estimates of recoverable proved developed oil and
gas reserves.
Costs to drill exploratory wells that do not find proved reserves,
geological and geophysical costs, and costs of carrying and retaining unproved
properties are expensed.
The costs of acquiring unproved properties are capitalized as incurred and
carried until the property is reclassified as a producing oil and gas property,
or considered impaired. The Company annually assesses its unimproved properties
to determine whether they have been impaired. If the results of this assessment
indicate impairment, a loss is recognized by providing a valuation allowance.
When an unproved property is surrendered, the costs related thereto are charged
to the application valuation allowance, if adequate, or charged as a loss to
current operations.
The costs of drilling exploratory wells are capitalized as part of the
Company's uncompleted wells, equipment and facilities pending determination of
whether the well has found proved reserves. Once a determination is made, the
capitalized costs are either charged to expense or reclassification as part of
the costs of the Company's wells and related equipment. In the absence of a
determination as to whether the reserves that have been found can be classified
as proved, the costs of drilling such an exploratory well are not carried as an
asset for more than one year following completion of drilling. If after a year
has passed, the Company is unable to determine that proved reserves have been
found, the well is assumed to be impaired, and its costs are charged to expense.
Upon disposition or retirement of property and equipment other than oil and
gas properties, the cost and related accumulated depreciation are removed from
the accounts and the gain or loss thereon, if any, is credited or charged to
income. The Company recognizes the gain or loss on the sale of either a part of
a proved oil and gas property or of an entire proved oil and gas property
constituting a part of a field upon the sale or other disposition of such. The
unamortized cost of the property or group of properties, a part of which was
sold or otherwise disposed of, is apportioned to the interest sold and interest
retained on the basis of the fair value of those interests.
Impairment of Long-Lived Assets
The Company follows the provisions of SFAS 121 - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Consequently, the Company reviews its long-lived assets to be held and used,
including oil and gas properties accounted for under the successful efforts
method of accounting. Whenever events or circumstances indicate the carrying
value of those assets may not be recoverable, an impairment loss for proved
properties and capitalized exploration and development costs is recognized. The
Company assesses impairment of capitalized costs of proved oil and gas
properties by comparing net capitalized costs to undiscounted future net cash
flows on a field-by-field basis using expected prices. If an impairment is
indicated based on undiscounted expected future cash flows, then an impairment
is recognized to the extent that net capitalized costs exceed the estimated fair
value of the property. Fair value of the property is estimated by the company
using the present value of estimated future cash flows discounted at 10%.
Earnings Per Common Share
The Company's basic earnings per common share ("Basic EPS") is based on the
weighted average number of common shares outstanding during the respective
periods. The income
8
<PAGE> 10
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
available to common shareholders is computed after deducting dividends on the
preferred stock. The convertible preferred stock and outstanding stock warrants
are considered anti-dilutive and therefore, excluded from the earnings per share
calculations.
The following is a reconciliation of the numerators and denominators used
in the calculation of Basic EPS for the 3 months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
3 Months
Basic EPS computation - June 30, 2000
----------------------- -------------
<S> <C>
Net Income $ 83,087
Less: Preferred Stock Dividends (104,640)
----------
Earnings Available to Common Stockholders $ (21,553)
==========
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
April 1 - June 30 5,809,794 100.0% 5,809,794
June 8 - June 30 1,000 24.4% 244
----------
Weighted Average Shares 5,810,028
==========
</TABLE>
<TABLE>
<CAPTION>
3 Months
June 30, 2000
-------------
<S> <C>
Basic EPS $ (0.00)
----------
3 Months
Basic EPS computation - June 30, 1999
--------------------- -------------
Net Income $ 78,478
Less: Preferred Stock Dividends (78,365)
----------
Earnings Available to Common Stockholders $ 113
==========
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
April 1 - June 30 5,166,578 100.0% 5,166,578
----------
Weighted Average Shares 5,166,578
3 Months
June 30, 1999
-------------
Basic EPS $ 0.00
----------
</TABLE>
The following is a reconciliation of the numerators and denominators used
in the calculation of Basic EPS for the 6 months ended June 30, 2000 and 1999:
9
<PAGE> 11
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
<TABLE>
<CAPTION>
6 Months
Basic EPS computation - June 30, 2000
----------------------- -------------
<S> <C>
Net Income $ 182,569
Less: Preferred Stock Dividends (199,579)
----------
Earnings Available to Common Stockholders $ (17,010)
==========
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1 - June 30 5,809,794 100.0% 5,809,794
June 8 - June 30 1,000 12.2% 122
----------
Weighted Average Shares 5,809,916
==========
6 Months
June 30, 2000
-------------
Basic EPS $ (0.00)
----------
6 Months
Basic EPS computation - June 30, 1999
--------------------- -------------
Net Income $ 310,454
Less: Preferred Stock Dividends (147,923)
----------
Earnings Available to Common Stockholders $ 162,531
==========
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1 - June 30 5,171,578 100.0% 5,171,578
February 1- June 30 (5,000) 83.3% (4,167)
----------
Weighted Average Shares 5,167,411
6 Months
June 30, 1999
-------------
Basic EPS $ 0.03
----------
</TABLE>
Income Taxes
Income taxes are provided based on earnings reported for financial
statement purposes. The provisions for income taxes differ from the amounts
currently payable because of temporary differences (primarily intangible
drilling costs and the Company's net operating loss carryforward) in the
recognition of certain income and expense items for financial reporting and tax
reporting purposes.
Cash Equivalents
For purposes of reporting cash flows, cash includes cash on hand and cash
on deposit.
2. AFFILIATED OIL AND GAS PARTNERSHIPS
The Company provides turnkey drilling services for the various oil and gas
partnerships which it sponsors. Fees earned for these drilling services,
including the sale of leases to the partnerships,
10
<PAGE> 12
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
amounted to $836,806 and $928,800 during the three months ended June 30, 2000
and 1999, respectively, and $1,697,418 and $3,008,400 during the six months
ended June 30, 2000 and 1999, respectively. The Company receives a management
fee from the partnerships for its services in connection with the selection of
the joint venture prospects and the initial operations of the joint venture in
addition to syndication fees for funds raised directly by the Company.
Management fees and syndication fees earned during the three months ended June
30, 2000 and 1999 amounted to $31,537 and $60,000, respectively, and $73,232 and
$115,675 during the six months ended June 30, 2000 and 1999, respectively.
In connection with the sponsorship of oil and gas partnerships, the Company
is reimbursed by the partnerships for certain operating and overhead costs
incurred on their behalf, including filing fees, legal fees, accounting fees,
printing costs and other miscellaneous expenses. These reimbursements, which are
offset against marketing and general and administrative costs, totaled $17,991
and $33,600 during the three months ended June 30, 2000 and 1999, respectively,
and $55,951 and $65,415 during the six months ended June 30, 2000 and 1999,
respectively.
Included in the Company's financial statements are contributions made to
the various Company sponsored oil and gas partnerships, less the applicable loss
generated by these partnerships relative to the Company's percentage ownership.
The Company has allocated, on a pro-rata basis the amounts associated with these
investments to the appropriate asset, liability, income and expense accounts.
3. RELATED PARTY TRANSACTIONS
Stock Transactions
As of June 30, 2000, there are 5,810,794 shares of common stock issued and
outstanding. A total of 3,126,893 shares are held by Blue Ridge Group, Inc. and
the remainder of 2,683,901 shares are held by approximately 500 shareholders, 40
of which are original stockholders of the Company.
In June 1997, BR Group exercised warrants to purchase 200,000 restricted
shares of BR Energy's common stock. In June 1998, BR Group exercised warrants to
purchase 2,800,000 restricted shares of BR Energy's common stock. At December
31, 1999, BR Group owned warrants to purchase an additional 4,000,000 shares of
common stock at $0.05 per share.
Advances from Related Parties
During 1998, the Company agreed with Blue Ridge Group, Inc. to acquire and
develop oil and gas properties and drilling equipment in the Appalachian Basin
of Kentucky. In order to facilitate the acquisition of these properties the
Company advanced approximately $1,300,000, bearing interest at 12% per annum, to
Blue Ridge Group, Inc. As of June 30, 1999 approximately $98,989 in interest had
been earned under this arrangement and the entire balance had been repaid via
the drilling of 10 gas wells and the purchase of drilling equipment.
Additionally, Blue Ridge Group, Inc. provides various management,
administrative, accounting and geological services for the Company at a rate of
$20,000 per month which has been determined on a proportional basis because
specific identification of expenses is not practical. Management believes that
this cost allocation method is reasonable and represents the fair value of the
services rendered. The Company also reimbursed Blue Ridge Group for direct costs
paid on its behalf. As
11
<PAGE> 13
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
of June 30, 2000 and 1999, approximately $0 was due and payable to Blue Ridge
Group under this arrangement.
4. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consisted of the following at June
30 2000 and December 31,1999:
2000 1999
---------- ----------
Oil and Gas Properties $1,678,719 $1,208,175
Drilling Rigs and Equipment 2,222,485 2,105,774
Furniture and Fixtures 364 364
---------- ----------
3,901,568 3,314,313
Less Accumulated Depreciation 207,707 135,707
---------- ----------
$3,693,861 $3,178,606
========== ==========
Depreciation expense was $36,000 and $17,221 during the three months ended
June 30, 2000 and 1999, respectively, and $72,000 and $20,253 during the six
months ended June 30, 2000 and 1999, respectively.
During the first quarter of 1999 the Company consummated the purchase of an
Ingersoll Rand drilling rig and its ancillary equipment for approximately $1.35
million of which approximately $600 thousand was provided by long term debt. In
June, 1999 the Company consummated the purchase of another Ingersoll Rand
drilling rig from Blue Ridge Group, Inc. for approximately $750 thousand.
5. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has agreed to automatically convert all shares of preferred
stock outstanding effective when a Securities Act Registration Statement for the
Company's common stock is filed with the SEC, or two years from issuance,
whichever comes first.
Contingencies
The Company's drilling and oil and gas exploration and production
operations are subject to inherent risks, including blowouts, fire and
explosions which could result in personal injury or death, suspended drilling
operations, damage to or destruction of equipment, damage to producing
formations and pollution or other environmental hazards. As a protection against
these hazards, the Company maintains general liability insurance coverage of
approximately $5 million limited to $1 million per occurrence. The Company
believes it is adequately insured for public liability and property damage to
others with respect to its operations. However, such insurance may not be
sufficient to protect the Company against liability for all consequences of well
disasters, extensive fire damage, or damage to the environment. The Company has
never been fined or incurred liability for pollution or other environmental
damage in connection with its operations.
12
<PAGE> 14
BLUE RIDGE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
6. STOCKHOLDERS' EQUITY
The Company is authorized to issue two classes of stock that are
designated, respectively, common and preferred stock. As of June 30, 2000, the
Company was authorized to issue 25,000,000 shares of stock -- 20,000,000 being
designated as common stock and 5,000,000 shares designated as preferred stock.
Common Stock
The Company was organized in November, 1994, as a Nevada corporation under
the name of Gem Source, Incorporated (Gem Source) with an initial issuance of
1,000,000 shares of Common Stock with a par value of $0.001 per share. In 1995,
Gem Source had an offering of 1,633,000 shares under Rule 504, an exemption
under Regulation D from full registration with the SEC to bring the total
outstanding shares of common stock to 2,633,000.
In connection with the sale of the Company's Series D. Preferred Stock, the
Company issued one Series D Warrant, for the purchase of one share of the
Company's Common Stock, with each share of Series D Preferred Stock sold. As of
June 30, 2000 and 1999, there were 696,600 and 45,485 Series D Warrants issued
and outstanding, respectively, 1,000 shares of which had been exercised in June,
2000.
The Company has issued, or agreed to issue, several series of Warrants to
purchase the Company's Common Stock, at varying terms and prices, in connection
with the sale of units in some of its limited partnerships and in connection
with the acquisition of some proved oil and gas properties. As of June 30, 2000
and December 31, 1999, there were 2,978,131 such Warrants outstanding,
respectively.
Series D Preferred Stock
During 1998, the Company authorized the issuance and sale of 1,000,000
shares of Series D Preferred Stock ("Series D Stock") which has a par value of
$0.001 per share at $5.00 per share. The
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Series D Stock bears a 12% per annum dividend payable monthly. In addition,
the Company will issue one Common Stock Warrant exercisable to purchase one
share of the Company's Common Stock for $1.00 with each share of Series D Stock
sold. Each share of the Series D Stock shall be converted automatically into one
(1) share of Common Stock effective when a registration statement for the Common
Stock is filed with the SEC or two years from issuance, whichever occurs first.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series D Stock shall be entitled
to receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to the holders of Common Stock, the amount of $5.00 per
share plus all unpaid dividends on such share of each share of Series D Stock
then held by the shareholder. At June 30, 2000 and December 31, 1999 there were
697,600 and 636,950 shares of Series D Stock issued and outstanding,
respectively.
REPORT OF REVIEW BY INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of Blue Ridge Energy, Inc.
We have reviewed the accompanying condensed balance sheet of Blue Ridge
Energy, Inc. as of June 30, 2000 and the related condensed statements of income
for each of the three month and six month periods ended June 30, 2000 and 1999
and the condensed statements of cash flows for the six month period ended June
30, 2000 and 1999. Such condensed interim financial statements and related
disclosures have been prepared in accordance with the required format and
disclosures prescribed by the SEC for Form 10-QSB. These interim financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed interim financial statements for
them to be in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the Blue Ridge Energy, Inc. balance sheet as of December 31, 1999,
and the related statements of income, stockholders' equity, and cash flows for
the year then ended (not presented herein), and in our report dated March 24,
2000 we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 1999, is fairly stated in all material respects, in relation
to the balance sheet from which it has been derived.
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Looney, Samson & Associates, P.L.L.C.
Dallas, Texas
August 11, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
FINANCIAL OVERVIEW:
Blue Ridge Energy, Inc. ("the Company") is an oil and gas exploration
company incorporated in the state of Nevada with its home office in the
Commonwealth of Kentucky and presently conducting operations in Texas and
Kentucky. During March of 1996, Blue Ridge Group, Inc. ("Group") acquired a
majority interest in the Common Stock of the Company with the express intent to
develop it into a successful oil and gas exploration and development company.
The Company's Common Stock is traded "over-the-counter" with "BREY" as its stock
symbol.
The Company is engaged in the exploration and development of oil and gas
leases located primarily in Texas, Kentucky, West Virginia and New Mexico
through one or more of the following activities: (i) acquisition of oil and gas
leases, (ii) investment in partnerships sponsored by itself or affiliates; (iii)
purchase of producing oil and gas properties and (iv) providing drilling
services. Wells drilled and developed by the Company include both exploratory
and development wells located primarily in Texas and Kentucky. The Company
intends to maintain an active role in the oil and gas industry as an operator of
oil and gas wells, a sponsor of oil and gas drilling programs, a participant in
oil and gas programs, a provider of drilling services and as an independent
producer of oil and gas wells.
As of June 30, 2000, the Company has participated, either directly or
indirectly through its sponsored limited partnerships, in 43 wells, of which 30
are presently productive, located in Kentucky, Texas , West Virginia and New
Mexico.
The following are the primary properties held by The Company as of June 30,
2000:
LAWRENCE COUNTY, KENTUCKY: During the second quarter of 2000, the Company
committed to the acquisition and development of a 50% Working Interest in 11
wells in the Boon's Camp Prospect and a 50% Working Interest in 11 wells in the
Contrary Creek Prospect in Lawrence County, Kentucky. Drilling in the Boon's
Camp Prospect will begin during the third quarter of 2000 and drilling of the
Contrary Creek Prospect is scheduled to begin during the fourth quarter of 2000.
LOGAN COUNTY, WEST VIRGINIA: During the second quarter of 2000, the Company
committed to the acquisition and development of a 50% Working Interest in 5
wells in the
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McDonald Prospect in Logan County, West Virginia. Drilling in this prospect is
scheduled to begin during the fourth quarter of 2000.
TYLER COUNTY, TEXAS: During the second quarter of 2000, the Company
committed to the acquisition and development of a 40% Working Interest in 2
wells in the West Pebble Island Prospect in Tyler County, Texas. Drilling in
this prospect is scheduled to begin during the fourth quarter of 2000.
SHELBY COUNTY, TEXAS: At the end of 1999, the Company acquired an interest
in one (1) development well in Shelby County, Texas which is scheduled to begin
drilling during the third quarter of 2000.
MINGO AND WYOMING COUNTIES, WEST VIRGINIA: At the end of 1999, the Company
acquired an interest in five (5) development wells in Mingo and Wyoming
Counties, West Virginia. Drilling activities for these wells began in December,
1999. During the first quarter of 2000, the Company acquired an interest in a
sixth well and has commenced drilling activities on all of the six wells. Four
wells have been drilled, completed and are presently producing gas and two wells
are in the final stages of completion and will begin production during the third
quarter of 2000.
MACK PIERCE #1: During 1999, the Company acquired an interest in the Mack
Pierce #1 well in Wharton County, Texas and began drilling in December, 1999.
This well was determined commercially productive and completed in the second
quarter of 2000 and it is currently undergoing production testing.
HARLAN / BIG SANDY PROSPECTS: Since December 31, 1998, the Company has
embarked on an Appalachian Basin development well drilling program in Bell, Knox
and Harlan counties of Kentucky. As of June 30, 1999, eighteen (18) wells have
been drilled. Of the eighteen (18), eleven (11) are currently in production and
selling gas, the remaining seven (7) have been drilled and are in various stages
of completion as of June 30, 2000.
HOME STAKE #1: The Home Stake #1 oil well is a development well located in
Lea County, New Mexico. The Company owns 66.9% of the Working Interest in the
Home Stake #1 which is a 50.2% Net Revenue Interest.
KEEGAN GIBSON #1: The Keegan Gibson #1 oil well is a development well
located in Smith, County, Texas.
AMEND #1 & CATOR #1: The Amend #1 and Cator #1 wells are development wells
located in Sherman County, Texas.
DRILLING RIGS: During 1999, the Company acquired two drilling rigs and
ancillary equipment. Rig #4 is a 1999 Ingersoll Rand RD-20 which is capable of
drilling 5,000 feet and Rig #2 which is an Ingersoll Rand TR-4 acquired from BR
Group which is capable of drilling 3,000 feet. The drilling rigs are managed by
BR Group on behalf of the Company and are used to drill wells for oil and gas
partnerships sponsored by the Company as well as on a contract basis for other
third parties.
By June 30, 2000, the Company had total assets of $4.5 million, total
liabilities of $788 thousand and shareholders' equity of $3.8 million. The
Company's net income decreased to $182 thousand
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during the first six months of 2000 as compared to $310 thousand for the same
period in 1999, Earnings per common share, which take into account cash
dividends paid on preferred stock, decreased to $(0.00) per share during the
first six months of 2000 as compared to $0.03 during the same period in 1999.
All per share data in this report has been adjusted to give effect to
applicable stock issues and conversions.
RECENT DEVELOPMENTS:
On March 1, 2000, Mr. Edward L. Stillie was appointed President and Chief
Executive Officer of The Company and Mr. Robert Burr resigned those two
positions while continuing as Chairman of the Board of Directors. Additionally,
on April 4, 2000, the Board of Directors was expanded to include six (6) members
and Mr Stillie along with Mr. Russell L. Vera and Mr. Harry J. Peters were
elected to the Board of Directors. On August 8, 2000, the Company's Annual
Meeting of Shareholders and all six of the previously mentioned directors were
re-elected for a term of one year.
INCOME STATEMENT REVIEW:
SIX MONTHS ENDED JUNE 30, 2000 AND 1999:
The Company's net income decreased to $183 thousand during the first half
of 2000 as compared to $310 thousand for the same period in 1999, Earnings per
common share, which take into account cash dividends paid on preferred stock
decreased to $(0.00) per share during the second quarter of 2000 as compared to
$0.03 during the same period in 1999.
Operating Revenues:
Operating revenues totaled $2.5 million during the six months ended June
30, 2000 as compared to the $3.4 million recorded during the six months ended
June 30, 1999, This decrease was primarily related to a decreased activity level
in the Company's sponsorship of Limited Partnerships for the drilling and
development of oil and gas properties during 2000.
Direct Operating Costs:
Direct operating costs totaled $1.8 million during the six months ended
June 30, 2000, as compared to the $2.7 million experienced during the same
period in 1999. The changes in direct operating costs were primarily a result
the decreased activity level in sponsoring Limited Partnerships previously
discussed.
Other Operating Expenses:
Marketing expenses decreased to $4 thousand during the first half of 2000
from the $181 thousand experienced during this period in 1999 due to the
decreased activity in sponsoring Limited Partnerships previously discussed.
General and Administrative expenses increased 299% to $307 thousand during the
first half of 2000 as compared to $78 thousand during the same period in 1999,
primarily as a result of Mr. Stillie's employment by the Company as well as
legal and accounting fees related to SEC reporting requirements and registration
statements.
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Other Income (Expense):
Other Income (Expense) decreased 238% to $(22) thousand in the first half
of 2000 from $16 thousand due to reductions in interest income as funds were
utilized for the purchase of two drilling rigs and development of oil and gas
properties.
THREE MONTHS ENDED JUNE 30, 2000 AND 1999:
The Company's net income increased to $83 thousand during the second
quarter of 2000 as compared to $78 thousand for the same period in 1999, Earning
per common share, which take into account cash dividends paid on preferred stock
remained $(0.00) per share during the second quarter of 2000 as compared to
$(0.00) during the same period in 1999.
Operating Revenues:
Operating revenues totaled $1.2 million during the three months ended June
30, 2000 as compared to the $1.3 million recorded during the three months ended
June 30, 1999, This decrease was primarily related to a decreased activity level
in the Company's sponsorship of Limited Partnerships for the drilling and
development of oil and gas properties during 2000.
Direct Operating Costs:
Direct operating costs totaled $841 thousand during the three months ended
June 30, 2000, as compared to the $1.0 million experienced during the same
period in 1999. The changes in direct operating costs were primarily a result of
increased efficiencies in the operation of the Company's drilling rigs and
decreased drilling activity from sponsored limited partnerships resulting in
lower operating costs.
Other Operating Expenses:
Marketing expenses decreased to $4 thousand during the second quarter of
2000 from the $56 thousand experienced during this period in 1999 due to the
decreased activity in sponsoring Limited Partnerships previously discussed.
General and Administrative expenses increased 204% to $170 thousand during the
second quarter of 2000 as compared to $56 thousand during the same period in
1999, primarily as a result of Mr. Stillie's employment by the Company as well
as legal and accounting fees related to SEC reporting requirements and
registration statements.
Other Income (Expense):
Other Income (Expense) increased 63% to $(13) thousand in the second
quarter of 2000 from $(8) thousand due to reductions in interest income as funds
were utilized for the purchase of two drilling rigs and development of oil and
gas properties.
BALANCE SHEET REVIEW:
ASSETS:
The Company's current assets decreased 40% to $837 thousand at June 30,
2000 as compared to $1.2 million at December 31, 1999 primarily due to the
utilization of Advances to Affiliates in purchasing and developing oil and gas
properties. The Company's operations were the primary source of the fluctuations
in accounts receivable and in cash. Property and equipment increased 16% to $3.7
million at June 30, 2000 as compared to $3.2 million at December 31, 1999 due to
the purchase and development of oil and gas properties as previously discussed.
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LIABILITIES:
The Company's current liabilities increased 6% to $214 thousand at June 30,
2000 from $201 thousand at December 31, 1999 as a result of normal fluctuations
caused by ongoing operations.. The Company has reduced its long term debt 16% to
$445 thousand at June 30, 2000 from $529 thousand at December 31, 1999 as a
result of fulfilling its normal payment obligations.
Effective January 1, 1996, the Company adopted provisions of the Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" which
requires the use of the "liability method" under which deferred tax assets and
liabilities are recognized for their estimated future tax consequences. At June
30, 2000 and December 31, 1999 the Company had recognized deferred income tax
liabilities of $239 thousand and $150 thousand, respectively as a result of this
methodology.
STOCKHOLDERS= EQUITY:
Total capital invested in the Company for Common and Preferred Stock
increased 6% to $3.8 million at June 30, 2000 from $3.6 million at December 31,
1999, primarily as a result of the sales of Series D Preferred Stock early in
the first quarter of 2000.
Despite recording net income of $183 thousand, the Company's retained
earnings declined $18 thousand to an accumulated deficit of $666 thousand at
June 30, 2000 from an accumulated deficit of $648 thousand at December 31, 1999
as the result of payment of approximately $200 thousand of cash dividends to the
Company's Preferred Shareholders during the first half of 2000.
CAPITAL RESOURCES AND LIQUIDITY:
As a result of the Company's equity transactions and increased operating
functions, at June 30, 2000 the current ratio was 3.90 to 1, a decrease of 33%
from 5.82 to 1 at December 31, 1999. This change in the current ratio was
primarily due to the utilization of Advances to Affiliates in the acquisition
and development of oil and gas properties.
The Company's primary source of cash in 1999 and 2000 was derived from the
sale of oil and gas limited partnerships, equity and the operation of oil and
gas properties. Without these sources of cash, the Company would not have
adequate sources of cash for its operations. While the company expects that its
sources of cash will not significantly change for the remainder of 2000, the
Company will be increasing its emphasis on drilling and developing oil and gas
properties in order to increase its revenue from oil and gas production.
As of June 30, 2000, the Company had sufficient cash to satisfy its
operating needs for a period of ninety (90) days or longer, considering the
funds receivable from its managed limited partnerships. The Company plans to
continue funding its operating needs by sponsoring limited partnership oil and
gas drilling programs.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings pending against Blue Ridge Energy, Inc.
ITEM 2. CHANGES IN SECURITIES
During the first quarter of 2000, the Company issued 60,650 shares of
Series D Preferred Stock for a net consideration of $188,577 (net of brokerage
commissions and legal expenses of approximately $114,673).These Preferred
Securities were sold to accredited investors using Regulation D, Rule 506 as an
exemption from registration. See the notes to the accompanying condensed
financial statements for a description of the terms of conversion or exercise of
the securities and warrants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of stockholders was held on August 8,
2000.
(b) The directors elected at the meeting were:
For Against Abstain
--- ------- -------
Robert D. Burr 3,645,091 490 2,165,213
Edward L. Stillie 3,645,091 490 2,165,213
James T. Cook, Jr. 3,641,661 3,920 2,165,213
Gregory B. Shea 3,642,661 2,920 2,165,213
Harry J. Peters 3,642,661 2,920 2,165,213
Russell L. Vera 3,640,101 5,480 2,165,213
(c) No other matters were voted on at the meeting.
The forgoing matters are described in detail in the Company's proxy
statement dated July 24, 2000 for the 2000 Annual Meeting of Stockholders
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BLUE RIDGE ENERGY, INC.
Date: August 11, 2000 By /s/ James T. Cook, Jr.
--------------- ------------------------
James T. Cook, Jr.
Sr. Vice President-Finance & CFO
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