<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 0-8532
OAKRIDGE ENERGY, INC.
(Name of small business issuer in its charter)
Utah 87-0287176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4613 Jacksboro Highway
Wichita Falls, Texas 76302
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 940-322-4772
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None ----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.04 par value
(Title of class)
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 [ ]
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. [ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR. $2,553,362
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES
COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE
BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN THE PAST 60
DAYS.
$4,594,354 as of May 16, 1997
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE.
4,989,309 as of May 22, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for Annual Meeting of Stockholders for Fiscal Year
Ended February 28, 1997 - Part III
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
<PAGE> 2
TABLE OF CONTENTS
Page
----
PART I................................................................ 1
ITEM 1. DESCRIPTION OF BUSINESS............................. 1
Summary of Developments in Fiscal 1995, 1996
and 1997.......................................... 1
Oil and Gas Operations.............................. 1
Coal and Gravel Operations.......................... 2
Real Estate Held for Development.................... 3
Competition and Markets............................. 4
Regulation.......................................... 5
Operating Hazards and Uninsured Risks............... 6
Employees........................................... 6
ITEM 2. DESCRIPTION OF PROPERTY............................. 7
Oil and Gas Properties.............................. 7
Reserves................................... 7
Production................................. 7
Lifting Costs and Average Sales Prices..... 8
Sales Contracts and Major Customers........ 8
Developed Acreage and Productive Wells..... 9
Undeveloped Acreage........................ 9
Drilling Activity.......................... 10
Coal and Gravel Properties.......................... 11
Real Estate ........................................ 12
Office Building..................................... 12
ITEM 3. LEGAL PROCEEDINGS................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.................................. 13
PART II............................................................... 13
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS................... 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION................................. 14
Results of Operations............................... 14
Financial Condition and Liquidity................... 16
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Page
----
ITEM 7. FINANCIAL STATEMENTS................................ 17
Index to Financial Statements....................... 17
Independent Auditors' Report........................ 18
Balance Sheets as of February 28, 1997 and
February 29, 1996................................. 19
Statements of Operations for the years ended
February 28, 1997 and February 29, 1996........... 21
Statements of Stockholders' Equity for the
years ended February 28, 1997 and February
29, 1996.......................................... 22
Statements of Cash Flows for the years ended
February 28, 1997 and February 29, 1996........... 23
Notes to Financial Statements....................... 25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE............ 36
PART III.............................................................. 36
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT............................... 36
ITEM 10. EXECUTIVE COMPENSATION.............................. 36
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................. 36
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS...................................... 36
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.................... 37
Exhibits............................................ 37
Reports on Form 8-K................................. 37
SIGNATURES............................................................ 38
ii
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Oakridge Energy, Inc. (the "Company") is engaged in the exploration
for and development, production and sale of oil and gas primarily in Texas and
New Mexico and, to a lesser extent, in the exploration for and development of
coal and gravel in Colorado. In addition, the Company holds certain real estate
in Colorado for development.
The Company is a Utah corporation incorporated in 1969. The Company's
executive offices are located at 4613 Jacksboro Highway, Wichita Falls, Texas
76302. The Company's telephone number is (940) 322-4772.
Summary of Developments in Fiscal 1995, 1996 and 1997
Following the Company's sale of its principal producing oil and gas
leases covering lands in Edwards and Sutton Counties, Texas and the writedown
of the remaining costs of its Carbon Junction coal mine located on 2,025 acres
of land owned by the Company in fee outside of Durango, Colorado in fiscal
1994, the Company commenced the rebuilding of its revenue base in fiscal 1995
by increasing its level of oil and gas exploratory drilling activity. In fiscal
1996, the Company continued its accelerated exploratory drilling activity and
made substantial progress toward its goal of rebuilding its revenue base by
adding significant new proven developed oil and gas reserves in East Texas and
took initial steps toward commencing a golf course/residential lots development
on its Colorado land. In fiscal 1997, the Company developed a substantial
portion of the East Texas reserves, which enabled the Company to return to
profitability. In addition, during the second quarter of fiscal 1997, the
Company received a land use permit enabling the Company to commence preliminary
site work on the golf course portion of its Colorado land development. See "Oil
and Gas Operations," "Coal and Gravel Operations" and "Real Estate Held for
Development" below and "Item 6. - Management's Discussion and Analysis or Plan
of Operation."
Oil and Gas Operations
The Company's oil and gas operations are primarily conducted in
Madison and Limestone Counties of East Texas, in Eddy County, New Mexico and in
various areas of North Texas.
The Company's President originates or selects most of the exploration
and development prospects in which the Company participates. Until recently,
the Company typically utilized its own funds to acquire oil and gas leases
covering the lands comprising the prospects. The leases were obtained directly
from landowners as well as from lease brokers and other operators not
affiliated with the Company by direct purchase, farmin and option
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agreements. The Company then conducted any additional geological and/or
geophysical operations considered appropriate. To share costs, the Company
usually sold interests in the prospects to industry participants and a limited
number of private investors.
In fiscal 1995 through 1997, however, to broaden its exploratory
activity exposure, the Company purchased interests of varying size in a number
of exploration prospects which were originated by others (i.e., independent
geologists or other independent oil and gas companies). These prospects covered
lands in the States of Texas, Nevada, Mississippi and New Mexico. In each case,
the originator of the prospect had already assembled the leases and performed
most, if not all, of the necessary geological and/or geophysical work before
the interest in the prospects were offered for sale to the Company. Under such
circumstances, the Company typically paid a percentage of the initial prospect
costs greater than the percentage of ownership interest in the prospect which
the Company acquired. See "Item 2. - Description of Property - Oil and Gas
Properties - Drilling Activity."
Coal and Gravel Operations
The Company's principal coal and only gravel property is the Carbon
Junction mine in La Plata County, Colorado. The Company holds a renewal coal
mine permit and an initial gravel mining permit for portions of the property.
In fiscal 1997, the area covered by the coal mine permit was reduced by 18.4
acres to 236.9 acres. See "Item 2 - Description of Property - Coal and Gravel
Properties." After the Company obtained an updated appraisal of the coal
deposits on the property at the end of fiscal 1994 which concluded that the
deposits had no value, the Company limited its operations at the Carbon
Junction mine in fiscal 1995 through 1997 to maintenance and regulatory
compliance activities, and it will continue to do so in the future until the
coal market improves substantially. The Company continues to have posted with
the State of Colorado reclamation performance bonds in the amounts of $816,526
and $59,155 for its Carbon Junction coal and gravel operations, respectively.
The Company received approximately $55,000 in royalty payments and
rentals during fiscal 1997 from its gravel contract and surface lease entered
into during December 1993 with Durango Construction pursuant to which such
company is mining sand, gravel and rock products from the Company's approximate
33-acre gravel permit area. The contract and lease have remaining terms of
approximately five years, and the terms may be extended under certain
conditions. The right obtained by the Company from Durango Construction in the
contract and lease to purchase gravel, asphalt and cement at an attractive
price should be beneficial to the Company's golf course site work in fiscal
1998 and 1999.
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Real Estate Held for Development
In fiscal 1996, the Company concluded that the best use for
approximately 300 acres of the 2,025 acres of land owned by the Company in La
Plata County, Colorado was a golf course/residential lots development. The land
adjoins Durango, Colorado's city limits to the southeast and is adjacent to
the two principal highways leading into Durango from the South. The land is not
currently in the City limits of Durango but possibly could be annexed in the
future.
During fiscal 1996, the Company's President, with the assistance
during the latter part of the year of an experienced golf course construction
consultant, prepared the initial design for the golf course. The Company also
retained a local engineering firm to assist it in interacting with the City of
Durango and La Plata County planners who are responsible for preparing the
City's comprehensive development plan and the City's and County's land use and
development plan for the South corridor area, in representing the Company at
town hall meetings at which the proposed plans are discussed and to begin the
preparation of a master plan for the Company's property. The firm also aided
the Company in preparing an application to the County for a land use permit,
which the Company submitted in the first quarter of fiscal 1997. In August
1996, the County granted the Company the requested land use permit, with
certain conditions attached.
The permit allows the Company to proceed with the preliminary site
work on the golf course, which will cover approximately 170 of the 300 acre
proposed golf course/residential lots development. The permit is only for the
construction of the golf course, and clubhouse, pump and waterline construction
and the further work on the residential lots portion of the development will
require the Company to obtain a revised permit and master plan approval or
annexation and approval by the City. The Company had always planned on using
its employees and the heavy earth-moving equipment it acquired for its coal
operations to perform as much of the work as possible. Consequently, after
receipt of the permit, during the remainder of fiscal 1997 the Company repaired
such equipment to ready it for commencement of work on the golf course in
fiscal 1998 as the winter season made any significant work on the golf course
very difficult.
The Company has now commenced clearing the brush off the land and
leveling it for the golf course fairways. The Company currently estimates that
it will take at least two years to complete all of the earth moving and to
install an irrigation system and necessary electrical power for the golf
course. The Company expects that the most that can be completed in fiscal 1998
will be the leveling of the land for the fairways and the installation of the
base part of the greens. The Company will fund the cost of such work from the
cash flow from its oil and gas
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operations and/or from the use of its investment securities available for sale.
See "Item 6. - Management's Discussion and Analysis or Plan of Operations -
Financial Condition and Liquidity." The completion of the greens and
installation of the irrigation system and electrical power for the golf course
will likely not occur until fiscal 1999. The Company has not yet prepared
definitive cost information for the golf course portion of the project but
expects the total cost to be at least $2,000,000 to $2,500,000.
It should be emphasized that although the Company believes that it
has a good working relationship with the City and County governments, no
assurances can be given that any revised permit allowing work beyond the
preliminary site work for the golf course can be obtained within a satisfactory
time frame and without any burdensome conditions attached.
Competition and Markets
Competition: A large number of companies and individuals are engaged in
the exploration for oil and gas, and most of the companies so engaged possess
substantially greater technical and financial resources than the Company. In
the past, competition for desirable leases and suitable prospects for oil and
gas drilling operations has been intense, and the Company has experienced
significant competition in obtaining the services of drilling contractors and
in purchasing tubular goods and other materials necessary to drill and complete
wells. In recent years, the Company has not experienced any significant
difficulties in obtaining services and materials although the product price
increases which occurred in the industry in fiscal 1997 caused demand for such
services and materials to rise.
The coal and gravel industries are also highly competitive. A
principal competitive factor in both industries is product price. In addition,
with respect to coal, its quality and, in regard to major sales agreements, the
financial and organizational ability of the selling company to meet long-term
coal delivery requirements of utility companies, are important. With regard to
quality of coal, the important criteria include BTU (heating value), sulfur and
ash content. The principal competitive hurdles the Company faces in any future
coal operations it conducts are higher production costs resulting from greater
overburden levels, higher transportation costs caused by the lack of railroad
facilities in close proximity to its mine site and the additional costs that
would have to be incurred for its coal to meet acceptable quality standards.
These factors, coupled with the low sale price of coal, have currently
eliminated any value for the Company's coal deposits.
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Markets: The producing and marketing of oil and gas and coal are affected
by a number of factors which are beyond the control of the Company, the effect
of which cannot be accurately predicted. These factors include the availability
of adequate pipeline and other transportation facilities, the marketing of
competitive fuels and other factors affecting the availability of a ready
market, such as fluctuating supply and demand. Additional factors affecting the
marketing of oil, gas and coal include imports and actions by foreign producing
nations.
During the fiscal year ended February 28, 1997, the Company
experienced a significant increase in demand for its oil and gas production as
compared to prior years, and the Company's average oil and gas prices received
during the year rose approximately $5.39 per barrel and $.68 per MCF. While
certain of the Company's gas properties experience seasonal variations in
demand, the Company was not experiencing any significant curtailment, or an
inability to sell all of its deliverable gas, on an overall basis at February
28, 1997.
The Company will not undertake any efforts to market its coal until
it believes its coal deposits once again have value. All of the Company's
gravel resources are currently being marketed through its contractual
arrangements with Durango Construction.
Regulation
Oil and Gas: The production of oil and gas is subject to extensive federal
and state laws, rules, orders and regulations governing a wide variety of
matters, including the drilling and spacing of wells, allowable rates of
production, prevention of waste and pollution and protection of the
environment. In addition to the direct costs borne in complying with such
regulations, operations and revenues may be impacted to the extent that certain
regulations limit oil and gas production to below economic levels. The
regulations are generally designed to ensure that oil and gas operations are
carried out in a safe and efficient manner and to ensure that similarly
situated operators are provided with reasonable opportunities to produce their
respective fair shares of available oil and gas reserves. Since these
regulations generally apply to all oil and gas producers, the Company believes
that these regulations do not put the Company at a material disadvantage to
other oil and gas producers.
Certain sales, transportation and resales of natural gas by the
Company are subject to both federal and state laws and regulations, including,
but not limited to, the Natural Gas Act (the "NGA"), the Natural Gas Policy Act
of 1978 (the "NGPA") and regulations promulgated by the Federal Energy
Regulatory Commission ("FERC") under the NGA, the NGPA and other statutes. The
provisions of the NGA and the NGPA, as well as the regulations
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thereunder, are complex and can affect all who produce, resell, transport,
purchase or consume natural gas.
Although recent FERC transportation regulations do not directly apply
to the Company because it is not engaged in rendering jurisdictional
transportation services, these regulations do affect the operations of the
Company by virtue of the need to deliver its gas production to markets served
by interstate or intrastate pipelines.
While not always the case, sales of oil and condensate by the Company
presently can be made at uncontrolled market prices. There can be no assurance
that Congress will not reenact price controls at a future time.
Coal and Gravel: The Company's coal operations are subject to extensive
regulation under the Surface Mining Control and Reclamation Act of 1977 and the
Colorado law of a similar nature and the Clean Air Act of 1990. The effects of
such regulation have been to increase significantly the lead time to commence
actual surface coal mining operations, to make it more costly for the Company's
coal to be marketed and effectively to limit the customers for the Company's
coal to certain types of power plants. The Company's gravel operations are
subject to comparable regulation, but compliance standards are less rigid.
Operating Hazards and Uninsured Risks
The Company's oil and gas operations are subject to all of the risks
normally incident to the drilling for, and production of, oil and gas,
including blowouts, cratering, pollution and fires, each of which could result
in damage to, or destruction of, oil and gas wells or production facilities or
damage to persons and property. As is common in the oil and gas industry, the
Company is not fully insured against certain of these risks either because
insurance is not available or because the Company has elected not to insure due
to high premium costs. The Company maintains comparable insurance coverage for
its coal and gravel operations.
Employees
As of May 27, 1997, the Company had eight full-time employees and one
part-time employee. Four of the employees and the part-time employee were
located at the Company's executive offices, two were located at the Company's
coal, gravel and real estate development operations office in Durango,
Colorado, and two were field employees located in North Texas. See "Item 6. -
Management's Discussion and Analysis or Plan of Operation - Results of
Operations." The Company considers its relations with its employees to be
satisfactory.
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ITEM 2. DESCRIPTION OF PROPERTY.
(a) Oil and Gas Properties.
Reserves
Reference is made to Notes (7), (8) and (9) of the Notes to Financial
Statements for additional information concerning: (i) certain cost and revenue
information pertaining to the Company's oil and gas producing activities; (ii)
estimates of the Company's oil and gas reserves and changes in such reserves;
and (iii) a standardized measure of the discounted future net cash flows from
the Company's oil and gas reserves and the changes in such standardized
measure. The engineering report with respect to the Company's proved oil and
gas reserves as of February 28, 1997 was prepared by Stephens Engineering,
independent petroleum engineers, Wichita Falls, Texas ("Stephens Engineering").
At such date, all of the Company's oil and gas reserves were located in the
United States and in the States of Texas, Mississippi, Colorado and New Mexico.
No reserve reports pertaining to the Company's proved net oil or gas
reserves were filed with any Federal governmental authority or agency during
the fiscal year ended February 28, 1997, and no major discovery is believed to
have caused a significant change in the Company's estimates of proved reserves
since that date.
The following table reflects Stephens Engineering's estimate of those
quantities of oil and gas which can be produced from the Company's proved
developed reserves as of February 28, 1997 during the fiscal year ending
February 28, 1998, using equipment installed and under economic and operating
conditions existing at February 28, 1997:
<TABLE>
<S> <C>
Oil (Bbls.).............. 97,548
Gas (MCF)................ 351,321
</TABLE>
The Company is not obligated to provide a fixed and determinable quantity of
oil and gas in the future under any of its existing contracts or arrangements.
Production
The following table shows for each of the three fiscal years ended
February 28, 1997 the total production attributable to the Company's oil and
gas interests:
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<TABLE>
<CAPTION>
Fiscal Year Ended Oil Gas
February 28/29 (Bbls.) (MCF)
- ----------------- ------- -----
<S> <C> <C>
1997 ............... 64,868 389,756
1996 ............... 19,920 99,396
1995 ............... 11,612 37,985
</TABLE>
Lifting Costs and Average Sales Prices
The Company's production (lifting) costs and average sales prices
received during each of the three fiscal years ended February 28, 1997 were as
shown in the following table:
<TABLE>
<CAPTION>
Fiscal Year
Ended February 28/29
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Lifting Costs
Per Equivalent Unit (Bbls.) ....... $ 3.03 $ 5.79 $ 12.89
Average Sales Prices
Oil (per Bbl.) .................... 22.62 17.23 16.42
Gas (per MCF) ..................... 2.52 1.84 1.17
</TABLE>
Sales Contracts and Major Customers
The Company does not own any refining facilities and sells its oil
under short-term contracts at f.o.b. field prices posted by the principal
purchasers of oil in the areas in which the Company's producing properties are
located. During the fiscal year ended February 28, 1997, approximately 75% of
the Company's oil sales were made to Scurlock Permian Corp. and approximately
13% were made to Pride Pipeline Co.
During the fiscal year ended February 28, 1997, approximately 81% of
the Company's gas sales were from the Company's Limestone County, Texas
properties. All of this production was sold on the spot market to Texla Energy
Management, Inc.
In the opinion of management, the termination of any of the Company's
sales contracts would not adversely affect the Company's ability to sell its
oil and gas production at comparable prices.
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Developed Acreage and Productive Wells
As of February 28, 1997, the Company owned working and overriding
royalty interests in 10,839 gross (2,645 net) acres of developed oil and gas
leases and 71 gross (21.39 net) productive oil and gas wells.
The following table summarizes the Company's developed acreage and
productive wells as of February 28, 1997:
<TABLE>
<CAPTION>
Developed Acreage(1) Productive Wells(1)(3)
------------------------------ --------------------------
Gross(2) Net(2) Gross(2) Net(2)
------------- ---------- ---------- -----------
Oil Gas Oil Gas Oil Gas Oil Gas
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Texas:
Clay Co. ................... 552 -- 401 -- 3 -- 2.21 --
Erath and
Palo Pinto
Cos ....................... -- 427 -- 18 -- 7 -- .29
Throckmorton
Co ....................... 1,576 -- 828 -- 26 -- 12.61 --
Madison Co. ................ 2,570 -- 643 -- 16 -- 4.00 --
Montague Co. ............... 33 -- 8 -- 1 -- .25 --
Limestone Co. .............. -- 5,039 -- 643 -- 14 -- 1.51
Mississippi .................. 40 -- 1 -- 1 -- .01 --
Colorado ..................... -- 242 -- 4 -- 1 -- .02
New Mexico ................... 40 320 8 91 1 1 .20 .29
----- ----- ----- --- -- -- ----- ----
Total ............... 4,811 6,028 1,889 756 48 23 19.28 2.11
===== ===== ===== === == == ===== ====
</TABLE>
(1) Reversionary interests which may increase or decrease the interest
shown have been disregarded for purposes of this table.
(2) "Gross," as it applies to acreage or wells, refers to the number of
wells or acres in which an interest is owned by the Company. "Net," as
it applies to acreage or wells, refers to the sum of the fractional
ownership interests owned by the Company in gross wells or gross
acres.
(3) Includes six gross (4.00 net) shut-in wells.
Undeveloped Acreage
The following table shows the gross and net acres of undeveloped oil
and gas leases held by the Company at February 28, 1997:
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<TABLE>
<CAPTION>
State Gross Acres Net Acres
- ----- ----------- ---------
<S> <C> <C>
Texas ....................... 8,689 1,893
Arkansas .................... 2,428 1,214
New Mexico .................. 8,760 1,752
------ -----
Total ...... 19,877 4,859
====== =====
</TABLE>
All of the Company's undeveloped leases in the State of Arkansas
cover lands located in Miller County, and all of such leases in the State of
New Mexico pertain to lands located in Eddy County. In the absence of drilling
activity which establishes commercial reserves sufficient to justify retention,
the Company's leases on approximately 45% of its net acres will expire in
fiscal 1998, approximately 12% will expire in fiscal 1999, approximately 15%
will expire in fiscal 2000 and approximately 1% will expire in each of fiscal
2001 and 2002. The remaining 26% of the Company's undeveloped acreage,
including all of such acreage in the State of Arkansas, is currently held in
force by production from shallow depth horizons in which the Company has no
ownership interest. See "Item 6. - Management's Discussion and Analysis or Plan
of Operation - Results of Operations."
Drilling Activity
The following table sets forth the results of the Company's drilling
activity for each of the three fiscal years ended February 28, 1997:
<TABLE>
<CAPTION>
Fiscal Year Exploratory Wells
-----------------------------------------------------
Ended Gross Net
------------------------ --------------------------
February 28/29 Productive Dry Total Productive Dry Total
- -------------- ---------- --- ----- ---------- --- -----
<C> <C> <C> <C> <C> <C> <C>
1995........... 2 6 8 .13 1.94 2.07
1996........... 2 8 10 .46 2.45 2.91
1997........... 2 3 5 .49 .68 1.17
---- ---- ---- ---- ---- ----
Total..... 6 17 23 1.08 5.07 6.15
==== ==== ==== ==== ==== ====
<CAPTION>
Fiscal Year Development Wells
-----------------------------------------------------
Ended Gross Net
------------------------ --------------------------
February 28/29 Productive Dry Total Productive Dry Total
- -------------- ---------- --- ----- ---------- --- -----
<C> <C> <C> <C> <C> <C> <C>
1995........... - - - - - -
1996........... 7 - 7 1.58 - 1.58
1997........... 19 - 19 3.42 - 3.42
---- ---- ---- ---- ---- ----
Total..... 26 - 26 5.00 - 5.00
==== ==== ==== ==== ==== ====
</TABLE>
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As of February 28, 1997, the Company was in the process of drilling two gross
(.45 net) exploratory wells and three gross (.42 net) development wells.
(b) Coal and Gravel Properties.
As of February 28, 1997, the Company had 3,156 (1,787 net) acres of
coal leases as described in the following table:
<TABLE>
<CAPTION>
Gross Acres Net Acres
----------- ---------
<S> <C> <C>
Colorado:
La Plata Co.(1)............. 1,825 456
Routt Co.(2)................ 1,331 1,331
----- -----
Total.............. 3,156 1,787
===== =====
</TABLE>
- ------------
(1) The lease was acquired in October 1990 and has a remaining primary term
of approximately 18 years. No annual delay rentals or advance minimum
royalties are required. See discussion following this table.
(2) The lease was acquired in January 1991 and has a remaining primary term
of approximately four years with annual delay rentals of $1 per acre and
advance minimum royalties of $10 per acre.
The Company's Carbon Junction coal mine is located upon the 1,825
acres in La Plata County, Colorado described in the foregoing table. The
renewal mine permit issued by the State of Colorado for such coal mine, as
recently amended, pertains to approximately 237 acres out of such 1,825 acres.
The leases described in note (1) to the table cover a 25% interest in the coal
under the 1,825 acres. The Company owns the surface estate and the remaining
75% interest in the coal and has the executive rights (i.e., the exclusive
right to sign coal leases) on the remaining 25% interest in the coal.
In July 1991, the Company purchased the surface estate, a 75%
interest in the coal and the executive rights to the remaining 25% interest in
the coal of 200 additional acres in La Plata County adjacent to the 1,825 acre
tract. The Company has not yet elected to obtain a lease on the remaining 25%
interest in the coal. By virtue of its fee and lease ownership and the
executive rights it holds, the Company controls 100% of the above described
1,825 acre and 200 acre tracts. The Company has no current plans to attempt to
operate the Carbon Junction coal mine.
The Company also owns 55% of the gravel, oil, gas and other
mineral rights with respect to the 1,825 acre tract in La Plata County,
Colorado and has the executive rights on the
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remaining 45%. It holds a permit from the State of Colorado to mine gravel from
33 acres on such tract. Durango Construction is currently mining sand, gravel
and rock products from the permit area pursuant to its contract and lease with
the Company. See "Item 1. - Description of Business - Coal and Gravel
Operations."
(c) Real Estate.
The surface of the 2,025 acres described in "Coal and Gravel
Properties" above is held for development by the Company. Approximately 300
acres of such land is the subject of a golf course/residential lots development
by the Company. See "Item 1. - Description of Business - Real Estate Held for
Development."
(d) Office Building.
The Company owns a one-story office building situated at 4613
Jacksboro Highway in Wichita Falls, Texas in which its executive offices are
located. The building is located on .519 acres of land and contains 5,117
square feet of space.
ITEM 3. LEGAL PROCEEDINGS.
As previously reported, the Company has been a party to a lawsuit
styled Oakridge Energy, Inc., Petitioner, vs. Thomas A. Clifton et al,
Respondents, in the Third Judicial District Court of Salt Lake County, Utah,
Civil No. 940900601 CV. In the litigation, the Company sought to establish that
the fair value, as determined in accordance with the requirements of the Utah
Business Corporation Act (the "Utah Act"), of the Company's common stock held
by the Respondents, who exercised their statutory rights to dissent from the
Company's sale of certain Texas gas properties in September 1993, did not
exceed the $2.75 per share previously paid by the Company to the Respondents.
In December 1995, the trial court sustained the Company's position in the case
by entering a judgment in the case holding that (i) the fair value of the
common stock of the Company pursuant to the Utah Act was an amount not
exceeding $2.75 per share, (ii) the Company had paid the Respondents all
amounts due them and had no further liability to them under the Utah Act and
(iii) each party to the case should bear its own costs and attorneys' fees.
Following the entry of the judgment by the trial court, one of the
Respondents (who held 68,500 shares of the Company's common stock), filed a
notice of appeal directly with the Utah Supreme Court, which accepted the case.
In April 1997, the Utah Supreme Court unanimously affirmed the judgment of the
trial court.
To the best knowledge of the Company, there are no legal proceedings
to which any director, officer or affiliate of the Company, any owner of record
or beneficially of more than five
12
<PAGE> 16
percent (5%) of any class of voting securities of the Company, or any associate
of any such director, officer or security holder is a party adverse to the
Company or has a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
ended February 28, 1997 to a vote of the Company's security holders, through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, $.04 par value, is traded in the
over-the-counter market. The following table shows the range of bid quotations
for the common stock during the two fiscal years ended February 28, 1997 by
quarters. Such quotations were furnished to the Company by the National
Quotation Bureau Incorporated and were from the National Daily Quotation
Service and the NASD Non-NASDAQ OTC Bulletin Board. The quotations represent
prices between dealers and do not include retail markups, markdowns or
commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
<S> <C> <C>
Fiscal Year Ended February 29, 1996:
Quarter Ended May 31, 1995 $ 2.13 $ 1.75
Quarter Ended August 31, 1995 2.13 1.75
Quarter Ended November 30, 1995 2.13 1.75
Quarter Ended February 29, 1996 2.13 1.75
Fiscal Year Ended February 28, 1997:
Quarter Ended May 31, 1996 $ 2.13 $ 1.75
Quarter Ended August 31, 1996 2.13 2.00
Quarter Ended November 30, 1996 2.00 2.00
Quarter Ended February 28, 1997 2.25 2.00
</TABLE>
As of May 8, 1997, the approximate number of holders of record of the
common stock of the Company was 559.
The Company did not pay any dividends during the two fiscal years
ended February 28, 1997. There are currently no restrictions upon the Company's
ability to pay dividends; however, the Company does not anticipate paying any
dividends in fiscal 1998.
13
<PAGE> 17
The Company did not make any sales of equity securities during the
two fiscal years ended February 28, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto included in Item 7.
Results of Operations
During the fiscal year ended February 28, 1997, the Company had net
income of $499,432 ($.10 per share) compared to a net loss of $902,543 ($.17
per share) during the fiscal year February 29, 1996. Significantly higher oil
and gas revenues, primarily from the East Texas area, were the reason for the
Company's return to profitability in fiscal 1997.
Oil and gas revenues increased approximately $1,926,100 (366.3%) in
fiscal 1997 primarily due to increased gas production from Limestone County,
Texas, increased oil production from Madison County, Texas and the Company's
receipt of substantially higher average oil and gas prices. The Limestone
County and Madison County properties had first contributed materially to the
Company's oil and gas revenues in the last quarter of fiscal 1996. The Company
added 10 gross (.92 net) gas wells in Limestone County and 11 gross (2.63 net)
oil wells in Madison County during fiscal 1997. As a result of such additions
and a full year of production from the other wells in the fields, gas revenues
from Limestone County increased from approximately $151,000 in fiscal 1996 to
approximately $797,500 in fiscal 1997, and oil revenues from Madison County
rose from approximately $90,000 in the fiscal year ended February 29, 1996 to
almost $1,105,800 in the fiscal year ended February 28, 1997. The Company also
benefited from increased demand for oil and gas in fiscal 1997 as its average
oil price received increased $5.39 per barrel (31.3%) and its average gas price
received increased $.68 per MCF (37.0%) during the year. The Company does not
currently expect its average oil and gas prices to increase significantly, if
at all, in fiscal 1998.
During the first quarter of fiscal 1998, the Company has added one
gross (.10 net) gas well in Limestone County and four gross (1.00 net) oil
wells in Madison County. In fiscal 1998, the Company will receive revenues from
the Limestone County and Madison County wells added during fiscal 1997 for the
full year as well as revenues from the new wells in such counties added in the
first quarter for the remainder of the year. Consequently, the Company expects
its oil and gas revenues to continue to grow in fiscal 1998 although at a
lesser rate than that which occurred in fiscal 1997.
14
<PAGE> 18
Revenues from the Company's gravel operations in Colorado declined
approximately $19,200 (25.8%) due to lower royalty income resulting from
decreased gravel sales by Durango Construction from the Company's property as
rentals received from the Company's surface lease with such company were the
same in both fiscal years. Other revenues in fiscal 1996 and 1997 consisted of
overhead fees received by the Company from other interest owners in the oil and
gas properties located in the North Texas area for which the Company serves as
operator. Other revenues increased approximately $3,300 (7.6%) in fiscal 1997
due to a slight increase in the average number of active wells being operated
by the Company.
Oil and gas operating expenses increased approximately $145,600
(8.4%) in fiscal 1997 due to higher depletion and depreciation and lease
operating expenses and production taxes and a substantial lease impairment
charge, a portion of which was required pursuant to the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121 ("FAS
121"), which was adopted by the Company at the commencement of the fiscal year.
See "Item 7. - Financial Statements - Note (1)(h) of Notes to Financial
Statements." These increases were partially offset by sharply lower geological
and geophysical (i.e., exploration) expense and dry hole costs and the absence
of any charge for abandoned leaseholds during the year. A significant portion of
the increased depletion and depreciation and lease operating expenses and higher
production taxes was directly related to the greater level of oil and gas
revenues from the East Texas area; however, approximately $264,800 of the total
$752,935 charge for depletion and depreciation expense was due to the write-off
of the costs associated with the Company's interest in the ARCO "6" Federal #1
well, one of two wells located in New Mexico which were completed by the Company
during fiscal 1997. Although initial production results from the well were
encouraging, production from the well rapidly decreased and the Company's
independent petroleum engineering firm did not assign any proved reserves to the
well at yearend. Such firm also assigned only minimal reserves to the Company's
interest in the other well in New Mexico (the Dow "B" 28 Federal #1), which
resulted in the Company's determination that an approximate $220,300 impairment
charge should be taken pursuant to FAS 121 with respect to the costs associated
with that well. The remainder of the lease impairment charge was attributable to
the Company's assessment of the capitalized costs of its undeveloped acreage in
New Mexico and Miller County, Arkansas and the establishment of an allowance
after it concluded, based on its present plans for such areas, that it would
likely be unable to recover all of such costs.
The expenses of the Company's coal and gravel operations increased
approximately $45,100 (45.0%) during fiscal 1997 due to higher engineering and
testing and permitting expenses and ad valorem taxes. Real estate development
expense increased approximately $17,800 (53.9%) in fiscal 1997 due to repair
expenses
15
<PAGE> 19
incurred on the Company's existing heavy earth moving equipment to ready it for
use in the preliminary site work on the golf course the Company is building on
approximately 170 acres of the Company's 2,025 acres of land in La Plata
County, Colorado. The Company expects real estate development expenses to
increase materially in fiscal 1998 as a full year of expense associated with
the golf course site work will be incurred.
General and administrative expense decreased approximately $45,000
(9.1%) in the fiscal year ended February 28, 1997 primarily due to lower
payroll expense resulting from unpaid leaves of absence taken by the Company's
Executive Vice President during the year and reduced litigation and general
depreciation expenses. These decreases were partially offset by higher
engineering and governmental reporting expenses.
Other income (expense) was again a net income item in fiscal 1997 and
increased approximately $69,400 (14.2%). The net interest income and dividend
component decreased approximately $66,400 (15.5%) in fiscal 1997. Interest and
dividend income was only approximately $2,200 lower in fiscal 1997, but
interest expense was approximately $64,300 higher due to the Company's margin
account borrowings against its investment securities available for sale, which
borrowings were used to fund the Company's operations for much of the year. The
Company paid all of such borrowings in full prior to yearend. Gain on sales of
investment securities available for sale increased approximately $121,400
during fiscal 1997 and the "other, net" item increased approximately $14,500
(32.2%) due to gains on sales of other property and equipment.
Due to the Company's profitability in fiscal 1997, the Company's
provision for income taxes reversed from an approximate $329,800 benefit item
in fiscal 1996 to an approximate $84,400 expense item in fiscal 1997. An
adjustment of a prior year tax provision was the primary reason that the amount
of the fiscal 1997 provision did not approach the corporate tax rate of 34%.
See "Item 7. - Financial Statements - Note (3) of Notes to Financial
Statements."
The Company's weighted average shares outstanding declined
approximately 4.3% during the fiscal year ended February 28, 1997 as a result
of continuing share purchases by the Company. Purchases during the year totaled
43,686 shares, all of which were made from parties not affiliated with the
Company's management.
Financial Condition and Liquidity
The Company's investing and financing (solely purchases of the
Company's common stock) activities were net users of cash during the fiscal
year ended February 28, 1997 to the extent of approximately $1,240,300;
however, as a result of the Company's
16
<PAGE> 20
successful oil and gas operations in the East Texas area, the Company's
operating activities provided approximately $1,391,600 in cash, which resulted
in an increase in cash and cash equivalents at yearend of approximately
$151,300. The Company's operations during most of fiscal 1997 were funded by
margin account borrowings against the Company's investment securities available
for sale, but the Company paid off such borrowings in full prior to yearend
primarily with proceeds from sales and maturities of investment securities
available for sale. Consequently, at February 28, 1997, the Company had no
indebtedness and held investment securities aggregating approximately
$2,747,000.
The Company expects to fund its contemplated operations in fiscal
1998 from a combination of cash flow from its oil and gas operations and sales
or maturities of a portion of its investment securities available for sale or
margin account borrowings against their value.
ITEM 7. FINANCIAL STATEMENTS.
Index to Financial Statements
Page
----
Independent Auditors' Report 18
Balance Sheets as of February 28, 1997 and
February 29, 1996 19
Statements of Operations for the years ended
February 28, 1997 and February 29, 1996 21
Statements of Stockholders' Equity for the
years ended February 28, 1997 and
February 29, 1996 22
Statements of Cash Flows for the years ended
February 28, 1997 and February 29, 1996 23
Notes to Financial Statements 25
17
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Oakridge Energy, Inc.:
We have audited the accompanying balance sheets of Oakridge Energy, Inc. (the
Company) as of February 28, 1997 and February 29, 1996, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oakridge Energy, Inc. as of
February 28, 1997 and February 29, 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in note 1(h) to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" in 1997.
KPMG Peat Marwick LLP
Dallas, Texas
May 9, 1997
18
<PAGE> 22
OAKRIDGE ENERGY, INC.
Balance Sheets
February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 195,631 44,300
Trade accounts receivable 807,005 314,717
Other accounts receivable 29,558 45,327
Investment securities (note 2):
Available for sale 1,399,344 2,341,229
Held to maturity - 165,219
Current maturities of long-term notes receivable 4,760 4,395
Federal income tax receivable 230,602 528,618
Deferred tax asset (note 3) 44,303 -
Prepaid expenses and other 27,571 26,675
------------ ------------
Total current assets 2,738,774 3,470,480
------------ ------------
Investment securities available for sale (note 2) 1,347,663 2,055,136
Long-term notes receivable, net of current maturities 27,894 32,654
Oil and gas properties, at cost, using the successful
efforts method of accounting:
Proved developed properties 5,373,005 3,141,359
Accumulated depletion and depreciation (2,864,407) (2,156,926)
------------ ------------
2,508,598 984,433
Drilling in progress 448,809 684,310
Unproved properties, net of $134,957 in
impairment allowances in 1997 222,877 275,254
------------ ------------
Net oil and gas properties, at cost 3,180,284 1,943,997
------------ ------------
Coal and gravel properties:
Undeveloped properties 6,060,710 6,059,378
Mining and service equipment 2,674,069 2,651,783
------------ ------------
8,734,779 8,711,161
Accumulated depletion and depreciation (8,330,649) (8,316,008)
------------ ------------
Net coal and gravel properties 404,130 395,153
------------ ------------
Real estate held for development 2,275,977 2,129,819
Other property and equipment, net of accumulated
depreciation of $733,429 in 1997 and $770,845 in 1996 172,611 172,043
Other assets (note 6) 1,213,043 888,994
------------ ------------
$ 11,360,376 11,088,276
============ ============
</TABLE>
(Continued)
19
<PAGE> 23
OAKRIDGE ENERGY, INC.
Balance Sheets, Continued
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 239,906 284,612
Accrued expenses 56,008 67,735
Other liabilities - 77,233
Deferred federal income taxes (note 3) - 50,915
------------ ------------
Total current liabilities 295,914 480,495
Deferred federal income taxes (note 3) 481,238 235,156
------------ ------------
Total liabilities 777,152 715,651
------------ ------------
Stockholders' equity:
Common stock, $.04 par value, 20,000,000
shares authorized, 10,157,803 shares issued 406,312 406,312
Additional paid-in capital 805,092 805,092
Retained earnings 17,188,379 16,688,947
Unrealized gain (loss) on investment securities
available for sale, net of income taxes (86,002) 98,833
------------ ------------
18,313,781 17,999,184
Less treasury stock, at cost; 5,074,444
shares in 1997 and 5,030,758 shares in
1996 (note 5) (7,730,557) (7,626,559)
------------ ------------
Total stockholders' equity 10,583,224 10,372,625
------------ ------------
Commitments and contingencies (note 6)
$ 11,360,376 11,088,276
============ ============
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 24
OAKRIDGE ENERGY, INC.
Statements of Operations
For the years ended February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Oil and gas (note 4) $ 2,451,839 525,778
Coal and gravel 55,023 74,185
Other 46,500 43,199
----------- -----------
Total revenues 2,553,362 643,162
----------- -----------
Operating expenses:
Oil and gas:
Depletion and depreciation 752,935 256,565
Lease operating 363,296 207,685
Production taxes 74,474 29,378
Lease impairment (notes 1(d) and 1(h)) 355,274 -
Exploration 67,444 564,548
Abandoned leaseholds - 132,060
Dry hole costs 269,515 547,124
----------- -----------
1,882,938 1,737,360
Coal and gravel:
Operating 130,718 85,212
Depletion 14,641 15,065
----------- -----------
145,359 100,277
Real estate development 50,896 33,075
General and administrative 447,774 492,769
----------- -----------
Total operating expenses 2,526,967 2,363,481
----------- -----------
Income (loss) from operations 26,395 (1,720,319)
----------- -----------
Other income (expense):
Interest and dividend income 427,599 429,760
Interest expense (66,230) (1,974)
Gain on sales of investment securities available for sale 136,681 15,310
Other, net 59,382 44,906
----------- -----------
Total other income (expense) 557,432 488,002
----------- -----------
Income (loss) before income taxes 583,827 (1,232,317)
Income tax expense (benefit) (note 3) 84,395 (329,774)
----------- -----------
Net income (loss) $ 499,432 (902,543)
=========== ===========
Income (loss) per common share $ .10 $ (.17)
=========== ===========
Weighted average shares outstanding 5,108,733 5,338,531
=========== ===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 25
OAKRIDGE ENERGY, INC.
Statements of Stockholders' Equity
For the years ended February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on
investment
Additional securities
Common paid-in Retained available Treasury
stock capital earnings for sale stock Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
February 28, 1995 $ 406,312 805,092 17,591,490 (148,035) (6,902,165) 11,752,694
Net loss - - (902,543) - - (902,543)
Purchases of treasury
stock (note 5) - - - - (724,394) (724,394)
Change in unrealized
gains (losses) on
investment securities
available for sale, net
of $127,176 deferred
Federal income taxes
(note 1 (c)) - - - 246,868 - 246,868
----------- ----------- ----------- ----------- ----------- -----------
Balance,
February 29, 1996 406,312 805,092 16,688,947 98,833 (7,626,559) 10,372,625
Net income - - 499,432 - - 499,432
Purchases of treasury
stock (note 5) - - - - (103,998) (103,998)
Change in unrealized
gains (losses) on
investment securities
available for sale, net
of $95,218 deferred
Federal income taxes
(note 1 (c)) - - - (184,835) - (184,835)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
February 28, 1997 $ 406,312 805,092 17,188,379 (86,002) (7,730,557) 10,583,224
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 26
OAKRIDGE ENERGY, INC.
Statements of Cash Flows
For the years ended February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 499,432 (902,543)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depletion and depreciation 798,739 321,873
Abandoned leaseholds - 132,060
Lease impairment 355,274 -
Deferred income taxes, net 246,082 185,894
Accretion on investment securities, net (19,459) (61,179)
Gain on disposition of oil and gas properties - (5,604)
Gain on sales of other property and equipment (51,974) (37,183)
Gain on sales of investment securities
available for sale (136,681) (15,310)
Net changes in assets and liabilities:
Trade accounts receivable (492,288) (215,678)
Other accounts receivable 15,769 101,983
Prepaid expenses and other current assets (896) 55,896
Federal income tax receivable 298,016 141,822
Other assets 13,313 15,093
Accounts payable (44,706) 182,037
Other liabilities (77,233) 77,233
Accrued expenses (11,727) (16,622)
State income taxes payable - (817,116)
----------- -----------
Net cash provided by (used in)
operating activities 1,391,661 (857,344)
----------- -----------
</TABLE>
(Continued)
23
<PAGE> 27
OAKRIDGE ENERGY, INC.
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from investing activities:
Additions to oil and gas properties $(2,344,497) (1,838,506)
Additions to coal properties (23,618) (1,332)
Additions to real estate held for development (147,323) -
Additions to other property and equipment (34,302) (15,022)
Proceeds from sales of oil and gas properties - 5,604
Proceeds from sales of other property and equipment 55,711 45,000
Purchases of investment securities available for sale (1,008,685) (536,311)
Maturities of investment securities held to maturity 165,000 1,100,000
Proceeds on sales of investment securities available for sale 2,534,349 1,861,741
Increase in other assets (337,362) -
Principal payments received on notes receivable 4,395 22,785
----------- -----------
Net cash provided by (used in) investing activities (1,136,332) 643,959
----------- -----------
Cash flows from financing activities - purchases
of treasury stock (103,998) (724,394)
----------- -----------
Net increase (decrease) in cash and cash equivalents 151,331 (937,779)
Cash and cash equivalents at beginning of year 44,300 982,079
----------- -----------
Cash and cash equivalents at end of year $ 195,631 44,300
=========== ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 28
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1997 and February 29, 1996
(1) Summary of Significant Accounting Policies
(a) General
Oakridge Energy, Inc. (the Company) is engaged in the exploration,
development, production and sale of oil and gas primarily in Texas
and New Mexico and, to a lesser extent, in the exploration and
development of coal and gravel in Colorado. In addition, the Company
holds certain real estate in Colorado for development.
(b) Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers
all cash and highly liquid investments with original maturities of
three months or less to be cash equivalents.
The Company uses the indirect method to present cash flows from
operating activities.
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Interest paid $66,230 1,974
======= =======
Income taxes paid $68,915 817,428
======= =======
</TABLE>
Supplemental disclosure of noncash activities - net changes in
unrealized gains (losses) on investment securities available for sale
were $(280,053) and $374,044 during 1997 and 1996, respectively.
(c) Investment Securities
Investment securities at February 28, 1997 consist of U.S. Government
agency bonds and corporate debt and equity securities. The Company's
investments are classified at the time of purchase into one of three
categories as follows:
o Held to Maturity Securities - Debt securities that the Company
has the positive intent and ability to hold to maturity are
reported at amortized cost, adjusted for the amortization or
accretion of premiums and discounts.
o Trading Securities - Debt and equity securities that are bought
and held principally for the purpose of selling them in the near
term are reported at fair value, with unrealized gains and
losses included in earnings.
o Available for Sale Securities - Debt and equity securities not
classified as either held to maturity securities or trading
securities are reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate
component of stockholders' equity (net of tax effects).
The Company does not have any securities classified as trading as of
February 28, 1997 or February 29, 1996.
(Continued)
25
<PAGE> 29
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed to be other than
temporary results in a reduction of the carrying amount to fair
value. The impairment is charged to earnings and a new cost basis for
the security is established. Premiums and discounts are amortized or
accreted over the life of the related held to maturity security as an
adjustment to yield using the effective interest method. Dividend and
interest income are recognized when earned. In the case that
investment securities are sold, gains and losses are computed under
the specific identification method.
(d) Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil
and gas producing activities in accordance with Statement of
Financial Accounting Standards No. 19. Costs to acquire mineral
interests in oil and gas properties, to drill exploratory wells that
find proved reserves, and to drill and equip development wells are
capitalized. Geological and geophysical costs, costs to drill
exploratory wells that do not find proved reserves, and nonproducing
leasehold abandonments are expensed as incurred.
Unproved oil and gas properties which are individually significant
are periodically assessed for impairment of value and a loss is
recognized at the time of impairment by providing an impairment
allowance. During the year ended February 28, 1997, an impairment
allowance of $134,957 was recorded on certain unproved oil and gas
properties. Other unproved properties are amortized based on the
Company's prior experience of successful drilling and average holding
periods. Capitalized costs of producing oil and gas properties are
depleted and depreciated by the units-of-production method based on
proved oil and gas reserves as estimated by an independent petroleum
reservoir engineering firm.
Upon sale or retirement of a proved property, the cost and related
accumulated depletion and depreciation are eliminated from the
property accounts, and any resulting gain or loss is recognized. Upon
retirement or sale of a partial unit of a proved property, the cost
is charged to accumulated depletion and depreciation with any
resulting gain or loss recognized.
(e) Coal and Gravel Properties
Costs attributable to the acquisition and development of the coal
properties are capitalized, while costs incurred to maintain the
properties are expensed.
Undeveloped coal properties which are individually significant are
periodically assessed for impairment of value and a loss is
recognized at the time of impairment by providing an impairment
allowance.
Capitalized costs of producing properties are depleted on a
property-by-property basis using the units-of-production method.
(Continued)
26
<PAGE> 30
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
Depreciation on mining and service equipment is calculated using
accelerated and straight-line methods over the estimated useful lives
of the assets. Upon sale or abandonment, the cost of the equipment
and related accumulated depreciation are removed from the accounts
and any gains or losses thereon are recognized.
(f) Real Estate Held for Development
Real estate held for development is carried at cost, which is not in
excess of net realizable value. Real estate development and
construction costs directly identifiable with real estate held for
development are capitalized.
(g) Other Property and Equipment
Depreciation on other property and equipment is calculated using
accelerated and straight-line methods over the estimated useful lives
of the assets. Upon sale or abandonment, the cost of the equipment
and related accumulated depreciation are removed from the accounts
and any gains or losses thereon are recognized.
(h) Impairment of Long-Lived Assets
Effective March 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of " ("Statement No. 121"). Statement No. 121 requires
long-lived assets and certain identifiable intangibles to be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. When it
is determined that an asset's estimated future net cash flows will
not be sufficient to recover its carrying amount, an impairment loss
must be recorded to reduce the carrying amount to its estimated fair
value.
Under Statement No. 121, the Company evaluates impairment of proved
oil and gas properties on a field-by-field basis. On this basis,
certain fields are impaired because they are not expected to recover
their entire carrying value from future net cash flows. During the
year ended February 28, 1997, the Company recorded impairment losses
of $220,317 related to its proved oil and gas properties. The fair
values of the impaired proved oil and gas properties were determined
by using the present value of expected future cash flows. If
estimated future cash flows are not achieved with respect to certain
fields, further writedowns may be required.
(Continued)
27
<PAGE> 31
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, a valuation
allowance is established to reduce any deferred tax asset for which
it is determined that it is more likely than not that some portion of
the deferred tax asset will not be realized.
(j) Earnings Per Common Share
Earnings per common share is computed on the basis of the weighted
average number of shares outstanding during each year presented.
(k) Revenue Recognition
The Company recognizes revenue on oil and gas properties as produced
based on contracted or estimated sales prices. Estimated revenue is
subject to adjustments based on final settlement. Such adjustments
are reflected in revenue when received.
(l) Reclassifications
Certain amounts in 1996 have been reclassified to conform with the
1997 presentation.
(m) Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value
of Financial Instruments," the Company calculates the fair value of
its assets and liabilities which qualify as financial instruments
under this statement and includes this additional information in the
notes to the financial statements when the fair value is different
than the carrying value of those financial instruments. When the fair
value reasonably approximates the carrying value, no additional
disclosure is made (see note 2).
(n) Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect (i) the reported amounts of assets and
liabilities, (ii) disclosure of contingent assets and liabilities at
the date of the financial statements, and (iii) the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(Continued)
28
<PAGE> 32
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(2) Investment Securities
The amortized cost and fair values of investment securities as of February
28, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale
------------------
Equity securities $ 861,006 - (153,818) 707,188
Corporate notes 686,573 5,583 - 692,156
---------- ---------- ---------- ----------
Total current 1,547,579 5,583 (153,818) 1,399,344
---------- ---------- ---------- ----------
U.S. Government agency
bonds, due within
5 years 219,914 4,735 - 224,649
Corporate notes,
due within 5 years 1,109,820 13,194 - 1,123,014
---------- ---------- ---------- ----------
Total noncurrent 1,329,734 17,929 - 1,347,663
---------- ---------- ---------- ----------
Total $2,877,313 23,512 (153,818) 2,747,007
========== ========== ========== ==========
</TABLE>
The amortized cost and fair values of investment securities as of February
29, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale
------------------
Equity mutual fund $ 999,989 72,336 - 1,072,325
U.S. Government agency
bonds 249,309 1,465 - 250,774
U.S. Treasury notes 999,467 18,663 - 1,018,130
---------- ---------- ---------- ----------
Total current 2,248,765 92,464 - 2,341,229
---------- ---------- ---------- ----------
U.S. Government agency
bonds, due within
5 years 217,811 8,044 - 225,855
Corporate notes,
due within 5 years 1,780,041 49,240 - 1,829,281
---------- ---------- ---------- ----------
Total noncurrent 1,997,852 57,284 - 2,055,136
---------- ---------- ---------- ----------
Total $4,246,617 149,748 - 4,396,365
========== ========== ========== ==========
Held to maturity
----------------
Municipal bonds $ 165,219 568 - 165,787
---------- ---------- ---------- ----------
Total current $ 165,219 568 - 165,787
========== ========== ========== ==========
</TABLE>
(Continued)
29
<PAGE> 33
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(3) Income Taxes
Income tax expense (benefit) attributable to income from continuing
operations consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
--------- --------- ---------
<S> <C> <C> <C>
Year ended February 28, 1997:
U.S. Federal $(191,128) 217,315 26,187
State and local 29,441 28,767 58,208
--------- --------- ---------
$(161,687) 246,082 84,395
========= ========= =========
Year ended February 29, 1996:
U.S. Federal $(516,039) 164,163 (351,876)
State and local 371 21,731 22,102
--------- --------- ---------
$(515,668) 185,894 (329,774)
========= ========= =========
</TABLE>
Income tax expense (benefit) for the years presented differs from the
"expected" Federal income tax expense (benefit) for those years, computed
by applying the statutory U.S. Federal corporate tax rate of 34% to pretax
income (loss), as a result of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Computed "expected" tax expense (benefit) $ 198,501 (418,988)
State and local income taxes,
net of Federal income tax benefit 38,417 14,587
Tax-exempt interest (710) (4,037)
Other, primarily adjustment of prior year
provision (151,813) 78,664
--------- ---------
$ 84,395 (329,774)
========= =========
</TABLE>
(Continued)
30
<PAGE> 34
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
February 28, 1997 and February 29, 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities
available for sale $ 44,303 -
Alternative minimum tax, statutory
depletion and other carryforwards 109,116 -
Deferred income 9,243 -
--------- ---------
Total gross deferred tax assets 162,662 -
Less valuation allowance - -
--------- ---------
Net deferred tax assets 162,662 -
--------- ---------
Deferred tax liabilities:
Oil and gas properties and other property
and equipment, principally due to
depletion and depreciation (519,218) (89,068)
Coal properties, principally due to
differences in depletion (80,379) (146,088)
Unrealized gain on investment securities
available for sale - (50,915)
--------- ---------
Total gross deferred tax liabilities (599,597) (286,071)
--------- ---------
Net deferred tax liability $(436,935) (286,071)
========= =========
</TABLE>
Based on the future reversal of existing taxable temporary differences and
future earnings expectations, management of the Company believes it is
more likely than not that deferred tax assets will be realized or settled,
and accordingly, no valuation allowance has been recorded.
(4) Segment Information and Major Customers
The Company is engaged in oil and gas and coal and gravel activities.
Separate financial information with respect to these two business segments
is included in the accompanying financial statements. All of the Company's
operations are in the United States.
Oil sales to customers which accounted for more than 10% of the Company's
total oil sales aggregated approximately $1,100,000 and $195,000 in 1997,
and approximately $204,000, $90,000 and $45,000 in 1996. Gas sales to a
customer which accounted for more than 10% of the Company's total gas
sales aggregated approximately $798,000 and $150,000 in 1997 and 1996,
respectively.
(Continued)
31
<PAGE> 35
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(5) Related Party Transactions
In the normal course of business, the Company owns interests in various
oil and gas properties in which certain stockholders and affiliates also
own interests.
During 1996, the Company purchased 29,458 shares of the Company's common
stock from the Company's Vice President and Assistant Secretary and
Treasurer, 24,750 shares from a company controlled by the Company's Vice
President and Assistant Secretary and Treasurer, and 100,000 shares from
the Company's Executive Vice President. These purchases were made at $2.25
per share which approximates the share price paid by the Company to other
unaffiliated stockholders.
Subsequent to February 28, 1997, the Company purchased 60,000 shares of
the Company's common stock from the Company's Executive Vice President at
$2.875 per share which approximates the share price paid by the Company to
other unaffiliated stockholders.
(6) Commitments and Contingencies
The Company is subject to certain claims and litigation. In the opinion of
management, the outcome of such matters will not have a materially adverse
effect on the financial statements of the Company.
As of February 28, 1997 and February 29, 1996, the Company has pledged
interest-bearing cash deposits of $875,681 to secure letters of credit in
favor of the Colorado Bureau of Land Management for state requirements
regarding land reclamation with respect to coal and gravel properties.
These pledged cash deposits are included in other noncurrent assets in the
accompanying balance sheets.
(7) Oil and Gas Information
The following tables set forth supplementary disclosures for oil and gas
producing activities in accordance with Statement of Financial Accounting
Standards No. 69 ("Statement No. 69").
(a) Costs Incurred
A summary of costs incurred in oil and gas property acquisition,
development, and exploration activities (both capitalized and charged
to expense) for the years ended February 28, 1997 and February 29,
1996 follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Acquisition of unproved properties $ 155,232 246,163
========== ==========
Development costs $2,189,265 1,592,343
========== ==========
Exploration costs $ 336,959 1,111,672
========== ==========
</TABLE>
(Continued)
32
<PAGE> 36
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(b) Results of Operations for Producing Activities
The following table presents the results of operations for the
Company's oil and gas producing activities for the years ended
February 28, 1997 and February 29, 1996.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues $ 2,451,839 525,778
Production costs (437,770) (237,063)
Depletion, depreciation, and valuation
provisions (1,108,209) (256,565)
Exploration costs (336,959) (1,111,672)
----------- -----------
568,901 (1,079,522)
Income tax benefit (expense) (193,426) 367,037
----------- -----------
Results of operations for producing
activities (excluding corporate
overhead and interest costs) $ 375,475 (712,485)
=========== ===========
</TABLE>
(8) Reserve Quantity Information (Unaudited)
The following table presents the Company's estimate of its proved oil and
gas reserves, all of which are located in the United States. The Company
emphasizes that reserve estimates are inherently imprecise and that
estimates of reserves related to new discoveries are more imprecise than
those for producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available. The estimates
have been prepared with the assistance of an independent petroleum
reservoir engineering firm. Oil reserves, which include condensate and
natural gas liquids, are stated in barrels and gas reserves are stated in
thousands of cubic feet.
<TABLE>
<CAPTION>
Oil Gas
---------- ----------
<S> <C> <C>
Proved developed and undeveloped reserves:
Balance, February 28, 1995 33,709 106,922
Revisions of previous estimates 28,869 (630)
Extensions and discoveries 63,445 862,254
Production (19,920) (99,396)
---------- ----------
Balance, February 29, 1996 106,103 869,150
Revisions of previous estimates 35,741 156,736
Extensions and discoveries 525,796 1,436,790
Production (64,868) (389,756)
---------- ----------
Balance, February 28, 1997 602,772 2,072,920
========== ==========
Proved developed reserves:
February 28, 1995 33,709 106,922
========== ==========
February 29, 1996 106,103 869,150
========== ==========
February 28, 1997 314,277 1,908,674
========== ==========
</TABLE>
(Continued)
33
<PAGE> 37
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(9) Standardized Measure of Discounted Future Net Cash Flow and
Changes Therein Relating to Proved Oil and Gas Reserves (Unaudited)
The following table, which presents a standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves, is presented pursuant to Statement No. 69. In computing this
data, assumptions other than those required by the Financial Accounting
Standards Board could produce different results. Accordingly, the data
should not be construed as representative of the fair market value of the
Company's proved oil and gas reserves.
Future cash inflows were computed by applying existing contract and
year-end prices of oil and gas relating to the Company's proved reserves
to the estimated year-end quantities of those reserves. Future price
changes were considered only to the extent provided by contractual
arrangements in existence at year-end. Future development and production
costs were computed by estimating the expenditures to be incurred in
developing and producing the proved oil and gas reserves at the end of the
year, based on year-end costs. Future income tax expenses were computed by
applying the year-end statutory tax rate, with consideration of future tax
rates already legislated, to the future pretax net cash flows relating to
the Company's proved oil and gas reserves. The standardized measure of
discounted future cash flows at February 28, 1997 and February 29, 1996,
which represent the present value of estimated future cash flows using a
discount rate of 10% a year, follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Future cash inflows $ 15,861,328 3,916,716
Future production and development costs (7,468,032) (1,615,715)
Future income tax expenses (1,002,950) (261,548)
------------ ------------
Future net cash flows 7,390,346 2,039,453
10% annual discount for estimated
timing of cash flows (1,602,116) (417,797)
------------ ------------
Standardized measure of discounted
future net cash flows $ 5,788,230 1,621,656
============ ============
Beginning of year $ 1,621,656 253,163
Sales of oil and gas, net of production costs (2,014,069) (288,715)
Extensions, discoveries, and improved
recoveries, less related costs 7,221,876 1,510,204
Accretion of discount 162,166 25,316
Net change in sales and transfer prices, net of
production costs 746,573 64,631
Changes in estimated future development costs (1,522,377) (6,532)
Net change in income taxes (1,354,531) (239,862)
Changes in production rates (timing and other) 441,966 69,306
Revisions of previous quantities 484,970 234,145
------------ ------------
End of year $ 5,788,230 1,621,656
============ ============
</TABLE>
(Continued)
34
<PAGE> 38
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(10) Quarterly Operating Results (Unaudited)
Quarterly results of operations for 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
1997
<S> <C> <C> <C> <C> <C>
Total revenues $ 422,176 414,822 568,074 1,148,290 2,553,362
Income (loss)
from operations (32,085) (149,315) 28,848 178,947 26,395
Net income (loss) (7,110) (66,205) 76,447 496,300 499,432
Income (loss) per share (.00) (.01) .01 .10 .10
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996
Total revenues $ 107,906 107,598 122,076 305,582 643,162
Loss from operations (173,220) (402,572) (861,056) (283,471) (1,720,319)
Net loss (32,039) (181,716) (477,484) (211,304) (902,543)
Loss per share (0.01) (0.03) (0.09) (0.04) (0.17)
</TABLE>
During the fourth quarter of 1996, an adjustment of $560,000 was recorded
to expense geological and geophysical costs incurred by the Company during
the third quarter of 1996. The Company's November 30, 1995 Form 10-QSB
reported such amounts as prepaid expenses. The quarterly information
presented above includes the effects of recording such expenses in the
quarter ending November 30, 1995, net of $190,400 in deferred tax
benefits.
35
<PAGE> 39
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company did not change its principal independent accounting firm
nor have any disagreements with such firm on accounting and financial
disclosure matters during the two fiscal years ended February 28, 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1997 to be filed with the Securities and
Exchange Commission ("SEC") not later than 120 days after the end of such year.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1997 to be filed with the SEC not later
than 120 days after the end of such year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1997 to be filed with the SEC not later
than 120 days after the end of such year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1997 to be filed with the SEC not later
than 120 days after the end of such year.
36
<PAGE> 40
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(3)(ii) By-Laws of the Company dated May 23, 1975 filed as
Exhibit A(4) to Form 10 and incorporated herein by
reference.
(10) Contract for Development of Gravel dated December 28,
1993 between the Company and Durango Construction,
Inc. pertaining to the approximate 33-acre gravel
permit area in La Plata County, Colorado, including
exhibits, filed as Exhibit (10) to the Company's Form
10-QSB for the quarterly period ended November 30,
1993 and incorporated herein by reference.
(27) Financial Data Schedule.
(99) Opinion of the Supreme Court of the State of Utah in
Oakridge Energy, Inc., Plaintiff and Appellee, vs.
Martin Taylor Clifton et al, Defendants and
Appellants, No. 960049 filed April 18, 1997.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed by the
Company during the last quarter of the period covered by this report.
37
<PAGE> 41
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OAKRIDGE ENERGY, INC.
By /s/ Noel Pautsky
--------------------------
Noel Pautsky, President
DATE: May 27, 1997
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By /s/ Noel Pautsky By /s/ Sandra Pautsky
--------------------------- -----------------------------
Noel Pautsky, Chairman Sandra Pautsky, Executive
of Board of Directors, Vice President and
President (Chief Secretary-Treasurer
Executive Officer) (Chief Financial Officer
and Director and Chief Accounting
Officer)
and Director
DATE: May 27, 1997 DATE: May 27, 1997
By /s/ Danny Croker By /s/ Randy Camp
--------------------------- -----------------------------
Danny Croker, Director Randy Camp, Director
DATE: May 27, 1997 DATE: May 27, 1997
38
<PAGE> 42
INDEX TO EXHIBITS
The exhibits filed with this Registration Statement are filed
in accordance with the requirements of Item 601 of Regulation S-B for filings
on Form 10-KSB. For convenient reference, each exhibit is listed according to
the number assigned to it in the Exhibit Table of such Item 601.
(2) Plan of acquisition, reorganization, arrangement, liquidation,
or succession - not applicable.
(3)(ii) By-laws - By-Laws of the Registrant dated May 23, 1975 filed
as Exhibit A(4) to Form 10 and incorporated herein by
reference.
(4) Instruments defining the rights of security holders, including
indentures - not applicable.
(9) Voting trust agreement - not applicable.
(10) Material contracts - Contract for Development of Gravel dated
December 28, 1993 between the Registrant and Durango
Construction, Inc. pertaining to the approximate 33-acre
gravel permit area in La Plata County, Colorado, including
exhibits, filed as Exhibit (10) to the Registrant's Form
10-QSB for the quarterly period ended November 30, 1993 and
incorporated herein by reference.
(11) Statement re computation of per share earnings - not
applicable.
(13) Annual or quarterly reports, Form 10-Q - not applicable.
(16) Letter on change in certifying accountant - not applicable.
(18) Letter on change in accounting principles - not applicable.
(19) Previously unfiled documents - not applicable.
(21) Subsidiaries of the registrant - not applicable.
(22) Published report regarding matters submitted to vote -not
applicable.
(23) Consent of experts and counsel - not applicable.
(24) Power of attorney - not applicable.
(27) Financial Data Schedule.
(99) Additional exhibits - Opinion of the Supreme Court of the
State of Utah in Oakridge Energy, Inc., Plaintiff and
Appellee, vs. Martin Taylor Clifton et al, Defendants and
Appellants, No. 960049 filed April 18, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OAKRIDGE ENERGY, INC. AS OF AND FOR THE PERIOD ENDED
FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 195,631
<SECURITIES> 1,399,344
<RECEIVABLES> 841,323
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,738,774
<PP&E> 17,961,487
<DEPRECIATION> 11,928,485
<TOTAL-ASSETS> 11,360,376
<CURRENT-LIABILITIES> 295,914
<BONDS> 0
0
0
<COMMON> 406,312
<OTHER-SE> 10,176,912
<TOTAL-LIABILITY-AND-EQUITY> 11,360,376
<SALES> 2,553,362
<TOTAL-REVENUES> 2,553,362
<CGS> 2,079,193
<TOTAL-COSTS> 2,526,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,230
<INCOME-PRETAX> 583,827
<INCOME-TAX> 84,395
<INCOME-CONTINUING> 499,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499,432
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<PAGE> 1
EXHIBIT 99
This Opinion Is Subject To Revision Before Final
Publication In The Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----ooOoo----
Oakridge Energy, Inc., No. 960049
Plaintiff and Appellee,
v.
Martin Taylor Clifton,
Thomas A. Clifton, Thomas A.
Clifton Jr., James A. Ruffalo, F I L E D
Nancy J. Sullivan,
Defendants and Appellants. April 18, 1997
---
Third District, Salt Lake Div. I
The Honorable Pat B. Brian
Attorneys: Eric C. Olson, Salt Lake City, for plaintiff
R. Willis Orton, Gregory N. Jones, Salt Lake City, for defendants
---
HOWE, Justice:
Shareholders dissenting from a sale of corporate assets appeal from
the trial court's judgment that, for purposes of the statute giving them a
right to appraisal and payment, the "fair market value" of their shares equals
the stock market price. We must decide the proper basis for stock valuation
under Utah Code Ann. Section 16-10a-1302 (1995).
FACTS
Oakridge Energy, Inc., a Utah oil and gas development company with
assets in Texas, Nevada, and Colorado, sold its South Texas properties to
Cometra Oil and Gas, Inc. in May of 1993 for $21.5 million. The transaction
constituted a sale of "substantially all" of Oakridge's property for purposes
of Utah Code Ann. Section 16-10a-1302(c) (1995) and thereby conferred on
shareholders the right to dissent from the transaction and receive "fair value"
for their shares. Minority shareholders in Oakridge Energy, Inc., who
constitute the defendants in this
<PAGE> 2
case, exercised this right. Section 16-10a-1302 provides in relevant part:
(1) A shareholder, whether or not entitled to vote, is
entitled to dissent from, and obtain payment of the fair value
of shares held by him in the event of, any of the following
corporate actions:
. . . .
(c) Consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of
the corporation for which a shareholder vote is required.
"'[F]air value' with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action." Utah Code Ann. Section 16-10a-1301(4)
(1995).
Oakridge announced the terms of the Cometra sale on May 24, 1993.
Dissenters exercised their rights as dissenting shareholders on September 27,
1993, and the remaining shareholders approved the sale by vote on September 28.
The sale closed the same day, but the provisions were made retroactive to May
1, 1993. The notice of the annual stockholders' meeting at which the sale was
approved included unaudited pro forma financial information that took the
effects of the sale into consideration and gave the Oakridge stock a book value
of $3.36 per share. To compensate the dissenters however, Oakridge used the
stock market price to determine that the "fair value" of the shares immediately
before the vote was $2.50 per share. Oakridge then added a $0.25 dividend
declared in connection with the Cometra sale and sent payment of $2.75 per
share to the dissenting shareholders as required by Utah Code Ann. Section
16-10a-1325. Dissenters accepted payment but subsequently exercised their
appraisal rights under sections 16-10a-1328 and -1330,(1) claiming a value in
excess of $3.36 per
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(1) Section 16-10a-1328 provides that a dissenter who believes that the
amount paid is less than the fair value of the shares "may notify the
corporation in writing of his own estimate of the fair value of his shares and
demand payment of the estimated amount, plus interest, less any payment
made . . . " If the
(continued...)
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share. Oakridge then petitioned the trial court for a valuation of the stock.
At trial, Oakridge presented evidence that the stock's
over-the-counter trading price ranged between a low of $1.37 and a high of
$2.56 per share. The dissenters contended that the stock was "thinly traded",
and therefore the stock price was not an adequate indicator of value. They
maintained that the per share net asset value, taking the Cometra sale into
account, was $3.57. In contrast, Oakridge relied upon a 1993 evaluation by
petroleum engineer Aaron Cawley, who had performed an annual evaluation of
Oakridge's oil and gas properties for several years prior to the Cometra sale.
His valuation considered geological factors, production and operating cost
history, and future production forecasts prior to the Cometra sale. Based on
the information obtained for his annual published report, Cawley testified at
trial that the fair market value of all of the Oakridge oil and gas reserves
did not exceed $8.5 million. Using this asset value, Oakridge attempted to
determine the "fair market value" of the stock as of August 31, 1993, and
arrived at a total shareholder equity of $14,767,948, or $2.13 per share.
The trial court concluded that the "fair value" of the stock equaled
the "market value". That is, "the value a shareholder would receive for his or
her stock in an arms-length transaction." Dissenters argue that the fair value
is not the equivalent of market value but that the court must weigh three
factors: (1) the market value, (2) the asset value, and (3) the investment
value. Inconsistently, however, the dissenters urge this court to determine the
fair value solely upon the net asset value as reflected by the $21.5 million
sale and suggest the weighing of the three factors only in the alternative.
Oakridge responds that the trial court correctly disregarded the Cometra sale
in determining the value of the Oakridge stock. Neither party presented
evidence of the stock's investment value.
ANALYSIS
I. Elements of "fair value"
The determination of what constitutes fair value under section
16-10a-1302 is a case of first impression in Utah.
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(1) (...continued)
demand for payment remains unresolved, then section 16-10a-1330 requires the
corporation to petition the court to determine the fair value of the shares and
the amount of interest.
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However, a number of courts in jurisdictions with similar statutes have
addressed this issue. In Woodward v. Quigley, 133 N.W.2d 38 (Iowa 1965), the
Supreme Court of Iowa recognized that the "'real object [of valuing shares] is
to ascertain the actual worth of that which the dissenter loses because of his
unwillingness to go along with the controlling stockholders.'" Id. at 42
(quoting Warren v. Baltimore Transit Co., 220 Md. 478, 154 A.2d 796, 799
(1959)). In In re Valuation of Common Stock of Libby, McNeill & Libby, 406 A.2d
54, 60 (Me. 1979), the Supreme Judicial Court of Maine observed that "[a]mong
other jurisdictions with valuation statutes similar to our own, we do find . . .
a consensus that the component elements to be relied upon in determining 'fair
value' are stock market price, investment value, and net asset value" (footnote
omitted). This observation echoes the earlier statement of the Iowa court that
the "three standards that have received almost universal recognition in
appraising the intrinsic value of stock under statutes of this type are (1)
market value of the stock, (2) net asset value of the corporation, and (3)
investment value." Woodward, 133 N.W.2d at 40 (citation omitted). Consequently,
"since intrinsic or true value is to be ascertained, the problem will not be
settled by the acceptance as the sole measure of only one element entering into
value without considering other elements." Bell v. Kirby Lumber Corp., 413 A.2d
137, 141 (Del. 1980). In Piemonte v. New Boston Garden Corp., 387 N.E.2d 1145,
1148 (Mass. 1979), the Supreme Judicial Court of Massachusetts followed the
Delaware procedure and stated that determination of the fair value "calls for a
determination of the market value, the earnings value, and the net asset value
of the stock, followed by the assignment of a percentage weight to each of the
elements of value." We will discuss market value, investment value, and asset
value in that order.
A. Market Value
In the instant case the trial court relied solely upon the market
price of the stock in determining the fair value of the dissenters' shares. It
is true that where "the evidence reveals the existence of a free and open
market, characterized by a substantial volume of transactions that makes the
market a fair reflection of the judgment of the investing public, a court may
justifiably assign a greater weight to stock market price than to net asset
value or investment value." Libby, 406 A.2d at 63. However, "market value may
not be taken as the sole measure of the value of the stock." Bell, 413 A.2d at
141.
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<PAGE> 5
Market value of the stock, if it is possible
to establish a value through sales on the
open market, is a factor to be considered,
but is not too dependable as a guide to
intrinsic worth. The market price is subject
to fluctuation for many reasons other than
the intrinsic worth of the stock or the
condition of the corporation.
Woodward, 133 N.W.2d at 40. Additionally, the reliability of stock market value
as a measure of fair value depends upon the circumstances of the individual
case and the manner of trading. In Application of Silverman, 122 N.Y.S.2d. 312
(App. Div. 1953), the court examined a circumstance similar to the one we
encounter here in that the stock at issue was traded over the counter but not
listed on an exchange. The court observed that "in the circumstances of this
case market price of the stock so far as it is possible to ascertain it, should
not be the sole criterion of value" because "[t]here is a marked difference
between the reliability of market price as a guide to value in respect of a
stock listed on a recognized exchange and one traded over the counter." Id. at
317. Therefore, we conclude that the trial court erred in using the stock
market price of the Oakridge shares as the sole criterion for determining the
fair value of the dissenters' shares.
B. Investment Value
The Libby court observed that "[c]onceptually, investment value
is a central component of fair value. 'The assets of a company are of value
chiefly because of their earning capacity . . . . '" Libby, 406 A.2d at 66
(citation omitted). Investment value represents an estimate of the
corporation's earning capacity and is fixed in a two-step process. First, an
average annual earnings figure is calculated based on the corporation's recent
earnings history, excluding unusual gains and losses. Second, a capitalization
ratio or earnings multiplier is selected. The investment value of the
corporation is the product of the capitalization ratio and the average earnings
figure. Id. at 65. Consequently, courts have traditionally favored investment
value, rather than asset value, as the most important of the three elements.
See Dudley v. Mealey, 147 F.2d 268, 270 (2d Cir. 1945) ("The Supreme Court has
several times said that the best test of the value of a going commercial
enterprise is its earning capacity" (citations omitted).); Woodward, 133 N.W.2d
at 41 ("Net asset value will, in most instances, be of far less importance than
the investment
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<PAGE> 6
value of the stock, because the real value of the stock is still to be
determined as in a going concern.").
C. Asset Value
Dissenters argue that the asset value, taking into consideration the
sale price to Cometra, establishes the value of their shares. This argument
assumes that (1) asset value is interchangeable with "fair value," and (2)
asset value should include any effects of the corporate action. We will
consider the two factors in order.
As discussed under "Market Value," no one factor alone establishes
fair value. Additionally, courts have observed that asset value, in and of
itself, is the least reliable of the three factors in value determination. The
Libby court observed that asset value is, "in the words of Judge Hand in Borg
v. International Silver Co., [11 F.2d 147, 152 (2d. Cir. 1925),] little
indication of 'what people will pay for the shares.'" Libby, 406 A.2d at 67.
The court commented further that "[g]enerally net asset value should not be
heavily weighted in stock valuation unless the valuation is being made for
liquidation purposes." Id. at 66. Dissenters attempt to minimize the importance
of earnings, arguing that Oakridge's function was to hold assets for
appreciation rather than to generate revenue. They cite Bell for the
proposition that asset value, rather than any earnings-based value,
predominates in a natural resources corporation. Even the Bell court, however,
assigned a weight of only forty percent to asset value. Bell, 413 A.2d at 145.
We conclude that while asset value is a component of fair value, it is not
interchangeable with fair value, and should not be the only factor considered.
We next examine the effect on asset value of the corporate action
giving rise to the dissent. Our statute specifies that fair value must
be determined "immediately before the effectuation of the corporate action"
which triggered the dissent and excludes "any appreciation or depreciation in
anticipation of the corporate action." Section 16-10a-1301(4). In a case where
a corporate action causes value to fall, the statute protects minority
shareholders from unwise or self-interested actions by the majority.(2) In a
case where the corporate action
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(2) Statutes like ours were typically enacted to protect minority
shareholders, replacing the common law rule that votes on corporate sales and
mergers must be unanimous. See generally
(continued...)
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causes values to rise, as here, the statute protects the corporation and the
majority shareholders from dissenters' attempts to engineer a windfall for
themselves and drain corporate assets by arranging to benefit from both the
corporate action and the dissent. In such a situation,
the complaining minority should get the value of the shares before
the transaction was proposed, which was the value of what had been
taken from the shareholder. There would be no need to look at what
came after the transaction because the minority would have chosen to
go in a different direction.
Robert B. Thompson, Exit, Liquidity, and Majority Rule:
Appraisal's Role in Corporate Law, 84 Geo. L.J. 1, 20-21 (1995). The Supreme
Judicial Court of Maine, operating under a statute similar to Utah's, observed
that "dissenting shareholders are entitled to receive the full fair value of
their shares, but that value must be determined independently of the merger
transaction that gave the dissenting shareholders the statutory right to be
bought out and their corporation the statutory duty to pay them off." Libby,
406 A.2d at 62. The New York Court of Appeals has held that a "dissenting
stockholder is not entitled to share in an enhanced value of stock due to the
sale which he has opposed and from which he dissents." In re Clark's Will, 257
N.Y. 487, 178 N.E. 766, 768 (1931).
II. Application
We agree with the courts cited above that a dissenting shareholder
disclaims both the burden and the benefit of the disfavored corporate action.
Therefore, as discussed above, dissenting shareholders are entitled to receive
the value of their holdings unaffected by the corporate action (3). Dissenters
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(2) ( ... continued)
Bayless Manning, The Shareholder's Appraisal Remedy: An Essay for Frank Coker,
72 Yale L.J. 223, 244-48 (1962).
(3) Dissenters cite Dreiseszun v. FLM Industries, Inc., 577 S.W.2d 902
(Mo. Ct. App. 1979), for the proposition that "the fair value could only be
determined [in case of an asset sale] by reference to the net asset value as
established by the very terms of the asset sale." However, the Missouri
dissenters' rights statute in effect at the time of that decision did not
exclude
(continued...)
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<PAGE> 8
focus primarily on the statutory language excluding "appreciation or
depreciation in anticipation of the corporate action," arguing that there was
none. The statute provides, however, that assets must be evaluated "immediately
before the effectuation of the corporate action." Section 16-10a-1301(4)
(emphasis added). Dissenters unsuccessfully attempt to explain away this
language by arguing that because the sale was announced in May 1993, and was
retroactive to May, the value of the assets just prior to the September
shareholder vote was already $21.5 million. In reality, however, the pre-May
asset value is the value immediately before the "effectuation of the corporate
action" because the sale was retroactive. Even if the value in May is the value
preceding the corporate action, as dissenters argue, then the change in value
from May to September is still appreciation "in anticipation of the corporate
action." The important point is that under the plain language of the statute,
any effect of the Cometra sale must be excluded, whether this effect occurred
after the announcement of the sale, after the shareholder vote, or as a result
of retroactive provisions. According to the record before us, no informed
expert even ventured to suggest the possibility that the Oakridge assets could
be valued at $21.5 million prior to Cometra's offer to purchase the South Texas
properties for that amount.
The discrepancy between Oakridge's pre-sale evaluation of its assets
and the $21.5 million sale price suggests that the South Texas properties had
some unique value for Cometra, inflating the value of the assets above their
realistic pre-sale value. However, "'fair value' is not measured by any unique
benefits that will accrue to the acquiring corporation, any more than the
compensable value of property taken by eminent domain is measured by its
special value to the condemnor." Libby, 406 A.2d at 62. Moreover, the sale
price here was not reinforced by several buyers bidding against each other as
it was in BNE Massachusetts Corp. v. Sims, 588 N.E.2d 14 (Mass. App. Ct. 1992),
upon which dissenters rely.
Furthermore, dissenters have failed to supply an alternative
appraisal or to offer other evidence that the sale price reliably reflects the
value of the assets absent the
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(3) (... continued)
appreciation or depreciation in anticipation of the sale. Additionally, the
majority shareholders in Dreiseszun had used their position to manipulate a
higher value for their own stock than for the minority shareholders' stock. Id.
at 904-05. No such situation exists here.
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<PAGE> 9
Cometra sale. Therefore, we turn to Cawley's 1993 evaluation of the oil and gas
properties. As discussed above, Oakridge relied on this evaluation to arrive at
a balance-sheet value of $14,767,948, which represented asset value, augmented
by other factors, to arrive at shareholder equity. Therefore, reliance on the
higher asset-based shareholder equity in place of the lower straight asset
value can only benefit the dissenters.
CONCLUSION
The stock market price and a reasonable approximation of the asset
value were before the trial court, each supported by substantial evidence.
Neither party submitted evidence of the investment value of the Oakridge stock.
Dissenters mentioned only briefly that investment value should be one of the
three factors considered in the court's valuation and Oakridge ignored that
factor entirely. In such a situation, we agree with the Delaware court that
"'The requirement that consideration be given to all relevant factors entering
into the determination of value does not mean that any one factor is in every
case important or that it must be given a definite weight in the evaluation.'"
Bell, 413 A.2d at 143 (quoting Sterling v. Mayflower Hotel Corp., 93 A.2d 107,
115-16 (Del. 1952)). Nonetheless, although "[a]ll three components of
'fair value' may not influence the result in every valuation proceeding, yet
all three should be considered." Libby, 406 A.2d at 60. Therefore, absent
evidence of investment value, the trial court should at least have considered
the asset value as well as the market price of the stock in its valuation of
the dissenters' shares. However, since the per share value based on asset value
($2.13) is less than the stock market price ($2.50), no choice of weighting
would have resulted in a per share value greater than $2.50 for the Oakridge
stock. Thus the trial court's error is harmless, indeed beneficial, to the
dissenters since Oakridge has not sought an adjustment of the $2.75(4) already
paid.
We affirm the judgment of the trial court.
------------
Chief Justice Zimmerman, Associate Chief Justice Stewart, Justice
Durham, and Justice Russon concur in Justice Howe's opinion.
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(4) Oakridge added a $0.25 dividend issued in connection with the sale.
9
