UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to.
Commission File No. 0-6119
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Tri-Valley Corporation
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(Exact name of registrant as specified in its charter)
Delaware No. 84-0617433
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
230 South Montclair Street, Suite 101, Bakersfield, California 93309
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(Address of principal executive offices)
(805) 837-9300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ ] [X ]
No Yes
The number of shares of Registrant's common stock outstanding at September 30,
1997 was 18,480,248.
TRI-VALLEY CORPORATION
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets September 30, 1997 and
December 31, 1996. . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the nine
months ended September 30, 1997 and 1996 . . . . . . . 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 8
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
PART I - FINANCIAL INFORMATION
3
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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TRI-VALLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
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Sept. 30, 1997 Dec. 31, 1996
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Current Assets
Cash. . . . . . . . . . . . . $ 1,214,723 $ 894,365
Accounts receivable, trade. . 593,462 278,110
Prepaid expenses. . . . . . . 2,029 2,029
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Total Current Assets. . . . 1,810,214 1,174,504
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Property and Equipment, Net . . 3,510,220 3,182,860
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Other Assets
Deposits. . . . . . . . . . . 62,000 62,000
Acquisition Costs . . . . . . 243,200 29,753
Investments in partnerships . 20,682 20,682
Goodwill (net of accumulated
amortization of $175,344 at
Sept. 30, 1997 and $167,209
at December 31, 1996. . . . 258,509 266,644
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Total Other Assets. . . . 584,391 379,079
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Total Assets. . . . . . . $ 5,904,825 $ 4,736,443
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The accompanying notes are an integral part of these
condensed financial statements.
5
LIABILITIES AND SHAREHOLDERS' EQUITY
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Sept. 30, 1997 Dec. 31, 1996
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CURRENT LIABILITIES
Notes and contracts payable. . . $ 88,816 $ 11,042
Trade accounts payable . . . . . 76,174 57,566
Amounts payable to joint venture
participants . . . . . . . . . 550,857 484,008
Advances from joint venture
participants . . . . . . . . . 103,008 196,527
Due to related parties . . . . . 113,032 196,142
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Total Current Liabilities. . . 931,887 945,285
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Long-term Portion of Notes and
Contracts Payable. . . . . . . . 64,873 37,608
Investor Payable . . . . . . . . - 662,680
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Commitments
Shareholders' Equity
Common stock . . . . . . . . . . 7,754,574 5,608,111
Retained Earnings. . . . . . . . (2,846,509) (2,517,241)
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Total Shareholders' Equity . . 4,908,065 3,090,870
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Total Liabilities and
Shareholders' Equity . . . . $ 5,904,825 $ 4,736,443
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</TABLE>
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept. 30,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues
Sale of oil and gas. . . . . . . . . . . $ 153,668 $ 109,288 $ 459,044 $ 368,543
Other income . . . . . . . . . . . . . . 6,220 -0- 29,231 4,131
Interest income. . . . . . . . . . . . . 24,710 1,914 67,384 4,513
------------ ----------- ------------ -----------
Total Revenues . . . . . . . . . . . . 184,598 111,202 555,659 377,187
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Cost and Expenses
Oil and gas lease expense . . . . . . . 24,399 7,570 65,228 56,535
Depletion, depreciation and amortization 17,580 10,653 52,739 31,959
Interest . . . . . . . . . . . . . . . . 3,751 1,513 12,676 28,654
General administrative . . . . . . . . . 196,539 110,715 754,283 310,599
------------ ----------- ------------ -----------
Total Cost and Expenses. . . . . . . . 242,269 130,451 884,926 427,747
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Net Loss . . . . . . . . . . . . . . . . . $ ( 57,671) $ (19,249) $ (329,267) $ (50,560)
============ =========== ============ ===========
Net Income (Loss) per Common Share . . . . $ (.02) $ - $ (.03) $ -
============ =========== ============ ===========
Weighted Average Number of Shares. . . . . 18,343,915 7,071,126 18,343,915 7,071,126
============ =========== ============ ===========
</TABLE>
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
For the Nine Months
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Ended Sept. 30,
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1997 1996
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Cash Flows from Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . $ (329,267) $(50,560)
Adjustments to reconcile net income
to net cash used from operating activities:
Depreciation, depletion and amortization. 52,739 31,959
Changes in operating capital:
Amounts receivable. . . . . . . . . . . . (315,352) 72,677
Deposits. . . . . . . . . . . . . . . . . - -
Trade accounts payable. . . . . . . . . . 18,608 53,020
Amounts payable to joint venture
participants and related parties. . . . (16,261) (28,293)
Advances from joint venture
participants. . . . . . . . . . . . . . (93,519) (5,796)
Accrued expenses and other liabilities. . 0 0
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Net Cash Used by Operating Activities . . . . . (683,052) 73,007
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Cash Flows from Investing Activities
Capital expenditures. . . . . . . . . . . . . (584,619) (86,634)
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Cash Flows from Financing Activities
Investor payable. . . . . . . . . . . . . . . (662,680) 0
Principal payments on long-term debt. . . . . 105,039 0
Proceeds from issuance of common stock. . . . 2,571,185 0
Stock offering costs. . . . . . . . . . . . . (425,515) 0
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Net Cash Provided by Financing Activities 1,588,029 0
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Net Increase in Cash and Cash Equivalents . . . 320,358 (13,627)
Cash and Cash Equivalents at Beginning
Of Period . . . . . . . . . . . . . . . . . . 894,365 246,316
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Cash and Cash Equivalents at
End of Period . . . . . . . . . . . . . . . . $1,214,723 $232,689
=========== =========
</TABLE>
9
TRI-VALLEY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
-----------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for
the nine month period ended September 30, 1997, are not necessarily indicative
of the results to be expected for the full year.
The accompanying consolidated financial statements do not include footnotes
and certain financial presentations normally required under generally accepted
accounting principles; and, therefore, should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
NOTE 2 - PER SHARE COMPUTATIONS
------------------------
Per share computations are based upon the weighted average number of common
shares outstanding during each year. Common stock equivalents are not included
in the computations since their effect would be anti-dilutive.
NOTE 3 - SUBSEQUENT EVENTS
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During the nine month ending September 30, 1997 investors exercised warrants
which resulted in the issuance of 4,067,000 restricted shares of common
stock. The current number of issued and outstanding shares of common stock is
18,480,248 as of September 30, 1997.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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BUSINESS REVIEW
Change in Year End
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The Company changed its fiscal year end from July 31 to December 31.
Shareholders Meeting
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Tri-Valley Corporation held its annual shareholder meeting March 22, 1997 in
the conference room at the Pepper Tree Inn located in Santa Barbara, CA. The
meeting was attended by approximately 100 shareholders. One of the items
voted on was to increase the common share authority to 50,000,000 shares.
This will enable the Company to have the flexibility of using its common stock
to take advantage of business opportunities as they arise.
Petroleum Activities
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In January 1997, Tri-Valley Oil & Gas, a wholly owned subsidiary of Tri-Valley
Corporation, hooked up the Webb Tract No. 1. A major dry gas discovery, it
began producing nearly 5 million cubic feet of gas per day from a dual
completion. During the third quarter the Webb Tract #1 paid out. This
resulted in the investors getting their investment back in less than nine
months. Tri-Valley increased its percentage of ownership in this well at
payout which resulted in increased revenue for Tri-Valley. The Webb Tract #2
was drilled in late July and was put into production September 26. Current
production is approximately 3250 per day.
The Martin Severin No. 6 was drilled in June and completed and put on line
July 15th, stabilized production from the well is approximately 2,700 mcf per
day.
Two new pool discoveries were announced after the drilling of the Pimentel
1-15 well in the city of Tracy, CA. Testing is continuing to determine the
extent of hydrocarbon bearing zones so the well can be completed with the
optimum production. The company expects to drill multiple locations to
develop the discovery and is considering additional seismic shooting to
further define the field as well as enhance a deeper, larger target for
drilling later this year. The aggressive drilling program should continue to
increase companys' reserves, production and revenue from new wells.
In February, Tri-Valley Oil & Gas acquired an extensive geologic and seismic
database from San Carlos Oil & Gas Corporation, which was assembled over
nearly 50 years by San Carlos President, Charles W. Hatten. Much of the data
is concentrated in California, it also includes other areas of North America,
South America, Africa, the Middle East and the Far East.
Tri-Valley Oil & Gas subsequently licensed the largest comprehensive seismic
database in the State of California from GEOONE Corporation. The information
packet contains over 20,000 line miles of seismic data located throughout all
of the California oil and gas provinces and coastal basins. This data along
with the data base acquired from San Carlos Oil and Gas puts the company in a
very unique position to rapidly and definitively evaluate on any area in the
State at a time when interest in petroleum exploration and production is
increasing.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS (Continued)
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BUSINESS REVIEW (continued)
Precious Metals Activities
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The Company is continuing discussions with a major mining company on a
proposed joint venture of the gold mining claim near Richardson, Alaska. The
Company is also considering continuing its own exploration and development of
a portion of this claim using internal funds. For the last few months the
company has had geologists performing additional exploration of the property.
The program includes a magnetometer survey grid, soil auger sample grid,
reverse circulation drilling and diamond drill coring. The team is led by
Kent Ausburn, Phd. and includes two senior scientists from TsNGRI, the
principal Russian mineral research institute in Moscow. Sampling has so far
extended the mineralized zone of the dike system which runs for miles.
Telecommunications
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Tri-Valley Corporation is continuing its due diligence regarding the
acquisition of a number of FCC licenses, management contracts and options to
buy licenses held by five partnerships. The company is currently awaiting the
outcome of bankruptcy proceedings involving Northeast Telecom, Inc. "NET".
Tri-Valley along with two other creditors forced Northeast Telecom into
bankruptcy to determine what, if any, assets are claimed by NET that could be
assets of the partnerships. Additionally the State of New Jersey has filed an
action against NET and two of the partnerships. Tri-Valley is awaiting the
outcome of this action. The interests acquired would be an all stock and
warrant acquisition. As previously reported the partnerships were balloted
and the partners voted to be acquired by Tri-Valley in the event that
Tri-Valley proceeds with the transaction. If assets actually available for
acquisition are sufficient to provide a viable business opportunity for
Tri-Valley then Tri-Valley expects to proceed with the acquisition according
to the actual make up of the assets.
Financial Condition
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The financial condition of the Company continued to strengthen from new
capital due to exercise of warrants. The Company's balance sheet continued to
improve for the nine months as current assets increased from $1,174,504 at
fiscal year ending December 31, 1996 to $1,810,214 for the third quarter of FY
1997 ending September 30. The number of issued and outstanding shares
increased from 14,102,473 for the period ending December 31, 1996 to
18,480,248 as of September 30, 1997. This increase was due to the issuance of
restricted shares of common stock due to the exercise of warrants related to
the private placement of stock. In July 1997 the company began a stock
registration process to register all of the currently issued and outstanding
shares that are currently restricted from trade under Rule 144. This
registration will allow these shares to be freely tradeable. This process is
governed by the S.E.C. so the company has no control over the timing of this
event. However, the company expects this registration to be finalized in the
near future. During the registration process the company is required to be in
a quiet period and is restricted as to announcements the company can make.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS (Continued)
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BUSINESS REVIEW (continued)
Three Months Ended September 30, 1997 as compared with Three Months ended
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September 30, 1996 continued
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Revenues from natural gas production increased in the third quarter ending
September 30, 1997 generating $153,668 versus $109,288 for the same period in
1996. Overall revenue was $184,598 for the quarter ending September 30, 1997
versus $111,202 for the same period in 1996.
Costs and expenses were greater in the quarter ending September 30, 1997 due
to oil and gas lease expenses increasing from $7,570 for the quarter ending
September 30, 1996 to $24,399 for the current quarter ending September 30,
1997. This was due to increased drilling activity. General administrative
expenses increased from $110,715 for the quarter ending September 30, 1996 to
$196,539 for the quarter ending September 30, 1997. This increase was due in
part to additional staffing and additional business activity. The President,
F. Lynn Blystone, took a full salary in this period; he took a reduced salary
for the comparable period last year. Additionally, the legal expenses related
to our lawsuit (see Part II, Item I) contributed to these expenses. These
increased costs resulted in a loss of $57,671 for the quarter ending September
30, 1997 versus a loss of $19,249 for the quarter ending September 30, 1996.
The Company expects costs to reduce in subsequent quarters while revenues
should increase due to increased exploration and production activities. The
company expects to return to profitability in the fourth quarter.
The balance sheet showed dramatic improvement due to proceeds from private
placement of its unregistered stock. Total assets increased $1,168,382 from
$4,736,443 December 31, 1996 to $5,904,825 September 30, 1997. Stockholder
equity increased $1,817,195 from $3,090,870 December 31, 1996 to $4,908,065
for the period ending September 30, 1997. Additional capital due to the
exercise of warrants attached to the private placement of stock increased
shareholder equity./
PART II - OTHER INFORMATION
14
ITEM 1. LEGAL PROCEEDINGS
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We have filed a lawsuit in the Superior Court of the Sate of California in and
for the County of Contra Costa, seeking to recover damages incurred as a
result of a former employee's breach of contract and fiduciary duties when he
used our proprietary information to enter into contracts with third parties.
The case is styled, "Tri-Valley Oil & Gas Co. vs ABA Energy Corporation; Alan
B. Adler, Keith Drummond dba Drummond Exploration Co.", Case No. C97-02561.
ITEM 2. CHANGES IN SECURITIES
-----------------------
During the nine months ended September 30, 1997, warrants were exercised at
varying prices that resulted in 4,377,775 new shares of restricted common
stock being issued. The amount tendered for the exercise of these warrants
was $2,500,888.75. The warrants had originally been issued in 1996 to the
holders of the company's convertible debenture notes, upon conversion of these
notes into units consisting of shares of the Company's common stock and
warrants. The notes, the units and the stock issued upon conversion of the
warrants were all issued in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 and rule 506
promulgated by the Securities and Exchange Commission.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Company held its annual shareholders meeting in Santa Barbara, CA on March
22, 1997. The issues submitted to the shareholders to vote on were:
a. Re-elect the incumbent Directors
b. Approve the current independent accountants for another year
c. To amend the Articles of Incorporation to increase the total number of
authorized shares of Common Stock from 15 million, par value $.01 to 50
million, par value $.001.
d. To transact such other business as may properly come before the Annual
Meeting and any adjournments thereof
All of these issues were voted on either in person or by proxy and were
approved by the majority vote of the shareholders.
ITEM 5. OTHER INFORMATION
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None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K: Form 8-K, filed October 2, 1997:
The Company has hooked up its Martins-Severin No. 6 well and its Webb Tract
No. 2 well, increasing its daily production of dry natural gas to over 12,
800,000 cubic feet per day. This is an increase of 68% over the most recent
report of 7,625,000 cfd by the State of California Department of Conservation,
which compiles monthly statistics on petroleum production in the State. This
increase would raise the Company to second position among 120 dry natural gas
operators listed in the May 1997 report where it is listed in 11th place.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRI-VALLEY CORPORATION
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(Registrant)
November 14, 1997 s/ Thomas J. Cunningham
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Thomas J. Cunningham
Chief Financial Officer
