2
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, 1998
[ ] 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
----------------------
(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,
1998 was 19,063,248.
TRI-VALLEY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets September 30 1998 and
December 31, 1997. . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the nine
months ended September 30, 1998 and 1997 . . . . . . . 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 . . . . . . . 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
5
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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TRI-VALLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, 1998 Dec. 31, 1997
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<S> <C> <C>
Current Assets
Cash. . . . . . . . . . . . . . . $ 188,884 $ 2,778,592
Accounts receivable, trade. . . . 305,446 696,758
Note Receivable . . . . . . . . . 125,000 125,000
Prepaid expenses. . . . . . . . . 2,029 2,029
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Total Current Assets. . . . . . 621,359 3,602,379
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Property and Equipment, Net . . . . 978,054 821,614
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Other Assets
Deposits. . . . . . . . . . . . . 100,000 100,000
Acquisition Costs . . . . . . . . 182,010 119,007
Investments in partnerships . . . 8,421 8,421
Other . . . . . . . . . . . . . . 13,913 13,908
Well Database (net of accumulated
amortization of $2,693 at
Sept 30, 1998 and $1,539
at December 31, 1997. . . . . . 91,957 93,111
Goodwill (net of accumulated
amortization of $186,189 at
Sept 30, 1998 and $178,055
at December 31, 1997. . . . . . 247,663 255,798
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Total Other Assets. . . . . . 643,964 590,245
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Total Assets. . . . . . . . . $ 2,243,377 $ 5,014,238
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LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1998 Dec. 31, 1997
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<S> <C> <C>
CURRENT LIABILITIES
Notes and contracts payable. . . . $ 822 $ 90,667
Trade accounts payable . . . . . . 517,695 74,796
Amounts payable to joint venture
participants . . . . . . . . . . 256,583 605,431
Advances from joint venture
participants . . . . . . . . . . 17,161 1,845,064
Due to related parties . . . . . . 26,786 96,532
Accrued expenses and
other liabilities . . . . . . . . 0 0
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Total Current Liabilities. . . . 819,047 2,712,490
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Long-term Portion of Notes and
Contracts Payable. . . . . . . . . 13,948 13,950
Investor Payable . . . . . . . . . - 103,000
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Commitments
Shareholders' Equity
Common stock, $.001 par value:
50,000,000 shares authorized;
19,063,248 and 18,922,248 issued
and outstanding at Sept. 30, 1998
and Dec. 31, 1997, respectively. 19,055 18,922
Less: Common stock in treasury,
at cost, 166,925 shares . . . . . (39,424) (28,639)
Capital in excess of par value . . 8,162,935 8,048,331
Accumulated deficit. . . . . . . . (6,732,184) (5,853,816)
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Total Shareholders' Equity . . . 1,410,382 2,184,798
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Total Liabilities and
Shareholders' Equity . . . . . $ 2,243,377 $ 5,014,238
==================== ===============
The accompanying notes are an integral part of these
condensed financial statements.
6
</TABLE>
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues
Sale of oil and gas . . . . . . . . . . . $ 197,037 $ 153,668 $ 636,753 $ 459,044
Other income. . . . . . . . . . . . . . . 8,454 6,220 69,632 29,231
Interest income . . . . . . . . . . . . . 11,514 24,710 62,307 67,384
------------ ------------ ------------ ------------
Total Revenues. . . . . . . . . . . . . 217,005 184,598 768,692 555,659
------------ ------------ ------------ ------------
Cost and Expenses
Oil and gas lease expense. . . . . . . . 25,545 24,399 81,692 65,228
Mining Exploration Expenses. . . . . . . 35,644 -0- 169,377 -0-
Depletion, depreciation and amortization. 38,291 17,580 114,874 52,739
Interest. . . . . . . . . . . . . . . . . 799 3,751 4,246 12,676
General administrative. . . . . . . . . . 411,703 196,539 1,269,373 754,283
------------ ------------ ------------ ------------
Total Cost and Expenses . . . . . . . . 511,982 242,269 1,639,562 884,926
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Net Loss. . . . . . . . . . . . . . . . . . $ (294,977) $ (57,671) $ (870,870) $ (329,267)
============ ============ ============ ============
Net Income (Loss) per Common Share. . . . . $ (.02) $ (.02) $ (.05) $ (.02)
============ ============ ============ ============
Weighted Average Number of Shares . . . . . 19,063,248 18,343,915 19,063,248 18,343,915
============ ============ ============ ============
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months
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Ended Sept 30,
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1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . $ (870,870) $ (329,267)
Adjustments to reconcile net income
to net cash used from operating activities:
Depreciation, depletion and amortization. (114,874) (52,739)
Changes in operating capital:
Amounts receivable. . . . . . . . . . . . 391,312 (315,352)
Deposits. . . . . . . . . . . . . . . . . 0 -
Trade accounts payable. . . . . . . . . . 442,899 18,608
Amounts payable to joint venture
participants and related parties. . . . (418,594) (16,261)
Advances from joint venture
participants. . . . . . . . . . . . . . (1,827,903) (93,519)
Accrued expenses and other liabilities. . 0 0
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Net Cash Used by Operating Activities . . . . . (2,398,030) (683,052)
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Cash Flows from Investing Activities
Capital expenditures. . . . . . . . . . . . . (102,785) (584,619)
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Cash Flows from Financing Activities
Investor payable. . . . . . . . . . . . . . . (103,000) (662,680)
Principal payments on long-term debt. . . . . (89,845) 105,039
Proceeds from issuance of common stock. . . . 103,952 2,145,670
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Net Cash Provided by Financing Activities (88,893) 1,588,029
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Net Increase in Cash and Cash Equivalents . . . (2,589,708) 320,358
Cash and Cash Equivalents at Beginning
Of Period . . . . . . . . . . . . . . . . . . 2,778,592 894,365
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Cash and Cash Equivalents at
End of Period . . . . . . . . . . . . . . . . $ 188,884 $1,214,723
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</TABLE>
11
TRI-VALLEY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
(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 months period ended September 30, 1998, 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, 1997.
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.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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BUSINESS REVIEW
Notice Regarding Forward-Looking Statements
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This report contains forward-looking statements. The words, "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "could," "may,"
"foresee," and similar expressions are intended to identify forward-looking
statements. These statements include information regarding expected development
of the Company's business, lending activities, relationship with customers, and
development in the oil and gas industry. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially and adversely from those anticipated, believed,
estimated or otherwise indicated.
Computer Issues for the Year 2000
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The Company is aware of the issues associated with the programming code in
existing systems as the millennium (Year 2000) approaches. This issue could
potentially effect the accounting function of the Company. The Company has
completed a review of the software and is confident the current software will
accommodate the Year 2000 issue. The funds spent to make this determination are
less than fifty dollars.
Petroleum Activities
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The Company drilled and completed the Pimental 1-15 in 1997. Due to delays in
acquiring part of an existing pipeline which included rights of way, the
construction of the remaining portion of the pipeline was delayed. However, the
pipeline section has been completed and the well was put on production October
23. We are currently adjusting the pressure and flow rate to determine the
optimum production rate.
The Company announced that it is pursuing one of the nation's largest on shore
oil and gas targets with an upside potential of more than 4 billion barrels of
oil and 10 trillion cubic feet of gas in place. Tri-Valley Oil & Gas Company
has taken leases in 23 sections along trend. The project is dubbed "Ekho" since
it could potentially equal or exceed the famous nearby super giant Elk Hills
- - -
Oilfield.
Precious Metals Activities
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On June 25, 1998 the Company signed an offer/term sheet with Red Star Resources
Corporation to explore and develop approximately 25 square miles of the
Company's 45 square mile claim block in the Richardson Gold District of Alaska.
That offer/term sheet expired on August 31, 1998. Subsequently, the company has
entered into negotiations with a Canadian mining giant, Placer Dome and signed
an exploration/development joint venture on approximately 75% of Tri-Valley's
claim block.
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)
Placer Dome must spend a minimum of $6.5 million in work to earn 51% interest
and by delivering a bankable feasibility study estimated to cost at least $6
million, Placer Dome may increase its interest to 80%. Tri-Valley retained
approximately 12.5 square miles of claims covering a potentially high grade dike
system to work for its own account.
During the summer field season, the Company set up an extensive crushing and
recovery circuit to process partially crushed ore from the Democrat pit in order
to sample the gold content and, hopefully, recover gold. While data was
collected, gold recovery was minimal due to two factors. First it became
apparent that free gold was not present in quantity and the gold value was
locked up in sulphides which would require a chemical extraction phase and
considerable permit burden. Second, thanks to El Nino, it turned out to be one
of the wettest summers in 94 years of record keeping and storm activity severely
inhibited and finally closed the operation.
Again this year Tri-Valley utilized the expertise of senior scientists from
TsNIGRI, the principal mineral research institute in Moscow. Using their own
proprietary prospecting techniques, TsNIGRI scientists have mapped multiple
targets that could each host multi-million ounce deposits. In September, three
TsNIGRI scientists revisted a geochemical anomaly they had identified in their
1991 reconnaissance of the Buckeye Creek area. An extension pattern of stream
cuts and hand-dug prospect pits yielded samples of quartz with high gold,
bismuth, tellurium and tungsten values and weaker arsenic values. These are
mineral signatures found in recent discoveries of the four million plus ounce
Fort Knox Mine to the north and the five million ounce Pogo Deposit to the
southeast. It is this trend that formed the basis for the Tri-Valley/Placer
Dome joint venture.
Telecommunications
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For some time the Company has been conducting due diligence to determine if
would be viable to acquire the assets of five telecommunication partnerships.
Due to a number of obstacles, including the State of New Jersey's action against
two of the partnerships, the Company has determined that it is not in the
shareholders best interest to go further with this endeavor. Accordingly,
Tri-Valley does not plan to make any offer to the partners to acquire any
assets, and will proceed to recover the money it has lent the partnerships to
reinvest in oil and gas projects it believes offer greater upside to Tri-Valley
shareholders.
Corporate
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Over 60 people attended the August 22, 1998 shareholder meeting in San
Francisco. An extensive question and answer period covered all aspects of the
Company's activities (However, no information was given that was not already
fully disclosed). Over 89% (17,032,377 out of 19,063,248) of the issued and
outstanding shares voted. Management's slate of directors was reelected by a
range of approximately 94% to 99% of the shares voting. The accounting
corporation of Brown, Armstrong, Randall & Reyes was approved as auditors by
over 99%.
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)
The stock option plan for employees and directors was approved by over 85% and
the actions of the board of directors since the previous shareholder meeting
were ratified by over 96%.
Three Months Ended September 30, 1998 as compared with Three Months ended
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September 30, 1997
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The Company had revenues of $217,005 for the three months ended September 30,
1998 compared to $184,598 for the quarter ended September 30, 1997. Oil and gas
sales increased by $43,369 due to increased production. This increase was due
to the Company putting two new wells into production in the latter part of the
third quarter in 1997. Therefore, this increased revenue was not realized for
the full quarter ended September 30, 1997.
Costs and expenses were $511,982 for the quarter ended September 30, 1998
compared to $242,269 for the quarter ended September 30, 1997. This increase
was due partially because the Company is now expensing its mining operations.
In the past the Company capitalized these expenses. Depletion, depreciation and
amortization expense increased $20,711 for this quarter compared to the same
quarter in 1997. General and administrative costs increased $215,164 due in
large part to the ongoing lawsuit. (See Item 1. Legal Proceedings.)
Nine Months Ended September 30, 1998 as compared with Nine Months ended
- --------------------------------------------------------------------------------
September 30, 1997
- --------------------
Revenue for the nine months ended September 30, 1998 was $768,692 compared to
$555,569 for the nine months ended September 30, 1997. This increase was from
increased gas production. Two wells were put into production in the third
quarter of 1997, the revenue from these wells is reflected by the increase in
production for the full nine months ended September 30, 1998.
Expenses increased for the nine months ended September 30, 1998 by $754,636.
This increase was from lease operating expenses increasing $16,464 because of
increased production activities. Mining expenses were $169,377, in prior years
the Company capitalized these costs. However, the Securities and Exchange
Commission has advised the Company these costs should be expensed. Interest
expenses declined $8,430. General administrative expenses increased $515,090
partially because of the lawsuit pending.
Tri-Valley does not expect to be profitable for the year ending December 31,
1998. However, due to expected increase in exploration activity for the year of
1999, the Company expects to be profitable for 1999.
The Company continues to evaluate and pursue domestic opportunities, which fit
within the Company's business strategy. The Company is currently evaluating
certain development and /or acquisition opportunities, but it is not presently
known whether, or on what terms, such evaluations will result in future
agreements or acquisitions.
PART II - OTHER INFORMATION
14
ITEM 1. LEGAL PROCEEDINGS
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The company is plaintiff in a lawsuit against a consulting geologist and a
former officer of Tri-Valley Oil & Gas Company for fraud and theft of trade
secrets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K: none were filed for the period.
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
(Registrant)
November 12, 1998 /s/ F. Lynn Blystone
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F. Lynn Blystone
President and Chief Executive Officer
