SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended December 31, 1995
or
[ ] 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: 0-9261
KESTREL ENERGY, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0772451
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
999 18th Street, Suite 1100, Denver, CO 80202
(Address of principal executive offices) (Zip Code)
(303) 295-0344
(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.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of common stock, as of December 31, 1995:
1,900,840
<PAGE>
KESTREL ENERGY, INC.
AND SUBSIDIARY
(A Subsidiary of Victoria International Petroleum N.L.)
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1995 3
Consolidated Statements of Operations
for the Three and Six months Ended
December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows
for the Six Months Ended
December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Change in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports of Form 8-K 9
Signatures 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
KESTREL ENERGY, INC.
AND SUBSIDIARY
(A Subsidiary of Victoria International Petroleum N.L.)
CONSOLIDATED BALANCE SHEETS as of December 31, 1995 and June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS December 31, June 30,
1995 1995
CURRENT ASSETS:
Cash and cash equivalents $ 369,877 $ 776,141
Short term investments 522,042 296,474
Due from related party 22,642 22,804
Accounts receivable 178,845 151,224
Other assets 23,672 2,219
------------- ------------
Total current assets 1,117,078 1,248,862
OIL AND GAS PROPERTIES, NET, AT COST
Successful efforts methods of accounting:
Unproved 323,863 234,833
Proved 4,060,744 4,070,059
Furniture and Equipment 55,123 54,331
------------- ------------
4,439,730 4,359,223
Accumulated depreciation
and depletion (1,467,207) (1,322,857)
Net property and
equipment 2,972,523 3,036,366
Total assets $ 4,089,601 $ 4,285,228
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 105,259 $ 106,747
Accrued liabilities 96,277 106,256
------------- ------------
Total current liabilities 201,536 213,003
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value;
1,000,000 shares authorized,
none issued at
December 31, 1995
Common Stock, no par value;
20,000,000 shares authorized,
1,900,840 issued at
December 31, 1995 8,363,565 8,321,940
Accumulated deficit (4,475,500) (4,249,715)
Total stockholders' equity 3,888,065 4,072,225
------------- ------------
Total liabilities and
stockholders; equity $ 4,089,601 $ 4,285,228
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARY
(A Subsidiary of Victoria International Petroleum N.L.)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
December 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six months ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUE
Oil and gas sales $ 278,785 $ 319,741 $ 536,726 $ 657,876
Interest 10,934 9,390 23,828 12,367
Gain on sale of
property and
equipment 5,934 42,399 8,821 42,399
Other income 7,111 28,183 8,560 36,567
----------- ----------- ----------- -----------
TOTAL REVENUES 302,764 399,713 577,935 749,209
----------- ---------- ----------- -----------
COSTS AND EXPENSES
Production and
operating 163,404 202,026 304,123 387,137
Dry hole costs 85,266 388,226 85,266 388,226
Abandonment costs - 479,119 10,471 479,119
Depreciation and
depletion 76,244 90,559 154,990 179,198
General and
administrative 145,461 96,760 248,872 191,748
Interest expense - 10,748 - 22,058
----------- ----------- ----------- -----------
TOTAL EXPENSE 470,375 1,267,438 803,722 1,647,486
----------- ----------- ----------- -----------
NET LOSS $ (167,611) $ (867,725) $ (225,787) $ (898,277)
----------- ----------- ----------- -----------
NET LOSS PER
COMMON
EQUIVALENT
SHARE ($0.08) ($0.53) ($0.11) ($0.60)
=========== =========== =========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 2,028,893 1,626,208 2,028,893 1,488,404
=========== =========== =========== ===========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARY
(A Subsidiary of Victoria International Petroleum N.L.)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED December
31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (225,787) $ (898,277)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and depletion 154,990 179,198
Abandonment Costs - 479,119
Gain on sale of property and equipment, net (8,821) -
(Increase) decrease in accounts receivable
relating to operations (27,621) 12,591
(Increase) decrease in related party
receivable 162 -
(Increase) in other current assets (21,453) (7,717)
Increase (decrease) in accounts payable (1,488) 42,191
Increase (decrease) in accrued liabilities (9,979) 59,323
------------ ------------
Net cash used by operating activities (139,997) (133,572)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/acquisition of
properties (97,642) (453,829)
Proceeds from sale of property and equipment 15,316 -
Purchase short-term investments (225,556) -
------------ -------------
Net cash used by investing activities (307,892) (453,829)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 1,365,335
Proceeds from sale of stock by affiliate 41,625 -
------------ ------------
Net cash provided by financing activities 41,625 1,365,335
------------ ------------
Net increase (decrease) in
cash and cash equivalents (406,264) 777,934
Cash and cash equivalents
at the beginning of the period 776,141 464,754
------------ ------------
Cash and cash equivalents
at the end of the period $ 369,877 $ 1,242,688
============ ============
Cash paid during the period for interest - $ 17,727
============ ============
Transfer of non producing property
to related party in exchange for
debt owed to related party - $ 600,000
Reduction in joint interest billings
from sale of assets - $ 42,399
</TABLE>
KESTREL ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Management Opinion
These condensed financial statements should be read in
conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995.
In the opinion of management, the accompanying interim unaudited
financial statements contain all the adjustments necessary to
present fairly the financial position of the Company as of
December 31, 1995, the results of operations for the periods
shown in the statements of operations, and the changes in cash
position for the periods shown in the statements of cash flows.
All adjustments made are of a normal recurring nature.
2. Accounting for the Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS No.
121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement is
effective for financial statements for fiscal years beginning
after December 15, 1995. Under SFAS No. 121 an entity shall
review long-lived assets and certain identifiable intangibles to
be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If the changes in circumstances are
present or if other circumstances indicate that the carrying
amount of an asset that an entity expects to hold and use may
not be recoverable, the entity shall estimate the future cash
flows expected to result from the use of the asset and its
eventual disposition. Future cash flows are the future cash
inflows expected to be generated by an asset (grouped at the
lowest level for which there are identifiable cash flows) less
the future cash flows expected to be necessary to obtain those
inflows. If the sum of expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount
of the asset, the entity shall recognize an impairment loss in
accordance with SFAS No. 121. Otherwise, an impairment loss
shall not be recognized. The company has not adopted SFAS No.
121 as of December 31, 1995; however, the Company estimates that
if it were to adopt SFAS No. 121 as of that date, it would be
required to record a provision of approximately $190,000 for the
impairment of certain of its oil and gas properties.
3. Use of estimates
The preparation of financial statements requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
RESULTS OF OPERATIONS
Second Quarter Results
The Company reports a loss of $167,611, or 8 cents per share, for the
three month period ended December 31, 1995. This compares with a loss of
$867,725, or 53 cents per share, for the same period a year ago. The
decreased loss from the year ago period was primarily the result of lower
dry hole and abandonment costs which more than offset lower oil and gas
revenues.
The Company's revenues for the three month period ended December 31, 1995
were $302,764 compared to $399,713 during the same period of 1994, a
decrease of $96,949, or 24%. Overall revenues decreased due to lower oil
and gas revenues and lower gain on sale and other income. Revenue from
oil and gas sales was $278,785 for the second quarter, a decrease of
$40,956, or 13%, as compared to $319,741 for the same period last year.
The decrease in revenues from oil and gas sales were attributable to lower
production volumes and lower natural gas prices.
The Company's total expenses decreased $797,063, or 63%, to $470,375 for
the quarter ended December 31, 1995 as compared to $1,267,438 for the same
period a year ago, a result of lower dry hole and abandonment costs.
Production and operating expenses decreased by $38,622 to $163,404 versus
$202,026 a year ago. The decrease in production and operating expenses
represented a 24% decline from year ago levels. The decline in current
year production expenses versus a year ago is due to a reduction in
remedial work on several wells and lower costs in general.
While the Company incurred $479,119 in abandonment costs in the second
quarter of fiscal 1995 attributable to the transfer of the Company's
interest in the non-producing Rocky Butte Prospect in exchange for the
long term debt owed to Victoria International Petroleum, N.L., no
abandonment costs were incurred during the current quarter.
Dry hole costs were $85,266 for the quarter ended December 31, 1995. All
dry hole costs were related to the drilling of the Spider #1 on the EP 325
leasehold in Australia. The Company will retain its interest in the
leasehold as further development is planned. Dry hole costs were
significantly lower than the second quarter last year when the Company
participated in the drilling of the Menga Prospect in Papua New Guinea
which accounted for the bulk of the $ 388,226 dry hole expense last year.
General and Administrative costs increased $48,700, or 50%, to $145,460 as
compared to $96,760 for the same period a year ago. The increase in
administrative costs is due to the recognition of annual SEC reporting,
proxy and shareholder meeting costs in the second quarter this year,
continuation of the Company's public relations program, and higher
accounting fees.
No interest expense was incurred during the period ended December 31, 1995
versus $10,748 a year ago.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had working capital of $915,542. This
compares to the Company's working capital of $1,113,943 as of December 31,
1994. The decrease in working capital is attributable to the Company's
lower cash levels than a year ago.
The net cash used by operating activities was $139,997 for the period
ended December 31, 1995, a increase of $6,425, versus the prior year's
cash used of $133,572. The Company's accounts receivable increased
$27,621, or 18%, to $178,845 during the period as compared to a decrease
of $12,591, or 6%, for the same period last year. Accounts receivable
increased due to higher gas prices for December production. Other assets
increased during the period due to the capitalization of certain legal
fees. The Company's accounts payable decreased $1,488 to $105,259 during
the period as compared to an increase of $42,191 to $147,563 for the prior
year. Accrued liabilities decreased by $9,979, or 9%, to $96,277 during
the period as compared to an increase of $59,323 to $111,877 last year.
All other factors regarding operating activities affecting cash flow were
relatively unchanged or insignificant.
Net cash flow used in investing activities was $307,892, a decrease of
$145,937 from the prior year's use of $453,829. Approximately $225,566 of
the cash used in investing activities during the current period was to
purchase short-term investments and approximately $96,000 was used to
acquire or maintain leasehold interests on international prospects.
During the period, the Company sold its interest in 271.5 gross acres
subject to the Sam Acola lease, a non-producing oil and gas property in
Texas for $2,888, sold its interest in the Royal Federal 35-7 subject to
the North Adon leasehold for $5,773 and received sale proceeds from the
sale of miscellaneous equipment of $6,665.
Cash provided from financing activities increased $41,625 during the
quarter ended December 31, 1995. The increase was attributable to the
payment to the Company of the short-term gain realized by an affiliate on
the sale of shares of the Company's stock held less than six months. Cash
provided from financing activities was considerably lower than year ago
totals when the Company had just completed a private placement of its
common stock for proceeds of $1,365,335.
INFLATION AND CHANGING PRICES
Inflation has not had a significant effect on the Company's results of
operations. However, the constantly fluctuating price of crude oil and
natural gas materially affects the Company's cash flow, either positively
or negatively.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on December
12, 1995 in Denver, Colorado, the Company's shareholders elected Timothy
L. Hoops, Robert J. Pett, Mark A. Boatright, John T. Kopcheff and Kenneth
W. Nickerson to the Company's Board of Directors. The shareholders also
approved KPMG Peat Marwick LLP as the Company's independent certified
public accountants and auditors for the year ending June 30, 1996 and
approved an amendment to the Company's 1993 Nonqualified Stock Option Plan
which increased the number of shares reserved under that plan.
There were 1,901,850 shares of the Company's Common Stock issued
and outstanding, of which 1,901,840 were entitled to vote at the meeting.
Of that number 1,708,348 were present in person or by proxy at the
meeting. With respect to the election of directors, the votes were as
follows: Mr. Hoops - 1,705,613 shares in favor, 2,735 withheld; Mr. Pett -
1,705,613 shares in favor, 2,735 withheld; Mr. Boatright - 1,705.563
shares in favor, 2,785 withheld; Mr. Kopcheff - 1,705,613 shares in
favor,2,735 withheld; and Mr. Nickerson - 1,705,561 shares in favor, 2,787
withheld. The selection of Kpmg Peat Marwick LLP received a vote of
1,708,147 shares for, 105 against and 96 abstaining. With respect to the
amendment to the Nonqualified Stock Option Plan, 1,506,056 shares
were voted in favor, 12,323 against and 1,177 abstaining, and 188,792
not voted.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements 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.
(Registrant) KESTREL ENERGY, INC.
By (Signature) /s/ Timothy L. Hoops
(Name and Title) Timothy L. Hoops
President, Principal Executive Officer,
and Director
(Date) February 9, 1996
By (Signature) /s/ Mark A. Boatright
(Name and Title) Mark A. Boatright
Vice President - Finance,
Principal Financial and Accounting
Officer, and Director
(Date) February 9, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
- -------- ----------------
<S> <C>
27. Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 370
<SECURITIES> 522
<RECEIVABLES> 179
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,117
<PP&E> 4,440
<DEPRECIATION> 1,467
<TOTAL-ASSETS> 4,090
<CURRENT-LIABILITIES> 202
<BONDS> 0
0
0
<COMMON> 8,375
<OTHER-SE> (4,487)
<TOTAL-LIABILITY-AND-EQUITY> 4,090
<SALES> 0
<TOTAL-REVENUES> 578
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 804
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (226)
<INCOME-TAX> 0
<INCOME-CONTINUING> (226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (226)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
