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 March 31, 1996
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
incorporation or organization) Identification No.)
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.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of common stock, as of March 31, 1996:
1,902,340
<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 March 31,
1996 and June 30, 1995. . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations for the
Three and Nine months Ended March 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1996 and 1995 . . . . . . . . .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 MARCH 31, 1996 and JUNE 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, June 30,
ASSETS 1996 1995
- ------ ---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 278,855 $ 776,141
Short-term investments 646,085 296,474
Due from related party 22,641 22,804
Accounts receivable 168,564 151,224
Other assets 18,299 2,219
---------- ----------
Total current assets 1,134,444 1,248,862
---------- ----------
OIL AND GAS PROPERTIES, NET, AT COST
Successful efforts methods of accounting:
Unproved 338,006 234,833
Proved 4,099,194 4,070,059
Furniture and Equipment 57,721 54,331
---------- ----------
4,494,921 4,359,223
Accumulated depreciation and
depletion (1,543,692) (1,322,857)
---------- ----------
Net property and equipment 2,951,229 3,036,366
---------- ----------
Total assets $4,085,673 $4,285,228
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
- ------------------------------------
Trade accounts payable $ 100,945 $ 106,747
Accrued liabilities 71,650 106,256
---------- ----------
Total current liabilities 172,595 213,003
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value;
1,000,000 shares authorized,
none issued -- --
Common Stock, no par value;
20,000,000 shares authorized,
1,902,340 issued 8,365,533 8,321,940
Accumulated deficit (4,452,455) (4,249,715)
---------- ----------
Total stockholders' equity 3,913,078 4,072,225
---------- ----------
Total liabilities and stockholders
equity $4,085,673 $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 NINE MONTHS ENDED MARCH 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE
Oil and gas sales $ 338,526 $ 377,356 $ 875,251 $1,035,233
Interest 10,316 18,433 34,145 30,800
Gain on sale of
property and
equipment 1,994 - 10,815 42,399
Other income 278 387 8,838 36,954
---------- ---------- ---------- ----------
TOTAL REVENUES 351,114 396,176 929,049 1,145,386
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Production and
operating 140,159 132,413 444,282 519,550
Dry hole costs - 50,353 85,266 438,579
Abandonment costs 111 - 10,582 479,119
Depreciation and
depletion 78,351 89,454 233,341 268,652
General and
administrative 109,448 170,262 358,320 362,011
Interest expense - - - 22,058
---------- ---------- ---------- ----------
TOTAL EXPENSE 328,069 442,482 1,131,791 2,089,969
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 23,045 $ (46,306)$ (202,742)$ (944,583)
---------- ---------- ---------- ----------
NET INCOME (LOSS)
PER COMMON
EQUIVALENT SHARE $ .01 $ (0.02)$ (0.10)$ (0.58)
========== ========== ========== ==========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 2,042,401 1,901,818 2,042,401 1,626,208
========== ========== ========== ==========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARY
(A Subsidiary of Victoria International Petroleum N.L.)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED MARCH 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (202,742) $ (944,583)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and depletion 233,469 268,652
Abandonment costs - 479,119
Gain on sale of property and equipment (10,815) -
(Increase) decrease in accounts receivable
relating to operations (17,340) 10,708
(Increase) decrease in related party
receivable 163 -
(Increase) in other current assets (16,080) (1,379)
Increase (decrease) in accounts payable (5,802) (55,637)
Increase (decrease) in accrued liabilities (34,606) 18,101
---------- ----------
Net cash used by operating activities (53,753) (225,019)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/acquisition
of properties (169,446) (484,799)
Proceeds from sale of property
and equipment 31,929 -
Purchase short-term investments (349,609) -
---------- ----------
Net cash used by investing activities (487,126) (484,799)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,968 1,365,335
Proceeds from sale of stock by affiliate 41,625 -
---------- ----------
Net cash provided by financing activities 43,593 1,365,335
---------- ----------
Net increase (decrease) in cash and cash
equivalents (497,286) 655,517
Cash and cash equivalents at the
beginning of the period 776,141 464,754
---------- ----------
Cash and cash equivalents at the end of
the period $ 278,855 $1,120,271
========== ==========
Cash paid during the period for interest - $ 22,058
========== ==========
Transfer of non producing property to
related party in exchange for debt owed
to related party - $600,000
Reduction in trade accounts payable
from sale of assets - $42,399
<PAGE>
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 March 31, 1996,
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 March 31, 1996; 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 $196,000 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.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
RESULTS OF OPERATIONS
---------------------
Third Quarter Results
- ---------------------
The Company reports net income of $23,045, or 1 cent per share, for
the three month period ended March 31, 1996. This compares with a loss of
$46,306, or 2 cents per share, for the same period a year ago. The
improved results 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 March 31,
1996 were $351,114 compared to $396,176 during the same period of 1995, a
decrease of $45,062 or 11%. Overall revenues decreased due to lower
production volumes for oil and gas and lower interest income. Revenue
from oil and gas sales was $338,526 for the third quarter, a decrease of
$38,830, or 10%, as compared to $377,356 for the same period last year.
Lower oil and gas revenues resulted from lower production volumes versus
the same period a year ago. The impact of the lower production volumes
was offset by higher oil and gas prices than the same period last year.
Oil prices were up approximately $2.50 per barrel and gas prices were up
approximately 30 to 50 cents per MCF from the same period last year. Two
factors contributed to the lower production volumes. The first factor is
the reduction of the Company's net revenue interest in the State GC well
due to that well reaching payout. This payout was achieved much earlier
than expected due to the well's excellent performance. The second factor
is the poorer than expected results from the Pierce Unit waterflood.
After an excellent initial response from water injection the unit has not
performed as expected. The unit operates profitably but is down over 100
bopd (barrels of oil per day) from the same period last year. The
operator has taken steps to reconfigure the waterflood injection pattern.
Results of these changes are not yet known, however the field appears to
have stabilized.
The Company's total expenses decreased $114,413, or 26%, to $328,069
for the quarter ended March 31, 1996 as compared to $442,482 for the same
period a year ago, a result of lower dry hole and administrative costs.
Production and operating expenses increased by $7,746 to $140,159 versus
$132,413 a year ago. The increase in current year production expenses
versus a year ago is due to remedial work on several wells.
The Company did not participate in the drilling of any wells during
the third quarter ended March 31, 1996. Accordingly, dry hole costs
decreased from year ago levels.
General and Administrative costs decreased $60,814 or 36%, to
$109,448 as compared to $170,262 for the same period a year ago. The
decrease in administrative costs is due to the recognition of annual SEC
reporting, proxy and shareholder meeting costs in the second quarter this
year and lower engineering and legal fees.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 1996, the Company had working capital of $961,849. This
compares to the Company's working capital of $1,135,911 as of March 31,
1995. The decrease in working capital is attributable to the Company's
exploration efforts earlier in the fiscal year.
The net cash used by operating activities was $53,753 for the period
ended March 31, 1996, a decrease of $171,266, versus the prior year's cash
used of $225,019. The Company's accounts receivable increased $17,340 to
$168,564 during the period as compared to a decrease of $10,708 to
$181,124 for the same period last year. Other assets increased during the
period due to the capitalization of certain legal fees. The Company's
accounts payable decreased $5,802 to $100,945 during the period as
compared to a decrease of $55,637 to $109,903 for the prior year. Accrued
liabilities decreased by $34,606, or 33%, to $71,650 during the period as
compared to an increase of $18,101 to $70,655 last year. The decrease was
primarily a result of the receipt and payment of accrued revenues and
accrued lease operating expenses on the West Buffalo Red River well. All
other factors regarding operating activities affecting cash flow were
relatively unchanged or insignificant.
Net cash flow used in investing activities was $487,126, a increase
of $2,327 from the prior year's use of $484,799. Approximately $349,000
of the cash used in investing activities during the current period was to
purchase short-term investments and approximately $169,000 was used to
acquire or maintain leasehold interests on domestic and international
prospects. During the period, the Company sold its interest in the Sam
Acola lease in Texas for $2,888, sold its interest in the Royal
Federal 35-7 well on the North Adon leasehold for $5,773 and received sale
proceeds from the sale of miscellaneous equipment of $23,277.
Cash provided from financing activities increased $43,593 during the
nine months ended March 31, 1996. Approximately $41,625 of 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. Additional proceeds from the issuance of common
stock in the amount of $1,968 were received by the Company pursuant to the
exercise of stock options under the Company's Non Qualified Stock Option
Plan. 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
Not applicable
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.
KESTREL ENERGY, INC.
(Registrant)
Date: May 14, 1996 /s/ TIMOTHY L. HOOPS
Timothy L. Hoops
President, Principal Executive Officer,
and Director
Date: May 14, 1996 /s/ MARK A. BOATRIGHT
Mark A. Boatright
Vice President - Finance,
Principal Financial and Accounting
Officer, and Director
EXHIBIT INDEX
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
- ------- ----------------
<S> <C> <C>
27. Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> MAR-31-1996
<CASH> 279
<SECURITIES> 646
<RECEIVABLES> 191
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,134
<PP&E> 4,495
<DEPRECIATION> 1,543
<TOTAL-ASSETS> 4,086
<CURRENT-LIABILITIES> 173
<BONDS> 0
0
0
<COMMON> 8,366
<OTHER-SE> (4,453)
<TOTAL-LIABILITY-AND-EQUITY> 4,086
<SALES> 0
<TOTAL-REVENUES> 929
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (203)
<INCOME-TAX> 0
<INCOME-CONTINUING> (203)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (203)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
