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, 1997
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.
[ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of common stock, as of March 31, 1997:
1,907,624
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, 1997
and June 30, 1996 . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations for the
Three and Nine months Ended March 31, 1997 and 1996 . . . .4
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1997 and 1996. . . . . . . . . . . .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
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, 1997 AND JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 1997 June 30,
1996
- ------------------------------------ ----------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 230,825 $ 300,399
Short term investments 198,762 644,834
Due from related party 25,560 25,560
Accounts receivable 149,456 164,805
Other assets 13,756 24,018
---------- ----------
Total current assets 618,359 1,159,616
---------- ----------
OIL AND GAS PROPERTIES, NET AT COST
Successful efforts methods of
accounting:
Unproved 978,513 309,931
Proved 4,127,423 4,084,044
Furniture and Equipment 87,161 58,554
---------- ----------
5,193,097 4,452,529
Accumulated depreciation and
depletion (1,787,514) (1,496,934)
---------- ----------
Net property and equipment 3,405,583 2,955,595
---------- ----------
Total assets $4,023,942 $4,115,211
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable:
Trade $ 142,716 $ 78,680
Related Party 4,163 32,742
Accrued liabilities 19,835 39,081
---------- ----------
Total current liabilities 166,714 150,503
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value;
1,000,000 shares authorized,
none issued at March 31, 1997 - -
Common Stock, no par value;
20,000,000 shares authorized,
1,907,624 issued at
March 31, 1997 8,374,654 8,374,654
Accumulated deficit (4,517,426) (4,409,946)
---------- ----------
Total stockholders' equity 3,857,228 3,964,708
---------- ----------
Total liabilities and
stockholders; equity $4,023,942 $4,115,211
========== ==========
</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, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
------- ------- --------- ------
<S> <C> <C> <C> <C>
REVENUE
Oil and gas sales $ 313,304 $ 338,526 $ 986,220 $ 875,251
Interest 8,879 10,316 29,836 34,145
Gain on sale of property 39,692 1,994 60,905 10,815
Other income 145 278 466 8,838
---------- ---------- ---------- ----------
TOTAL REVENUES 362,020 351,114 1,077,427 929,049
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Production and operating 186,120 140,159 462,486 444,282
Dry holes, abandoned and
impaired properties 89,106 111 320,364 95,848
Depreciation and depletion 33,143 78,351 95,876 233,341
General and administrative 92,194 109,448 306,181 358,320
---------- ---------- ---------- ----------
TOTAL EXPENSE 400,563 328,069 1,184,907 1,131,791
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (38,543) $ 23,045 $ (107,480) $(202,742)
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER
COMMON SHARE ($0.02) $0.01 ($0.06) ($0.10)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,907,624 1,901,818 1,907,624 2,042,401
========== ========== ========== ==========
</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,
1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
----------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (107,480) $ (202,742)
Adjustments to reconcile net
loss to net cash provided
(used) by operating activities:
Depreciation and depletion 95,876 233,469
Dry holes, abandoned and impaired
properties 291,544 -
Gain on sale of property and equipment - (10,815)
(Increase) decrease in accounts receivable
relating to operations 15,349 (17,340)
(Increase) decrease in related party
receivable - 163
(Increase) decrease in other current
assets 10,262 (16,080)
Increase (decrease) in accounts payable 64,036 (5,802)
Increase (decrease) in accrued
liabilities (19,246) (34,606)
Increase (decrease) in related party
payable (28,579) -
---------- ----------
Net cash provide (used) by operating
activities 321,762 (53,753)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/acquisition of
properties (837,408) (169,446)
Proceeds from sale of property
and equipment - 31,929
Purchase short-term investments - (349,609)
Redemption of short-term investments 446,072 -
---------- ----------
Net cash used by investing
activities (391,336) (487,126)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITES:
Proceeds from issuance of common stock - 1,968
Proceeds from sale of stock by affiliate - 41,625
---------- ----------
Net cash provided by financing activities - 43,593
---------- ----------
Net (decrease) in cash and cash
equivalents (69,574) (497,286)
Cash and cash equivalents at the
beginning of the period 300,399 776,141
---------- ----------
Cash and cash equivalents at the end
of the period $ 230,825 $ 278,855
========== ==========
Reduction in joint interest billings
from sale of assets $ 60,905 $ -
</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, 1996.
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, 1997,
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. 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 Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $451,645. This
compares to the Company's working capital of $961,849 as of March 31,
1996. The decrease in working capital is attributable to the acquisition
by the Company's wholly owned subsidiary of petroleum leases in
California's San Joaquin Basin totaling 9,000 acres net to Kestrel,
seismic data covering 16,000 miles, well data from 3,800 wells and
technical interpretations on that information from Ampolex (USA), Inc.
The Company will operate an Area of Mutual interest covering approximately
8,000 square miles of land in Fresno, Kings, Tulare, and Kern Counties of
California, areas which are already the site of several large oil fields.
The Company and its controlling shareholder Victoria International
Petroleum N.L., will each have through their respective wholly owned
subsidiaries, a 50% working interest in the project.
The net cash provided by operating activities was $321,762 for the period
ended March 31, 1997, an increase of $375,515, versus the prior year's
cash used of $53,753. Operating cash flows increased as of March 31, 1997
due to higher oil and gas revenues and lower overall expenses excluding
non cash abandonment and impairment costs. The Company's accounts
receivable decreased $15,349, or 9%, to $149,456 during the period as
compared to an increase of $17,340, or 11%, for the same period last
year. Accounts receivable decreased due to lower oil prices for March
production. Other assets decreased during the period due to the expensing
of certain legal fees previously capitalized. The Company's accounts
payable increased $64,036, or 81%, to $142,716 during the period as
compared to a decrease of $5,802 to $100,945 for the prior year. The
increase in accounts payable during the period ended March 31, 1997 is
attributable to the reclassification of approximately $21,376 of accrued
liabilities, and an increase in delay rental payments as a result of the
San Joaquin petroleum lease acquisition. Accrued liabilities decreased by
$19,246 or 49%, to $19,835 during the period as compared to a decrease of
$34,606 to $71,650 last year. The decrease in accrued liabilities was a
result of the Company's reclassification to accounts payable of $21,376
during the nine months ended March 31, 1997. The Company's related party
payable decreased $28,579, due to the Company's payment of amounts
advanced by affiliated companies.
Net cash flow used in investing activities was $391,336, a decrease of
$95,790 from the prior year's use of $487,126. The decrease in cash used
for investing activities was attributable to the redemption during the
period of short term investments, which offset higher capital
expenditures. Capital expenditures during the period amounted to
approximately $837,000, of which $705,325 is attributable to the Company's
acquisition of the San Joaquin petroleum leases described above. Other
capital expenditures included approximately $62,000 for certain
international permits, the purchase of a new pump for the Pierce Unit in
Wyoming, completion costs incurred on the Gallion #5 offset well in
Pittsburg County, Oklahoma, and $30,000 for computer hardware and
software. During the same period a year ago, 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 proceeds from the sale of miscellaneous equipment of $6,665.
No cash was provided from financing activities during the nine months
ended March 31, 1997. This compares to the same period in 1996 when
$41,625 was provided from the purchase and sale of shares of the Company's
stock by an affiliate of the Company, and $1,968 was received by the
Company pursuant to the exercise of stock options by a consultant of the
Company under the Company's Non qualified Stock Option Plan.
RESULTS OF OPERATIONS
SECOND QUARTER RESULTS
The Company reports a net loss of $38,543 or 2 cents per share, for the
three month period ended March 31, 1997. This compares with net income of
$23,045 or 1 cent per share for the same period a year ago. The increased
loss for the quarter ended March 31, 1997 was a result of lower oil and
gas revenues and higher overall expenses than year ago levels.
The Company's revenues for the three month period ended March 31, 1997
were $362,020 compared to $351,114 during the same period of 1995, an
increase of $10,906 or 3%. Overall revenues increased due to an increase
in gain on sale of property which resulted from the sale of well equipment
on the abandoned Kuehne Ranch prospect. Revenue from oil and gas sales
were $313,304 for the fiscal third quarter, a decrease of $25,222, or 7%,
as compared to $338,526 for the same period last year. The decrease was
due to lower oil prices and sales volumes during the period.
The Company's total expenses increased $72,494, or 22%, to $400,563 for
the quarter ended March 31, 1997 as compared to $328,069 for the same
period a year ago. Higher production costs and impairment costs
contributed to the increase. Production and operating expenses increased
by $45,961 to $186,120 versus $140,159 a year ago. The increase in
current year production expenses versus a year ago is due to an increase
in delay rental payments of $47,000 associated with petroleum leases in
the San Joaquin acquisition.
Dry holes, abandoned and impaired properties expense increased $88,995, or
100%, to $89,106 versus $111 a year ago. The increase is attributable to
the plugging of the Kuehne Ranch prospect at a cost of $22,000, a $51,000
write-off of the EP 367 prospect in Australia, and impairment expense of
$13,000 on the non producing international oil and gas permits. Dry hole
costs of $85,266 a year ago were related to the drilling of the Spider #1
on the EP 325 leasehold in Australia. The Company did not participate in
the drilling of any wells during the quarter ended March 31, 1997.
General and administrative costs decreased $17,254, or 16%, to $92,194 as
compared to $109,448 for the same period a year ago. While the decrease
in administrative costs was not attributable to any one factor, costs were
lower for investor relations, accounting and office salaries than year ago
levels.
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 can materially affects the Company's cash flow and
profitability, either positively or negatively.
FORWARD LOOKING STATEMENTS
This report includes a number of statements which make projections about
future events or states the Company's present belief or expectation
concerning future events. Such statements are forward looking statements
on which investors should not rely because they are subject to a wide
variety of contingencies and based on a number of assumptions which may
not prove to be true. In particular, the Company's future success is
highly dependent on the success of its exploratory drilling efforts, which
cannot be safely predicted. In addition, the Company is highly dependent
upon prevailing prices for petroleum products, its ability to attract and
retain qualified personnel, as well as other risk factors affecting
business generally, such as overall economic conditions, changes in tax
and other laws and the effect of actions taken by competitors and
regulatory authorities.
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 - 27 Financial Data Schedule
(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, 1997 /s/TIMOTHY L. HOOPS
- ---------------------------- ---------------------------------------
Timothy L. Hoops
President, Principal Executive Officer,
and Director
Date: May 14, 1997 /s/MARK A. BOATRIGHT
- ---------------------------- ---------------------------------------
Mark A. Boatright
Vice President - Finance,
Principal Financial and Accounting
Officer, and Director
EXHIBIT INDEX
No. Exhibit Method of Filing
27 Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 231
<SECURITIES> 199
<RECEIVABLES> 149
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 618
<PP&E> 5,193
<DEPRECIATION> 1,787
<TOTAL-ASSETS> 4,024
<CURRENT-LIABILITIES> 166
<BONDS> 0
0
0
<COMMON> 8,375
<OTHER-SE> (4,517)
<TOTAL-LIABILITY-AND-EQUITY> 4,024
<SALES> 986
<TOTAL-REVENUES> 1,078
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (107)
<INCOME-TAX> 0
<INCOME-CONTINUING> (107)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
