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 September 30, 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
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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] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of common stock,
as of September 30, 1997: 4,430,990
KESTREL ENERGY, INC.
AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and June 30, 1997 3
Consolidated Statements of Operations for the
Three Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports of Form 8-K 8
Signatures 9
PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of September 30, 1997 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, June 30,
1997 1997
------------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 684,662 $1,524,138
Short term investments 3,932,060 3,409,087
Accounts receivable 154,862 162,108
Due from related party 122,682 128,989
Other assets 33,194 8,646
---------- ----------
Total current assets 4,927,460 5,232,968
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties, successful efforts method
of accounting:
Unproved 957,222 911,485
Proved 4,142,822 4,128,034
Furniture and equipment 96,686 92,009
---------- ----------
5,196,730 5,131,528
Accumulated depreciation and depletion (2,751,356) (2,725,870)
---------- ----------
Net property and equipment 2,445,374 2,405,658
---------- ----------
$7,372,834 $7,638,626
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $155,368 $165,041
Related party - 23,972
Accrued liabilities 39,806 17,170
---------- ----------
Total current liabilities 195,174 206,183
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STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value;
1,000,000 shares authorized, none issued - -
at September 30, 1997
Common Stock, no par value;
20,000,000 shares authorized, 4,430,990
and 4,414,624 issued and outstanding at
September 30, 1997 and June 30, 1997,
respectively 13,139,349 13,154,754
Accumulated deficit (5,961,689) (5,722,311)
---------- ----------
Total stockholders' equity 7,177,660 7,432,443
---------- ----------
$7,372,834 $7,638,626
========== ==========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ---------
REVENUE:
<S> <C> <C>
Oil and gas sales $221,476 $285,834
Interest 49,726 9,921
Gain on sale of property and equipment 10,677 -
Other income 62 222
---------- ----------
TOTAL REVENUES 281,941 295,977
---------- ----------
COSTS AND EXPENSES:
Lease operating expenses 97,875 129,155
Dry holes, abandoned and impaired properties 73,658 210,031
Exploration expenses 134,086 11
Depreciation and depletion 25,517 30,683
General and administrative 190,183 100,742
---------- ----------
TOTAL COSTS AND EXPENSES 521,319 470,622
---------- ----------
NET LOSS $ (239,378) $ (174,645)
---------- ----------
NET LOSS PER COMMON SHARE $ (0.05) $ (0.09)
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,430,990 1,907,604
========== ==========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (239,378) $ (174,645)
Adjustments to reconcile net income to
net cash provided by operating activities:
Dry holes, abandoned and impaired
properties 12,373 210,031
Depreciation and depletion 25,517 30,683
Gain on sale of property and
equipment (10,677) -
(Increase) decrease in accounts receivable
relating to operations 7,246 (13,768)
(Increase) decrease in due from related
party 6,307 -
(Increase) decrease in other current assets,
net of amortization (24,578) 8,449
Increase (decrease) in accounts payable (9,673) 40,681
Increase (decrease) in accounts payable
related party (23,972) (2,919)
Increase (decrease) in accrued liabilities 22,636 (21,376)
---------- ----------
Net cash provided (used) by operating
activities (234,199) 77,136
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/acquisition of
properties (77,576) (37,174)
Proceeds from sale of property and
equipment 10,677 -
(Purchase) redemption of short-term
investments (522,973) 223,046
---------- ----------
Net cash provided (used) by investing
activities (589,872) 185,872
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from excerise of stock options 6,250 -
Common stock surrendered by officer (21,655) -
---------- ----------
Net cash used by financing activities (15,405) -
---------- ----------
Net increase (decrease) in cash and cash
equivalents (839,476) 263,008
Cash and cash equivalents at the beginning
of the period 1,524,138 300,399
---------- ----------
Cash and cash equivalents at the end of
the period $684,662 $563,407
========== ==========
</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, 1997.
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 September 30,
1997, the results of operations for the periods shown in the
statements of operations, and the cash flows for the periods shown in
the statements of cash flows. All adjustments made are of a normal
recurring nature.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 1997, the Company had working capital of $4,732,286. This
compares to the Company's working capital of $1,091,882 as of September
30, 1996.
Net cash used by operating activities was $234,199 for the period ending
September 30, 1997, a decrease of $311,335, over working capital provided
of $77,136 for the same period in 1996. Operating cash flows decreased
during the first quarter due to lower oil and gas revenues and higher
total expenses. First quarter fiscal 1998 results reflect the Company's
emphasis on exploration, given its recent acquisition of the Ampolex
properties in the San Joaquin Basin. The Company's accounts receivable
decreased $7,246 or 4% to $154,862 during the period as compared to an
increase of $13,768, or 8% for the same period in 1996. The decrease in
receivables from a year ago is primarily due to lower production volumes.
Other assets increased $24,548 or 284% to $8,646 during the period. The
increase is attributable to the prepayment by the Company of insurance
premiums for the fiscal year ending June 30, 1998 and the acquisition of
computer software which at September 30, 1997 had not been placed in
service at a cost of approximately $18,000. The Company's accounts
payable decreased $9,673 or 6% to $155,368 during the period versus an
increase of $40,681 or 52% a year ago. The Company's accrued liabilities
increased $22,636 or 132% to $39,806 for the quarter ended September 30,
1997. This compared to a decrease of $21,376 to $17,705 or 55% for the
same period a year ago. The increase in accrued liabilities was primarily
due to the exercise of stock options during the period which resulted in
an increase in payroll taxes payable of $21,655. All other factors
affecting operating cash flows were not material.
Net cash flow used by investing activities was $589,872, for the quarter
ended September 30, 1997, versus the cash provided of $185,872 for the
same period in 1996. The decrease in cash flow from investing activities
was attributable to purchases by the Company of short-term investments in
the amount of $522,973, land acquisitions in the San Joaquin Basin of
approximately $58,000, and completion costs incurred on the Gallion #6 in
Oklahoma of $14,000. The Company also sold well equipment from the
abandoned Kuehne Ranch Unit for $10,677.
Cash flows used in financing activities was $15,405 for the quarter ended
September 30, 1997. Proceeds from the exercise of stock options amounted
to $6,250, and an officer of the Company surrendered 5,974 shares of stock
to satisfy withholding taxes of $21,655, due as a result of a stock option
exercise.
No cash was provided or used from financing activities during the quarter
ended September 30, 1996.
RESULTS OF OPERATIONS
---------------------
First Quarter Results
- ---------------------
The Company reported a loss of $239,378, or 5 cents per share, for the
three month period ended September 30, 1997. This compares with a loss of
$174,645 or 9 cents per share, for the same period a year ago. The loss
in the current period is a result of lower oil and gas revenues and higher
exploration and general administrative expenses more fully described
below.
The Company's revenues for the three month period ended September 30, 1997
were $281,941 compared to $295,977 during the same period of 1996, a
decrease of $14,036 or 5%. Revenue from oil and gas sales was $221,476
for the period ended September 30, 1997, a decrease of $64,358, or 23%, as
compared to $285,834 for the same period in 1996. The decrease in oil and
gas revenues was a result of significantly lower revenues from the Pierce
Unit in Wyoming and slightly lower sale volumes for the Company's other
oil and gas properties. The Company continues to evaluate the Pierce Unit
waterflood project in Wyoming and is taking remedial steps to restore
production on this property to previous levels. Interest income increased
$39,805 or 400% to $49,726 from $9,921 a year ago. The increase in
interest income is attributable to earnings from the Company's short-term
investments.
The Company's total expenses increased $50,697 or 11% to $521,319 as
compared to $470,622 a year ago. The increase in overall expenses is due
to the increased exploration activity that the Company has emphasized
since its acquisition of the San Joaquin Basin properties in March of
1997. Exploration expenses incurred in the amount of $134,086 include
geological and geophysical costs as well as delay rental expenses on land
acquired by the Company. Exploration expenses also include costs to
evaluate properties not currently held by the Company. The Company had
insignificant exploration costs a year ago.
Production and operating expenses decreased $31,280, or 24%, to $97,875
versus $129,155 for the same period a year ago. The decrease in
production and operating expenses was primarily due to lower costs
incurred on the Pierce Unit in Wyoming and the Kuehne Ranch Unit.
Additionally, production taxes decreased $8,500 from year ago levels due
to lower oil and gas revenues.
Dry holes, abandoned and impaired properties decreased $136,373 or 65% to
$73,658 from $210,031 a year ago. The decrease from year ago levels was
primarily attributable to lower property impairment expenses. In the
period a year ago, the Company implemented accounting standard SFAS No.
121 and recorded impairment expenses of $194,000 relating to that
standard. No impairment was recorded under SFAS No. 121 in the current
period. The Company participated in the drilling of the Daisy 31-26 well
on the Goose Lake Prospect in the San Joaquin Basin in California in
August, 1997. The well was abandoned as a dry hole at a cost of $61,284.
The Company continues to evaluate this prospect as well as a number of
others included in the San Joaquin Basin acquisition for future drilling
opportunities. The Company also impaired certain international permits at
a cost of $12,374. The Company also participated in the drilling of the
Heather Downs-1 in the ATP-593-P Prospect in Western Australia during the
most recent quarter. The well was abandoned as a dry hole in July, 1997
at no cost to Kestrel by virtue of a carried interest in the drilling.
The Company also participated in the drilling of the Longhorn-1 well in
the WA-261-P Prospect, Western Australia in August, 1997. The well was
abandoned as a dry hole at no cost to the Company because the Company had
a carried interest in the well under a farmout agreement. The Company
continues to evaluate these permits for future drilling opportunities by
participating in additional seismic acquisition.
General and Administrative costs increased $89,441, or 89%, to $190,183 as
compared to $100,742 for the same period a year ago. The increased
activity level of the Company since its acquisition of the San Joaquin
exploration properties has required the Company to expand its land,
engineering, and accounting departments. The Company has in some cases
hired new employees and has contracted for the these services in others.
Additionally, insurance costs, travel, and investor relations expenses
also rose during the period. At current activity levels, the Company
anticipates a comparable level of general and administrative expenses in
the future.
FORWARD LOOKING STATEMENTS
--------------------------
This report includes one or more statements which state or otherwise
indicate 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.
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
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: November 13, 1997 /s/TIMOTHY L. HOOPS
---------------------
Timothy L. Hoops
President, Principal Executive Officer,
and Director
Date: November 13, 1997 /s/MARK A. BOATRIGHT
---------------------
Mark A. Boatright
Vice President - Finance,
Principal Financial and Accounting Officer,
and Director
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 685
<SECURITIES> 3,932
<RECEIVABLES> 277
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,927
<PP&E> 5,197
<DEPRECIATION> 2,751
<TOTAL-ASSETS> 7,373
<CURRENT-LIABILITIES> 195
<BONDS> 0
0
0
<COMMON> 13,139
<OTHER-SE> (5,961)
<TOTAL-LIABILITY-AND-EQUITY> 7,373
<SALES> 221
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