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, 1998
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 or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
999 18th Street, Suite 2490, 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
The number of shares outstanding of common stock, as of March 31, 1998:
4,419,634
KESTREL ENERGY, INC.
AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Consolidated Balance Sheets as of
March 31, 1998 and June 30, 1997 3
Consolidated Statements of Operations
for the Three and Nine months Ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 1998
and 1997 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of March 31, 1998 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31 June 30,
ASSETS 1998 1997
- ------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 326,529 $ 1,524,138
Short term investments 3,223,381 3,409,087
Accounts receivable 239,466 128,989
Due from related party 157,045 162,108
Other assets 29,512 8,646
----------- -----------
Total current assets 3,975,933 5,232,968
----------- -----------
PROPERTY AND EQUIPMENT, AT COST
Oil and Gas properties successful
effort method of accounting
Unproved 1,025,773 911,485
Proved 4,285,810 4,128,034
Furniture and equipment 116,917 92,009
----------- -----------
5,428,500 5,131,528
Accumulated depreciation and depletion (2,843,809) (2,725,870)
----------- -----------
Net property and equipment 2,584,691 2,405,658
----------- -----------
Total assets $ 6,560,624 $ 7,638,626
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable
Trade $228,331 $165,041
Related party - 23,972
Accrued liabilities 17,087 17,170
----------- -----------
Total current liabilities 245,418 206,183
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value;
1,000,000 shares authorized, none issued
at March 31, 1998 and June 30, 1997 - -
Common stock, no par value;
20,000,000 shares authorized, 4,419,634 and
4,414,624 issued and outstanding at March
31, 1998 and June 30, 1997, respectively 13,139,349 13,154,754
Accumulated deficit (6,824,143) (5,722,311)
----------- -----------
Total stockholders' equity 6,315,206 7,432,443
----------- -----------
Total liabilities and stockholders equity $ 6,560,624 $ 7,638,626
=========== ===========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE
Oil and gas sales $ 246,656 $313,304 $ 710,307 $ 986,220
Interest 40,063 8,879 152,828 29,836
Gain on sale of property
and equipment - 39,692 10,677 60,905
Other income 64,471 145 68,180 466
---------- -------- --------- ---------
TOTAL REVENUE 351,190 362,020 941,992 1,077,427
---------- -------- --------- ---------
COSTS AND EXPENSES
Production and operating
expenses 98,800 139,120 321,066 415,486
Exploration expenses 198,225 47,000 496,389 47,000
Dry holes, abandoned and
impaired properties 108,000 89,106 512,386 320,364
Depreciation and depletion 46,533 33,143 118,034 95,876
General and administrative 207,212 92,194 595,949 306,181
---------- -------- --------- ---------
TOTAL COSTS
AND EXPENSES 658,770 400,563 2,043,824 1,184,907
---------- -------- --------- ---------
NET LOSS $ (307,580) $(38,543) $(1,101,832) $(107,480)
---------- -------- ---------- ---------
LOSS PER COMMON SHARE $ (0.07) $ (0.02) $ (0.25) ($0.06)
========== ========= =========== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,419,634 1,907,624 4,419,634 1,907,624
========== ========= ========= =========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31,
1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,101,832)$ (107,480)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities
Depreciation and depletion 118,034 95,876
Dry holes, abandoned and impaired properties 37,122 291,544
Gain on sale of property and equipment, net (10,677) -
(Increase) decrease in accounts receivable 5,063 15,349
(Increase) decrease in related party receivable (110,477) -
(Increase) decrease in other current assets (20,866) 10,262
Increase (decrease) in accounts payable 63,290 64,036
Increase (decrease) in accrued liabilities (83) (19,246)
Increase (decrease) in accounts payable
related party (23,972) (28,579)
----------- ----------
Net cash provided (used) by operating activities (1,044,398) 321,762
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures/acquisition of properties (334,189) (837,408)
Proceeds from sale of property and equipment 10,677 -
Redemption of short-term investments 185,706 446,072
----------- ----------
Net cash used by investing activities (137,806) (391,336)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from exercise of Common stock options 6,250 -
Common stock surrendered by officer (21,655) -
----------- ----------
Net cash used by financing activities (15,405) -
----------- ----------
Net decrease in cash and cash equivalents (1,197,609) (69,574)
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 $ 326,529 $ 230,825
=========== ==========
Reduction in joint interest billings from
sale of assets $ - $ 60,905
=========== ==========
</TABLE>
KESTREL ENERGY, INC.
- --------------------
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
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 March 31, 1998,
the results of operations for the periods shown in the statements of
operations, and cash flows 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.
3. Earnings (Loss) Per Common Share
The Company adopted the provisions of SFAS No. 128, Earnings Per
Share, effective December 15, 1997. SFAS 128 provides for the
computation of basic and diluted earnings (loss) per share. For the
nine and three months ended March 31, 1998 and 1997, basic loss per
common share was computed by dividing the loss for the period by the
weighted average number of shares outstanding. Options to purchase
625,616 and 612,500 shares of common stock at prices ranging from
$1.31 to $4.00 and from $1.25 to $4.00 were outstanding at March 31,
1998 and March 31, 1997, respectively, but not included in the
computation of diluted loss per share because the effect of the
assumed exercise of these stock options as of the beginning of the
period would have an antidilutive effect on the computation of
diluted loss per share. These options expire at various dates from
2002 to 2007.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 1998, the Company had working capital of $3,730,515. This
compares to the Company's working capital of $451,645 as of March 31,
1997.
Net cash used by operating activities was $1,044,398 for the nine months
ended ending March 31, 1998, a decrease of $1,366,160 over net cash
provided of $321,762 for the same period in 1997. Operating cash flows
decreased during the period due to lower oil and gas revenue and higher
total expenses. The results for the nine months ended March 31, 1998
reflect the significantly increased expenditures on the Company's
exploration activities following its acquisition of the Ampolex properties
in the San Joaquin Basin.
The Company's accounts receivable decreased $5,063, or 3%, to $157,045
during the period as compared to a decrease of $15,349, or 9%, during the
comparable period in 1997. The decrease in receivables from the $162,108
outstanding a year ago is primarily due to lower oil prices. Related
party receivables increased $110,477 to $239,466, or 85%, reflecting
amounts due the Company from its co-venturer in the San Joaquin Basin.
Other assets increased $20,866, or 241%, to $29,512 during the period,
which increase is attributable to the prepayment of insurance premiums and
the recent acquisition of computer software, which at March 31, 1998, had
not been placed in service at a cost of approximately $18,000. The
Company's total accounts payable increased $39,318, or 20%, to $228,331
during the period versus an increase of $64,036, or 81% a year ago. The
overall increase in accounts payable is attributable to increased costs
associated with the San Joaquin Joint Venture incurred during the period
but not paid by March 31, 1998. The Company's accrued liabilities
decreased $83 to $17,087 for the period ended March 31, 1998. This
compared to a decrease of $19,246 to $17,170, or 49%, for the same period
a year ago. All other factors affecting operating cash flows were not
material.
Net cash flow used by investing activities was $137,806, for the nine
months ended March 31, 1998, versus cash used of $391,336 for the same
period in 1997, a $253,530 change. The decrease in cash flow used in
investing activities was attributable to redemptions by the Company of
short-term investments in the amount of $185,706, land acquisitions in the
San Joaquin Basin of approximately $151,500, completion costs incurred on
the Gallion #6 in Oklahoma of $12,000, completion costs on the Cab Hughes
#5 of $130,000, purchases of computers and software of $25,000, as well as
costs expended on various properties amounting to approximately $14,000.
The Company also sold well equipment from the abandoned Kuehne Ranch Unit
for $10,677.
Cash flow used in financing activities was $15,405 for the nine months
ended March 31, 1998. Proceeds from the exercise of stock options
amounted to $6,250, and 5,974 shares of the Company's stock were
surrendered to the Company to satisfy withholding taxes of $21,655 payable
as a result of a stock option exercise.
No cash was provided from or used by financing activities during the nine
months ended March 31, 1997.
RESULTS OF OPERATIONS
---------------------
Third Quarter Results
- ---------------------
The Company reported a loss of $307,580, or 7 cents per share, for the
three month period ended March 31, 1998. This compares with a net loss of
$38,543, or 2 cents per share, for the same period a year ago. The loss
in the current period is a result of lower oil and gas revenue, largely
attributable to sharply lower oil prices coupled with higher expenses from
the Company's expanded exploration program.
The Company's revenues for the three month period ended March 31, 1998
were $351,190 compared to $362,020 during the same period of 1997, a
decrease of $10,830, or 2%. Revenue from oil and gas sales was $246,656
for the period ended March 31, 1998, a decrease of $66,648, or 21%, as
compared to $313,304 for the same period in 1997. The decrease in oil and
gas revenues was a result of significantly lower oil prices and slightly
lower sale volumes. The West Texas Intermediate price per barrel of crude
oil has declined approximately 17% from approximately $17.50 bbl a year
ago to $14.50 bbl at March 31, 1998. Interest income increased $31,184 to
$40,063 from $8,879 a year ago. The increase in interest income is
attributable to earnings from the Company's short-term investments. Other
income increased $64,326 to $64,471 for the quarter ended March 31, 1998.
This increase reflects the reimbursement of overhead costs relating to the
San Joaquin Joint Venture by our joint venture partner. Overhead
reimbursements are expected to be lower in future periods.
The Company's total expenses increased $258,207, or 64%, to $658,770 as
compared to $400,563 a year ago. The increase in overall expenses is due
to the increased exploration activity by the Company since its acquisition
of the San Joaquin Basin properties in March of 1997. Exploration
expenses increased $151,225, or 321,% to $198,225, and include geological
and geophysical costs, delay rental expenses on leases acquired by the
Company, and costs to evaluate properties not currently held by the
Company. The Company had $47,000 in exploration costs in the prior
period.
Production and operating expenses decreased $40,320, or 28%, to $98,800
versus $139,120 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 elimination of expense for
the abandoned Kuehne Ranch Unit.
Dry holes, abandoned and impaired properties increased $18,894 to $108,000
from $89,106 a year ago. For the quarter, dry hole costs were $108,000
relating to the Greer #1 and Janus #1 wells. The Company participated in
the drilling of the Greer #1 and Greer Side-track wells on the West Lemore
Prospect in the San Joaquin Basin of California in November, 1997. Both
wells were abandoned as dry holes at a combined cost of $351,576,
including approximately $314,500 recorded during the Company's second
quarter. The Company continues to evaluate the West Lemore Prospect for
future drilling opportunities. The Company also participated in the
drilling of the Janus #1 in the WA-254-P Prospect in Western Australia.
That well was abandoned as a dry hole in January, 1998 at a cost to the
Company of approximately $58,600. The Company also impaired certain
international permits with a cost of $12,374.
General and administrative costs increased $115,018, or 124%, to $207,212
as compared to $92,194 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 or has contracted for those services with third
parties. Additionally, insurance costs, travel, and investor relations
expenses rose during the period. Approximately $20,000 of the increase
related to the Company's annual meeting and related shareholder costs,
which were incurred in the second quarter in fiscal 1997. Assuming no
change in current exploration activity levels, the Company expects a
comparable level of general and administrative expenses in the future.
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
convened on March 31, 1998 and, after an adjournment,
concluded on April 16, 1998, in Denver, Colorado, the
Company's shareholders elected Timothy L. Hoops, Robert J.
Pett, Mark A. Boatright, John T. Kopcheff, Kenneth W.
Nickerson, and Mark A. E. Syropoulo 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, 1998,
and approved certain amendments to the nonqualified stock
option plan designed to conform with recent amendments to
SEC Rule 16b-3, to permit greater flexibility in the
administration of the plan, and to increase the number of
shares reserved under the plan to 1,000,000 from 750,000.
There were 4,419,634 shares of the Company's Common
Stock issued and outstanding, of which 4,419,634 were
entitled to vote at the meeting. Of that number, 2,933,173
were present in person or by proxy at the meeting. With
respect to the election of directors, the votes were as
follows: Mr. Hoops - 2,930,257 shares in favor, 2,916
withheld; Mr. Pett - 2,930,257 shares in favor, 2,916
withheld; Mr. Boatright - 2,930,257 shares in favor, 2,916
withheld; Mr. Kopcheff - 2,930,257 shares favor, 2,916
withheld; Mr. Nickerson - 2,930,257 shares in favor, 2,916
withheld: and Mr. Syropoulo - 2,930,257 shares in favor,
2,916 withheld. The selection of KPMG Peat Marwick LLP
received a vote of 2,931,113 shares for, 470 against and
1,590 abstaining. The amendments to the nonqualified
stock option plan were approved, with 2,581,997 shares for,
26,846 against, 11,957 obstaining, and 312,373 not voted.
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 15, 1998 /s/TIMOTHY L. HOOPS
------------ ------------------------------
Timothy L. Hoops
President, Principal Executive
Officer, and Director
Date: May 15, 1998 /s/MARK A. BOATRIGHT
------------ ------------------------------
Mark A. Boatright
Vice President - Finance,
Principal Financial and Accounting
Officer, and Director
EXHIBIT INDEX
No. Description Method of Filing
- --- ----------- ----------------
27 Financial Data Schedule Filed herewith electronically
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 327
<SECURITIES> 3,223
<RECEIVABLES> 397
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,976
<PP&E> 5,429
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<BONDS> 0
0
0
<COMMON> 13,139
<OTHER-SE> (6,823)
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<SALES> 710
<TOTAL-REVENUES> 232
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</TABLE>
