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, 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of common stock, as of December 31, 1997:
4,430,990
KESTREL ENERGY, INC.
AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1997 3
Consolidated Statements of Operations
for the Three and Six months Ended
December 31, 1997 and 1996 4
Consolidated Statements of Cash
Flows for the Six Months Ended
December 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS December 31, 1997 June 30, 1997
- ------ ----------------- -------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 452,321 $ 1,524,138
Short term investments 3,785,103 3,409,087
Due from related party 140,247 128,989
Accounts receivable 148,024 162,108
Other assets 26,890 8,646
------------ ------------
Total current assets 4,552,585 5,232,968
------------ ------------
PROPERTY AND EQUIPMENT,
AT COST
Successful effort method
of accounting
Unproved 963,456 911,485
Proved 4,151,601 4,128,034
Furniture and Equipment 96,686 92,009
------------ ------------
5,211,743 5,131,528
Accumulated depreciation
and depletion (2,797,308) (2,725,870)
------------ ------------
Net property and
equipment 2,414,435 2,405,658
------------ ------------
Total assets $6,967,020 $7,638,626
============ ============
LIABILITIES AND STOCKHOLDER'S
EQUITY
- -----------------------------
CURRENT LIABILITIES
Accounts Payable
Trade $ 279,645 $ 165,041
Related Party - 23,972
Accrued liabilities 64,589 17,170
------------ ------------
Total current liabilities 344,234 206,183
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value;
1,000,000 shares authorized,
none issued at December 31, 1997 - -
Common Stock, no par value;
20,000,000 shares authorized,
4,430,990 and 4,414,624
issued at December 31, 1997,
and June 30, 1997,
respectively 13,139,349 13,154,754
Accumulated deficit (6,516,563) (5,722,311)
------------ ------------
Total stockholders' equity 6,622,786 7,432,443
------------ ------------
Total liabilities and
stockholders equity $ 6,967,020 $ 7,638,626
============ ============
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Oil and gas sales $242,175 $387,082 $463,651 $672,916
Interest 63,039 11,036 112,765 20,957
Gain on sale of
property and equipment - 21,213 10,677 21,213
Other income 3,647 99 3,709 321
-------- -------- -------- --------
TOTAL REVENUES 308,861 419,430 590,802 715,407
-------- -------- -------- --------
COSTS AND EXPENSES
Production and operating
expenses 124,391 147,200 222,266 276,366
Exploration expenses 164,078 - 298,164 -
Dry holes, abandoned
and impaired
properties 330,728 21,227 404,386 231,258
Depreciation and
depletion 45,984 32,050 71,501 62,733
General and
administrative 198,554 113,245 388,737 213,987
-------- -------- -------- --------
TOTAL COSTS AND
EXPENSES 863,735 313,722 1,385,054 784,344
-------- -------- -------- --------
NET INCOME (LOSS) $(554,874) $105,708 $(794,252) $(68,937)
--------- -------- --------- --------
BASIC AND DILUTED
EARNINGS (LOSS)
PER COMMON SHARE ($ 0.13) $0.05 ($ 0.18) ($ 0.04)
======== ====== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,430,990 1,907,624 4,430,990 1,907,624
========= ========= ========= =========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER
31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (794,252) $ (68,937)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities
Depreciation and depletion 71,501 62,733
Dry holes, abandoned and impaired properties 24,746 227,475
Gain on sale of property and equipment, net (10,677) -
(Increase) decrease in accounts receivable 14,084 (20,625)
(Increase) decrease in related party receivable (11,258) -
(Increase) decrease in other current assets (18,244) 10,811
Increase (decrease) in accounts payable 114,604 32,184
Increase (decrease) in accrued liabilities 47,419 (20,381)
Increase (decrease) in accounts payable
related party (23,972) (28,579)
---------- ---------
Net cash provided (used) by operating
activities (586,049) 194,681
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures/acquisition of properties (105,024) (80,759)
Proceeds from sale of property and equipment 10,677 -
Purchase short-term investments, net (376,016) (24,980)
---------- ---------
Net cash (used) by investing activities (470,363) (105,739)
---------- ---------
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 increase (decrease) in cash
and cash equivalents (1,071,817) 88,942
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 $ 452,321 $ 389,341
========== =========
Reduction in joint interest
billings from sale of assets $ - $ 21,213
========= =========
</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 December 31, 1997, 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 six and three
months ended December 31, 1997 and 1996, basic and diluted earnings (loss)
per common share were computed by dividing the earnings or loss by the
weighted average number of shares outstanding. Options or warrants with a
dilutive effect did not have a significant impact on the earnings or loss
per share calculations.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
- ------ Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At December 31, 1997, the Company had working capital of $4,208,351. This
compares to the Company's working capital of $1,149,625 as of December 31,
1996.
Net cash used by operating activities was $586,049 for the period ending
December 31, 1997, a decrease of $780,730, over net cash provided of
$194,681 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. The results for the six months ended December 31, 1997
reflect the Company's emphasis on exploration, after its acquisition of
the Ampolex properties in the San Joaquin Basin. The Company's accounts
receivable decreased $14,084 or 9% to $148,024 during the period as
compared to an increase of $20,625, or 13% for the same period in 1996.
The decrease in receivables from a year ago is primarily due to lower
production volumes and lower oil and gas prices. Other assets increased
$18,244 or 211% to $26,890 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 December 31, 1997, had not been placed in service at a
cost of approximately $18,000. The Company's accounts payable increased
$114,604 or 69% to $279,645 during the period versus an increase of
$32,184 or 41% a year ago. The increase in accounts payable is
attributable to increased costs associated with the San Joaquin Joint
Venture incurred during the period but not paid by December 31, 1997. The
Company's accrued liabilities increased $47,419 or 276% to $64,589 for the
period ended December 31, 1997. This compared to a decrease of $20,931 to
$18,700 or 54% for the same period a year ago. The increase in accrued
expense for the period ended December 31, 1997 is attributable to the
accrual of dry hole costs associated with the drilling of the Greer #1 in
California. All other factors affecting operating cash flows were not
material.
Net cash flow used by investing activities was $470,363, for the period
ended December 31, 1997, versus the cash used of $105,739 for the same
period in 1996. The increase in cash flow used in investing activities
was attributable to purchases by the Company of short-term investments in
the amount of $376,016, land acquisitions in the San Joaquin Basin of
approximately $77,000, completion costs incurred on the Gallion #6 in
Oklahoma of $14,000, as well as costs expended on existing various
properties amounting to approximately $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 period ended
December 31, 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 the Company 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 December 31, 1996.
RESULTS OF OPERATIONS
---------------------
Second Quarter Results
- ----------------------
The Company reported a loss of $554,874, or 13 cents per share, for the
three month period ended December 31, 1997. This compares with a net
income of $105,708 or 5 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
coupled with higher exploration and general administrative expenses as
more fully described below.
The Company's revenues for the three month period ended December 31, 1997
were $308,861 compared to $419,430 during the same period of 1996, a
decrease of $110,569 or 26%. Revenue from oil and gas sales was $242,175
for the period ended December 31, 1997, a decrease of $144,907, or 37%, as
compared to $387,082 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
$52,003 to $63,039 from $11,036 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 $550,013, or 175%, to $863,735 as
compared to $313,722 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 of $164,078 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 no significant exploration costs a year ago.
Production and operating expenses decreased $22,809, or 15%, to $124,391
versus $147,200 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.
Dry holes, abandoned and impaired properties increased $309,451 to
$330,728 from $21,277 a year ago. The increase from year ago levels was
primarily attributable to higher dry hole costs. During August, 1997, the
Company participated in the drilling of the Daisy 31-26 well on the Goose
Lake Prospect in the San Joaquin Basin of California. The well was
abandoned as a dry hole, at a cost of $63,180. Approximately $61,284 was
recorded in the first quarter ended September 30, 1997. 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 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 $314,576. The Company continues to
evaluate the West Lemore Prospect for future drilling opportunities. The
Company also impaired certain international permits at a cost of $12,374.
General and administrative costs increased $85,309, or 75%, to $198,554 as
compared to $113,245 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 also rose during the period. At current activity levels, the
Company anticipates 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
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 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: February 17, 1998 /s/TIMOTHY L. HOOPS
Timothy L. Hoops
President, Principal Executive Officer,
and Director
Date: February 17, 1998 /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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 452
<SECURITIES> 3,785
<RECEIVABLES> 288
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,553
<PP&E> 5,212
<DEPRECIATION> 2,797
<TOTAL-ASSETS> 6,967
<CURRENT-LIABILITIES> 344
<BONDS> 0
0
0
<COMMON> 13,139
<OTHER-SE> (6,516)
<TOTAL-LIABILITY-AND-EQUITY> 6,967
<SALES> 464
<TOTAL-REVENUES> 591
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (794)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
