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, 1999
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of common stock, as of December 31, 1999:
7,286,000
KESTREL ENERGY, INC.
AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Balance Sheets as of December 31, 1999
and June 30, 1999 3
Consolidated Statements of Operations for the Three
and Six months Ended December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1999 and 1998 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 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, 1999 AND JUNE 30, 1999
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
ASSETS 1999 1999
- ------------------------------------ ------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,225,292 $ 394,980
Short term investments 299,480 -
Accounts receivable 173,128 110,880
Due from related party 41,570 60,006
Other assets 87,587 87,278
----------- -----------
Total current assets 1,827,057 653,144
----------- -----------
PROPERTY AND EQUIPMENT, NET AT COST:
Oil and gas properties, successful
efforts method of accounting:
Unproved 941,184 761,101
Proved 9,464,357 5,465,748
Furniture and equipment 155,498 139,516
----------- -----------
10,561,039 6,366,365
Accumulated depreciation and depletion (3,021,972) (2,960,275)
----------- -----------
Net property and equipment 7,539,067 3,406,090
----------- -----------
$ 9,366,124 $ 4,059,234
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Trade $ 142,514 $ 47,752
Related party 18,998 20,172
Property acquisition costs 770,743 -
Accrued liabilities 59,148 25,013
Current portion of lease obligation 7,719 -
----------- -----------
Total current liabilities 999,122 92,937
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value;
1,000,000 shares authorized,
none issued - -
Common Stock, no par value;
20,000,000 shares authorized,
7,286,000 and 4,456,000 issued and
outstanding at December 31, 1999
and June 30, 1999, respectively 17,982,257 13,148,724
Accumulated deficit (9,615,255) (9,182,427)
----------- -----------
Total stockholders' equity 8,367,002 3,966,297
----------- -----------
$ 9,366,124 $ 4,059,234
=========== ===========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 1999 AND 1998
(Unaudited)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales $ 278,521 $ 168,269 539,928 $ 374,690
Interest 13,074 34,368 34,344 61,723
Other income 29,495 17,427 43,004 38,499
---------- ---------- ---------- ----------
TOTAL REVENUES 321,090 220,064 617,276 474,912
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Production and
operating expenses 171,491 114,202 268,644 180,236
Exploration expenses 77,607 161,038 192,981 331,296
Dry holes, abandoned
and impaired
properties 12,096 176,292 25,125 193,398
Depreciation and
depletion 32,554 27,482 64,977 84,977
General and
administrative 243,217 161,703 498,376 323,328
---------- ---------- ---------- ----------
TOTAL COSTS AND
EXPENSES 536,965 640,717 1,050,103 1,113,235
---------- ---------- ---------- ----------
NET LOSS $(215,875) $(420,653) $(432,827) $(638,323)
---------- ---------- ---------- ----------
BASIC AND DILUTED
LOSS PER COMMON
SHARE $ (0.03) $ (0.09) $ (0.07) $ (0.14)
========== ========== ========== ==========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 6,501,217 4,456,000 6,132,522 4,445,130
========== ========== ========== ==========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
December 31, 1999 and 1998
(Unaudited)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (432,827) $ (638,323)
Adjustments to reconcile net loss to
net cash provided (used) by operating
activities
Depreciation and depletion 64,914 84,977
Dry holes, abandoned and impaired
properties 24,257 186,889
Non-cash compensation expense 2,319 -
(Increase) decrease in accounts
receivable (62,248) (10,620)
(Increase) decrease in related party
receivable 18,436 338,833
(Increase) in other current assets (309) (9,524)
Increase in accounts payable, trade 94,762 333,713
Increase in accrued liabilities 34,134 1,281
(Decrease) in accounts payable to related
party (1,174) -
----------- -----------
Net cash provided (used) by operating
activities (257,736) 287,226
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/acquisition of
properties (3,439,055) (1,194,514)
Redemption (purchase) of short-term
investments, net (299,480) 1,039,678
----------- -----------
Net cash used by investing activities (3,738,535) (154,836)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock net of offering proceeds 4,831,214 -
Payments on lease obligations (4,631) -
----------- -----------
Net cash provided by financing
activities 4,826,583 -
----------- -----------
Net increase in cash and cash
equivalents 830,312 132,390
Cash and cash equivalents at the
beginning of the period 394,980 372,194
----------- -----------
Cash and cash equivalents at the
end of the period $ 1,225,292 $ 504,584
=========== ===========
SELECTED NON CASH ACTIVITIES:
Total property acquisitions $ 4,222,148 $ 1,203,889
Common stock issued to acquire
property - (9,375)
Lease obligation used to acquire
property (12,350) -
Accounts payable used to acquire
property (770,743) -
----------- -----------
Net cash used to acquire property $ 3,439,055 $ 1,194,514
=========== ===========
Cash paid for interest $ 371 $ -
----------- -----------
</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, 1999.
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, 1999,
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.
2. In December 1999 the Company completed a private offering of 950,000
shares of its common stock at $2.70 per share. Net proceeds to the
Company were $2,532,176 after offering and related expenses of
$32,824. The private placement of shares provided the Company with
resources to drill the Greens Canyon 29-2 test well on the Greens
Canyon Prospect. The shares sold in the offering were sold to
offshore purchasers in accordance with SEC Regulation S but the
Company has since registered the shares with the SEC on Form S-3 for
resale in the United States.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
- -------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At December 31, 1999, the Company had working capital of $827,935. This
compares to the Company's working capital of $560,207 as of June 30, 1999.
The increase in working capital of $267,728 was a result of a private
placement of the Company's stock in December 1999, less amounts expended
on drilling and operating activities.
Net cash used by operating activities was $257,736 for the six months
ended December 31, 1999, a decrease of $544,962 over cash provided from
operations of $287,226 for the same period in 1998. Operating cash flows
decreased during the period as a result of the Company's net loss for the
six month period. The Company's accounts receivable increased $62,248, or
56%, to $173,128 during the period as compared to an increase of $10,620,
or 6%, for the same period in 1998. The increase in receivables is
primarily due to higher oil and gas prices received during the period.
Amounts due from related party decreased $18,436 to $41,570 during the six
month period. The decrease is a result of joint interest billing payments
made by Victoria Petroleum USA, Inc. The Company's accounts payable trade
increased $94,762, or 198%, to $142,514 during the period versus an
increase of $333,713, or 238%, a year ago. Accounts payable relating to
property acquisition costs were $770,743 as of December 31, 1999. All of
these costs relate to the development of the Greens Canyon Prospect in
Wyoming. The prospect costs are being capitalized in accordance with the
Company's historical accounting practices and therefore are reflected as
an investing activity on the Company's cash flow statement.
Net cash used by investing activities was $3,738,535 for the six months
ended December 31, 1999, versus cash used of $154,836 for the same period
in 1998. The decrease in cash flow from investing activities was
attributable to purchases by the Company of some short-term investments in
the amount of $299,480 and capital expenditures for property and equipment
of $3,439,055. Capital expenditures for the six months ended December 31,
1999 include $2,121,400 and $907,000 to drill and prepare for completion
the UPRC 27-3 and Greens Canyon 29-2 test wells in Wyoming. An additional
$111,500 was incurred on a 3D seismic study of the Greens Canyon Prospect
which will provide the Company with important information concerning
future developmental drilling on the Prospect. The Company also purchased
acreage in Fire Hold Canyon, a new Wyoming prospect for approximately
$200,000. Approximately $99,000 was expended during the period for office
equipment, software, and capital additions on various producing
properties.
Cash provided by financing activities was $4,826,583 for the current
period. The increase in cash from financing activities was a result of
the Company's private placement of 1,880,000 and 950,000 shares of its
common stock at $1.25 and $2.70 per share respectively, for gross proceeds
of $4,915,000 less offering and related expenses of $83,786. The Company
also leased geological software in the amount of $12,350 which requires
the Company to make eight quarterly payments of $1,667, including
interest, beginning July 1999 and maturing in July, 2001. The Company
made three payments on the lease obligation during the period.
RESULTS OF OPERATIONS
---------------------
Second Quarter Results
- ----------------------
The Company reported a loss of $215,875, or 3 cents per share, for the
three month period ended December 31, 1999. This compares with a loss of
$420,653, or 9 cents per share, for the same period a year ago. The
decrease in net loss versus a year ago is attributable to significantly
higher oil and gas revenues and lower overall expenses for the quarter
ended December 31, 1999.
The Company's revenues for the three months ended December 31, 1999 were
$321,090 compared to $220,064 during the same period of 1998, an increase
of $101,026, or 46%. Revenues from oil and gas sales were $278,521 for
the period ended December 31, 1999, an increase of $110,252, or 66%, as
compared to $168,269 for the same period in 1998. The increase in oil and
gas revenues was a result of significantly higher oil and gas prices
versus the year ago period. Interest income decreased $21,294, or 62%, to
$13,074 from $34,368 a year ago. The decrease in interest income is
attributable to the reduction of short-term investments, as these
investments have been liquidated to meet cash flow requirements. Other
income increased $12,068 to $29,495 during the period versus $17,427 a
year ago. Other income reflects overhead charged to the Company's San
Joaquin Joint Venture partner.
The Company's total revenues for the six month period ended December 31,
1999 were $617,276 as compared to $474,912 during the same period in 1998,
an increase of $142,364, or 30%. Revenue from oil and gas sales was
$539,928 for the six months ended December 31, 1999, an increase of
$165,238 or 44%, as compared to sales of $374,690 a year ago. The
increase in oil and gas sales was attributable to significantly higher oil
and gas prices versus the year ago period. Interest income declined to
$34,344 for the six months ended December 31, 1999 versus $61,723 a year
ago. The decrease of $27,379 or 44% is attributable to the reduction of
short-term investments, as investments have been liquidated to meet cash
flow requirements. Other income increased $4,055 or 12% to $43,004 for
the six months ended December 31, 1999 as compared to $38,499 a year ago.
The Company's total expenses for the second quarter decreased $103,752, or
16%, to $536,965 as compared to $640,717 a year ago. The reduction in
overall expenses is a result of lower dry hole and exploration expenses as
the Company reduced its activity in the San Joaquin Basin compared to the
year ago period.
Total expenses for the six months ended December 31, 1999 decreased
$63,132, or 6%, to $1,050,103 versus $1,113,235 a year ago. The reduction
in overall expenses is a result of lower exploration expenses and dry hole
costs as the Company has reduced its exploration activity in the San
Joaquin Basin, despite higher production and general expenses.
Production and operating expenses for the three month period increased
$57,289, or 50%, to $171,491 versus $114,202 for the same period a year
ago. The increase in production and operating expenses was due to higher
lease operating and workover costs on the Lake Boeuf SWDS well in
Louisiana, and higher lease operating costs associated with the Pierce and
Kaye Units in Wyoming.
For the nine months ended December 31, 1999, production and operating
expenses rose $88,408, or 49%, to $268,644 as compared to $180,236 a year
ago. Lease operating and workover costs increased on the Lake Boeuf SWDS,
Pierce and Kaye Units. Production taxes also increased from year ago
levels reflecting higher oil and gas prices received by the Company.
Exploration expenses for the quarter ended December 31, 1999 decreased
$83,431 or 52% to $77,607 from $161,038 a year ago. The decrease is
attributable to a reduction of the Company's emphasis on exploration in
the San Joaquin Basin, as it now is focusing on development of the Greens
Canyon Prospect in Wyoming.
For the six months ended December 31, 1999, exploration expenses decreased
$138,315, or 42% to $192,981 versus $331,296 a year ago. The decrease in
exploration expenses reflects the Company's emphasis on the Greens Canyon
development rather than the San Joaquin and international prospects a year
ago.
Dry holes, abandoned and impaired properties expenses for the second
quarter decreased $164,196, or 93%, to $12,096 from $176,292 a year ago.
The decrease from year ago levels was attributable to lower dry hole
expenses. During the period, the Company impaired certain international
permits at a cost of $12,096.
Dry holes, abandoned and impaired properties expense declined $168,273, or
87%, to $25,125 for the six months ended December 31, 1999 versus $193,398
a year ago. The decrease in dry hole expenses during the six month period
is attributable to the reduction in unsuccessful drilling activity by the
Company both domestically and internationally. During the period, the
Company impaired certain international permits at a cost of $25,125.
General and Administrative costs for the three months ended December 31,
1999 increased $81,514, or 50%, to $243,217 as compared to $161,703 for
the same period a year ago. The increase in expenses is attributable to
higher salaries for exploration associated with the Greens Canyon Project
and generally higher costs reflecting the increase in activity level at
the Company.
The Company's general and administrative expenses for the six months ended
December 31, 1999 increased $175,048, or 54%, to $498,376 as compared to
$323,328 a year ago. The increase for the six month period reflects the
increase in activity at the Company as a result of the Greens Canyon
Project. The Company anticipates that general and administrative expenses
will continue at this level for the foreseeable 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 AND USE OF PROCEEDS
On December 15, 1999, , the Registrant completed the
sale of 950,000 shares of its no par value Common Stock
pursuant to an offering by the Registrant under Regulation
S to qualified non-U.S. investors for an aggregate of
$2,565,000. An aggregate of $22,545 was paid in
commissions to one person for placement of the offering.
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 on
December 8, 1999, 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 LLP as the Company's
independent certified public accountants and auditors for
the year ending June 30, 2000. The meeting was then
adjourned until January 7, 2000 at which time the
shareholders approved an amendment to the Company's stock
option plan to increase the number of shares reserved under
the plan to 1,500,000 from 1,200,000.
There were 6,336,000 shares of the Company's Common
Stock issued and outstanding, of which 6,336,000 were
entitled to vote at the meeting. Of that number, 3,188,160
were present in person or by proxy at the meeting on
December 8, 1999. With respect to the election of
directors, the votes were as follows: Mr. Hoops -
3,185,066 in favor, 3,094 withheld; Mr. Pett - 3,185,066 in
favor, 3,094 withheld; Mr. Kopcheff - 3,185,066 in favor,
3,094 withheld; Mr. Nickerson - 3,185,066 in favor, 3,094
withheld and Mr. Syropoulo - 3,185,066 in favor, 3,094
withheld. The selection of KPMG LLP received a vote of
3,186,360 shares for, 150 against and 1,650 abstaining. At
the January 7, 2000 reconvened meeting, 3,340,273 were
present in person or by proxy. The amendment to the stock
option plan was approved, with 3,196,658 shares for,
140,301 against and 3,314 abstaining. Abstentions and
broker non-votes were counted for purposes of establishing
a quorum only. Only those votes cast for the election of
directors and the other proposals were counted as voted in
favor or affirmative votes.
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: February 14, 2000 /s/Timothy L. Hoops
------------------------------------
Timothy L. Hoops
President, Principal Executive
Officer, and Director
Date: February 14, 2000 /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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,225
<SECURITIES> 300
<RECEIVABLES> 215
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,827
<PP&E> 10,561
<DEPRECIATION> 3,022
<TOTAL-ASSETS> 9,366
<CURRENT-LIABILITIES> 999
<BONDS> 0
0
0
<COMMON> 17,982
<OTHER-SE> (9,615)
<TOTAL-LIABILITY-AND-EQUITY> 9,366
<SALES> 540
<TOTAL-REVENUES> 617
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (433)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (433)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
