SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 2000
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.
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(Exact name of registrant as specified in its charter)
Colorado 84-0772451
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
999 18th Street, Suite 2490, Denver, CO 80202
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(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, 2000: 7,680,000
KESTREL ENERGY, INC.
AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
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Consolidated Balance Sheets as of September 30, 2000
and June 30, 2000 3
Consolidated Statements of Operations for the Three
Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2000 and 1999 5-6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
------- Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
------- Market Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
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Item 2. Changes in Securities 10
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Item 3. Defaults Upon Senior Securities 10
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Item 4. Submission of Matters to a Vote of Security Holders 10
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Item 5. Other Information 10
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Item 6. Exhibits and Reports of Form 8-K 10
-------
Signatures 11
PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
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KESTREL ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000
AND JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 2000 2000
---------------------------------------- ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 140,293 $ 502,034
Accounts receivable 182,353 181,075
Due from related party - 524
Other assets 26,381 31,560
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Total current assets 349,027 715,193
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PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties, successful
efforts method of accounting:
Unproved 353,027 353,027
Proved 11,322,408 10,933,518
Pipeline and facilities 777,729 772,164
Furniture and equipment 138,670 138,970
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12,591,834 12,197,679
Accumulated depreciation and depletion (2,865,052) (2,833,816)
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Net property and equipment 9,726,782 9,363,863
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Investment in related party 1,677,403 2,191,403
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$11,753,212 $12,270,459
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $ 558,704 $ 1,423,788
Related party 52,008 9,399
Accrued liabilities 315,254 30,837
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Total current liabilities 925,966 1,464,024
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Line of credit, bank 600,000 -
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STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value;
1,000,000 shares authorized,
none issued - -
Common Stock, no par value;
20,000,000 shares authorized,
7,680,000 and 7,680,000 issued and
outstanding at September 30, 2000 and
June 30, 2000, respectively 19,048,223 19,044,885
Accumulated deficit (8,306,977) (8,238,450)
Accumulated other comprehensive loss (514,000) -
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Total stockholders' equity 10,227,246 10,806,435
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$11,753,212 $12,270,459
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
KESTREL ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
REVENUE:
Oil and gas sales $ 352,680 $ 261,407
Interest 2,308 21,270
Other income 14,572 13,509
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TOTAL REVENUES 369,560 296,186
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COSTS AND EXPENSES:
Production and
operating expenses 122,041 97,153
Dry holes, abandoned
and impaired properties - 13,029
Exploration expenses 27,490 115,374
Depreciation and depletion 31,236 32,423
General and administrative 249,028 254,912
Interest expense 8,292 247
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TOTAL COSTS AND EXPENSES 438,087 513,138
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NET LOSS $ (68,527) $(216,952)
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NET LOSS PER
COMMON SHARE $ (0.01) $ (0.04)
========== ==========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 7,680,000 5,763,826
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
KESTREL ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (68,527) $ (216,952)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Dry holes, abandoned and impaired
properties - 12,128
Depreciation and depletion 31,236 32,423
Non cash compensation expense 3,338 2,319
(Increase) decrease in accounts
receivable relating to operations (1,278) (79,908)
(Increase) decrease in due from
related party 524 (65,546)
(Increase) decrease in other
current assets 5,179 (3,429)
Increase (decrease) in accounts
payable, trade (865,084) 29,009
Increase (decrease) in accounts
payable, related party 42,609 (154)
Increase (decrease) in accrued
liabilities 21,917 986
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Net cash used in operating activities (830,086) (289,124)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/acquisition
of properties (131,655) (718,432)
Purchase of short-term investments - (1,094,292)
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Net cash used in investing activities (131,655) (1,812,724)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock, net of offering costs - 2,299,038
Payments on lease obligations - (3,088)
Net borrowings on line of credit 600,000 -
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Net cash provided by financing
activities 600,000 2,295,950
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Net increase (decrease) in cash and
cash equivalents (361,741) 194,102
Cash and cash equivalents at the
beginning of the period 502,034 394,980
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Cash and cash equivalents at the
end of the period $ 140,293 $ 589,082
=========== ===========
SELECTED NON CASH ACTIVITIES:
Total property acquisitions $ 394,155 $ 1,130,119
Lease obligation used to acquire
property - (12,350)
Common stock used to acquire
property - -
Accounts payable and accrued expenses
used to acquire property (262,500) (399,337)
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Net cash used to acquire property $ 131,655 $ 718,432
=========== ===========
Cash paid for interest $ 8,292 $ 247
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
KESTREL ENERGY, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. Management Opinion
These condensed financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2000.
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,
2000, 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. Investment in Related Party
On May 5, 2000, the Company sold six international permits with a net
book value of $143,179 for petroleum drilling in Western Australia
and New Guinea to Victoria Petroleum USA, Inc. (VP/USA), a Colorado
corporation and wholly owned subsidiary of VP, in exchange for
8,250,000 shares of VP Common Stock.
Also, on May 5, 2000, KEC, VP and VP/USA entered into an Agreement
and Plan of Merger (Merger Agreement). Pursuant to the Merger
Agreement, on May 12, 2000, the Company, as sole shareholder of KEC,
acquired 66,750,000 shares of VP Common Stock and VP/USA acquired all
of the issued and outstanding shares of KEC through a merger of KEC
into VP/USA, with KEC as the surviving corporation.
The investment in VP Common Stock is classified as available-for-
sale. Net unrealized gains and losses on the investment are recorded
to Other Comprehensive Income or Loss. At September 30, 2000, the
unrealized loss on the investment was $514,000. There were no
unrealized holding losses at June 30, 2000. There were no proceeds,
realized gains, or realized losses from the sales of investments for
the three months ended September 30, 2000 or 1999.
3. Line of Credit
On February 21, 2000, the Company entered into a $2,000,000 Line of
Credit agreement with Wells Fargo Bank West N.A., which provided the
Company a borrowing base of $600,000 with interest at Wells Fargo
prime rate plus 2.5%. On September 27, 2000, the Company and Wells
Fargo amended the Line of Credit Agreement to provide the Company a
borrowing base of $2,000,000 and reduced the interest rate to 1.5%
over prime. The increase in borrowing base resulted from the
substantial increase in the Company's proved reserves as of the June
30, 2000 reserve report. The note is due October 31, 2001, and is
secured by Deeds of Trust on various oil and gas producing properties
held by the Company. As of September 30, 2000, $600,000 was
outstanding on the line of credit.
ITEM 2. Management's Discussion and Analysis of Financial Condition
------- and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 2000, the Company had a working capital deficit of
$576,939. This compares to the Company's working capital deficit of
$748,831 as of June 30, 2000. The decrease in working capital deficit of
$171,892 was a result of higher oil and gas sales and borrowings on the
Company's line of credit less amounts expended on drilling and completion
of the Turner 3-14 in Oklahoma and Greens Canyon wells in Wyoming. The
Company plans to fund the working capital deficit at September 30, 2000 by
drawing on its line of credit, utilizing revenues from oil and gas sales,
and obtaining additional trends from other sources as necessary.
Net cash used by operating activities was $830,086 for the three months
ending September 30, 2000, an increase of $540,962 over cash used by
operations of $289,124 for the same period in 1999. Operating cash flows
decreased during the first quarter due to the payment of accounts payable
previously incurred. The Company's accounts receivable increased $1,278,
or 10%, to $182,353 during the period as compared to an increase of
$79,908, or 72%, for the same period in 1999. The Company's accounts
payable trade decreased $865,084, or 61%, to $558,704 during the period
versus an increase of $29,009, or 61%, a year ago. Accounts payable,
related party increased $42,609 to $52,008 during the first quarter of
fiscal 2001. The increase was a result of a cash advance from the related
party which the Company will offset with overhead charges and expenses for
the use of Company office space and personnel. Accrued expenses increased
$284,417 to $315,254 during the period compared to an increase of $986 a
year ago. The increase is primarily due to the Company's accrual of
$262,500 for the drilling and completion of the Turner 3-14 well in Amber
County, Oklahoma. The well was completed on September 27, 2000, but
invoices relating to the costs to complete the well have not yet been
received.
Net cash used by investing activities was $131,655 for the quarter ended
September 30, 2000, versus cash provided of $1,812,724 for the same period
in 1999. Capital expenditures during the period included $285,000 to
drill and complete the Turner 3-14 well in Amber County, Oklahoma. The
well was successfully completed and began producing gas in late September,
2000. The Company holds a 37.5% working interest in the well. The
Company expended approximately $94,000 to finish completing the Greens
Canyon 27-3, Greens Canyon 29-2 and Poitevent wells in Greens Canyon,
Wyoming. Additional costs included $15,000 to complete various coalbed
methane wells in the Hilight Field in Wyoming.
Cash provided by financing activities was $600,000 for the current
quarter. The increase in cash from financing activities was a result of
the Company accessing its line of credit at Wells Fargo Bank West, N.A. to
provide working capital during the period.
RESULTS OF OPERATIONS
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First Quarter Results
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The Company reported a loss of $68,527, or 1 cent per share, for the three
month period ended September 30, 2000. This compares with a loss of
$216,952, or 4 cents per share, for the same period a year ago. The loss
in the current period is a result of the Company's increased level of
general and administrative expenses and lower interest income, despite
higher oil and gas sales.
The Company's revenues for the three months ended September 30, 2000 were
$369,560 compared to $296,186 during the same period of 1999, an increase
of $73,374, or 25%. Revenues from oil and gas sales were $352,680 for the
quarter ended September 30, 2000, an increase of $91,273, or 35%, as
compared to $261,407 for the same period in 1999. The increase in oil and
gas revenues is attributable to higher oil and gas prices and higher gas
volumes compared to a year ago. Interest income decreased $18,962, or
89%, to $2,308 from $21,270 a year ago. The decrease in interest income
is attributable to the reduction in short-term investments from prior year
levels.
The Company's total expenses decreased $75,051, or 15%, to $438,087 as
compared to $513,138 a year ago. The decrease in overall expenses is
primarily due to lower exploration expenses incurred during the quarter.
Production and operating expenses increased $24,888, or 26%, to $122,041
versus $97,153 for the same period a year ago. The increase in production
and operating expenses was primarily due to higher lease operating
expenses on the Greens Canyon wells in Wyoming and higher production taxes
on the increased oil and gas revenue.
Dry holes, abandoned and impaired properties decreased $13,029, or 100%,
from $13,029 a year ago. The decrease from year ago levels was
attributable to the lack of an impairment expense in the current period.
Exploration expenses decreased $87,884, or 76%, to $27,490 from $115,374 a
year ago. The decrease is attributable to lower geological and
geophysical costs and delay rentals. The lower costs reflect a lower
activity level as the Company develops the Greens Canyon properties.
General and administrative costs decreased $5,884, or 2%, to $249,028 as
compared to $254,912 for the same period a year ago. The decrease in
expenses is not attributable to any particular expense item.
Interest expense increased $8,045 to $8,292 from $247 a year ago. The
increase in interest expense is due to the interest paid on the
outstanding balance of the Company's line of credit.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
-------
The Company does not invest in or hold market risk sensitive or interest
rate sensitive instruments. Until fiscal 2000, the Company did not invest
in or hold market risk sensitive or interest rate sensitive instruments
and the only currency exchange rate risk borne by the Company stemmed from
the Company's obligations to fund its international drilling in Australian
dollars. As of September 30, 2000, the Company owns 75,000,000 shares of
Victoria Petroleum, NL ("VP") Common Stock. The investment in VP Common
Stock is classified as available-for-sale. Net unrealized gains and
losses on the investment are recorded to Other Comprehensive Income or
Loss. The VP shares are traded publicly on the Australian stock exchange
and the price for which the Company could sell its VP shares, which are
quoted in prices denominated in Australian dollars, could be higher or
lower than the Company's cost. The Company no longer has currency
exchange risk relating to its own operations, as it no longer directly
participates in international drilling.
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
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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
10 Letter Amendment to Wells Fargo Bank West,
N.A. Agreement dated September 27, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
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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.
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(Registrant)
Date: November 14, 2000 /s/TIMOTHY L. HOOPS
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Timothy L. Hoops
President, Principal Executive
Officer, and Director
Date: November 14, 2000 /s/MARK A. BOATRIGHT
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Mark A. Boatright
Vice President - Finance,
Principal Financial and Accounting
Officer, and Director
EXHIBIT INDEX
NO. DESCRIPTION
10 Letter Amendment to Wells Fargo Bank West, N.A.
Agreement dated September 27, 2000
27 Financial Data Schedule
The foregoing exhibits have been filed herewith electronically
