<PAGE> 1
- --------------------------------------------------------------------------------
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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: 0-12185
ALASKA APOLLO RESOURCES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PROVINCE OF BRITISH COLUMBIA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
131 PROSPEROUS PLACE, SUITE 17
LEXINGTON, KENTUCKY 40509-1844
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (606) 263-3948
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. Yes X No .
--- ---
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF JUNE 30, 1997, WAS 9,535,269.
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The information required by this Item 1 appears on pages 8 through 10
of this Report, and is incorporated herein by reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In the fourth quarter of 1993, the Registrant acquired its wholly owned
subsidiary, Daugherty Petroleum, Inc. ("DPI"). Since the acquisition, the
Registrant has been aggressively (1) acquiring natural gas and oil properties in
southeastern and western Kentucky, (2) expanding its natural gas production
through joint ventures and drilling programs for its own account, and (3)
diversifying its revenue and asset base to include other segments of natural
resource industry.
The Company has traditionally realized revenues from its oil and gas
operations. For the six months ended June 30, 1997, the Registrant drilled seven
natural gas wells and completed four natural gas wells. This is in contrast to
the same period of 1996 when the Registrant drilled one natural gas well and
completed three natural gas wells. The drilling performed in the first six
months of 1997 is primarily related to a joint venture on the Registrant's
Farmout acreage from Equitable Resources Energy Corporation. Daugherty
Petroleum's interest in four wells on this tract was financed by a subsidiary of
Enron Capital & Trade Resources, Inc. In addition, DPI drilled and completed two
wells in the first six months of 1997 for a joint venture with Dominion
Resources, Inc. The wells drilled with Dominion Resources were drilled pursuant
to a 15 well drilling program signed in the second quarter of 1995. As of June
30, 1997, thirteen wells have been drilled pursuant to this contract. On
November 17, 1996, DPI acquired 80% interest in Red River Hardwoods, Inc., a
dimensional hardwood manufacturing company that produces furniture dimension
parts, architectural moulding and industrial flooring.
LIQUIDITY
The Company continues to acquire natural gas and oil properties in
southeastern and western Kentucky. DPI has provided the Company with a
diversified asset base which includes natural resources other than its
prospective gold and silver mining properties and has also increased the
Company's asset base. During 1996, management continued to invest in areas it
deemed critical in developing an infrastructure suitable to support its future
growth. These areas included ongoing expenses in management, professional and
operational personnel and other expenses deemed necessary to position the
Company for future acquisitions and financing.
Historically, the Company's revenues have been from its interests in
the producing natural gas and oil wells it operates and owns interest in, and
from its activities as "turnkey driller" and operator for various drilling
programs in its geographic area. In 1996, DPI reduced its dependence on
activities as "turnkey driller" for private investors and instead concentrated
on joint ventures with industry partners. During the first six months of 1997,
approximately 24% of the Company's revenues were derived from joint venture
drilling. Natural gas and oil operations and revenues accounted for 12% of the
revenues. The Company has also begun to see additional
2
<PAGE> 3
revenues from Red River's activities. Manufacturing sales related to Red River
accounted for 64% of the revenues.
The Company plans to drill 20 wells during 1997 and will attempt to
earn interests ranging from 12.5% to 50% interest in each well it drills.
During 1996, the Company held negotiations with several potential
financial institutions and investors with the intent of securing financing
necessary to provide credit facilities for the Company to support existing and
future capital requirements. In December, 1996, DPI signed a loan agreement with
a subsidiary of Enron Capital and Trade Resources, Inc., in the amount of
$340,000 providing financing for one well to be acquired and 50% of the drilling
and completion costs of four natural gas wells. As of June 30, 1997, DPI had
drawn $270,000 on the credit line. It is expected that, in addition to this
credit facility, DPI will acquire additional loans to develop its existing
natural gas leasehold interests. The Company will see increased natural gas
revenue when pipeline facilities are installed to allow gas flow from six wells
drilled that have not been connected to the gas gathering system.
Working capital as of June 30, 1997, was a negative $190,837, an
increase of $302,981 when compared to a negative $493,818 working capital at
June 30, 1996.
During the first six months of 1997, and compared to the same period in
1996, the major changes in the composition of the Company's current assets were:
cash balances increased $249,431 from $29,474 to $278,905; accounts receivable
balances increased $264,286 from $718,886 to $983,172; and inventories increased
$580,516 from $64,529 to $645,045. Other current assets such as prepaids and
notes receivable decreased $479,613 from $545,220 to $65,607, primarily due to
the acquisition of Red River Hardwoods and the resulting consolidation of Red
River's and Daugherty Petroleum's financial statements. The increase in
inventory balances was a result of the Company's acquisition of Red River during
the period. Overall, current assets increased by $614,620 to $1,972,729.
Current liabilities as of June 30, 1997, were $2,163,566, an increase
of $311,639, when compared to $1,851,927 as of June 30, 1996. The additional
long term debt currently payable relating to the acquisition of Red River
Hardwoods accounted for $88,425 of the increase of $311,639.
While management believes that the cash flow resulting in its operating
revenues will contribute significantly to its short-term financial commitments
and operating costs, its has developed a plan for the remainder of 1997 to meet
its financial obligations. The plan includes:
- Acquisition of revenue producing properties. In March, 1996, DPI
acquired working interests in 26 oil wells and six water injection
wells which contributed a net increase in revenues of $85,768 during
1996. DPI has made offers for two natural gas properties which
include producing gas wells with developmental acreage for drilling
additional wells.
3
<PAGE> 4
- Sale of non-revenue producing oil properties. The Company has
entered into a sale agreement for Niagara Oil, Inc. When
successfully completed, this transaction will result in a reduction
of debt service. In addition, the purchaser has agreed to contract
with Daugherty Petroleum for the development, enhancement, and
operation of these wells.
- Sale of real estate. The Company owns a maintenance shop in
Williamsburg, Kentucky. Management feels that the Company can be
better served by selling this facility and leasing more suitable
facilities closer to the Company's gas field in Knox County,
Kentucky. The sale of this facility will result in the reduction of
debt by $24,000, and debt service of $5,400 per year.
- Installation of additional natural gas gathering system. The Company
plans to expand its natural gas pipeline by 45,000 feet in 1997. The
extension will allow for substantially more natural gas to be
transported to market.
- Obtain addition funding for Red River Hardwoods, Inc. Management
believes additional funding will permit Red River increase inventory
and fund accounts receivable necessary to sustain substantially
increased sales.
RESULTS OF OPERATIONS
For the period ending June 30, 1997, the Company's gross revenues
increased to $2,546,280 from $742,551 for the same period in 1996. The Company
experienced a net loss of $545,692 in this period compared to a net loss of
$397,521 for the same period of 1996. $174,052 of the loss for the period ended
June 30, 1997, was a result of the sale of natural gas wells that were not
connected to Daugherty Petroleum's gathering system.
The Company's gross revenues were derived from drilling contract
revenues of $614,475 (24%); natural gas and oil operations and production
revenues of $310,642 (12%); and lumber sales and product manufacturing revenues
of $1,621,163 (64%).
The increase in gross revenues was attributable primarily to the
manufacturing revenues related to Red River Hardwoods. Contract revenues from
drilling activities increased by $392,413 from $222,062 in the first six months
of 1996 to $614,475 in the first six months of 1997, an increase of 176.7%.
During the first six months of 1997, total direct costs increased by
$1,478,371 to $2,021,728 compared to $543,357 in the first six months of 1997.
Direct costs included Red River Hardwoods' expenses and drilling costs for
natural gas wells. Depreciation and amortization increased by $28,797 to
$138,685 primarily due to the acquisition of Red River Hardwoods.
The Company believes there are three key factors that will increase
revenues for the remainder of 1997. First, the prices received for natural gas
produced are up significantly over
4
<PAGE> 5
1996's overall average price. Second, the natural gas gathering system expansion
planned for 1997 will dramatically increase Daugherty Petroleum's ability to
transport natural gas to the market. Third, the acquisition of Red River
Hardwoods expands the Company's involvement in Kentucky natural resources to
include hardwoods.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Documents Filed with this Report.
-----------------------------------------
Pages
(1) Financial Statements, Alaska Apollo Resources Inc., and
subsidiary companies--
Consolidated Balance Sheet
for the period ended June 30, 1997 8
Consolidated Statement of Profit (Loss)
for the period ended June 30, 1997 9
Consolidated Statement of Cash Flow
for the period ended June 30, 1997 10
All schedules have been omitted since the information required to be
submitted has been included in the financial statements or notes or has been
omitted as not applicable or not required.
(2) Exhibits--
The exhibits indicated by an asterisk (*) are incorporated by
reference.
Exhibit
Number Description of Exhibit
------ ----------------------
3(a)* Memorandum and Articles for Catalina Energy & Resources
Ltd., a British Columbia corporation, dated January 31,
1979, filed as an exhibit to Form 10 Registration Statement
filed May 25, 1984. File No. 0-12185.
3(b)* Certificate for Catalina Energy & Resources Ltd., a British
Columbia corporation, dated November 27, 1981, changing the
name of Catalina
5
<PAGE> 6
Energy & Resources Ltd. to Alaska Apollo Gold Mines Ltd.,
and further changing the authorized capital of the Company
from 5,000,000 shares of common stock, without par value per
share, to 20,000,000 shares of common stock, without par
value per share, filed as an exhibit to Form 10 Registration
Statement filed May 25, 1984. File No. 0-12185.
3(c)* Certificate of Change of Name for Alaska Apollo Gold Mines
Ltd., a British Columbia corporation, dated October 14,
1992, changing the name of Alaska Apollo Gold Mines Ltd. to
Alaska Apollo Resources Inc., and further changing the
authorized capital of the Company from 20,000,000 shares of
common stock, without par value per share, to 6,000,000
shares of common stock, without par value per share.
3(d)* Altered Memorandum of Alaska Apollo Resources Inc., a
British Columbia corporation, dated September 9, 1994,
changing the authorized capital of the Company from
6,000,000 shares of common stock, without par value per
share, to 20,000,000 shares of common stock, without par
value per share.
4* See Exhibit No. 3(a).
10(a)* Alaska Apollo Resources Inc. 1997 Stock Option Plan
10(b)* Incentive Stock Option Agreement by and between Alaska
Apollo Resources Inc. and William S. Daugherty dated March
7, 1997.
10(c)* Warrant Agreement by and between Alaska Apollo Resources
Inc. and Jayhead Investments Limited dated March 7, 1997.
10(d)* Warrant Agreement by and between Alaska Apollo Resources
Inc. and Trio Growth Trust dated March 7, 1997.
10(e)* Warrant Agreement by and between Alaska Apollo Resources
Inc. and Exergon Capital S.A. dated March 7, 1997.
21 Subsidiaries of the Company:
- Niagara Oil, Inc., a Kentucky corporation
- Daugherty Petroleum, Inc., a Kentucky corporation
- Red River Hardwoods, Inc., a Kentucky corporation
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
<PAGE> 7
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 of the
undersigned hereunto duly authorized.
ALASKA APOLLO RESOURCES INC.
By: /s/ William S. Daugherty
----------------------------
William S. Daugherty, President
Dated: August 14, 1997
7
<PAGE> 8
<TABLE>
<CAPTION>
ALASKA APOLLO RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(UNITED STATES DOLLARS)
UNAUDITED
FOR THE SIX MONTH PERIOD ENDING
30-JUN-96 30-JUN-97
--------- ---------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash $ 29,474 $ 278,905
Account Receivable 718,886 983,172
Inventory 64,529 645,045
Prepaid Expenses 7,159 12,644
Intercompany and Other Receivable 538,061 0
Other Current 0 52,963
------------ ------------
Subtotal Current 1,358,109 1,972,729
MINING PROPERTY AND
RELATED EXPENDITURES-NET 11,250,790 11,252,733
OIL AND GAS PROPERTIES - NET 3,977,405 3,772,372
CAPITAL ASSETS 293,487 2,099,674
OTHER ASSETS
Deferred Tax Benefit 0 0
Bonds and Deposits 42,919 68,282
Related Party Receivable 110,324 54,442
Other Assets 0 322,108
------------ ------------
Subtotal Other Assets 153,243 444,832
NOTES RECEIVABLE 0 0
GOODWILL (NET OF ACCUMULATED
AMORTIZATION OF $689,993) 1,297,435 1,414,676
INCORPORATION COSTS 0 0
------------ ------------
TOTAL ASSETS $ 18,330,469 $ 20,957,016
============ ============
LIABILITIES
-----------
CURRENT LIABILITIES
Bank Loan $ 106,207 $ 42,000
Account Payable and Accrued Liabilities 1,467,204 1,581,817
Long Term Debt 278,516 493,425
Loans Payable 0 46,324
------------ ------------
Subtotal Current Liabilities 1,851,927 2,163,566
LONG-TERM DEBT 1,247,921 3,717,265
DEFERRED INCOME TAXES 8,890 0
NON-CONTROLLING INTEREST 0 1,503
------------ ------------
Subtotal Liabilities 3,108,738 5,882,334
SHAREHOLDER EQUITY
------------------
CAPITAL STOCK
Issued 20,068,190 20,670,461
Current Period Earnings (397,521) (545,692)
Deficit (4,448,938) (5,050,087)
------------ ------------
Subtotal Shareholder Equity 15,221,731 15,074,682
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER EQUITY $ 18,330,469 $ 20,957,016
============ ============
</TABLE>
Unaudited - Internally Prepared by Company Mangement
8
<PAGE> 9
<TABLE>
ALASKA APOLLO RESOURCES, INC.
CONSOLIDATED STATEMENT OF PROFIT (LOSS)
(UNITED STATES DOLLARS)
UNAUDITED
<CAPTION>
FOR THE SIX MONTH PERIOD ENDING
30-JUN-96 30-JUN-97
--------- ---------
<S> <C> <C> <C> <C>
REVENUE
GROSS REVENUES $ 742,551 100.0% $2,546,280 100.0%
Direct Costs 543,357 73.2% 2,021,728 79.4%
----------- ----- ---------- -----
GROSS PROFIT 199,194 26.8% 524,552 20.6%
GENERAL AND ADMINISTRATIVE COSTS
Salaries and Wages 117,868 15.9% 173,766 6.8%
Consulting and Management Fees 39,404 5.3% 87,407 3.4%
Office and General 38,094 5.1% 48,395 1.9%
Legal 124,445 16.8% 126,063 5.0%
Travel and Entertainment 23,477 3.2% 30,376 1.2%
Shareholder and Investor Information 64,369 8.7% 29,345 1.2%
Advertising and Promotion 5,877 0.8% 21,979 0.9%
Property and Payroll Taxes 12,002 1.6% 16,583 0.7%
Insurance 17,878 2.4% 39,239 1.5%
Depreciation and Amortization 109,888 14.8% 138,685 5.4%
Rent 15,915 2.1% 43,900 1.7%
Accounting and Audit 51,297 6.9% 14,271 0.6%
Repairs and Maintenance 8,182 1.1% 4,298 0.2%
Licenses and Fees 4,486 0.6% 3,352 0.1%
Bad Debt 0 6,619 0.3%
----------- ----- ---------- -----
SUBTOTAL-G&A COSTS 633,182 85.3% 784,278 30.8%
Gain (Loss) on Asset Sales 0 0.0% (174,052) -6.8%
Interest and Other Income (Expense) 36,467 4.9% (111,168) -4.4%
----------- ----- ---------- -----
INCOME BEFORE TAX (397,521) -53.5% (544,946) -21.4%
Income Tax Benefit (Expense) 0 0.0% 0 0.0%
MINORITY PORTION 0 0.0% (746) -0.0%
----------- ----- ---------- -----
NET PROFIT (LOSS) FOR CURRENT PERIOD (397,521) -53.5% (545,692) -21.4%
===== =====
DEFICIT, beginning of period (4,448,938) (5,050,087)
----------- ----------
DEFICIT, end of period $(4,846,459) $(5,595,779)
=========== ===========
Shares Outstanding 7,742,710 9,535,269
EARNINGS PER SHARE $ (0.05) $ (0.06)
=========== ===========
</TABLE>
9
<PAGE> 10
<TABLE>
ALASKA APOLLO RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(UNITED STATES DOLLARS)
UNAUDITED
<CAPTION>
FOR THE SIX MONTH PERIOD ENDING
30-JUN-96 30-JUN-97
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $(397,521) $(545,692)
Minority Interest 0 746
Amortization, Depreciation, Depletion and Non-Cash Items 151,534 257,303
Change in Accounts Receivable (208,943) (290,844)
Change in Inventory 0 (64,730)
Change in Prepaid Expenses 4,262 (8,396)
Change in Accounts Payable and Accrued Expenses 116,131 116,141
Change in Intercompany and Other Accounts Receivable (248,157) 0
Change Other Current Assets 16,361 (19,366)
--------- ---------
Net Cash From Operating Activities (566,333) (554,838)
FINANCING ACTIVITIES
Issue of Capital Stock 0 149,991
Change in Notes Payable 12,058 (15,000)
Change in Loan Payable 333,935 242,600
--------- ---------
Net Cash from Financing Activities 345,993 377,591
INVESTING ACTIVITIES
Change in Related Receivables 0 3862
Change in Resource Properties (39,328) (21,486)
Change in Oil and Gas Properties 38,857 432,323
Change in Capital Assets 73,886 (41,681)
Change in Other Assets (25,448) (187,956)
Change in Note Receivable 17,556 0
Change in Retained Earnings 45,311 0
--------- ---------
Net Cash From Investing Activities 110,834 185,062
--------- ---------
CHANGE IN CASH (109,506) 7,815
CASH, BEGINNING OF PERIOD 138,980 271,090
--------- ---------
CASH, END OF PERIOD $ 29,474 $ 278,905
========= =========
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q PERIOD
ENDING 6/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 278,905
<SECURITIES> 0
<RECEIVABLES> 1,048,779
<ALLOWANCES> 0
<INVENTORY> 645,045
<CURRENT-ASSETS> 1,972,729
<PP&E> 18,984,287
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,957,016
<CURRENT-LIABILITIES> 2,163,566
<BONDS> 3,718,768
<COMMON> 20,670,461
0
0
<OTHER-SE> (5,595,779)
<TOTAL-LIABILITY-AND-EQUITY> 20,957,016
<SALES> 2,546,280
<TOTAL-REVENUES> 2,546,280
<CGS> 2,021,728
<TOTAL-COSTS> 2,021,728
<OTHER-EXPENSES> 952,457
<LOSS-PROVISION> 6,619
<INTEREST-EXPENSE> 111,168
<INCOME-PRETAX> (545,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (545,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (545,692)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
