<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 March 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: 0-12185
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 No X .
---- ----
The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of March 31, 1997, was 8,504,954.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The information required by this Item 1 appears on pages 11 through 13
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 the oil and
gas industry.
The Company has traditionally realized revenues from its oil and gas
operations. For the three month quarter ending March 31, 1997, the Registrant
drilled four natural gas wells and completed one natural gas well. This is in
contrast to the same period of 1996 when the Registrant drilled one natural gas
well and completed one natural gas well. The drilling performed in the first
quarter 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 one
well in the first quarter 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 the end of the
first quarter of 1997, thirteen wells have been drilled pursuant to this
contract. With the acquisition of Red River Hardwoods, Inc., the Company has
begun to see revenues from Red River's Lumber activities. Lumber products
generated by Red River are furniture dimension parts, architectural moulding
and hardwood 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. Also, on November 17, 1996, DPI
acquired 80% interest in Red River Hardwoods, Inc., a dimensional hardwood
manufacturing company.
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 quarter of 1997,
approximately 23% of the Company's revenues were
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derived from joint venture drilling. Natural gas and oil operations and revenues
accounted for 12% of the revenues. The Company has begun to see additional
revenues from Red River's activities. Manufacturing sales related to Red River
accounted for 65% of the revenues.
The Company plans to drill 15 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 March 31, 1997, DPI had
drawn $150,000 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 eleven
wells drilled that have not been connected to the gas gathering system.
Working capital for the period ending March 31, 1997, was a negative
$529,729 when compared to the same period in 1996, when working capital was a
negative $422,665.
During the first quarter 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 $27,846 from $151,818 to $179,664; accounts receivable
balances increased $199,069 from $545,979 to $745,048; and inventories increased
$508,225 from $79,542 to $587,767. Other current assets such as prepaids and
notes receivable decreased $466,711 from $499,351 to $32,640, 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 $268,429 to $1,545,119.
Current liabilities for the period was $2,074,848 compared to
$1,699,355 for the first quarter of 1996. The additional long term debt
currently payable relating to the acquisition of Red River Hardwoods accounted
for $259,967 of the increase.
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 in 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.
- - Sale of non revenue producing oil properties. The Company has entered
negotiations for the sale of 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
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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.
- - Addition funding for Red River Hardwoods, Inc. The Company has negotiated
additional inventory loans that will allow Red River to increase its
inventory, therefore, increasing its revenues.
RESULTS OF OPERATIONS
For the period ending March 31, 1997, the Company's gross revenues
increased to $1,281,087 from $407,093 for the same period in 1996. The Company
experienced a net loss of $142,737 in this period compared to a net loss of
$143,243 in the same period of 1996.
The Company's gross revenues were derived from drilling contract
revenues of $289,386 (23%); natural gas and oil operations and production
revenues of $155,867 (12%); and lumber sales and product manufacturing revenues
of $835,703 (65%).
The increase in gross revenues was attributable primarily to the
manufacturing revenues related to Red River Hardwoods. Contract revenues from
drilling activities increased by $250,837 from $38,549 in the first quarter of
1996 to $289,386 in the first quarter of 1997.
During the first quarter of 1997, total direct costs increased by
$712,447 to $1,065,188 compared to $352,741 in the first quarter of 1996. Direct
costs included Red River Hardwoods' expenses and drilling costs of four natural
gas wells. Depreciation and amortization increased by $12,694 to $69,343
primarily due to the acquisition of Red River Hardwoods.
The Company believes there are several factors that will increase
revenues for 1997. First, the prices received for natural gas produced are up
significantly over 1996's overall average price. Secondly, the natural gas
gathering system expansion planned for 1997 will dramatically increase Daugherty
Petroleum's ability to transport natural gas to the market. Thirdly, the
acquisition of Red River Hardwoods expands the Company's exploitation of natural
resources to hardwoods in Kentucky.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
(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 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).
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(b) Reports on Form 8-K.
--------------------
(c) Financial Statement Schedules.
------------------------------
No schedules are required as all information required has been
presented in the audited financial statements.
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: March 14, 1997
6
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ALASKA APOLLO RESOURCES, INC.
SUMMARY CONSOLIDATED BALANCE SHEET
(UNITED STATES DOLLARS)
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDING
31-MAR-96 31-MAR-97
--------- ---------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash 151,818 179,664
Short Term Investments 0 0
Account Receivable 545,979 745,048
Inventory 79,542 587,767
Prepaid Expenses 7,159 17,682
Intercompany and Other Receivable 492,192 0
Other Current 0 14,958
---------- ----------
Subtotal Current 1,276,690 1,545,119
MINING PROPERTY AND
RELATED EXPENDITURES-NET 11,235,129 11,231,247
OIL AND GAS PROPERTIES - NET 4,043,151 4,311,522
CAPITAL ASSETS 375,874 2,099,732
OTHER ASSETS
Deferred Tax Benefit 0 0
Bonds and Deposits 42,919 57,643
Related Party Receivable 99,288 55,557
Other Asset 0 270,488
---------- ----------
Subtotal Other Assets 142,207 383,688
---------- ----------
NOTES RECEIVABLE 13,740 0
GOODWILL (NET OF ACCUMULATED
AMORTIZATION OF $637,376) 1,342,174 1,467,293
INCORPORATION COSTS 428 0
---------- ----------
TOTAL ASSETS 18,429,393 21,038,601
========== ==========
LIABILITIES
-----------
CURRENT LIABILITIES
Bank Loan 148,207 52,000
Account Payable and Accrued Liabilities 1,332,690 1,495,287
Long Term Debt 218,458 478,425
Loans Payable 0 49,136
---------- ----------
Subtotal Current Liabilities 1,699,355 2,074,848
LONG-TERM DEBT 1,265,428 3,627,469
DEFERRED INCOME TAXES 8,890 0
NON-CONTROLLING INTEREST 0 8,638
---------- ----------
Subtotal Liabilities 2,973,673 5,710,955
SHAREHOLDER EQUITY
------------------
CAPITAL STOCK
Issued 20,068,190 20,395,470
Subscribed and to be Issued 0 125,000
Minority Interest
Current Period Earnings (143,243) (142,737)
Deficit (4,469,227) (5,050,087)
---------- ----------
Subtotal Shareholder Equity 15,455,720 15,327,646
TOTAL LIABILITIES AND SHAREHOLDER EQUITY 18,429,393 21,038,601
========== ==========
0 0
</TABLE>
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ALASKA APOLLO RESOURCES, INC.
SUMMARY CONSOLIDATED
STATEMENT OF PROFIT (LOSS)
(United States Dollars)
Unaudited
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDING
31-MAR-96 31-MAR-97
--------- ---------
<S> <C> <C> <C> <C>
REVENUE
Gross Revenues 407,093 100.0% 1,281,087 100.0%
Direct Costs 352,741 86.6% 1,065,188 83.1%
---------- ----------
Gross Profit 54,352 13.4% 215,899 16.9%
GENERAL AND ADMINISTRATIVE COSTS
Salaries and Wages 56,152 13.8% 82,716 6.5%
Consulting and Management Fees 3,555 0.9% 17,597 6.5%
Office and General 17,415 4.3% 19,923 1.6%
Legal 30,456 7.5% 28,355 2.2%
Travel and Entertainment 8,775 2.2% 11,524 0.9%
Shareholder and Investor Information 2,535 0.6% 549 0.0%
Advertising and Promotion 345 0.1% 13,789 1.1%
Property and Payroll Taxes 6,862 1.7% 7,571 0.6%
Insurance 10,844 2.7% 20,910 1.6%
Depreciation and Amortization 56,649 13.9% 69,343 5.4%
Engineering 0 0.0% 0 0.0%
Rent 7,800 1.9% 13,550 1.1%
Accounting and Audit 25,798 6.3% 21,155 1.7%
Repairs and Maintenance 2,400 0.6% 2,865 0.0%
Stock Exchange Fees 0 0.0% 0 0.0%
Trust and Stock Exchange Company Fees 0 0.0% 0 0.0%
Bad Debts 2,793 0.2
Gain/Loss on Sale of Equipment (13,845) -1.1%
---------- ----------
SUBTOTAL-G&A COSTS 229,586 56.4% 298,795 23.3%
Less: Interest and Other Expense (Income) (31,991) -7.9% 51,960 4.1%
---------- ----------
Income Before Tax and Extraordinary Items (143,243) -35.2% (134,856) -10.5
Income Tax Expense (Benefit) 0 0.0% 0 0.0%
Minority Portion (7,881) - 0.6%
---------- ----------
NET PROFIT (LOSS) FOR CURRENT PERIOD (143,243) -35.2% (142,737) -11.1
========== ==========
DEFICIT, beginning of period (4,469,227) (5,050,087)
DEFICIT, end of period (4,612,470) (5,192,824)
Shares Outstanding 7,742,710 8,504,954
Earnings Per Share ($0.02) ($0.02)
</TABLE>
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ALASKA APOLLO RESOURCES, INC.
CONSOLIDATED STATEMENT
OF CHANGE IN FINANCIAL POSITION
(United States Dollars)
Unaudited
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDING
31-MAR-96 31-MAR-97
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (Loss) (143,243) (142,737)
Minority Interest 0 7,881
Amortization, Depreciation, Depletion and Non-Cash Items 69,333 129,841
Change in Accounts Receivable (36,036) (52,720)
Change in Inventory 0 (7,452)
Change in Prepaid Expenses 4,262 (13,434)
Change in Accounts Payable and Accrued Expenses (18,383) 29,611
Change in Intercompany and Other Accounts Receivable (202,288) (4,135)
Change Other Current Assets 1,348 18,639
-------- --------
Net Cash From Operating Activities (325,007) (34,506)
FINANCING ACTIVITIES
Issue of Capital Stock 0 0
Change in Notes Payable (2,184) 0
Change in Loan Payable 351,442 139,751
-------- --------
Net Cash from Financing Activities 349,258 139,751
INVESTING ACTIVITIES
Change in Related Receivables 0 2,747
Change in Mining Properties (23,667) 0
Change in Oil and Gas Properties 14,757 (73,721)
Change in Capital Assets 11,909 0
Change in Other Assets (14,412) (125,697)
-------- --------
Net Cash From Investing Activities (11,413) (196,671)
CHANGE IN CASH 12,838 (91,426)
CASH, BEGINNING OF PERIOD 138,980 271,090
-------- --------
CASH, END OF PERIOD 151,818 179,664
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM 10-Q PERIOD ENDING MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 179,664
<SECURITIES> 0
<RECEIVABLES> 777,688
<ALLOWANCES> 0
<INVENTORY> 587,767
<CURRENT-ASSETS> 0
<PP&E> 19,493,482
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,038,601
<CURRENT-LIABILITIES> 2,074,848
<BONDS> 3,636,107
<COMMON> 20,520,470
0
0
<OTHER-SE> (5,192,824)
<TOTAL-LIABILITY-AND-EQUITY> 21,038,601
<SALES> 1,281,087
<TOTAL-REVENUES> 1,281,087
<CGS> 1,065,188
<TOTAL-COSTS> 1,065,188
<OTHER-EXPENSES> 303,883
<LOSS-PROVISION> 2,793
<INTEREST-EXPENSE> 51,960
<INCOME-PRETAX> (142,737)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142,737)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,737)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
