US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly report pursuant section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 1999
Commission file number: 000-29722
Aurora Energy, Ltd.
(Exact name of small business issuer as
specified in its charter)
NEVADA 91-1780941
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
3760 N. US-31 South, Traverse City, MI 49684
(Address of principal executive offices)
(616) 941-0073
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or
15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of ech of the
issuer's classes of common equity, as of the latest
practicable date: 8,691,697
Transitional Small Business Disclosure Format
(check one); Yes No X
<PAGE>
Form 10-QSB for the period ended June 30, 1999
Part I, Item 1
AURORA ENERGY, LTD. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
ASSETS 1999 1998
<S> <C> <C>
Current assets
Cash and cash equivalents $ 178,099 $ 13,967
Accounts receivable 260,141 415,732
Prepaid expenses 3,266 9,802
Total current assets 441,506 439,501
Oil and gas properties, using full cost accounting
Properties not subject to amortization 1,459,031 1,818,043
Properties being amortized 1,229,777 233,831
Total 2,688,808 2,051,874
Less accumulated amortization 57,853 25,379
Oil and gas properties, net 2,630,955 2,026,495
Investment in oil and gas partnerships 29,401 138,026
Property and equipment, net 59,663 60,592
Total assets $ 3,161,525 $ 2,664,614
</TABLE>
See accompanying notes.
<TABLE>
Unaudited
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
Current liabilities
Accounts payable $ 889,637 $ 626,074
Program designated funds 52,915 --
Current portion of capital lease
obligations 61,284 14,739
Short-term bank borrowings 720,000 610,000
Accrued expenses 50,261 23,212
Total current liabilities 1,774,097 1,274,025
Capital lease obligations, net of current portion 303,770 19,087
Notes payable - affiliates 136,640 --
Total liabilities 2,214,507 1,293,112
Stockholders' equity
Common stock, $.001 par value; 500,000,000
shares authorized; 8,691,697 shares issued
and outstanding 8,692 8,692
Additional paid-in capital 1,869,073 1,869,073
Accumulated deficit (930,747) (506,263)
Total stockholders' equity 947,018 1,371,502
Total liabilities and stockholders' equity $ 3,161,525 $ 2,664,614
</TABLE>
See accompanying notes.
AURORA ENERGY, LTD. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales $ 33,767 $ 6,923 $ 65,162 $ 7,527
Equity in loss of
investee partnerships (134,334) (4,160) (139,476) (50,509)
Interest income 692 3,501 1,790 11,043
Other revenue 14,030 5,487 38,381 2,091
Total revenues (85,845) 11,751 (34,143) (29,848)
Expenses
General and administrative 120,330 117,111 220,830 264,307
Production and lease operating 35,041 4,055 79,008 6,578
Depreciation and amortization 20,886 1,978 37,220 4,174
Interest 34,233 2,385 53,283 3,883
Total expenses 210,490 125,529 390,341 278,942
Net loss $ (296,335) $(113,778) $ (424,484) $(308,790)
Net loss per basic and
diluted common share $ (.03) $ (.01) $ (.05) $ (.04)
</TABLE>
See accompanying notes.
AURORA ENERGY, LTD. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Totals
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1998 8,691,697 $ 8,692 $1,869,073 $ (506,263) $1,371,502
Net loss for the
three months
ended March 31, 1999 -- -- -- (128,149) (128,149)
Balance at March 31,
1999 8,691,697 $ 8,692 $1,869,073 $ (634,412) $1,243,353
Net loss for the
three months
ended June 30, 1999 -- -- -- (296,335) (296,335)
Balance at June 30,
1999 8,691,697 $ 8,692 $1,869,073 $ (930,747) $ 947,018
</TABLE>
See accompanying notes
AURORA ENERGY, LTD. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (424,484) $ (308,790)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 37,220 4,174
Equity in loss of investee partnership 139,476 50,509
Changes in operating assets and
liabilities, net of effects in 1999
from purchase of Consolidated
Exploration Co., LLC and Indigas, LLC:
Accounts receivable 155,602 (27,250)
Prepaid expenses 6,536 4,806
Accounts payable 263,563 (23,425)
Accrued expenses 27,049 3,435
Net cash provided by (used in) operating
activities 204,962 (296,541)
Cash flows from investing activities
Capital expenditures for oil and gas
properties (1,153,565) (465,045)
Capital expenditures for investee partnerships -- (82,773)
Proceeds from sale of oil and gas properties 436,968 --
Cash acquired from purchase of Consolidated
Exploration Co., LLC and Indigas, LLC 104,656 --
Capital expenditures for property and equipment (117) (6,950)
Net cash used in investing activities (612,058) (554,768)
Cash flows from financing activities
Proceeds from the sale of common stock -- 198,450
Short term bank borrowings 110,000 220,000
Proceeds of capital lease cash draws 350,000 --
Advances from investors -- 49,500
Advances from affiliates 130,000 --
Payments to investors -- (89,000)
Payments made to reduce capital lease
obligations (18,772) (4,495)
Net cash provided by financing activities 571,228 374,455
Net increase (decrease) in cash and cash
equivalents 164,132 (476,854)
Cash and cash equivalents, beginning of period 13,967 518,408
Cash and cash equivalents, end of period $ 178,099 $ 41,554
</TABLE>
See accompanying notes.
AURORA ENERGY, LTD. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Consolidated Balance Sheets as of June 30,
1999 and December 31, 1998, the Consolidated
Statements of Operations for the three and six
month periods ending June 30, 1999 and June 30,
1998, the Consolidated Statement of Changes in
Stockholders' Equity and the Consolidated
Statements of Cash Flows for the six month
periods ended June 30, 1999 and June 30, 1998
have been prepared by the Company. In the
opinion of management, all adjustments (which
include only reclassifications and normal recurring
accruals) necessary to present fairly the balance
sheet, results of operations, changes in stockholders'
equity, and cash flows at June 30, 1999 and for all
periods presented, have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in
conjunction with the financial statements and notes
thereto included in the Company's 1998 Annual Report.
The results of operations for the three-month and
six-month period ended June 30, 1999 are not necessarily
indicative of the operating results for the full year.
2. ACCOUNTING AND FINANCIAL REPORTING
As of the first quarter of 1999, the Company no longer
considers itself in the developmental stage. The Paxton
Quarry Project, of which the Company owns a 29% working
interest, began revenue distributions during the
aforementioned quarter. As this project is part of the
planned principal operations of the Company, development
stage presentation of accounting data is no longer
necessary.
3. LOSS PER SHARE
Loss per share is computed at June 30, 1999 and June 30,
1998 using the weighted average number of common shares
outstanding during the period (8,691,697 and 8,579,842
respectively) determined pursuant to Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share". This Statement requires a dual presentation
and reconciliation of "basic" and "diluted" per share
amounts. Diluted reflects the potential dilution of all
common stock equivalents. Since the assumed exercise of
common stock options would be antidilutive, such exercise
is not assumed for purposes of determining diluted loss
per share. Accordingly, diluted and basic per share
amounts are equal.
<PAGE>
AURORA ENERGY, LTD. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Effective January 1, 1999, the Company acquired from
principals William Deneau and John Miller, Jr., 100%
of their membership interests in Consolidated Exploration
Co, LLC (Conexco) and Indigas Energy, LLC (Indigas) in
exchange for the issuance of 1.44% overriding royalty
interests in the Company's Crossroads Project. Since the
purchased entities were wholly owned by Deneau and Miller,
and thus remained under the same control after acquisition
by the Company as before acquisition, the acquisitions
were accounted for at book values in a manner similar
to a pooling of interests. Notes payable of $3,320 each
were issued to Deneau and Miller which equaled the net
book value of the purchased entities and quantified the
value of the royalty interests.
The following presents the balance sheets of Conexco
and Indigas as of the date of their acquisition by the
Company at January 1, 1999:
<TABLE>
<CAPTION>
(Unaudited)
Conexco Indigas
ASSETS January 1, 1999 January 1, 1999 Totals
<S> <C> <C> <C>
Current assets
Cash $ 88,004 $ 16,652 $ 104,656
Accounts receivable -- 703 703
Total current assets 88,004 17,355 105,359
Other assets
Organizational costs (net) 32 -- 32
Total assets $ 88,036 $ 17,355 $ 105,391
LIABILITIES
Program designated funds
(equals total liabilities) $ 82,100 $ 16,651 $ 98,751
Member's equity:
Membership contributions 500 500 1,000
Distributions (91,967) (18,800) (110,767)
Retained earnings 97,403 19,004 116,407
Total member's equity 5,936 704 6,640
Total liabilities and
member's equity $ 88,036 $ 17,355 $ 105,391
</TABLE>
<PAGE>
Form 10-QSB for the three-month period ended
June 30, 1999
Part I, Item 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
During the second quarter of 1999, the Company has
continued its emphasis on bringing ongoing exploration
projects to fruition. In that regard, the Paxton
Quarry project, which began revenue distributions
during the first quarter of this year, and of which
the Company owns a 29% working interest, continues to
flow gas, though at a lower rate than the Company
expected. Gross revenues from Paxton Quarry totaled
$34,615 for the first two quarters, with $ 17,156
allocable to the second quarter. The other major source
of oil and gas revenue was the Lodgepole projecft that
contributed $7,567 in the first quarter and $5,834 in the
second quarter before being sold. Oil and gas revenues
from the same period of 1998 were primarily from the
Lodgepole and the Merrick Estate #1. The Merrick well
has not contributed to the 1999 revenues as it has been
shut in since February of 1999. The initial phase of the
Crossroads project in Ohio was completed and began
deliveries of gas the first week in July. The Company
owns a 50% working interest in the Crossroads Project
and is the operator. Other 1999 oil and gas revenues
were provided by several Antrim projects of which the
Company owns working interests of less than 3%.
Over $134,000 of the loss recorded for Investee
partnerships in the second quarter was due to the
losses of Jet/LaVanway, of which the Company owns a
50% membership interest. The Company's share of
Jet/LaVanway's second quarter loss was over 45% of
Aurora's total loss for the quarter. Jet/LaVanway's
efforts to generate positive cash flows from the
Corydon Project required significant expenditures
that were not capitalized by Jet/LaVanway.
In April, Jet/LaVanway acquired from MCNIC a controlling
membership interest in Indiana Gathering, an Indiana
limited liability company. Indiana Gathering provides
processing and transportation services for the Corydon
Project. The purchase price of 1.2 million included
MCNIC's majority interest in the Corydon Project, and
related oil and gas leases and wells in the Corydon,
IN area. Payments against the purchase price are based
on the production of the Corydon Project. Costs that
Jet/LaVanway was forced to absorb in order to close the
purchse of Indiana Gathering also contributed to its
second quarter loss. The Company anticipates that
Jet/LaVanway's efforts at increasing production, the
rise in gas prices and gaining control of the processing
entity will all help generate positive cash flows from
the Corydon Project for the balance of the year.
The Company's other investee partnership, Aurora &
LaVanway, LLC had losses allocable the Company of less
than $250, and remains inactive.
Interest income totaled $3,501 as of June 30, 1999,
down just over $7,500 from the same period of 1998.
In 1998, the Company was earning interest on the bulk
of its uninvested proceeds of the 1997 private placement.
The Company has not had any large uncommitted cash
balances during 1999.
Other revenues were up from $2,091 at June 30, 1999 to
over $38,000 for the same period in 1999. Billings
for the operation of the Corydon Project contributed
$21,000 to this increase. The Company has been
more aggressive in billing affiliates and other
entities with which it does business for costs
incurred by the Company, but benefiting both parties.
Interest expense jumped from $19,050 in the first
quarter of 1999 to $34,233 in the second quarter.
The increase from the first quarter is due to
increased borrowings against the Company's line
of credit, and the beginning of payments on the
$350,000 in capital leases with Gage and
Major Gathering mentioned above.
Interest expense for the same period of 1998
was entirely due to capital leases associated
with the office furnishings and equipment
the Company took with Old Kent Leasing.
The Company's efforts at reducing general and
administrative expenses resulted in a 16.5%
reduction in those costs for the first six
months of 1999 from the same period of 1998.
The reduction in general and administrative
expenses were primarily a result of cutbacks
in travel, office supplies, office rents
and cell phone use, as well as, general
economizing and scrutiny of each expense
incurred. As the Company continues
to access its sources of credit, interest
expense has increased significantly,
up from $19,050 in the first quarter of
1999 to $34,223 in the second quarter.
The costs of production and lease
operating expenses exceeded the related
revenues by $12,572 in the first
quarter, while in the second quarter
the costs exceeded revenues by only
$1,274. The Company expects revenues
to exceed the directly associated costs
in the third and fourth quarters of 1999.
Liquidity and Capital Resources
The Company's financing efforts in the second
quarter of 1999 concentrated on procuring the
funds necessary to bring the Crossroads Project
on line. The final $100,000 of the $200,000
borrowed from Gage Leasing Company which was
used to finance the Crossroads facility and
gathering system was received April 15, 1999.
In addition, the Company sold its minority
working and royalty interests in the Lodgepole/
Stadium Field Project for $100,585 cash,
reducing the Company's interest in the project
to 0.0%.
The Company increased the line of credit available
from National City Bank from $750,000 to $850,000.
Management anticipates that the additional monies
will be used to pay for costs incurred in bringing
the Crossroads project to maximum production. As
of August 10, 1999 the Company has borrowed
$810,000 of the available line. Management
continues to search out the most cash efficient
methods of completing all of our drilling projects.
Total current liabilities increased from the first
quarter to the second quarter by $434,032 (32%) due
in large part to an increase in the line of credit
balance of $100,000 and an increase of $357,406
of Crossroads drilling, completion and facility
construction expenses invoiced in May and June
but not yet paid.
The Company borrowed $130,000 in cash from Jet
Exploration, Inc., an affiliated entity through
common ownership. The note is due and payable
on June 2, 2001. Interest at 6.0% is payable
quarterly. The money was used to pay for the
non-operating working interest in 66 Antrim
wells in Alcona/Alpena Counties in Michigan
acquired November 10, 1998 from Jet Exploration
1995-1, LLC an affiliated entity through
common ownership.
The Company contracted to acquire from affiliates
the interests in two small companies (Indigas Energy,
L.L.C. and Consolidated Exploration, L.L.C.) which
own and manage leaseholds in Indiana and Kentucky.
Approximately 200,000 acres of leasehold in a
primarily New Albany Shale prospect area were
acquired. Both entities are limited liability
companies. The acquisitions were effective
January 1, 1999.
Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934 provide a
"safe harbor" for forward-looking statements. Certain
information included herein contains statements that
are forward-looking, such as statements regarding
management's expectations about the company's reserves,
planned dates for commencement of exploration
operations, as well as other capital spending and
financing sources. Such forward-looking
information involves important risks and
uncertainties that could significantly affect
anticipated results in the future and, accordingly,
such results may differ from those expressed in
any forward-looking statements made herein. These
risks and uncertainties include, but are not limited
to, that relating to the market prices, production
rates, production costs, the availability of
financing, the ability to obtain all of the permits
necessary to put and keep projects in production,
and various development and construction activities.
Part II, Item 1
LEGAL PROCEEDINGS
There are no pending legal proceedings.
Part II, Item 2
CHANGES IN SECURITIES
There are no changes in securities.
Part II, Item 3
DEFAULTS UPON SENIOR SECURITIES
N/A
Part II, Item 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Matters submitted to a vote of security holders during
the second quarter of 1999 were presented at the Annual
Stockholders Meeting on May 17, 1999. Thomas W. Tucker,
William W. Deneau, John V. Miller, Jr., and Gary J.
Myles were properly nominated, seconded and by majority
vote elected as Directors of the corporation. Also
presented for a vote of the stockholders at the annual
meeting was the continued appointment of Rehmann Robson,
P.C. to serve as the company's auditors. Voting for
the continued appointment of Rehmann Robson, P.C.
were 7,409,743. Abstaining from the vote were 1,281,954.
There were no votes against the appointment of Rehmann
Robson. The vote passed by majority vote.
Part II, Item 5
OTHER INFORMATION
None
Part II, Item 6
INDEX TO EXHIBITS
(2) Plan of acquisition None
(3) (i) Restated Articles of Incorporation
Incorporated by reference from Form 10-QSB
For period ended September 30, 1997
(ii) Bylaws
Incorporated by reference from Form 10-QSB
For period ended September 30, 1997
(4) Instruments defining the rights of Security holders
Incorporated by reference from Form 10-SB
(10) Material contracts
Incorporated by reference from Form 10-SB
P Purchase and Sale Agreement - Jet/LaVanway/MICNIC
(11) Statement regarding computation of per Share earnings
None
(15) Letter on unaudited interim financial Information
None
(18) Letter on change in accounting Principles
None
(22) Published report regarding matters submitted to vote
None
(24) Power of Attorney None
(27) Financial Data Schedule
(99) Additional Exhibits None
SIGNATURES
In accordance with the requirements on the Exchange Act,
the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: August 12, 1999 AURORA ENERGY, LTD.
BY: /s/ William W. Deneau
William W. Deneau, President
<PAGE>
[ARTICLE] 5
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] JUN-30-1999
[CASH] 178,099
[SECURITIES] 0
[RECEIVABLES] 260,141
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 441,506
[PP&E] 74,020
[DEPRECIATION] 13,431
[TOTAL-ASSETS] 3,161,525
[CURRENT-LIABILITIES] 1,774,097
[BONDS] 440,410
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 8,692
[OTHER-SE] 1,869,073
[TOTAL-LIABILITY-AND-EQUITY] 3,161,525
[SALES] 65,162
[TOTAL-REVENUES] (34,143)
[CGS] 79,008
[TOTAL-COSTS] 79,008
[OTHER-EXPENSES] 258,050
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 53,283
[INCOME-PRETAX] (424,484)
[INCOME-TAX] 0
<INCOME-DISCONTINUED> 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (424,484)
[EPS-BASIC] (.05)
[EPS-DILUTED] (.05)
</TABLE>
