tvc10q093007.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
AND EXCHANGE ACT OF 1934
For
the quarterly
period ended September 30,
2007 Commission
File No. 001-31852
Tri-Valley
Corporation
(Exact
name of registrant as specified in its charter)
Delaware 84-0617433
(State
or other
jurisdiction
of (I.R.S.
Employer Identification No.)
incorporation
or organization)
4550
California Avenue, Suite 600, Bakersfield, California
93309
(Address
of principal executive offices)
(661)
864-0500
(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.
Yes
x
No o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (as defined in Rule 12b-2 of
the
Exchange Act). (Check one):
Large
accelerated filer o Accelerated
filer
x Non-accelerated
filer o
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No x
The
number of shares of Registrant's common stock outstanding at November 1, 2007,
was 24,708,684.
TRI-VALLEY
CORPORATION
INDEX
|
|
Page
|
|
|
|
|
|
PART
I -
|
FINANCIAL
INFORMATION
|
3
|
|
|
|
|
|
Item
1.
|
Consolidated
Financial Statements
|
3
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial
|
|
|
|
Condition
and Results of Operations
|
14
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
18
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
18
|
|
|
|
|
|
PART
II -
|
OTHER
INFORMATION
|
19
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
19
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities
|
19
|
|
|
|
|
|
Item
6.
|
Exhibits
|
19
|
|
|
|
|
|
SIGNATURES
|
|
19
|
|
|
|
|
|
Part
I - FINANCIAL INFORMATION
Item
1.
Unaudited Consolidated Financial Statements
TRI-VALLEY
CORPORATION
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
|
|
$ |
12,513,051
|
|
|
$ |
15,598,215
|
|
Accounts
receivable, trade
|
|
|
333,171
|
|
|
|
377,278
|
|
Prepaid
expenses
|
|
|
551,768
|
|
|
|
42,529
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
13,397,990
|
|
|
|
16,018,022
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
|
|
|
|
|
|
Proved
properties
|
|
|
1,325,667
|
|
|
|
1,407,925
|
|
Unproved
properties
|
|
|
2,534,969
|
|
|
|
2,792,340
|
|
Rigs
|
|
|
6,564,809
|
|
|
|
5,371,593
|
|
Other
property and equipment
|
|
|
4,121,296
|
|
|
|
2,504,185
|
|
|
|
|
|
|
|
|
|
|
Total
property and equipment, net
|
|
|
14,546,741
|
|
|
|
12,076,043
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
159,833
|
|
|
|
309,833
|
|
Investments
in partnerships
|
|
|
17,400
|
|
|
|
17,400
|
|
Investment
in marketable securities
|
|
|
370,000
|
|
|
|
-
|
|
Goodwill
|
|
|
212,414
|
|
|
|
212,414
|
|
Other
|
|
|
20,413
|
|
|
|
20,413
|
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
780,060
|
|
|
|
560,060
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
28,724,791
|
|
|
$ |
28,654,125
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Current
liabilities
|
|
|
|
|
|
|
Notes
payable
|
|
$ |
352,958
|
|
|
$ |
619,069
|
|
Notes
payable – related parties
|
|
|
54,182
|
|
|
|
501,036
|
|
Accounts
payable and accrued expenses
|
|
|
4,837,587
|
|
|
|
2,237,116
|
|
Amounts
payable to joint venture participants
|
|
|
180,346
|
|
|
|
280,815
|
|
Advances
from joint venture participants, net
|
|
|
6,321,228
|
|
|
|
5,408,909
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
11,746,301
|
|
|
|
9,046,945
|
|
|
|
|
|
|
|
|
|
|
Non-Current
Liabilities
|
|
|
|
|
|
|
|
|
Asset
retirement obligation
|
|
|
234,714
|
|
|
|
216,714
|
|
Long-term
portion of notes payable – related parties
|
|
|
657,925
|
|
|
|
698,963
|
|
Long-term
portion of notes payable
|
|
|
1,774,514
|
|
|
|
2,047,885
|
|
|
|
|
|
|
|
|
|
|
Total
non-current liabilities
|
|
|
2,667,153
|
|
|
|
2,963,562
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
14,413,454
|
|
|
|
12,010,507
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 100,000,000 shares
|
|
|
|
|
|
|
|
|
authorized;
24,707,684 and 23,546,655 issued and
|
|
|
|
|
|
|
|
|
outstanding
at September 30, 2007, and December 31,
|
|
|
|
|
|
|
|
|
2006,
respectively
|
|
|
24,567
|
|
|
|
23,407
|
|
Less:
common stock in treasury, at cost,
|
|
|
|
|
|
|
|
|
100,025
shares
|
|
|
(13,370 |
) |
|
|
(13,370 |
) |
Capital
in excess of par value
|
|
|
34,978,613
|
|
|
|
28,692,780
|
|
Additional
paid in capital – warrants
|
|
|
905,713
|
|
|
|
247,313
|
|
Additional
paid in capital - stock options
|
|
|
1,656,306
|
|
|
|
1,262,404
|
|
Additional
paid in capital – Great Valley Drilling Company, LLC and Great Valley
Production Services Company, LLC
|
|
|
2,152,961
|
|
|
|
5,438,087
|
|
Accumulated
deficit
|
|
|
(25,383,453 |
) |
|
|
(19,007,003 |
) |
Accumulated
other comprehensive income
|
|
|
(10,000 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
14,311,337
|
|
|
|
16,643,618
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
28,724,791
|
|
|
$ |
28,654,125
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
TRI-VALLEY
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months
|
|
|
For
the Nine Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of oil and gas
|
|
$ |
204,699
|
|
|
$ |
268,385
|
|
|
$ |
536,900
|
|
|
$ |
878,362
|
|
Rig
income
|
|
|
266,404
|
|
|
|
-
|
|
|
|
2,077,273
|
|
|
|
-
|
|
Drilling
& Development
|
|
|
3,285,227
|
|
|
|
900,000
|
|
|
|
3,285,227
|
|
|
|
1,459,556
|
|
Other
income
|
|
|
156,260
|
|
|
|
46,158
|
|
|
|
829,200
|
|
|
|
150,931
|
|
Interest
income
|
|
|
61,776
|
|
|
|
7,663
|
|
|
|
262,083
|
|
|
|
19,600
|
|
Total
Revenues
|
|
|
3,974,366
|
|
|
|
1,222,206
|
|
|
|
6,990,683
|
|
|
|
2,508,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas lease expense
|
|
|
56,352
|
|
|
|
54,395
|
|
|
|
260,845
|
|
|
|
157,157
|
|
Mining
exploration expenses
|
|
|
61,058
|
|
|
|
158,718
|
|
|
|
174,210
|
|
|
|
436,611
|
|
Drilling
and development
|
|
|
1,890,199
|
|
|
|
344,082
|
|
|
|
2,748,288
|
|
|
|
813,491
|
|
Rig
operations
|
|
|
179,896
|
|
|
|
514,049
|
|
|
|
959,904
|
|
|
|
514,049
|
|
Depletion,
depreciation and amortization
|
|
|
253,745
|
|
|
|
176,525
|
|
|
|
740,062
|
|
|
|
399,269
|
|
Interest
|
|
|
69,555
|
|
|
|
91,042
|
|
|
|
218,221
|
|
|
|
271,410
|
|
Impairment
loss
|
|
|
229,569
|
|
|
|
-
|
|
|
|
476,431
|
|
|
|
458,564
|
|
General
and administrative
|
|
|
2,560,953
|
|
|
|
1,362,241
|
|
|
|
7,789,171
|
|
|
|
3,989,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
5,301,327
|
|
|
|
2,701,052
|
|
|
|
13,367,132
|
|
|
|
7,040,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, before income taxes and discontinued
operations
|
|
|
(1,326,961 |
) |
|
|
(1,478,846 |
) |
|
|
(6,376,449 |
) |
|
|
(4,531,622 |
) |
Tax
provision
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, before discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
(1,326,961 |
) |
|
|
(1,478,846 |
) |
|
|
(6,376,449 |
) |
|
|
(4,531,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
|
(1,194,352 |
) |
|
|
-
|
|
|
|
(4,445,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$ |
(1,326,961 |
) |
|
$ |
(2,673,198 |
) |
|
$ |
(6,376,449 |
) |
|
$ |
(8,977,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(.05 |
) |
|
$ |
(.06 |
) |
|
$ |
(.26 |
) |
|
$ |
(.20 |
) |
Income
(loss) from discontinued operations, net
|
|
$ |
-
|
|
|
$ |
(.05 |
) |
|
$ |
-
|
|
|
$ |
(.19 |
) |
Basic
loss per common share
|
|
$ |
(.05 |
) |
|
$ |
(.11 |
) |
|
$ |
(.26 |
) |
|
$ |
(.39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares
|
|
|
24,667,768
|
|
|
|
23,285,921
|
|
|
|
24,692,750
|
|
|
|
23,296,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially
dilutive shares outstanding
|
|
|
28,039,242
|
|
|
|
26,170,432
|
|
|
|
28,061,268
|
|
|
|
26,166,613
|
|
No
dilution is reported since net income is a loss per SFAS 128
The
accompanying notes are an integral part of these condensed financial
statements.
TRI-VALLEY
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For
the Nine Months
|
|
|
|
Ended
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,376,449 |
) |
|
$ |
(8,977,484 |
) |
Loss
from discontinued operations
|
|
|
-
|
|
|
|
(4,445,862 |
) |
Loss
from continuing operations
|
|
$ |
(6,376,449 |
) |
|
|
(4,531,622 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash used from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
740,062
|
|
|
|
895,735
|
|
Non-cash
stock transactions
|
|
|
-
|
|
|
|
143,043
|
|
Impairment,
dry hole and other disposals of property
|
|
|
476,431
|
|
|
|
458,564
|
|
Stock
options
|
|
|
688,564
|
|
|
|
926,180
|
|
Warrants
|
|
|
316,852
|
|
|
|
-
|
|
Changes
in operating capital:
|
|
|
|
|
|
|
|
|
Prepaids-(increase)
decrease
|
|
|
(509,239 |
) |
|
|
-
|
|
Deposits-(increase)
decrease
|
|
|
150,000
|
|
|
|
(87,059 |
) |
Accounts
receivable-(increase) decrease
|
|
|
44,106
|
|
|
|
(224,057 |
) |
Trade
accounts payable-increase (decrease)
|
|
|
1,887,506
|
|
|
|
1,969,495
|
|
Accounts
payable to joint venture
|
|
|
|
|
|
|
|
|
participants
and related parties-increase (decrease)
|
|
|
(100,469 |
) |
|
|
282,330
|
|
Advances
from joint venture participants – increase (decrease)
|
|
|
912,319
|
|
|
|
(843,528 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided (used in) continuing operations
|
|
|
(1,770,317 |
) |
|
|
(1,153,962 |
) |
Net
cash provided by (used in) discontinued operations
|
|
|
-
|
|
|
|
(4,302,819 |
) |
Net
cash provided (used) by operating activities
|
|
|
(1,770,317 |
) |
|
|
(5,456,781 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(3,669,191 |
) |
|
|
(3,152,217 |
) |
Investment
in marketable securities
|
|
|
(370,000 |
) |
|
|
-
|
|
Unrealized
gain (loss) in marketable securities |
|
|
(10,000) |
|
|
|
- |
|
Repurchase
of minority interest in GVDC/GVPS |
|
|
(3,285,126) |
|
|
|
- |
|
Net
cash provided by (used in) continuing operations
|
|
|
(7,334,317 |
) |
|
|
(1,040,970 |
) |
Net
cash provided by (used in) discontinued operations
|
|
|
-
|
|
|
|
(2,111,247 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash Provided (Used) by Investing Activities
|
|
|
(7,334,317 |
) |
|
|
(3,152,217 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
-
|
|
|
|
1,379,780
|
|
Principal
payments on long-term debt
|
|
|
(314,409 |
) |
|
|
(821,940 |
) |
Net
proceeds from additional paid in capital – stock options
|
|
|
358,548
|
|
|
|
-
|
|
Net
proceeds from additional paid in capital – warrants
|
|
|
658,400
|
|
|
|
-
|
|
Net
proceeds from additional paid in capital – Great Valley Drilling/Great
Valley Production
|
|
|
|
|
|
|
5,425,120
|
|
Stock
issuance costs
|
|
|
(649,900 |
) |
|
|
-
|
|
Proceeds
from issuance of common stock
|
|
|
5,966,831
|
|
|
|
1,154,134
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) continuing operations
|
|
|
6,019,470
|
|
|
|
7,137,094
|
|
Net
Cash Provided (Used) by Financing Activities
|
|
|
6,019,470
|
|
|
|
7,137,094
|
|
TRI-VALLEY
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Net
Decrease in Cash and Cash Equivalents
|
|
|
(3,085,164 |
) |
|
|
(1,471,904 |
) |
Cash
and Cash Equivalents at Beginning of Period
|
|
|
15,598,215
|
|
|
|
4,876,921
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
12,513,051
|
|
|
$ |
3,405,017
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
218,221
|
|
|
$ |
580,115
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
TRI-VALLEY
CORPORATION
NOTES
TO CONDENSED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED
September
30, 2007 and 2006
(Unaudited)
NOTE
1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description
of Business
Tri-Valley
Corporation (“TVC” or the Company), a Delaware corporation formed in 1971, is in
the business of exploring, acquiring and developing petroleum and metal and
mineral properties and interests therein. Tri-Valley has five
subsidiaries and four operating segments or business lines.
·
|
Tri-Valley
Oil & Gas Company (“TVOG”) operates the oil & gas
activities. TVOG derives the majority of its revenue from oil
and gas drilling and turnkey development. TVOG primarily generates
its own
exploration prospects from its internal database, and also screens
prospects from other geologists and companies. TVOG generates
these geological “plays” within a certain geographic area of mutual
interest. The prospect is then presented to potential
co-ventures. The company deals with both accredited individual
investors and energy industry companies. TVOG serves as the
operator of these co-ventures. TVOG operates both the oil and gas
production segment and the drilling and development segment of our
business lines.
|
·
|
Select
Resources Corporation (“Select”) was created in late 2004 to manage, grow
and operate Tri-Valley’s mineral interests. Select operates the minerals
segment of our business lines.
|
·
|
Great
Valley Production Services, LLC, (“GVPS”) was formed in 2006 to operate
oil production services, well work over and drilling rigs, primarily
for
TVOG. However, from time to time TVOG may contract various
units to third parties when not immediately needed for TVOG projects.
Tri-Valley has retained 64% of the ownership interest and the remainder
is
owned by private parties. Operations began in the third quarter
of 2006.
|
·
|
Great
Valley Drilling Company, LLC (“GVDC”) was formed in 2006 to operate oil
drilling rigs, primarily in Nevada where Tri-Valley has 17,000 acres
of
prospective oil leases. However, because rig availability is
scarce in Nevada, GVDC has an opportunity to do contract drilling
for
third parties in both petroleum and geothermal projects. For
the time being GVDC, whose operation began in the first quarter of
2007,
expects its primary activity will be contract drilling for third
parties.
TVC exercised its option to buy back the minority interest in GVDC
in May
2007 and the buy back was finalized by the end of June 2007. The
cost to
buy back the minority interest was $1,319,040. GVDC is now 100%
owned by TVC.
|
·
|
Tri-Valley
Power Corporation is inactive at the present
time.
|
Basis
of Presentation
The
financial information included herein is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring adjustments),
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. The results of operations for the nine-month
period ended September 30, 2007, are not necessarily indicative of the results
to be expected for the full year.
The
accompanying consolidated financial statements do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles in the United States of America; and, therefore, should
be
read in conjunction with our Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 2007, for the year ended
December 31, 2006.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, TVOG, Select, GVDC, Tri-Valley Power Corporation,
since their inception. GVPS, where the Company has retained a 64%
ownership interest, is also included in the consolidation. Other
partnerships in which the Company has an operating or nonoperating interest
in
which the Company is not the primary beneficiary and owns less than 51%, are
proportionately combined. This includes Opus I, Martins-Severin,
Martins-Severin Deep, and Tri-Valley Exploration 1971-1
partnerships. All material intra and intercompany accounts and
transactions have been eliminated in combination and consolidation.
NOTE
2 - PER SHARE COMPUTATIONS
Per
share
computations are based upon the weighted-average number of common shares
outstanding during each year. Common stock equivalents are not included in
the
computations since their effect would be anti-dilutive.
NOTE
3 – SUMMARY OF RECENTLY ISSUED ACCOUNTING PRONOUCEMENTS
Accounting
for Uncertainty in Income Taxes
In
July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes– An interpretation
of FASB Statement No. 109” (“FIN 48”). This Interpretation provides a
comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to
be
taken in income tax returns. We adopted this Interpretation in the first quarter
of 2007 with no effect to the Company and do not expect the adoption to have
a
material impact on our financial position or results of operations.
Fair
Value Measurements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” This Statement replaces multiple existing definitions of
fair value with a single definition, establishes a consistent framework for
measuring fair value and expands financial statement disclosures regarding
fair
value measurements. This Statement applies only to fair value measurements
that
already are required or permitted by other accounting standards and does not
require any new fair value measurements. SFAS No. 157 is effective for fiscal
years beginning subsequent to November 15, 2007. We will adopt this Statement
in
the first quarter of 2008 and do not expect the adoption to have a material
impact on our financial position or results of operations.
Effects
of Prior Year Misstatements
In
September 2006, Staff Accounting Bulletin (“SAB”) No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.” Registrants must quantify the impact on
current period financial statements of correcting all misstatements, including
both those occurring in the current period and the effect of reversing those
that have accumulated from prior periods. This SAB was adopted at December
31,
2006. The adoption of SAB No. 108 had no effect on our financial
position or on the results of our operations.
The
Fair Value Option for Financial Assets and Financial
Liabilities
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities,” which permits an entity to
measure certain financial assets and financial liabilities at fair value. The
objective of SFAS No. 159 is to improve financial reporting by allowing entities
to mitigate volatility in reported earnings caused by the measurement of related
assets and liabilities using different
NOTE
3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
attributes,
without having to apply complex hedge accounting provisions. Under SFAS No.
159,
entities that elect the fair value option (by instrument) will report unrealized
gains and losses in earnings at each subsequent reporting date. The fair value
option election is irrevocable, unless a new election date occurs. SFAS No.
159
establishes presentation and disclosure requirements to help financial statement
users understand the effect of the entity’s election on its earnings, but does
not eliminate disclosure requirements of other accounting standards. Assets
and
liabilities that are measured at fair value must be displayed on the face of
the
balance sheet. This statement is effective beginning January 1, 2008. We are
evaluating this pronouncement, but do not expect the adoption to have a material
impact on our financial position or results of operations.
NOTE
4 - INVESTMENT
In
the
second quarter the Company received 150,000 stock options for Duluth Metals
common stock for providing executive and geological services for Duluth
Metals. The stock options are exercisable at $0.30
Canadian. The market value of the stock on September 30, 2007 was
$2.81 Canadian. The Company follows the provisions of Statement of
Financial Accounting Standards No. 115 (SFAS 115), “Accounting for Certain
Investments in Debt and Equity Securities.” SFAS 115 requires companies to
classify their investments as trading, available-for-sale or held-to-maturity.
The Company’s securities consist of stock options which have been classified as
available-for-sale. These are recorded in the financial statements at fair
market value and any unrealized gains (losses) will be reported as a component
of shareholder equity. The fair market value of these stock options was
determined based on the Black-Scholes options-pricing model using quoted market
prices of the common stock and the exercise price of the stock option. At
September 30, 2007, the cost basis net of write-downs, unrealized gains,
unrealized losses and fair market value of the Company's holdings are as
follows:
|
September
30, 2007
|
|
|
Net
cost of equities
|
$
380,000
|
Unrealized
Losses
|
(10,000)
|
|
|
Fair
Market Value
|
$
370,000
|
|
|
SFAS
115
requires that for each individual security classified as available-for-sale,
a
company shall determine whether a decline in fair value below the cost basis
is
other than temporary. If the decline in fair value is judged as such, the cost
basis of the individual security shall be written down to fair value as a new
cost basis and the amount of the write-down shall be reflected in other
comprehensive income of the equity section. At September 30, 2007, the company's
marketable securities had a fair market value of $ 370,000. As of
September 30, 2007, there were unrealized losses of $10,000.
This
investment was translated into U.S. Dollars in accordance with SFAS
No. 52,“Foreign Currency Translation.” The investment
was translated at the rate of exchange on the balance sheet date.
NOTE
5 - CHANGES IN SECURITIES
Common
Stock
During
the third quarter of 2007, the Company issued 64,898 shares of common
stock. Two employees exercised employee stock options issued in
previous years to purchase 63,750 shares of common stock totaling
$31,875. One employee exercised 25,000 stock options in a cashless
exercise which netted 1,148 shares of common stock. There was no
stock issuance cost for the third quarter.
NOTE
5 - CHANGES IN SECURITIES (Continued)
Options
During
the third quarter of 2007, the Company issued 35,000 stock options to two
employees. The employee stock options will be vested over the next two
years. 63,750 stock options were exercised for cash and 25,000 stock
options were exercised as a cashless exercise for a total of 88,750 options
being exercised for 64,898 shares of common stock. The options
exercised resulted in a reduction in paid in capital of $138,000 and the stock
option expense for the quarter was $35,354, resulting in a decrease in paid
in
capital of $102,646. Please see footnote 6 for additional information
on stock-based compensation expense.
NOTE
6 – STOCK BASED COMPENSATION EXPENSE
Stock
Based Compensation
Compensation
expense charged against income for stock based awards in the third quarter
of
2007 and 2006 was $35,354 and $348,760, pre-tax, respectively, and is included
in general and administrative expense in the Consolidated Statement of
Operations.
For
further information regarding stock based compensation, please refer to Note
5
of the Notes to the Consolidated Financial Statements in the Annual Report
on
Form 10-K for the year ended December 31, 2006.
NOTE
7 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
The
Company reports operating segments according to SFAS No. 131, “Disclosure
about Segments of an Enterprise and Related Information.”
The
Company identifies reportable segments by products and services. The
Company includes revenues from both external customers and revenues from
transactions with other operating segments in its measure of segment profit
or
loss.
The
Company’s operations are classified into four principal industry
segments:
o
|
Oil
and gas operations include our share of revenues from oil and gas
wells on which TVOG serves as operator, royalty income and production
revenue from other partnerships in which we have operating or
non-operating interests. It also includes revenues for
consulting services for oil and gas related
activities.
|
o
|
Rig
operations began in 2006, when the Company acquired drilling rigs and
began operating them through subsidiaries GVPS and GVDC. Rig
operations include income from rental of oil field
equipment.
|
o
|
Minerals
include the Company’s mining and mineral prospects and operations, and
expenses associated with those operations. In 2007 and 2006,
the Company recorded minerals revenue from consulting services performed
for the mining and minerals industry, which are included on the operating
statement as other income.
|
o
|
Drilling
and development includes revenues received from oil and gas drilling
and development operations performed for joint venture partners,
including
the Opus-I drilling
partnership.
|
NOTE
7 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
(Continued)
|
|
Nine
Months Ended September 30, 2007
|
|
|
Nine
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
Sales
and Other Operating Revenues
|
|
|
|
|
|
|
Oil
& Gas 1
|
|
$ |
894,004
|
|
|
$ |
1,005,893
|
|
Rigs
Operations 2
|
|
|
2,213,051
|
|
|
|
-
|
|
Minerals
3
|
|
|
598,401
|
|
|
|
43,000
|
|
Drilling
and Development 4
|
|
|
3,285,227
|
|
|
|
1,459,556
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Sales and Operating Revenues
|
|
|
6,990,683
|
|
|
|
2,508,449
|
|
|
|
|
|
|
|
|
|
|
Numbers
as they correspond to revenue line items as shown on the Statement
of
Operations - Nine months ended September 30, 2007, in thousands of
dollars:
1
Sale
of Oil
and Gas 537, Interest income 261, Other income 96
2
Rig
income
2,077, Other income 136
3
Other
income
597, Interest income 1
4
Drilling and
Development 3,285
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
|
|
|
|
|
|
|
Oil
& Gas
|
|
$ |
(5,520,298 |
) |
|
$ |
(3,441,374 |
) |
Rig
Operations
|
|
|
(1,083,395 |
) |
|
|
(887,998 |
) |
Minerals
|
|
|
(309,695 |
) |
|
|
(5,294,177 |
) |
Drilling
and Development
|
|
|
536,939
|
|
|
|
646,065
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Net Income (Loss)
|
|
$ |
(6,376,449 |
) |
|
$ |
(8,977,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
Oil
& Gas
|
|
$ |
18,864,353
|
|
|
$ |
18,517,488
|
|
Rig
Operations
|
|
|
7,520,820
|
|
|
|
7,853,046
|
|
Minerals
|
|
|
2,339,618
|
|
|
|
2,283,591
|
|
Drilling
and Development
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total Assets
|
|
$ |
28,724,791
|
|
|
$ |
28,654,125
|
|
|
|
|
|
|
|
|
|
|
NOTE
8 – NOTES PAYABLE – RELATED PARTY
A
note
payable to Gary D. Borgna and Julie R. Borgna, and Equipment 2000 dated December
30, 2006; secured by rig equipment; imputed interest at 8.00%; payable in 120
monthly installments of $9,100 . The unpaid balance as of September
30, 2007 is $712,107. Mr. Borgna is the manager of GVDC and a
stockholder of the Company.
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
Notice
Regarding Forward-Looking Statements
This
report contains forward-looking statements. The words, "anticipate," "believe,"
"expect," "plan," "intend," "estimate," "project," "could," "may," "foresee,"
and similar expressions are intended to identify forward-looking statements.
These statements include information regarding expected development of
Tri-Valley's business, lending activities, relationship with customers, and
development in the oil and gas industry. Should one or more of these risks
or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially and adversely from those anticipated, believed,
estimated or otherwise indicated.
Results
of Operations
For
the
quarter ended September 30, 2007, revenue was $4.0 million, compared to $1.2
million in the third quarter of 2006, an increase of $2.8 million. For the
first
nine months of 2007, revenue was $7.0 million, compared to $2.5 million in
the
first nine months of 2006, an increase of $4.5 million. We had an
operating loss of about $1.3 million in the third quarter of 2007, compared
to a
loss of $1.5 million in the third quarter of 2006. During the
first nine months of 2007, our loss was $6.4 million, compared to a loss of
$4.5
million for the first nine months of 2006. Non-cash amounts included
in the loss for the first nine months are depreciation, depletion and
amortization of $740,000; stock compensation expense of $689,000; warrant
expense of $317,000 and impairment write-off of $476,000.
Revenues
and Activities by Segment
The
Company identifies reportable segments by products and services. The
Company includes revenues from both external customers and revenues from
transactions with other operating segments in its measure of segment profit
or
loss. The Company also allocates interest revenue and expense,
DD&A, and other operating expenses in its measure of segment profit or
loss. The following table sets forth our revenues by segment for the
third fiscal quarter of 2007 and 2006 and the first nine months of fiscal year
2007 and 2006, in thousands.
|
|
Third
Quarter
|
|
|
First
Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas
|
|
$ |
301
|
|
|
$ |
310
|
|
|
$ |
895
|
|
|
$ |
1,006
|
|
Rig
operations
|
|
|
269
|
|
|
|
-
|
|
|
|
2,213
|
|
|
|
-
|
|
Minerals
|
|
|
119
|
|
|
|
12
|
|
|
|
598
|
|
|
|
43
|
|
Drilling
and development
|
|
|
3,285
|
|
|
|
900
|
|
|
|
3,285
|
|
|
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$ |
3,974
|
|
|
$ |
1,222
|
|
|
$ |
6,991
|
|
|
$ |
2,508
|
|
Oil
and Gas
Oil
and
gas revenues in the third quarter of 2007 included approximately $205,000 from
the sale of oil and gas, compared to $268,000 in the third quarter of 2006,
due
to a needed repair on a gas well which was completed in October
2007. Other oil and gas revenues in the third quarter of 2007
consisted of approximately $62,000 from interest income and $34,000 from other
income, an increase of $54,000 from the third quarter of 2006 primarily because
of maintaining increased cash balances.
The
oil
and gas activities during the third quarter of 2007 involved the drilling of
two
wells, reworking of existing wells and the continued conversion of three wells
for our waterflood operations in the South Belridge field.
During
the 3rd Quarter
of 2007, Tri-Valley continued to implement the Etchegoin Pilot Waterflood which
resulted in the conversion of three injectors, two primary injectors
and one back-up injector. At the end of the 3rd Quarter
injection
was proceeding into the pilots on schedule and as anticipated with initial
response expected in the 4th
quarter.
The
5th delineation
well, the Lundin-Weber D-24-31, which was a 3/8-mile step-out well to evaluate
the Tulare, Etchegoin and Diatomite Zones in the West Temblor, South Belridge
Carneros Lease Prospect was drilled and casing run to 2500’ with an initial
completion into a portion of the Diatomite Zone. Following
perforating a portion of the lower Diatomite Zone a decision was made to
steam-stimulate the zone once a steam generator became available in the 4th
Quarter.
During
the 3rd
Quarter, the Lundin-Weber D-352-30 Diatomite Zone was steam-stimulated with
8000-bbls of water converted to steam utilizing a small 4.9-Million BTU per
hour
steamer, which was all that was available at the time. Results of the
stimulation attempt indicated that the 4.9-steamer was not optimum for the
task. The well is awaiting a 12 to 16-Million BTU size steam
generator.
Also,
during the 3rd
Quarter, the Lundin-Weber D-344-30 a Diatomite Zone completion was
steam-stimulated with 8400-bbls of water converted to steam with a conventional
16-Million BTU per hour generator. Results to date indicate that the
steam likely did not confine itself to the exact intended interval due to
intensive fracturing in the well. Operations are underway during the
4th Quarter
to
determine the location of the stimulated interval and to perforate and produce
that interval.
In
August, the Pleasant Valley #1 well in the Pleasant Valley Prospect in the
Oxnard Oil Field in Ventura County, California was spudded to drill, core and
evaluate the target Vaca Tar Sand between the depths of 2050’ and
2292’. As expected, the well encountered a continuous section of
approximately 240’ of productive interval. Following the coring in
the vertical well, the well was plugged-back with cement and then a 1475’
horizontal well was drilled across the Hunsucker Lease as the first production
well in a SAG-D (Steam Assisted Gravity Drainage) thermal development program
which classically consists of pairs of wells, one being a producing well in
conjunction with an adjacent steam injection well approximately 15’ vertically
above the producing well to provide steam to heat the thick tarry oil to make
it
more fluid-like to flow into the producing well below it as a sump pump would
in
a cellar to remove water. The SAG-D technology was developed in Canada in the
last 20-years to produce the Athabasca Tar Sands which is now responsible for
almost 1,000,000-barrels of oil per day. Facilities are currently
being installed during the 4th Quarter,
along
with the appropriate steam generators to steam stimulate and produce the first
producing well during the 4th Quarter.
Since
this is the first well of its kind in the field, there are several factors
built
into this well and its stimulation that will be monitored, which will tailor
future producing and injection wells.
With
the
positive results from the Pleasant Valley #1 in hand, as the 3rd Quarter
ended, the
rig utilized to drill the Pleasant Valley #1, Kenai Rig #4, was moved 40’ to the
east and a 8500’ projected depth well, the Pleasant Valley #2 was spudded to
test multiple deeper horizons, those being the Miocene, Topanga and Sespe light
oil zones which produce on offsetting leases. The Pleasant Valley
Project is expected to have a multitude of concurrent developments being
simultaneously developed and produced at the same time.
Rig
Operations
Revenues
from rig operations totaled $269,000 in the third quarter of 2007, including
$266,000 from drilling and completion operations and approximately $3,000 from
other income and interest. This segment of our business began
incurring expenses in the third quarter of 2006 when we began purchasing and
refurbishing drilling rigs, though no revenues were generated from this segment
until 2007.
During
the 3rd
Quarter, GVPS essentially completed the initial task of drilling the delineation
wells in the Temblor West, South Belridge Carneros Lease Field and it also
completed the major task of returning all available non-producing wells on
the
Carneros Lease to production. At this point a corporate decision was
made to API inspect the rigs, which had been working for one year, and to obtain
certain certifications before embarking on developing outside 3rd party contracts
for these rigs. Due to a backlog of work with 3rd party inspection
and upgrading contractors, the GVPS rigs are not expected to resume work before
the end of the 4th
Quarter.
During
the 3rd
Quarter, GVDC’s Rig 2000 remained idle due to several confluencing factors with
the significant ones being (1) other significant operators in Nevada purchased
their own rigs almost coincidently when Tri-Valley/GVDC purchased Rig 2000,
(2)
a “bottle-neck” in granting drilling permits developed with other operators not
being able to timely obtain drilling permits primarily in the geothermal area,
and (3) a general lull developed in oil exploration wildcat drilling in
Nevada.
As
the
3rd Quarter
ended, GVDC consummated signing a contract for one well with an option for
two
additional wells while at the same time the client was preparing locations
for
more than those wells. GVDC believes that this one project could
develop into a multiple year contract effort as Nevada is increasingly becoming
the focus and receiving the attention of even foreign companies from countries
such as Italy and Canada, which have recognized the value of potential
geothermal development in Nevada. GVDC believes that Nevada is poised
to be a significant geothermal energy contributor in the U.S. and GVDC is poised
to increase its fleet as development heightens.
The
tactical reason for purchasing the rig fleet is to enable Tri-Valley to work
on
its growing inventory of wells and drill new ones as needed rather than be
delayed for months or even a year because of unavailability of contractor
supplied rigs. The strategic reason is that as other property owners
experience delays in timely service of their wells and production begins to
decline they will tend to want to sell and the only logical bidders will be
the
few companies like Tri-Valley with the equipment to service additional
properties.
Minerals
Activities
Precious
Metals
Revenues
from minerals activities in the third quarter of 2007 were $119,000 compared
to
$12,000 in 2006. The 2007 revenues were recorded from geological
services provided to outside third parties.
Mineral
programs for the third quarter consisted largely of continuing the transition
to
new management and continuing the work from the previous quarter, i.e. generally
assessing and compiling geologic information collected in previous work programs
associated with the Calder, Richardson, and Shorty Creek properties in
Alaska. Select is soliciting large precious metal mining companies as
potential joint-venture partners to fund larger scale exploration on both the
Richardson and Shorty Creek properties, as well as identifying a field site
manager for both properties. Select continues to pursue returning the
Admiral Calder mine to production, has added uranium as a new commodity of
interest, and has reduced efforts directed towards new base metals and
industrial minerals properties.
Base
Metals
Both
of
Select’s employees who had been lent to Duluth opted to continue permanently at
Duluth Metals, and Select is recruiting replacement personnel. Base
Metals operations are on hold at this time.
Uranium
Select
Resources has begun soliciting and reviewing uranium opportunities in a very
targeted and selective manner. Select is adhering rigorously to
strict high-end criteria for these properties.
Industrial
Minerals
During
the third quarter, Select initiated a maintenance and repair program at the
Admiral Calder calcium carbonate mine in Alaska. Select is further
evaluating the site’s product to support other market categories, and continues
to solicit calcium carbonate mining and processing companies as potential
joint-venture partners to fund larger scale development and operations on the
Admiral Calder mine. Putting the mine into production remains a
Select priority. Select is reviewing candidates for a long-term
position to head up the development of this property.
Select
continues to maintain a number of industrial mineral projects in six western
states in a hold status, pending further review. Commodities in these
projects include barite, sand & gravel, aggregate, limestone, dolomite,
calcium carbonate, cinder, and other industrial mineral
commodities.
Drilling
and Development Operations
We
received $3.3 million revenue in the third quarter of 2007 compared to $0.9
million in the same period of 2006 from our drilling and development segment.
This was due to the drilling of a more complex and deeper well. This operating
segment consists of turnkey contract drilling and completion operations for
joint ventures.
Costs
and Expenses
The
following table sets forth our operating income (loss) by segment in the third
quarter of 2007 and 2006, in thousands.
|
Quarter
Ended
|
Quarter
Ended
|
|
9/30/07
|
9/30/07
|
Oil
and gas
|
$
(1,689)
|
$
(1,380)
|
Rig
operations
|
(874)
|
(570)
|
Minerals
|
(159)
|
(1,446)
|
Drilling
and development
|
1,395
|
723
|
|
|
|
Total
operating income (loss)
|
$
(1,327)
|
$
(2,673)
|
Costs
and
expenses were approximately $5.3 million in the third quarter of 2007, an
increase of approximately $2.6 million over the same period in 2006 when costs
and expenses were $2.7 million. Oil and gas lease expense increased from $54,000
in the third quarter of 2006 to $56,000 in the same period of 2007 due to an
increased number of leases. Rig operations expense decreased from $514,000
in
the third quarter of 2006 to $180,000 in the third quarter of 2007, due to
decreased rig operations by our recently formed GVPS and GVDC. We
spent $61,000 on mining exploration in the third quarter of 2007, which was
$98,000 dollars less than the same period in 2006 due to a lower activity level
in our exploration. Drilling and development expenses increased from $344,000
in
the third quarter of 2006 to $1.9 million in the third quarter of 2007,
reflecting an increase in our drilling activities. Depletion, depreciation
and
amortization increased from $176,000 in the third quarter of 2006 to $254,000
in
the same period of 2007, primarily because the increased property and equipment
from our rig operations.
We
also
recognized impairment losses of $230,000, primarily on the write-off of our
Wildwood prospect. During our regular evaluation of our prospects, we determined
that this and six other properties are no longer viable.
General
and administrative costs for the third quarter of 2007 were $2.6 million an
increase from $1.4 million in the same period of 2006. The increase
was due to the expenses of our recently formed drilling subsidiaries, increased
staff and capital formation expense.
Capital
Resources and Liquidity
In
2002
through the third quarter of 2007, our drilling activities have been largely
funded by selling interests in our OPUS I drilling partnership. We do not borrow
in order to fund drilling activities. Our continued drilling activity relies
on
our ability to raise money for projects through drilling partnerships or other
joint ventures.
Current
assets were about $13.4 million at September 30, down from $16.0 million at
year
end 2006. Cash on hand September 30 is down $3.0 million from year end which
was
$15.6 million. Prepaid expenses increased to $552,000 a $499,000
increase over the year end balance of $42,000.
Property,
plant and equipment increased from $12.1 million at year end 2006 to $14.5
million at the end of the third quarter. The increase was primarily
due the increased rigs, rig related equipment and steam generators.
Current
liabilities rose to about $11.7 million at September 30, 2007, from $9.0 million
at year end 2006, due primarily to a decrease of $0.8 million in notes payable,
an increase of $2.6 million in accounts payable and accrued expenses and an
increase of $0.9 million in advances from joint venture
participants.
During
the remainder of 2007, we expect to expend approximately $7 million on drilling
activities. Funds for these activities will be provided by sales of
partnership interests in the Opus I drilling partnership, which will still
be
raising funds for development purposes. Tri-Valley’s portion is
expected to be approximately $3 million as most of the expense will be carried
by joint venture partners. We are analyzing results of five recent
development test wells on our Temblor West producing property adjoining the
South Belridge oil field in order to design the optimum development plan for
the
property. Also, at our Pleasant Valley property in the Oxnard
oilfield we project one vertical development test well, one horizontal injector
and one horizontal producer in 2007. We expect to drill at least one
shallow well in the Moffat Ranch East gas field and one deep wildcat exploration
well. Our ability to complete our planned drilling activities in 2007 depends
on
some factors beyond our control, such as availability of equipment and
personnel. Our actual capital commitments for the remainder of fiscal
year 2007 are less than $2 million, but to expend $7 million, additional capital
from the OPUS partnership or other outside parties will be
required. For the remainder of fiscal year 2007, the Company
expects expenditures of approximately $0.3 million on mining activities,
including mining lease and exploration expenses.
Operating
Activities
We
had a
negative cash flow of $1.8 million for the nine months ended September 30,
2007
compared to a negative cash flow of $1.2 million from continuing operations
for
the same period in 2006. The increase in the negative cash flow in
the current period is due largely to our loss from operations being offset
by
our increase in accounts payable and our decrease in advances from joint venture
participants. The increase in accounts payable was primarily due to the
completion of a well at the end of the quarter, and many of the invoices not
being received until October. Our loss from operations was approximately $6.4
million for the nine months ended September 30, 2007, compared to a loss from
continuing operations in the same period of 2006 of $4.5 million loss for the
same period in 2006.
A
large
component of cash flow in the first nine months of 2007 was receipt of advances
of $0.9 million from joint venture participants for future drilling
operations, These do not contribute to operating revenues at the time received
but are held in cash until expended in drilling and operations. We cannot
predict the levels at which we will continue to receive funds for additional
drilling, and in the past we have experienced wide swings in receipt of these
funds from quarter to quarter. We do not commit to drilling activities unless
and until we have sufficient advances in hand to fund a particular
project.
Investing
Activities
Cash
used
in investing activities was $7.3 million for the first nine months of 2007.
We
used $2.8 million towards the refurbishing of the new rigs for GVPS and the
reminder was for the acquisitions of equipment for TVOG. We used $3.0
million in the repurchase of the minority interest in GVDC, and we used $0.3
million to repurchase the interest of five members in GVPS. Also, we
received options to purchase shares of common stock of Duluth Metals as payment
for executive and geological services provided and is being held as an
investment. The options had a fair market value of $370,000 at
September 30, 2007. See Note 4 to Consolidated Financial
Statements.
Financing
Activities
Net
cash
provided by financing activities was $6.0 million for the first nine months
of
2007. We received $6.0 million proceeds from issuance of restricted shares
of
common stock in privately negotiated transactions including the exercise of
stock options by employees. We received $658,000 in proceeds from warrants
issued in conjunction with the issuance of restricted shares of common stock
in
privately negotiated transactions which had warrants attached and had stock
issuance costs of $650,000. We expect to use these funds for working
capital. We have not planned any private placement of equity securities for
the
remainder of 2007, but we may continue to receive funds from privately
negotiated transactions. We do not have a targeted or budgeted amount of equity
financing activities.
New
Accounting Pronouncements
See
Note
3 to our unaudited consolidated financial statements.
Item
3. Quantitative and Qualitative Disclosures about
Market Risk
Tri-Valley
Corporation does not engage in hedging activities and does not use commodity
futures or forward contracts in its cash management functions.
Item
4. Controls and Procedures
Disclosure
Controls
As
of
September 30, 2007, an evaluation was performed under the supervision and with
the participation of our management, including our Chief Executive Officer
and
Chief Financial Officer, of the effectiveness of the design and operation of
our
disclosure controls and procedures. These controls and procedures are based
on
the definition of disclosure controls and procedures in Rule 13a-15(e) and
Rule
15d-15(e) promulgated under the Securities Exchange Act of 1934. Based on that
evaluation, our management, including the CEO and CFO concluded that our
disclosure controls and procedures were effective as of September 30,
2007. Management has remediated all five material weaknesses
identified in the Company’s Annual Report on Form 10-K for the year ended
2006. The weaknesses were remediated by instituting improved controls
and procedures, adding additional controls regarding collateralized loans,
improved disclosure of share based payment arrangements, improved evaluation
of
proved properties and the purchase of additional research materials and the
utilization of outside consulting. The remediated weaknesses are:
Loans guaranteed with restricted common stock (Deposits); the accounting
treatment for the discontinued operations from the sale of our interest in
Tri
western Resources; share-based payment arrangements; evaluation of proved
properties; and accounting for income taxes.
Management,
including our CEO and CFO, do not expect that our disclosure controls and
procedures or internal control over financial reporting will prevent all errors
and fraud. In designing and evaluating our control system, management recognized
that any control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance of achieving the desired control
objectives. Further, the design of a control system must reflect the fact that
there are resource constraints, and management necessarily was required to
apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Because of the inherent limitations in all control systems,
no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any that may affect our operations have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake.
During
the third quarter of 2007, there were no changes in the Company's internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II - OTHER INFORMATION
Item
1A. Risk Factors
There
have been no material changes from the risk factors previously disclosed in
our
Annual Report on Form 10-K for the fiscal year ended December 31,
2006.
Item
2. Unregistered Sales of Equity
Securities
There
were no sales of unregistered sales of equity securities during the
3rd
quarter.
Item
6. Exhibits
Item Description
3.1
|
Conformed
bylaws of the issuer, including amendment to Article III, Section
7,
adopted at 2007 stockholders’
meeting
|
31.1 Rule
13a-14(a)/15d-14(a) Certification
31.2 Rule
13a-14(a)/15d-14(a) Certification
32.1 18
U.S.C. Section 1350 Certification
32.2 18
U.S.C. Section 1350 Certification
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.
TRI-VALLEY
CORPORATION
November
8,
2007 /s/F.
Lynn Blystone
F.
Lynn
Blystone
Chairman,
President and CEO
November
8,
2007 /s/
Arthur M. Evans
Arthur
M.
Evans
Chief
Financial Officer