Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the
quarterly period ended March
31, 2005
or
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the
transition period from to
__________
Commission
File Number:
0-9261
KESTREL
ENERGY, INC.
(Exact
name of small business issuer as specified in its charter)
Colorado |
84-0772451 |
(State of other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
|
|
1726 Cole Blvd. Suite 210, Lakewood,
CO |
80401 |
(Address of principal executive
offices) |
(Zip Code) |
|
|
(303)
295-0344
(Issuer’s
telephone number, including area code)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
x Yes
o No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
The
number of shares outstanding of common stock, as of March 31, 2005: 10,173,200
KESTREL
ENERGY, INC.
INDEX TO
UNAUDITED FINANCIAL STATEMENTS
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Page |
PART
I FINANCIAL INFORMATION |
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Item
1. Financial Statements |
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Balance
Sheets as of March 31, 2005 unaudited, and June 30, 2004 |
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3 |
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Statements
of Operations for the Three Months and Nine Months |
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Ended
March 31, 2005 and 2004, unaudited |
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4 |
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Statements
of Cash Flows for the Nine Months Ended |
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March
31, 2005 and 2004, unaudited |
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5 |
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Notes
to Financial Statements, unaudited |
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6 |
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Item
2. Management's Discussion and Analysis of Financial Condition
and |
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Results
of Operations |
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7 |
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Item
3. Controls and Procedures |
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10 |
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PART
II OTHER INFORMATION |
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Item
1. Legal Proceedings |
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10 |
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Item
2. Changes in Securities |
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10 |
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Item
3. Defaults Upon Senior Securities |
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10 |
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Item
4. Submission of Matters to a Vote of Security Holders |
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10 |
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Item
5. Other Information |
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10 |
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Item
6. Exhibits |
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11 |
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Signatures |
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12 |
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Certifications |
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13 |
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PART
I. FINANCIAL INFORMATION
ITEM
1.
Financial Statements
KESTREL
ENERGY, INC.
BALANCE
SHEETS AS
OF MARCH 31, 2005 AND JUNE 30, 2004
ASSETS
|
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March 31, 2005 |
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June 30, 2004 |
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CURRENT
ASSETS: |
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|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
264,453 |
|
$ |
162,507 |
|
Accounts
receivable |
|
|
434,117 |
|
|
366,278 |
|
Other
assets |
|
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30,129 |
|
|
12,171 |
|
Total
current assets |
|
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728,699 |
|
|
540,956 |
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PROPERTY
AND EQUIPMENT, AT COST: |
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|
|
|
|
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Oil
and gas properties, successful efforts method of
accounting: |
|
|
|
|
|
|
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Unproved |
|
|
260,355 |
|
|
260,355 |
|
Proved |
|
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11,171,210 |
|
|
11,081,664 |
|
Pipeline
and facilities |
|
|
807,851 |
|
|
807,851 |
|
Furniture
and equipment |
|
|
68,838 |
|
|
54,207 |
|
|
|
|
12,308,253 |
|
|
12,204,077 |
|
Accumulated
depreciation and depletion |
|
|
(9,882,630 |
) |
|
(9,754,427 |
) |
Net
property and equipment |
|
|
2,425,624 |
|
|
2,449,650 |
|
|
|
|
$ |
3,154,323 |
|
$ |
2,990,606 |
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LIABILITIES
AND STOCKHOLDERS'
EQUITY
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CURRENT
LIABILITIES: |
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Note
payable-related party |
|
$ |
50,000 |
|
$ |
650,000 |
|
Accounts
payable-trade |
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|
116,678 |
|
|
245,198 |
|
Accrued
liabilities |
|
|
94,675 |
|
|
85,582 |
|
Total
current liabilities |
|
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261,353 |
|
|
980,780 |
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LONG-TERM
LIABILITIES: |
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Note
payable-related party |
|
$ |
200,000 |
|
$ |
-- |
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Note
payable-other |
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400,000 |
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|
-- |
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Asset
retirement obligation |
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182,484 |
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177,126 |
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Total
long-term liabilities |
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782,484 |
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177,126 |
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Total
Liabilities |
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1,043,837 |
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1,157,906 |
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STOCKHOLDERS'
EQUITY: |
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Preferred
Stock, $1 par value; |
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1,000,000
shares authorized, none issued |
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-- |
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-- |
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Common
Stock, no par value; 20,000,000 shares authorized, |
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10,173,200
issued and outstanding at |
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|
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|
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March
31, 2005 and 10,133,200 issued |
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20,585,865 |
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20,562,085 |
|
and
outstanding at June 30, 2004 |
|
|
|
|
|
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Accumulated
(deficit) |
|
|
(18,475,379 |
) |
|
(18,729,385 |
) |
Total
stockholders' equity |
|
|
2,110,486 |
|
|
1,832,700 |
|
|
|
$ |
3,154,323 |
|
$ |
2,990,606 |
|
See accompanying notes to financial
statements.
KESTREL
ENERGY, INC.
STATEMENTS
OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH, 2005 and
2004
(Unaudited)
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|
Three months ended March
31, |
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|
Nine months ended March
31, |
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2005 |
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|
2004 |
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2005 |
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2004 |
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REVENUE: |
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|
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Oil
and gas sales |
|
$ |
533,910 |
|
$ |
343,183 |
|
$ |
1,525,874 |
|
$ |
1,082,630 |
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COSTS
AND EXPENSES: |
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|
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|
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|
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Lease
operating expenses |
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228,713 |
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158,370 |
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655,542 |
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|
528,776 |
|
Dry
holes, abandoned and impaired properties |
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|
-- |
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|
-- |
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|
-- |
|
|
52,438 |
|
Exploration
expenses |
|
|
8,898 |
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|
14,432 |
|
|
45,175 |
|
|
28,355 |
|
Depreciation
and depletion |
|
|
45,521 |
|
|
52,307 |
|
|
133,561 |
|
|
149,757 |
|
General
and administrative |
|
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115,229 |
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|
143,150 |
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443,431 |
|
|
520,280 |
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TOTAL
COSTS AND EXPENSES |
|
|
398,361 |
|
|
368,259 |
|
|
1,277,709 |
|
|
1,279,606 |
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OTHER
INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
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Gain
on disposal of property & equipment |
|
|
1,875 |
|
|
-- |
|
|
1,875 |
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|
|
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Interest
income |
|
|
21 |
|
|
-- |
|
|
615 |
|
|
614 |
|
Interest
/ loan expense |
|
|
(15,298 |
) |
|
(16,331 |
) |
|
(53,286 |
) |
|
(51,866 |
) |
|
|
|
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|
|
|
|
|
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Other,
net |
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|
24,375 |
|
|
17,838 |
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|
56,637 |
|
|
103,256 |
|
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Total
other income (expense) |
|
|
10,973 |
|
|
1,507 |
|
|
5,841 |
|
|
52,004 |
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INCOME
(LOSS) BEFORE INCOME TAXES |
|
$ |
146,522 |
|
$ |
(23,569 |
) |
$ |
254,006 |
|
$ |
(144,972 |
) |
|
Provision
for income tax |
|
|
64,470 |
|
|
-- |
|
|
111,263 |
|
|
-- |
|
|
Tax
benefit of net operating loss carryforward |
|
|
(64,470 |
) |
|
-- |
|
|
(111,263 |
) |
|
-- |
|
|
NET
INCOME (LOSS) |
|
$ |
146,522 |
|
$ |
(23,569 |
) |
$ |
254,006 |
|
$ |
(144,972 |
) |
|
Basic
earnings loss per share |
|
$ |
0.01 |
|
$ |
(0.01 |
) |
$ |
0.02 |
|
$ |
(0.01 |
) |
|
Diluted
earnings loss per share |
|
$ |
0.01 |
|
$ |
(0.01 |
) |
$ |
0.02 |
|
$ |
(0.01 |
) |
|
Basic
weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding |
|
|
10,154,594 |
|
|
9,798,400 |
|
|
10,140,227 |
|
|
9,798,400 |
|
|
Diluted
weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding |
|
|
10,258,573 |
|
|
9,798,400 |
|
|
10,183,545 |
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|
9,798,400 |
|
See
accompanying notes to financial statements.
KESTREL
ENERGY, INC.
STATEMENTS
OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH
31, 2005 AND 2004
(Unaudited)
|
|
|
2005 |
|
|
2004 |
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
254,006 |
|
$ |
(144,972 |
) |
Adjustments
to reconcile net income (loss) |
|
|
|
|
|
|
|
to
net cash provided operating activities: |
|
|
|
|
|
|
|
Depreciation
and depletion |
|
|
133,561 |
|
|
149,757 |
|
Gain
on sale of property & equipment |
|
|
(1,875 |
) |
|
-- |
|
Other |
|
|
-- |
|
|
1,584 |
|
(Increase)
decrease in accounts receivable |
|
|
(67,839 |
) |
|
54,864 |
|
(Increase)
decrease in other current assets |
|
|
(17,958 |
) |
|
6,204 |
|
Increase
(decrease) in accounts payable-trade |
|
|
(128,520 |
) |
|
(19,293 |
) |
Increase
in accounts payable-related party |
|
|
-- |
|
|
36,823 |
|
Increase
(decrease) in accrued liabilities |
|
|
9,093 |
|
|
(3,475 |
) |
|
Net
cash provided by operating activities |
|
|
180,468 |
|
|
81,492 |
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Capital
expenditures/acquisition of properties |
|
|
(104,177 |
) |
|
(141,925 |
) |
Proceeds
from disposal of property |
|
|
1,875 |
|
|
-- |
|
|
Net
cash (used in) investing activities |
|
|
(102,302 |
) |
|
(141,925 |
) |
|
CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Proceeds
from exercise of stock options |
|
|
23,780 |
|
|
|
|
Proceeds
from issuance of debt |
|
|
60,000 |
|
|
-- |
|
Borrowings |
|
|
(60,000 |
) |
|
-- |
|
|
Net
cash provided by financing activities |
|
|
23,780 |
|
|
-- |
|
|
Net
increase (decrease) in cash and cash equivalents |
|
|
101,946 |
|
|
(60,433 |
) |
Cash
and cash equivalents at the beginning of the period |
|
|
162,507 |
|
|
128,604 |
|
|
Cash
and cash equivalents at the end of the period |
|
$ |
264,453 |
|
$ |
68,171 |
|
|
Cash
paid for interest |
|
$ |
50,360 |
|
$ |
51,867 |
|
See
accompanying notes to financial statements.
KESTREL
ENERGY, INC.
NOTES
TO FINANCIAL STATEMENTS
These
condensed financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 2004.
In the
opinion of management, the accompanying interim unaudited financial statements
contain all the adjustments necessary to present fairly the financial position
of the Company as of March 31, 2005, the results of operations for the
periods shown in the statements of operations, and the cash flows for the
periods shown in the statements of cash flows. All adjustments made are of a
normal recurring nature.
The
Company follows the successful efforts method of accounting for its oil and gas
activities. Accordingly, costs associated with the acquisition, drilling and
equipping of successful exploratory wells are capitalized. Geological and
geophysical costs, delay and surface rentals and drilling costs of unsuccessful
exploratory wells are charged to expense as incurred. Costs of drilling
development wells, both successful and unsuccessful, are capitalized. Upon the
sale or retirement of oil and gas properties, the cost thereof and the
accumulated depreciation or depletion are removed from the accounts and any gain
or loss is credited or charged to operations.
Proved
oil and gas properties are assessed for impairment on a well-by-well basis or a
field-by-field basis where unitized. If the net capitalized costs of proved
properties exceeds the estimated undiscounted future net cash flows from the
property, a provision for impairment is recorded to reduce the carrying value of
the property to its estimated fair value.
3. |
Asset
Retirement Obligation |
In 2001,
FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. This statement requires companies to record the present value
of obligations associated with the retirement of tangible long-lived assets in
the period in which it is incurred. The liability is capitalized as part of the
related long-lived asset's carrying amount. Over time, accretion of the
liability is recognized as an operating expense and the capitalized cost is
depreciated over the expected useful life of the related asset. The Company's
asset retirement obligations relate primarily to the plugging, dismantlement,
removal, site reclamation and similar activities of its oil and gas properties.
Prior to adoption of this statement, such obligations were accrued ratably over
the productive lives of the assets through its depreciation, depletion and
amortization for oil and gas properties without recording a separate liability
for such amounts.
|
The
amounts recognized upon adoption are based upon numerous estimates and
assumptions, including future retirement costs, future recoverable
quantities of oil and gas, future inflation rates and the credit-adjusted
risk-free interest rate. Changes in asset retirement obligations during
the year were: |
Asset
retirement obligations as of July 1, 2004 |
|
$ |
177,126 |
|
Liabilities
incurred |
|
|
¾ |
|
Liabilities
settled |
|
|
¾ |
|
Accretion
expense (included in depreciation, depletion and
amortization) |
|
|
5,358 |
|
|
|
|
|
|
Asset
retirement obligations as of March 31, 2005 |
|
$ |
182,484 |
|
On
January 24, 2003, the Company borrowed $400,000 from R&M Oil and Gas, Ltd.,
(“R&M”) of which Timothy L. Hoops, one of the Company’s directors and its
President and CEO, is a partner. That loan was originally due on January 31,
2005, bears interest at 12.5% per annum and is secured by the Company’s oil and
gas interests in Grady County, Oklahoma. In the event of a default under the
terms of the R&M loan, and the sale of the collateral securing the loan, the
Company would receive any remaining proceeds after payment to R&M of its
expenses in connection with such sale(s) and any indebtedness due and payable to
R&M under the loan. The proceeds from the R&M loan were used to retire
the outstanding debt to Samson Exploration N.L. (a related party) at that time
and reduce the Company’s accounts payable position. The R&M loan was
approved unanimously by the Board of Directors with Mr. Hoops abstaining.
On October 13, 2004, the R&M loan was extended to January 31, 2007
under the same terms and conditions.
On May 5,
2003, the Company entered into a Line of Credit Agreement with Barry D. Lasker,
the Company’s former President and CEO, for a maximum loan to the Company of
$200,000. Under the terms of the agreement, all outstanding amounts were due on
May 4, 2005 and bore interest at 10% per annum. The initial proceeds of the loan
consisted of $40,000 cash and the conversion to debt of approximately $152,000
of unpaid wages and unreimbursed business expenses owed to Mr. Lasker by
the Company. The Lasker loan was secured by the Company’s oil and gas interests
in Campbell County, Wyoming. On February 5, 2004, Mr. Lasker assigned the
$200,000 Lasker Loan to Samson Exploration N.L. (a related party) and Mr. Lasker
was paid in full. The terms and conditions of the Samson loan are a continuance
of the terms and conditions of the Lasker loan. The Samson loan, originally due
on May 4, 2005, has been extended until May 4, 2006 under the same terms and
conditions.
On June
8, 2004, the Company borrowed $50,000 from VP with an 8% interest rate which is
to be paid on repayment of the loan. This is an unsecured loan due on demand,
for which no demand has yet been made. On July 13, 2004, the Company borrowed
$60,000 from VP with an 8% interest rate. This loan was repaid in full on August
31, 2004, including all accrued interest with a total of $60,753.79 in
cash.
ITEM
2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
OVERVIEW
During
the Quarter the Company has continued its drive to cut costs and maximize
revenues. We are pleased to show continued improvement in our bottom line and we
can now look to the future with a sound asset base and two excellent high
reward-potential projects under our belt. In addition, the development of our
Hilight coalbed methane (CBM) play in Campbell County, Wyoming has continued to
provide us with a steady increase in reserves and revenues.
This
report contains forward-looking statements. We use words such as "anticipate",
"believe", "expect", "future", "may", "will", "should", "plan", "intend", and
similar expressions to identify forward-looking statements. These statements are
based on our beliefs and the assurances we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties and assumptions.
Our actual results could differ materially from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the risk factors in the Company’s
report on Form 10-KSB for the fiscal year ended June 30, 2004. You should not
place undue reliance on these forward-looking statements. You should also
remember that these statements are made only as of the date of this report and
future events may cause them to be less likely to prove to be true.
LIQUIDITY
AND CAPITAL RESOURCES
At March
31, 2005, the Company had working capital of $467,346. This
compares to the Company's
working capital deficit of $439,824 as of June 30, 2004. The increase in working
capital of $907,170 was primarily the result of the
extensions of the loans from R&M Oil & Gas, Ltd. (“R&M”) and Samson
Exploration N.L. (“Samson”), which returned them to the status of long-term
loans. The R&M loan was originally due on January 31, 2005 and has been
extended to January 31, 2007 under the same terms and conditions. The Samson
loan, originally due on May 4, 2005, has been extended until May 4, 2006 also
under the same terms and conditions.
Net cash
provided by operating activities was $180,468 for the nine months ended March
31, 2005, an increase of $98,976 from cash used by operating activities during
the same period of 2004. This increase in cash provided by operating activities
resulted primarily from higher profit margins (oil and gas sales less lease
operating expenses) from the Company’s oil and gas production activities.
Net cash
used by investing activities was $102,302 for the nine months ended March 31,
2005, versus cash used of $141,925 for the same period in 2004. The Company had
capital expenditures totaling $104,177 during the nine-months ended March 31,
2005, versus $141,925 during the same period of 2004, to maintain and enhance
the Company’s production on several of its core properties. The Company received
$1,875 in proceeds from the sale of the Dale 1-33 in Campbell County,
Wyoming.
Net cash
provided by financing activities was $23,780 for the nine-months ended March 31,
2005. During the quarter ended March 31, 2005, there were 40,000 shares issued
under the Company’s stock option plan, which provided the Company with $23,780
in proceeds. There was no cash used or provided by financing activities for the
nine months ended March 31, 2004.
RESULTS
OF OPERATIONS
The
Company reported net income of $146,522 and $254,006 for the three and
nine-month periods ended March 31, 2005, compared to net losses of $23,569 and
$144,972 during the comparable periods of 2004. The Company's results for the
quarter and nine months ended March 31, 2005 improved $170,091 and $398,978,
respectively, as compared to 2004, on the
strength of higher oil and gas prices and an increased level of gas
production.
The
Company's oil and gas revenues for the three months ended March 31, 2005 were
$533,910 compared to $343,183 during the same period of 2004, an increase of
$190,727 or 56%. The increase in revenues was primarily the result of higher oil
and gas prices and higher gas production received during the quarter. Oil
production levels were fairly consistent between the two quarters. The Company’s
revenues for the nine-month period ended March 31, 2005 were $1,525,874 as
compared to $1,082,630 during the same period in 2004, an increase of $443,244,
or 41%. The increase in revenues was primarily the result of higher oil and gas
prices received during the period and an increase in gas volumes. Once again,
oil production levels were not materially different between the two nine-month
periods.
The
Company’s total expenses for the third quarter ended March 31, 2005 increased
$30,102, or 8%, to $398,361 as compared to $368,259 a year ago. The increase in
overall expenses is primarily due to higher lease operating expense offset by
lower exploration, depreciation and general and administrative expense. For the
nine months ended March 31, 2005, total expenses decreased $1,897, or less than
1%, to $1,277,709 as compared to $1,279,606 a year ago. The decrease in expense
was again primarily due to higher lease operating and exploration expense offset
by lower abandoned property, depreciation and general and administrative
expense.
Exploration
expenses for the quarter ended March 31, 2005 decreased by $5,534 to $8,898, or
4%, from $14,432 a year ago. For the
nine months ended March 31, 2005, exploration expenses increased $16,820,
or 59%, to $45,175 versus $28,355 a year ago. The
increase in exploration expenses reflects a higher level of exploration
activities in the current year as the Company currently maintains and enhances
its properties.
General
and administrative costs for the three months ended March 31, 2005 decreased
$27,921, or 20%, to $115,229 as compared to $143,150 for the same period a year
ago. The
Company’s general and administrative expenses for the nine months ended March
31, 2005 decreased $76,849, or 15%, to $443,431
from $520,280. These
decreases were primarily attributable to a decrease in salary and insurance
expense.
Interest
expense and loan fees for the three-month period ended March 31, 2005 decreased
$1,033, or 6%, to
$15,298 from $16,331 a year ago. For the
nine months ended March 31, 2005, interest expense increased $1,420 or 3%, to
$53,286 from $51,866 a year ago.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
Company believes the following critical accounting policies affect our most
significant judgments and estimates used in the preparation of our Financial
Statements.
Recent
Accounting pronouncements
In
December 2004, the FASB issued SFAS 123(R), "Share-Based Payment," which is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R)
is effective for public companies for interim or annual periods beginning after
June 15, 2005, supersedes APB Opinion 25, Accounting for Stock Issued to
Employees, and amends SFAS 95, Statement of Cash Flows.
SFAS
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro-forma disclosure is no longer an alternative. The new standard
will be effective for the company, beginning August 1, 2005. The Company has not
yet completed their evaluation but expects the adoption to have an effect on the
financial statements similar to the pro-forma effects reported
above.
In
December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, which
changes the guidance in APB 29, Accounting for Nonmonetary Transactions. This
Statement amends APB 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is
effective during fiscal years beginning after June 15, 2005. The Company does
not believe the adoption of SFAS 153 will have a material impact on the
Company's financial statements.
The
Securities and Exchange Commission has issued Staff Accounting Bulletin (SAB)
No. 106 regarding the application of SFAS 143, "Accounting for Asset Retirement
Obligations," on oil and gas producing entities that use the full cost
accounting method. It states that after adoption of SFAS 143, the future cash
outflows associated with settling asset retirement obligations that have been
accrued on the balance sheet should be excluded from the present value of
estimated future net cash flows used for the full cost ceiling test calculation.
SAB No. 106 will be effective for the Company once the Company has proved
reserves and will exclude the future cash flows from settling asset retirement
obligations in its ceiling test computation upon having proved
reserves.
Property
and Equipment
The
Company follows the successful efforts method of accounting for its oil and gas
activities. Accordingly, costs associated with the acquisition, drilling and
equipping of successful exploratory wells are capitalized. Geological and
geophysical costs, delay and surface rentals and drilling costs of unsuccessful
exploratory wells are charged to expense as incurred. Costs of drilling
development wells, both successful and unsuccessful, are capitalized. Upon the
sale or retirement of oil and gas properties, the cost thereof and the
accumulated depreciation or depletion are removed from the accounts and any gain
or loss is credited or charged to operations.
Proved
oil and gas properties are assessed for impairment on a well-by-well basis or a
field-by-field basis where unitized. If the net capitalized costs of proved
properties exceeds the estimated undiscounted future net cash flows from the
property, a provision for impairment is recorded to reduce the carrying value of
the property to its estimated fair value.
Pipeline
and facilities are stated at original cost. Depreciation of pipeline and
facilities is provided on a straight-line basis over the estimated useful life
of the pipeline of twenty years.
Furniture
and equipment are depreciated using the straight-line method over estimated
lives ranging from three to seven years.
Management
periodically evaluates capitalized costs of unproved properties and provides for
impairment, if necessary, through a charge to operations.
Asset
retirement obligations
We
recognize the future cost to plug and abandon wells over the estimated useful
life of the wells in accordance with the provision of SFAS No.143. SFAS No.143
requires that we record a liability for the present value of the asset
retirement obligation increase to the carrying value of the related long-lived
asset. We amortize the amount added to the oil and gas properties and recognize
accretion expense in connection with the discount liability over the remaining
lives of the respective gas wells. Our liability estimate is based on our
historical experience in plugging and abandoning wells, estimated well lives
based on engineering studies, external estimates as to the cost to plug and
abandon wells in the future and federal and state regulatory requirements. The
liability is discounted using a credit-adjusted risk-free rate. Revisions to the
liability could occur due to changes in well lives, or if federal and state
regulators enact new requirements on the plugging and abandonment of
wells.
ITEM
3. Controls
and Procedures
Disclosure
Controls and Procedures
At the
end of the period reported on in this report, the Company carried out an
evaluation, under the supervision and participation of the Company’s Chief
Executive and Principal Financial Officer (the “Officer”) of the effectiveness
of the design and operation of the Company’s disclosure controls and procedures
pursuant to Securities Exchange Act Rule 13a-14. Based upon that evaluation, the
Officer concluded that the Company’s disclosure controls and procedures are
effective in all material respects, with respect to the recording, processing,
summarizing and reporting, within the time periods specified in the SEC’s rules
and forms, of information required to be disclosed by the Company in the reports
the Company files or submits under the Exchange Act.
Internal
Controls
There
were no significant changes made in the Company’s internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation described above.
PART
II OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
Not
applicable
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
Not
applicable
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable
ITEM
5. OTHER
INFORMATION
Not
applicable
|
31 |
Certificate of Chief Executive and Principal Financial
Officer pursuant to Section 302 of The Sarbanes-Oxley Act of
2002 |
|
32 |
Certification
of Chief Executive and Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
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.
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KESTREL ENERGY, INC. |
|
(Registrant) |
|
|
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Date: May 16, 2005 |
By: |
/s/TIMOTHY L.
HOOPS
|
|
Timothy L. Hoops, President, Chief Executive
Officer, Principal Financial Officer and Director |
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