UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2009
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 0-8532
OAKRIDGE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Utah (State or other jurisdiction of incorporation or organization) | | 87-0287176 (I.R.S. Employer Identification No.) |
4613 Jacksboro Highway Wichita Falls, Texas (Address of principal executive offices) | | 76302 (Zip Code) |
(940) 322-4772
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | | Accelerated filer o |
| | |
Non-accelerated filer o | | Smaller reporting company x |
(Do not check if a smaller reporting company) | | |
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
As of January 14, 2010, 4,093,114 shares of the registrant’s common stock, par value $.04 per share, were outstanding.
OAKRIDGE ENERGY, INC.
BALANCE SHEETS
| | November 30,
2009 | | February 28,
2009 | |
| | (Unaudited) | | | |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 1,604,225 | | $ | 207,244 | |
Trade accounts receivable | | 86,796 | | 131,686 | |
Investment securities available for sale | | 289,457 | | 72,992 | |
Prepaid expenses and other | | 10,010 | | 16,851 | |
Certificates of deposit | | 102,915 | | 2,483,931 | |
Total current assets | | 2,093,403 | | 2,912,704 | |
| | | | | |
Oil and gas properties, at cost, using the successful efforts method of accounting, net of accumulated depletion and depreciation of $7,007,583 and $7,001,515, respectively | | 329,979 | | 322,548 | |
| | | | | |
Coal and gravel properties, at cost, net of accumulated depreciation of $5,589,936 | | 260,488 | | 260,488 | |
| | | | | |
Other property and equipment, net of accumulated depreciation of $289,884 and $280,337, respectively | | 109,196 | | 118,743 | |
| | | | | |
Real estate held for sale | | 3,168,107 | | 3,168,107 | |
| | | | | |
Deferred income taxes | | 807,067 | | 670,464 | |
| | | | | |
Other non-current assets | | 450,030 | | 424,723 | |
| | | | | |
Total assets | | $ | 7,218,270 | | $ | 7,877,777 | |
See accompanying notes to financial statements.
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OAKRIDGE ENERGY, INC.
BALANCE SHEETS (continued)
| | November 30,
2009 | | February 28,
2009 | |
| | (Unaudited) | | | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 211,726 | | $ | 381,297 | |
Accrued expenses | | 198,238 | | 39,946 | |
Current portion of asset retirement obligations | | 6,184 | | 88,696 | |
Total current liabilities | | 416,148 | | 509,939 | |
| | | | | |
Asset retirement obligations | | 507,517 | | 505,904 | |
Total liabilities | | 923,665 | | 1,015,843 | |
| | | | | |
Commitments and contingencies | | | | | |
| | | | | |
Stockholders’ equity: | | | | | |
Common stock, par value $.04 per share, 20,000,000 shares authorized, 10,157,803 shares issued | | 406,312 | | 406,312 | |
Additional paid-in capital | | 805,092 | | 805,092 | |
Retained earnings | | 15,752,839 | | 16,042,106 | |
Accumulated other comprehensive income (loss), net of tax | | 55,853 | | (22,326 | ) |
Stockholders’ equity before treasury stock | | 17,020,096 | | 17,231,184 | |
Less treasury stock, at cost; 6,064,689 shares and 5,897,561 shares, respectively | | 10,725,491 | | 10,369,250 | |
Total stockholders’ equity | | 6,294,605 | | 6,861,934 | |
| | | | | |
Total liabilities and stockholders’ equity | | $ | 7,218,270 | | $ | 7,877,777 | |
See accompanying notes to financial statements.
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OAKRIDGE ENERGY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | Three Months Ended
November 30, | | Nine Months Ended
November 30, | |
| | 2009 | | 2008 | | 2009 | | 2008 | |
Oil and gas revenue | | $ | 259,844 | | $ | 359,095 | | $ | 754,452 | | $ | 1,466,970 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Oil and gas | | 210,623 | | 326,225 | | 655,548 | | 1,029,654 | |
Coal and gravel | | 2,104 | | 15,082 | | 24,671 | | 38,406 | |
Real estate development | | 61,213 | | 59,974 | | 202,694 | | 178,806 | |
General and administrative | | 121,667 | | 148,735 | | 420,289 | | 468,778 | |
Gain on sale of property | | (14,395 | ) | (188,611 | ) | (74,325 | ) | (208,611 | ) |
Total operating expenses | | 381,212 | | 361,405 | | 1,228,877 | | 1,507,033 | |
| | | | | | | | | |
Loss from operations | | (121,368 | ) | (2,310 | ) | (474,425 | ) | (40,063 | ) |
| | | | | | | | | |
Interest and other, net | | 1,087 | | (104,677 | ) | 15,489 | | (55,869 | ) |
| | | | | | | | | |
Loss before income taxes | | (120,281 | ) | (106,987 | ) | (458,936 | ) | (95,932 | ) |
| | | | | | | | | |
Income tax benefit | | (44,469 | ) | (39,555 | ) | (169,669 | ) | (35,468 | ) |
| | | | | | | | | |
Net loss | | $ | (75,812 | ) | $ | (67,432 | ) | $ | (289,267 | ) | $ | (60,464 | ) |
| | | | | | | | | |
Basic and diluted loss per common share: | | | | | | | | | |
Net loss | | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.07 | ) | $ | (0.01 | ) |
| | | | | | | | | |
Weighted average common shares outstanding | | 4,101,838 | | 4,260,242 | | 4,182,715 | | 4,260,242 | |
Comprehensive loss for the three months ended November 30, 2009 and 2008 was $42,403 and $23,371, respectively. Comprehensive loss for the nine months ended November 30, 2009 and 2008 was $211,088 and $30,359, respectively. Included in comprehensive loss is the change in available for sale securities, net of tax.
See accompanying notes to financial statements.
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OAKRIDGE ENERGY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | Nine Months Ended November 30, | |
| | 2009 | | 2008 | |
Operating Activities | | | | | |
Net loss | | $ | (289,267 | ) | $ | (60,464 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | |
Depletion and depreciation | | 15,615 | | 43,810 | |
Accretion of discount on asset retirement obligations | | 1,656 | | 16,966 | |
Deferred income taxes | | (176,877 | ) | (40,662 | ) |
Impairment of marketable securities available for sale | | — | | 124,143 | |
Change in reclamation bond liability | | (25,307 | ) | 435,999 | |
Abandoned leaseholds | | 377 | | 61,858 | |
Gain on sales of oil and gas properties | | (74,325 | ) | — | |
Gain on sales of coal and gravel properties | | — | | (20,000 | ) |
Gain on settlement of asset retirement obligation | | (34,116 | ) | — | |
Gain on sales of property and equipment | | — | | (188,611 | ) |
Loss on certificates of deposit | | 2,871 | | — | |
Changes in operating assets and liabilities: | | | | | |
Trade accounts receivable | | 44,890 | | 50,845 | |
Prepaid expenses and other | | 6,841 | | 9,945 | |
Accounts payable | | (169,571 | ) | 109,314 | |
Accrued expenses | | 158,292 | | 216,862 | |
Asset retirement obligation | | (48,439 | ) | — | |
Net cash provided by (used in) operating activities | | (587,360 | ) | 760,005 | |
| | | | | |
Investing Activities | | | | | |
Additions to investment securities available for sale | | (100,343 | ) | (69,234 | ) |
Additions to oil and gas properties | | (13,876 | ) | (112,993 | ) |
Additions to real estate held for sale | | — | | (33,034 | ) |
Purchases of certificates of deposit | | (251,524 | ) | (2,948,711 | ) |
Proceeds from maturities of certificates of deposit | | 2,632,000 | | 1,500,000 | |
Proceeds from sales of oil and gas properties | | 74,325 | | — | |
Proceeds from sales of coal and gravel properties | | — | | 20,000 | |
Proceeds from sales of property and equipment | | — | | 190,000 | |
Proceeds from sales of other non-current assets | | — | | 15,000 | |
Net cash provided by (used in) investing activities | | 2,340,582 | | (1,438,972 | ) |
| | | | | |
Financing Activities | | | | | |
Purchases of treasury stock | | (356,241 | ) | — | |
Net increase (decrease) in cash and cash equivalents | | 1,396,981 | | (678,967 | ) |
Cash and cash equivalents at beginning of period | | 207,244 | | 2,309,055 | |
Cash and cash equivalents at end of period | | $ | 1,604,225 | | $ | 1,630,088 | |
| | | | | |
Supplemental Disclosure of Cash Flow Information | | | | | |
Income taxes paid | | $ | 7,894 | | $ | 6,634 | |
| | | | | |
Supplemental Disclosure of Non-Cash Information | | | | | |
Change in unrealized loss on investment securities, net of tax | | $ | 78,179 | | $ | 30,105 | |
See accompanying notes to financial statements.
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OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(Unaudited)
A. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-K for the three and nine month periods ended November 30, 2009 and 2008 and reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. The foregoing financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the fiscal year ended February 28, 2009 included in the Annual Report on Form 10-K of Oakridge Energy, Inc. (the “Company”) filed with the Securities and Exchange Commission (the “SEC”). The interim unaudited financial statements should be read in conjunction with the annual financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009. Operating results for the three and nine months ended November 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2010. The Company’s operating segments are set forth in the annual financial statements and accompanying notes for the fiscal year ended February 28, 2009.
B. Impact of Recently Issued Accounting Standards
On December 31, 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements. Many of the revisions are updates to definitions in the existing oil and gas rules to make them consistent with the petroleum resource management system, which is a widely accepted standard for the management of petroleum resources that was developed by several industry organizations. Key revisions include changes to the pricing used to estimate reserves utilizing a 12-month average price rather than a single day spot price which eliminates the ability to utilize subsequent prices to the end of a reporting period when the full-cost ceiling was exceeded and subsequent pricing exceeds pricing at the end of a reporting period, the ability to include nontraditional resources in reserves, the use of new technology for determining reserves, and permitting disclosure of probable and possible reserves. The SEC will require companies to comply with the amended disclosure requirements for registration statements filed after January 1, 2010, and for annual reports on Form 10-K for fiscal years ending on or after December 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact that the adoption will have on the Company’s disclosures, operating results, financial position and cash flows.
In June 2009, the Financial Accounting Standards Board (“FASB”) issued a new Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles. The FASB ASC became the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants
5
(“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. The new codification system reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant SEC guidance organized using the same topical structure in separate sections. This standard, which is now considered FASB ASC Topic 105 became effective for financial statements issued for reporting periods that end after September 15, 2009.
C. Fair Value
Effective March 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”) currently classified in FASB ASC Topic 820. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
· Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
· Level 2 –Other inputs that are directly or indirectly observable in the marketplace.
· Level 3 – Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s cash equivalents and marketable securities are classified within Level 1. Assets measured at fair value are summarized below:
| | | | Fair Value Measurement at
November 30, 2009 Using: | |
| | November 30,
2009 | | Quoted Prices In
Active Markets
For Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | |
Assets: | | | | | | | | | |
Money market funds | | $ | 1,604,225 | | $ | 1,604,225 | | $ | — | | $ | — | |
Investment securities available for sale | | 289,457 | | 289,457 | | — | | — | |
Certificates of deposit | | 102,915 | | 102,915 | | — | | — | |
Non-current certificates of deposit | | 405,834 | | 405,834 | | — | | — | |
| | $ | 2,402,431 | | $ | 2,402,431 | | $ | — | | $ | — | |
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D. Segment Information
Information regarding operations and assets by segment is as follows:
| | For the Three Months Ended
November 30, | | For the Nine Months Ended
November 30, | |
| | 2009 | | 2008 | | 2009 | | 2008 | |
Business segment revenue: | | | | | | | | | |
Oil and gas | | $ | 259,844 | | $ | 359,095 | | $ | 754,452 | | $ | 1,466,970 | |
| | | | | | | | | |
Business segment profit (loss) | | | | | | | | | |
Oil and gas | | $ | 63,616 | | $ | 221,481 | | $ | 173,229 | | $ | 645,927 | |
Coal and gravel | | (2,104 | ) | (15,082 | ) | (24,671 | ) | (38,406 | ) |
Real estate development | | (61,213 | ) | (59,974 | ) | (202,694 | ) | (178,806 | ) |
General corporate | | (121,667 | ) | (148,735 | ) | (420,289 | ) | (468,778 | ) |
Loss from operations | | (121,368 | ) | (2,310 | ) | (474,425 | ) | (40,063 | ) |
Interest income and other, net | | 1,087 | | (104,677 | ) | 15,489 | | (55,869 | ) |
Loss before income taxes | | $ | (120,281 | ) | $ | (106,987 | ) | $ | (458,936 | ) | $ | (95,932 | ) |
| | As of
November 30, 2009 | | As of
February 28, 2009 | |
Total assets: | | | | | |
Oil and gas | | $ | 3,264,635 | | $ | 3,933,061 | |
Coal and gravel | | 260,488 | | 260,488 | |
Real estate held for sale | | 3,168,107 | | 3,168,107 | |
General corporate | | 525,040 | | 516,121 | |
| | $ | 7,218,270 | | $ | 7,877,777 | |
E. Subsequent Events
Management has evaluated and disclosed subsequent events up to and including January 14, 2010, which is the date the Company’s financial statements were available for issuance.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with Items 6 and 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009 and the Notes to Financial Statements contained in this Quarterly Report on Form 10-Q.
Results of Operations
Net Income (Loss). The Company had a net loss of $75,812 ($0.02 per share) in the three months ended November 30, 2009 (the “three month 2009 period”) compared to a net loss of $67,432 ($0.02 per share) in the three months ended November 30, 2008 (the “three month 2008 period”) as a result of the items discussed below. In the nine months ended November 30, 2009 (the “nine month 2009 period” and together with the three month 2009 period, the “2009 periods”), the Company had a net loss of $289,267 ($0.07 per share) compared to a net loss of $60,464 ($0.01 per share) in the nine months ended November 30, 2008 (the “nine month 2008 period” and together with the three month 2008 period, the “2008 periods”) as a result of the items discussed below.
Revenues. Combined oil and gas revenues for the three month 2009 period were $259,844 compared to $359,095 for the three month 2008 period, representing a decrease of $99,251 (27.6%). Combined oil and gas revenues for the nine months ended November 30, 2009 were $754,452 compared to $1,466,970 for the nine months ended November 30, 2008, representing a decrease of $712,518 (48.6%). The decreases in the 2009 periods as compared to the 2008 periods were due to a substantial decline in the Company’s average price received for oil and gas and a decline in oil and gas sales volumes. The following tables compare the Company’s oil and gas revenues, sales volumes and average prices received during the 2009 periods with those during the 2008 periods:
| | Three Months Ended
November 30, 2009 | | Three Months Ended
November 30, 2008 | | Percentage
Difference | |
Oil: | | | | | | | |
| | | | | | | |
Revenues | | $ | 230,679 | | $ | 314,001 | | (26.5 | )% |
Volume (Bbls.) | | 3,204 | | 3,918 | | (18.2 | )% |
Average Price (per Bbl.) | | $ | 72.00 | | $ | 80.14 | | (10.2 | )% |
| | | | | | | |
Gas: | | | | | | | |
| | | | | | | |
Revenues | | $ | 20,015 | | $ | 35,944 | | (44.3 | )% |
Volume (MCF) | | 5,660 | | 6,653 | | (14.9 | )% |
Average Price (per MCF) | | $ | 3.54 | | $ | 5.40 | | (34.4 | )% |
8
| | Nine Months Ended
November 30, 2009 | | Nine Months Ended
November 30, 2008 | | Percentage
Difference | |
Oil: | | | | | | | |
| | | | | | | |
Revenues | | $ | 673,902 | | $ | 1,296,244 | | (48.0 | )% |
Volume (Bbls.) | | 11,028 | | 12,020 | | (8.3 | )% |
Average Price (per Bbl.) | | $ | 61.11 | | $ | 107.84 | | (43.3 | )% |
| | | | | | | |
Gas: | | | | | | | |
| | | | | | | |
Revenues | | $ | 53,100 | | $ | 140,802 | | (62.3 | )% |
Volume (MCF) | | 17,086 | | 17,626 | | (3.1 | )% |
Average Price (per MCF) | | $ | 3.11 | | $ | 7.99 | | (61.1 | )% |
Non-material amounts of natural gas liquids revenues and sales are excluded from the foregoing tables.
Madison County, Texas Property. The Company’s principal producing oil and gas property in Madison County, Texas (the “Madison County, Texas Property”) is in the process of being waterflooded. Oil and gas revenue received from the Madison County, Texas Property decreased $68,796 (31.8%) for the three month 2009 period and $428,573 (49.8%) for the nine month 2009 period as compared to the corresponding 2008 periods. The major factors contributing to the decreases for both periods were significantly lower oil and gas prices received by the Company in both of the 2009 periods as compared to the 2008 periods coupled with decreases in oil sales volumes of 539 barrels (21.9%) in the three month 2009 period and 713 barrels (9.6%) in the nine month 2009 period as compared to the corresponding 2008 periods. Gas revenues also decreased in both 2009 periods as compared to the 2008 periods, however, revenue from gas sales account for only approximately 5% to 7% of the total oil and gas revenue from the Madison County, Texas Property. Although operating expenses on the property decreased for both the three month 2009 period and the nine month 2009 period as compared to the corresponding 2008 periods, the significant decrease in the Company’s average price received for oil and gas sales and reduced sales volumes resulted in minimal net income from the property.
Gravel. As of fiscal 1994, gravel is no longer mined from the Company’s property in Durango, Colorado (the “Durango Property”). Four Corners Materials (“FCM”), the former operator of the gravel mine, partially reclaimed the property in fiscal 2006 and received a partial release of its reclamation warranty. In fiscal 2009, the Colorado Division of Reclamation, Mining, and Safety (the “CDRMS”) records indicated that FCM requested a release of financial warranties and termination of the gravel permit, which the CDRMS denied. According to the CDRMS, FCM had not reclaimed its sediment pond and overburden pile within the gravel permit area, had not reclaimed certain lengths of diversion ditch, had not topsoiled and seeded those areas, and had not reclaimed the electrical substation. The CDRMS continues to hold $104,000 of FCM’s financial warranty for completion of the gravel mine reclamation.
Coal. The Company’s Carbon Junction Coal Mine permit, located in La Plata County, Colorado, covers 192 acres, and approximately 3.5 acres remained disturbed as of February 28,
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2009. On August 25, 2006, the Company applied for a Phase I Bond Release of its financial warranty on a portion of the Carbon Junction Coal Mine, and approval of the bond release became final on May 23, 2008. Approval criteria for a Phase I Bond Release state that “up to sixty percent of the applicable bond amount shall be released when the permittee has successfully completed backfilling, regrading, and drainage control in accordance with the approved reclamation plan.” The amount of financial warranty applicable to the bond release area was $524,848. Therefore the Phase I Bond Release amount was $314,909 (60% x $524,848), requiring a remaining financial warranty in the amount of $380,527, which was based upon the total financial warranty of $695,436. A discrepancy in calculation of the Phase I Bond Release by the CDRMS regarding the Company’s remaining financial warranty resulted in the CDRMS requiring the Company to increase its current financial warranty from $380,527 to $405,834 pursuant to a letter request to the Company on December 12, 2008.
On November 19, 2007, the Company submitted Technical Revision No. 15 for approval of sediment pond removal. On January 28, 2008, the sediment pond removal was approved with conditions and in December 2008, reclamation of the sediment control system at the Carbon Junction Coal Mine was completed, with final revegetation of the reclaimed areas undertaken in April 2009.
On July 30, 2008, the Company submitted a Phase III bond release application seeking a monetary release of $237,356 of the then current $380,527 financial warranty. Currently, approximately 3.5 disturbed acres remain to be reclaimed; however, the acreage is contained in a topsoil pile that is in excess to the requirements of reclamation of the mine site, and the CDRMS has expressed a willingness to revise the current reclamation permit requirements to exclude the topsoil pile from being redisturbed or reclaimed. The full release of the Company’s financial warranty is subject to the CDRMS’s confirmation that either residential post-mining land use has been implemented or environmental responses, ground cover, vegetative habitat and re-growth have stabilized which may require two years or longer. In May, 2009, the CDRMS advised the Company that it did not believe that residential post-mining land use had been “substantially commenced and is likely to be achieved” and that the Company’s Phase III bond release application would be held pending further information from the Company. The Company is continuing to evaluate its options with regard to obtaining approval from the CDRMS of the Phase III bond release application.
Expenses. The Company’s oil and gas operating expenses for the three month 2009 period were $210,623 compared to $326,225 for the three month 2008 period, representing a decrease of $115,602 (35.4%). The Company’s oil and gas operating expenses for the nine month 2009 period were $655,548 compared to $1,029,654 for the nine month 2008 period, representing a decrease of $374,106 (36.3%). These decreases were principally due to decreased lease operating expenses, a decrease in write offs of abandoned leasehold interests and decreases in production taxes. The Company also recognized a gain in the 2009 periods related to the completion of a plugging program on certain previously abandoned North Texas oil and gas properties in the amount of $34,116. No such gain was recognized in the 2008 periods. The Company did not incur any exploration expenses or dry hole expenses during 2008 or 2009.
The Company’s coal operating expenses for the three month 2009 period were $2,104 compared to $15,082 for the three month 2008 period, representing a decrease of $12,978 (86.0%). The Company’s coal operating expenses for the nine month 2009 period were $24,671
10
compared to $38,406 for the nine month 2008 period, representing a decrease of $13,735 (35.8%). The decreases for both 2009 periods as compared to the comparable 2008 periods were due to reduced permitting activities in the 2009 periods. Coal operating expenses will continue until final reclamation of the Carbon Junction Coal Mine and full release of the financial warranty required under the mine permit is obtained from the CDRMS.
Real estate development expenses were $61,213 for the three month 2009 period as compared to $59,974 for the three month 2008 period, representing an increase of $1,239 (2.1%). The Company’s real estate development expenses for the nine month 2009 period were $202,694 as compared to $178,806 for the nine month 2008 period, representing an increase of $23,888 (13.4%). The increase was primarily attributable to increased legal expenses regarding ad valorem taxes.
General and administrative expenses for the three month 2009 period were $121,667 as compared to $148,735 for the three month 2008 period, representing a decrease of $27,068 (18.2%). General and administrative expenses for the nine month 2009 period were $420,289 compared to $468,778 for the nine month 2008 period, representing a decrease of $48,489 (10.3%). The decrease was primarily attributable to fees related to compliance with federal securities laws in the nine month 2008 period that were not incurred in the nine month 2009 period and lower payroll costs for the nine month 2009 period as compared to the nine month 2008 period.
Interest and Other Income. Interest and other income for the three month 2009 period was $1,087 compared to $(104,677) for the three month 2008 period, representing an increase of $105,764 (101.0%). Interest and other income for the nine month 2009 period was $15,489 compared to $(55,869) for the nine month 2008 period, representing an increase of $71,358 (127.7%). Reduced interest and dividend income due to lower interest rates and smaller principal amounts caused interest and dividend income to decrease by $18,379 (94.4%) for the three month 2009 period as compared to the three month 2008 period. Interest and dividend income also decreased $49,914 (73.1%) for the nine month 2009 period as compared to the nine month 2008 period. Although interest and dividend income was substantially more in both the 2008 periods, these amounts were partially offset by the writedown of an investment security that is considered permanently impaired in the three month 2008 period in the amount of $124,143. With only minimal writedowns in the 2009 periods other income increased in both 2009 periods as compared to the 2008 periods.
The Company repurchased 18,901 shares of its common stock during the three month 2009 period at an average price of $1.60 per share.
Financial Condition and Liquidity
Operating activities were net users of funds for the nine month 2009 period primarily due to the Company’s net loss for the 2009 period, the change in deferred income taxes and payment of property taxes and reclamation expenses for the Durango Property which were included in accounts payable at the February 28, 2009 fiscal year end.
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Investing activities were net providers of funds in the nine month 2009 period primarily due to the maturities of certificates of deposit of $2,632,000 which were partially offset by purchases of certificates of deposit and investment securities available for sale. The Company also used approximately $356,000 to repurchase shares of its common stock for the nine month 2009 period. As a result, the Company’s cash and cash equivalents increased by approximately $1,397,000 for the nine month 2009 period as compared to a decrease of approximately $679,000 for the nine month 2008 period. At November 30, 2009, the Company had no indebtedness and had cash and cash equivalents and certificates of deposit of approximately $1,604,225 and $102,915, respectively.
The Company expects to fund its contemplated operations and any purchases of shares of the Company’s common stock it makes, if any, during the remainder of fiscal 2010 from its cash and cash equivalents and any cash flow from its operations.
Critical Accounting Policies and Estimates
The Company did not have any changes in critical accounting policies or in significant accounting estimates during the nine months ended November 30, 2009. Please see the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009 for a detailed discussion of critical accounting policies and estimates.
Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q and other materials filed by the Company with the Securities and Exchange Commission (the “SEC”) contain forward-looking statements relating to the Company’s operations and the oil and gas industry. Such forward-looking statements are based on management’s current projections and estimates and are identified by words such as “expects,” “intends,” “plans,” “believes,” “estimates,” “anticipates” and similar words. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from what is expressed in such forward-looking statements.
Among the factors that could cause actual results to differ materially are oil and gas price fluctuations, failure to achieve expected production and the timing of receipt of revenues from existing and future exploration and development projects (including, particularly, the secondary recovery project on the Madison County, Texas Property), higher than estimated oil and gas and coal reclamation costs and delays with respect to, or failure to obtain, governmental permits and approvals necessary to proceed with real estate development. In addition, these forward-looking statements may be affected by general domestic and international economic and political conditions.
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ITEM 4T. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified by the SEC. In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
The Company’s management, namely the Chief Executive and Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive and Financial Officer has concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q because of the following deficiency involving internal control over financial reporting that constituted a material weakness as discussed below.
The material weakness identified was that the Company does not have the required technical expertise to properly calculate complex oil and gas required disclosures for FASB ASC Topic 740 income taxes and relies on outside sources for that calculation.
The Company has not implemented a control to mitigate the material weakness related to FASB ASC Topic 740 calculations and disclosures. At any time, if it appears that a control can be implemented to mitigate such material weakness that will not impose a significant financial burden, the Company expects to implement the control.
Management’s Quarterly Report on Internal Control Over Financial Reporting.
There has not been any change in the Company’s internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Repurchases: The Company repurchased 18,901 shares of its common stock during the three month 2009 period.
Period | | Total Number of
Shares Purchased | | Average Price
Paid Per Share | | Total Number of
Shares Purchased
as Part of a
Publicly
Announced Plan | | Maximum
Number of Shares
that May Yet be
Purchased Under
the Plan | |
September 1-September 30, 2009 | | — | | — | | — | | — | |
October 1-October 31, 2009 | | 18,901 | | $ | 1.60 | | — | | — | |
November 1-November 30, 2009 | | — | | — | | — | | — | |
Total | | 18,901 | | $ | 1.60 | | — | | — | |
The Company repurchased 18,901 shares of its common stock in a private transaction based upon the stock price on the closing day of the transaction.
ITEM 6. EXHIBITS
(31.1) Rule 13a-14(a)/Rule 15d-14(a) Certification of Sandra Pautsky, Principal Executive Officer of the Company, filed herewith.
(31.2) Rule 13a-14(a)/Rule 15d-14(a) Certification of Sandra Pautsky, acting Principal Financial Officer of the Company, filed herewith.
(32) Section 1350 Certification of Sandra Pautsky, Principal Executive Officer and acting Principal Financial Officer of the Company, filed herewith.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| OAKRIDGE ENERGY, INC. |
| (Registrant) |
| |
Date: January 14, 2010 | By: | /s/ Sandra Pautsky |
| Sandra Pautsky, President and Principal |
| Executive Officer and acting Principal |
| Financial Officer of Oakridge Energy, Inc. |
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