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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ___________
COMMISSION FILE NUMBER: 0-12185
ALASKA APOLLO RESOURCES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PROVINCE OF BRITISH COLUMBIA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
131 PROSPEROUS PLACE, SUITE 17
LEXINGTON, KENTUCKY 40509-1844
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (606) 263-3948
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF SEPTEMBER 30, 1997, WAS 9,498,479.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The information required by this Item 1 appears on pages 8 through 10
of this Report, and is incorporated herein by reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In the fourth quarter of 1993, the Registrant acquired its wholly owned
subsidiary, Daugherty Petroleum, Inc. ("DPI"). Since the acquisition, the
Registrant has been aggressively (1) acquiring natural gas and oil properties in
southeastern and western Kentucky, (2) expanding its natural gas production
through joint ventures and drilling programs for its own account, and (3)
diversifying its revenue and asset base to include other segments of natural
resource industry.
The Company has traditionally realized revenues from its oil and gas
operations. For the nine months ended September 30, 1997, the Registrant drilled
nine natural gas wells and completed nine natural gas wells. This is in contrast
to the same period of 1996 when the Registrant drilled three natural gas wells
and completed seven natural gas wells. The drilling performed in the first nine
months of 1997 is primarily related to a joint venture on the Registrant's
Farmout acreage from Equitable Resources Energy Corporation. Daugherty
Petroleum's interest in four wells on this tract was financed by a subsidiary of
Enron Capital & Trade Resources, Inc. In addition, DPI drilled and completed
three wells in the first nine months of 1997 for a joint venture with Dominion
Resources, Inc. The wells drilled with Dominion Resources were drilled pursuant
to a 15 well drilling program signed in the second quarter of 1995. As of
September 30, 1997, fourteen wells have been drilled pursuant to this contract.
On November 17, 1996, DPI acquired 80% interest in Red River Hardwoods, Inc., a
dimensional hardwood manufacturing company that produces furniture dimension
parts, architectural moulding and industrial flooring.
LIQUIDITY
The Company continues to acquire natural gas and oil properties in
southeastern and western Kentucky. DPI has provided the Company with a
diversified asset base which includes natural resources other than its
prospective gold and silver mining properties and has also increased the
Company's asset base. During 1996, management continued to invest in areas it
deemed critical in developing an infrastructure suitable to support its future
growth. These areas included ongoing expenses in management, professional and
operational personnel and other expenses deemed necessary to position the
Company for future acquisitions and financing.
Historically, the Company's revenues have been from its interests in
the producing natural gas and oil wells it operates and owns interest in, and
from its activities as "turnkey driller" and operator for various drilling
programs in its geographic area. In 1996, DPI reduced its dependence on
activities as "turnkey driller" for private investors and instead concentrated
on joint ventures with industry partners. During the first nine months of 1997,
approximately 21% of the Company's revenues were derived from joint venture
drilling. Natural gas and oil operations
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and revenues accounted for 11% of the revenues. The Company has also begun to
see additional revenues from Red River's activities. Manufacturing sales related
to Red River accounted for 68% of the revenues.
The Company plans to drill 15 wells during 1997 and will attempt to
earn interests ranging from 12.5% to 50% interest in each well it drills.
During 1996, the Company held negotiations with several potential
financial institutions and investors with the intent of securing financing
necessary to provide credit facilities for the Company to support existing and
future capital requirements. In December, 1996, DPI signed a loan agreement with
a subsidiary of Enron Capital and Trade Resources, Inc., in the amount of
$340,000 providing financing for one well to be acquired and 50% of the drilling
and completion costs of four natural gas wells. As of September 30, 1997, DPI
had drawn $270,000 on the credit line. It is expected that, in addition to this
credit facility, DPI will acquire additional loans to develop its existing
natural gas leasehold interests.
Working capital as of September 30, 1997, was a negative $436,378, a
decrease of $316,423 when compared to a negative $119,955 working capital at
September 30, 1996.
During the first nine months of 1997, and compared to the same period
in 1996, the major changes in the composition of the Company's current assets
were: cash balances increased $213,673 from $102,445 to $316,118; accounts
receivable balances decreased $16,298 from $648,886 to $632,588; and inventories
increased $574,397 from $42,837 to $617,234. Other current assets such as
prepaids and notes receivable decreased $401,780 from $506,585 to $104,805
primarily due to the acquisition of Red River Hardwoods and the resulting
consolidation of Red River's and Daugherty Petroleum's financial statements. The
increase in inventory balances was a result of the Company's acquisition of Red
River during the period. Overall, current assets increased by $369,992 from
$1,300,753 to $1,670,745.
During the first nine months of 1997, and compared to the same period
in 1996, current liabilities increased $686,415 from $1,420,708 to $2,107,123.
The additional long term debt currently payable relating to the acquisition of
Red River Hardwoods accounted for $100,000 of the increase of $686,415.
While management believes that the cash flow resulting in its operating
revenues will contribute significantly to its short-term financial commitments
and operating costs, its has developed a plan for the remainder of 1997 to meet
its financial obligations. The plan includes:
- Acquisition of revenue producing properties. In March, 1996,
DPI acquired working interests in 26 oil wells and six water
injection wells which contributed a net increase in revenues
of $85,768 during 1996. DPI has made offers for two oil and
gas properties which include producing gas wells with
developmental acreage for drilling additional wells. As of the
date of this document, a Letter of Intent had been signed to
acquire oil and gas assets in Kentucky, Louisiana and
Tennessee.
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- Sale of non-revenue producing oil properties. The Company has
entered into a sale agreement for Niagara Oil, Inc. When
successfully completed, this transaction will result in a
reduction of debt service. In addition, the purchaser has
agreed to contract with Daugherty Petroleum for the
development, enhancement, and operation of these wells.
- Installation of additional natural gas gathering system. The
Company plans to expand its natural gas pipeline by 45,000
feet in 1997. The extension will allow for substantially more
natural gas to be transported to market.
- Obtain addition funding for Red River Hardwoods, Inc.
Management believes additional funding will permit Red River
increase inventory and fund accounts receivable necessary to
sustain substantially increased sales.
RESULTS OF OPERATIONS
For the period ending September 30, 1997, the Company's gross revenues
increased to $3,582,343 from $1,092,047 for the same period in 1996. The Company
experienced a net loss of $1,066,994 in this period compared to a net loss of
$549,527 for the same period of 1996. $200,095 of the loss for the period ended
September 30, 1997, was a result of the sale of natural gas wells that were not
connected to Daugherty Petroleum's gathering system and other fixed assets.
The Company's gross revenues were derived from drilling contract
revenues of $756,646 (21%); natural gas and oil operations and production
revenues of $396,891 (11%); and lumber sales and product manufacturing revenues
of $2,428,806 (68%).
The increase in gross revenues was attributable primarily to the
manufacturing revenues related to Red River Hardwoods. Contract revenues from
drilling activities increased by $346,398 from $410,248 in the first nine months
of 1996 to $756,646 in the first nine months of 1997, an increase of 84%.
During the first nine months of 1997, total direct costs increased by
$2,254,153 to $2,994,940 compared to $740,787 in the first nine months of 1997.
Direct costs included Red River Hardwoods' expenses and Daugherty Petroleum's
drilling costs for natural gas wells. Depreciation and amortization increased by
$44,901 to $208,028 primarily due to the acquisition of Red River Hardwoods.
The Company believes there are three key factors that will increase
revenues for the remainder of 1997. First, the prices received for natural gas
produced are up significantly over 1996's overall average price. Second, the
natural gas gathering system expansion planned for 1997 will dramatically
increase Daugherty Petroleum's ability to transport natural gas to the market.
Third, the acquisition of Red River Hardwoods expands the Company's involvement
in Kentucky natural resources to include hardwoods.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Documents Filed with this Report.
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Pages
(1) Financial Statements, Alaska Apollo Resources Inc., and subsidiary companies--
Consolidated Balance Sheet
for the period ended September 30, 1997 8
Consolidated Statement of Profit (Loss)
for the period ended September 30, 1997 9
Consolidated Statement of Cash Flow
for the period ended September 30, 1997 10
All schedules have been omitted since the information required to be
submitted has been included in the financial statements or notes or has been
omitted as not applicable or not required.
(2) Exhibits--
The exhibits indicated by an asterisk (*) are incorporated by
reference.
Exhibit
Number Description of Exhibit
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3(a)* Memorandum and Articles for Catalina Energy & Resources Ltd.,
a British Columbia corporation, dated January 31, 1979, filed
as an exhibit to Form 10 Registration Statement filed May 25,
1984. File No. 0-12185.
3(b)* Certificate for Catalina Energy & Resources Ltd., a British
Columbia corporation, dated November 27, 1981, changing the
name of Catalina Energy & Resources Ltd. to Alaska Apollo Gold
Mines Ltd., and further changing the authorized capital of the
Company from 5,000,000 shares of common stock, without par
value per share, to 20,000,000 shares of common stock, without
par value per share, filed as an exhibit to Form 10
Registration Statement filed May 25, 1984. File No. 0-12185.
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3(c)* Certificate of Change of Name for Alaska Apollo Gold Mines
Ltd., a British Columbia corporation, dated October 14, 1992,
changing the name of Alaska Apollo Gold Mines Ltd. to Alaska
Apollo Resources Inc., and further changing the authorized
capital of the Company from 20,000,000 shares of common stock,
without par value per share, to 6,000,000 shares of common
stock, without par value per share.
3(d)* Altered Memorandum of Alaska Apollo Resources Inc., a British
Columbia corporation, dated September 9, 1994, changing the
authorized capital of the Company from 6,000,000 shares of
common stock, without par value per share, to 20,000,000
shares of common stock, without par value per share.
4* See Exhibit No. 3(a).
10(a)* Alaska Apollo Resources Inc. 1997 Stock Option Plan
10(b)* Incentive Stock Option Agreement by and between Alaska Apollo
Resources Inc. and William S. Daugherty dated March 7, 1997.
10(c)* Warrant Agreement by and between Alaska Apollo Resources Inc.
and Jayhead Investments Limited dated March 7, 1997.
10(d)* Warrant Agreement by and between Alaska Apollo Resources Inc.
and Trio Growth Trust dated March 7, 1997.
10(e)* Warrant Agreement by and between Alaska Apollo Resources Inc.
and Exergon Capital S.A. dated March 7, 1997.
21 Subsidiaries of the Company:
- Niagara Oil, Inc., a Kentucky corporation
- Daugherty Petroleum, Inc., a Kentucky corporation
- Red River Hardwoods, Inc., a Kentucky corporation
27 Financial Data Schedule
(b) Reports on Form 8-K.
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None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of the
undersigned hereunto duly authorized.
ALASKA APOLLO RESOURCES INC.
By: /s/ William S. Daugherty
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William S. Daugherty, President
Dated: November 14, 1997
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ALASKA APOLLO RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(UNITED STATES DOLLARS)
UNAUDITED
30-SEP-96 30-SEP-97
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ASSETS
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CURRENT ASSETS
Cash $ 102,445 $ 316,118
Account Receivable 648,886 632,588
Inventory 42,837 617,234
Prepaid Expenses 5,659 7,284
Intercompany and Other Receivable 500,926 0
Other Current 0 97,521
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Subtotal Current 1,300,753 1,670,745
MINING PROPERTY AND
RELATED EXPENDITURES-NET 11,250,790 11,252,733
OIL AND GAS PROPERTIES - NET 4,207,582 3,776,068
CAPITAL ASSETS 284,987 1,985,415
OTHER ASSETS
Deferred Tax Benefit 0 0
Bonds and Deposits 42,919 68,282
Related Party Receivable 107,645 51,612
Other Assets 0 351,885
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Subtotal Other Assets 150,564 471,779
NOTES RECEIVABLE 0 0
GOODWILL (NET OF ACCUMULATED
AMORTIZATION OF $741,610) 1,252,696 1,362,059
INCORPORATION COSTS 0 0
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TOTAL ASSETS $ 18,447,372 $ 20,518,799
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LIABILITIES
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CURRENT LIABILITIES
Bank Loan $ 7,000 $ 57,000
Account Payable and Accrued Liabilities 1,138,934 1,497,805
Long Term Debt 274,774 510,000
Loans Payable 0 42,318
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Subtotal Current Liabilities 1,420,708 2,107,123
LONG-TERM DEBT 1,557,053 3,857,539
DEFERRED INCOME TAXES 8,890 0
NON-CONTROLLING INTEREST 0 757
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Subtotal Liabilities 2,986,651 5,965,419
SHAREHOLDER EQUITY
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CAPITAL STOCK
Issued 20,459,186 20,670,461
Subscribed
Current Period Earnings (549,527) (1,066,994)
Deficit (4,448,938) (5,050,087)
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Subtotal Shareholder Equity 15,460,721 14,553,380
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TOTAL LIABILITIES AND SHAREHOLDER EQUITY $ 18,447,372 $ 20,518,799
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ALASKA APOLLO RESOURCES, INC.
CONSOLIDATED STATEMENT OF PROFIT (LOSS)
(UNITED STATES DOLLARS)
UNAUDITED
FOR THE NINE MONTH PERIOD ENDING
30-SEP-96 30-SEP-97
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REVENUE
GROSS REVENUES $ 1,092,047 100.0% $ 3,582,343 100.0%
Direct Costs 740,787 67.8% 2,994,940 83.6%
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GROSS PROFIT 351,260 32.2% 587,403 16.4%
GENERAL AND ADMINISTRATIVE COSTS
Salaries and Wages 198,836 18.2% 251,040 7.0%
Consulting and Management Fees 74,268 6.8% 98,947 2.8%
Office and General 47,605 4.4% 73,165 2.0%
Legal 113,442 10.4% 142,288 4.0%
Travel and Entertainment 33,485 3.1% 45,163 1.3%
Shareholder and Investor Information 69,333 6.3% 66,632 1.9%
Advertising and Promotion 6,760 0.6% 32,559 0.9%
Property and Payroll Taxes 18,210 1.7% 23,264 0.6%
Insurance 35,152 3.2% 67,491 1.9%
Depreciation and Amortization 163,127 14.9% 208,028 5.8%
Rent 24,086 2.2% 72,947 2.0%
Accounting and Audit 82,510 7.6% 25,394 0.7%
Repairs and Maintenance 5,476 0.5% 5,152 0.1%
Licenses and Fees 36,242 3.3% 34,894 1.0%
Bad Debt 0 133,946 3.7%
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SUBTOTAL-G&A COSTS 908,532 83.2% 1,280,910 35.8%
Gain (Loss) on Asset Sales 0 0.0% (200,095) -5.6%
Interest and Other Income (Expense) 7,745 0.7% (173,392) -4.8%
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INCOME BEFORE TAX (549,527) -50.3% (1,066,994) -29.8%
Income Tax Benefit (Expense) 0 0.0% 0 0.0%
MINORITY PORTION 0 0.0% 0 0.0%
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NET PROFIT (LOSS) FOR CURRENT PERIOD (549,527) -50.3% (1,066,994) -29.8%
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DEFICIT, beginning of period (4,448,938) (5,050,087)
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DEFICIT, end of period $(4,998,465) $(6,117,081)
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Shares Outstanding 8,504,954 9,498,479
EARNINGS PER SHARE $ (0.06) $ (0.11)
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ALASKA APOLLO RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(UNITED STATES DOLLARS)
UNAUDITED
FOR THE NINE MONTH PERIOD ENDING
30-SEP-96 30-SEP-97
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OPERATING ACTIVITIES
Net Income (Loss) $(549,527) $(1,066,994)
Minority Interest 0 0
Amortization, Depreciation, Depletion and Non-Cash Items 225,596 518,385
Change in Accounts Receivable (138,943) (74,206)
Change in Inventory 38,053 (36,919)
Change in Prepaid Expenses 5,762 0
Change in Intercompany and Other Accounts Receivable (211,022) 0
Change in Other Current Assets 0 (63,924)
Change in Accounts Payable and Accrued Expenses (212,139) 32,129
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Net Cash From Operating Activities (842,220) (691,529)
FINANCING ACTIVITIES
Issue of Capital Stock 390,996 149,991
Change in Notes Payable (147,207) 0
Change in Loan Payable 699,383 395,443
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Net Cash from Financing Activities 943,172 545,434
INVESTING ACTIVITIES
Change in Related Receivables 0 6692
Change in MiningResourceiProperties (39,328) 0
Change in Oil and Gas Properties (212,143) 394,627
Change in Capital Assets 73,886 32,059
Change in Other Assets (22,769) (217,733)
Change in Note Receivable 17,556 0
Change in Retained Earnings 45,311 0
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Net Cash From Investing Activities (137,487) 215,645
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CHANGE IN CASH (36,535) 69,550
CASH, BEGINNING OF PERIOD 138,980 0
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CASH, END OF PERIOD $ 102,445 $ 69,550
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