U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended December 31, 1998
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from __________ to _________
Commission file number 0-10006
AMERICAN RIVERS OIL COMPANY
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Wyoming 84-0839926
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 East Ninth Avenue, Suite 106, Denver, CO 80203
-------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(303) 832-1117
-------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding as of February 12, 1999 of the issuer's $.01
par value Common Stock and $.01 par value Class B Common Stock were 3,615,770
and 7,267,820, respectively.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Unaudited)
ASSETS
Current Assets:
Cash $ 19,570
Accounts receivable, affiliate 150,000
Prepaid expenses and other 8,194
-----------
Total current assets 177,764
Oil and Gas Properties, at cost, using successful
efforts method:
Proved properties 152,070
Less accumulated depreciation, depletion
and amortization (56,491)
-----------
Net oil and gas properties 95,579
Other Assets 3,897
-----------
$ 277,240
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 7,000
Accounts payable and accrued expenses 40,491
-----------
Total current liabilities 47,491
Long-Term Debt, less current maturities 68,846
Stockholders' Equity:
Preferred stock, $.50 par value; 5,000,000 shares
authorized; no shares issued --
Common stock, $.01 par value; 20,000,000 shares
authorized; 4,713,004 issued 47,130
Class B common stock, $.01 par value; 8,000,000 shares
authorized; 7,267,820 issued and outstanding 72,678
Additional paid-in capital 6,193,893
Accumulated deficit (4,423,056)
Less treasury stock, at cost, 1,097,234 of
common shares (1,729,741)
-----------
Total stockholders' equity 160,903
-----------
$ 277,240
===========
See accompanying notes to these consolidated financial statements.
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
---- ---- ---- ----
REVENUE:
Oil and gas sales $ -0- $ 192,308 $ 22,374 $ 540,130
Operator fees -0- -0- -0- 2,500
----------- ----------- ----------- -----------
Total revenue -0- 192,308 22,374 542,630
EXPENSES:
Oil and gas production costs 84 123,486 36,301 339,755
Exploration expenses, -0- 996 972 5,123
General and administrative 54,443 105,464 200,313 348,387
Depreciation, depletion and
amortization 145 32,700 8,877 94,700
Provision for impairment of oil
property -0- -0- -0- 2,275,440
----------- ----------- ----------- -----------
54,672 262,646 246,463 3,063,405
LOSS FROM OPERATIONS (54,672) (70,338) (224,089) (2,520,775)
OTHER (INCOME) AND EXPENSE:
Equity in loss of Bishop Capital
Corporation -0- -0- -0- 95,263
Interest expense -0- 15,931 9,911 63,893
Gain on sale of oil and gas
properties (20,809) (92,451) (292,051) (92,451)
----------- ----------- ----------- -----------
(20,809) (76,520) (282,140) (66,705)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES (33,863) 6,182 58,051 (2,587,480)
INCOME TAXES:
Income taxes 24,000 -0- 9,500 -0-
Tax benefit of net operating
loss carry forward (24,000) -0- (9,500) -0-
Deferred Income tax benefit -0- -0- -0- 232,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (33,863) $ 6,182 $ 58,055 $(2,355,480)
=========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
(Unaudited)
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
---- ---- ---- ----
NET INCOME (LOSS) PER SHARE:
Common stock $ ( .00) $ .00 $ .00 $ ( .08)
======= ========= ========= =========
Class B common Stock $ ( .00) $ .00 $ .01 $ ( .14)
======= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Common stock 3,615,770 3,615,770 3,615,770 3,615,421
========= ========= ========= =========
Class B common stock 7,267,820 7,267,820 7,267,820 7,267,820
========= ========= ========= =========
See accompanying notes to these consolidated financial statements
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended December 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 58,051 $(2,355,480)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization 8,877 94,700
Gain on sale of oil and gas properties (292,051) (92,451)
Equity in loss of Bishop Capital Corporation -0- 95,263
Deferred income tax benefit (232,000)
Provision for impairment of oil and gas properties 2,275,440
Issuance of treasury shares for services 5,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Oil and gas sales receivable 80,877 24,739
Receivable from affiliate (150,000)
Other assets 4,528 16,230
Increase (decrease) in:
Payable to Class B shareholder (55,319) 32,894
Accounts payable and accrued expenses (115,967) (58,744)
----------- -----------
Net cash provided by (used in) operating activities (461,004) (194,409)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and development costs for oil and gas properties 2,750) (148,347)
Proceeds from sale of oil and gas properties 1,048,244 440,257
----------- -----------
Net cash provided by (used in) investing activities 1,045,494 291,910
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing -0- 68,648
Principal payments on borrowing (565,000) (294,524)
Proceeds from private placement of common stock -0- -0-
Private placement offering costs -0- (6,800)
----------- -----------
Net cash provided by (used by) financing activities (565,000) (232,676)
Net increase (decrease) in cash 19,490 (135,175)
Cash, beginning of period 80 136,267
----------- -----------
Cash, end of period $ 19,570 $ 1,092
=========== ===========
See accompanying notes to these consolidated financial statements.
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
(Unaudited)
For the Nine Months
Ended December 31,
1998 1997
---- ----
Supplemental Information:
Cash paid for interest $ 9,911 63,893
====== =======
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Debt incurred for acquisition of oil and gas properties $ - 0 - 12,425
Spin-off of Bishop Capital Corporation to common
shareholders - 0 - 1,595,190
Exchange of receivable for interest in oil and gas property - 0 - 22,500
See accompanying notes to these consolidated financial statements.
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, all adjustments, consisting of normal recurring
accruals, have been made which are necessary for a fair presentation of the
financial position of the Company at December 31, 1998 and the results of
operations and cash flows for the three and nine month periods ended December
31, 1998 and 1997. Quarterly results are not necessarily indicative of expected
annual results because of the impact of fluctuations in prices received for oil
and natural gas and other factors. For a more complete understanding of the
Company's operations and financial position, reference is made to the
consolidated financial statements of the Company, and related notes thereto,
filed with the Company's annual report on Form 10-KSB for the year ended March
31, 1998, previously filed with the Securities and Exchange Commission.
Certain reclassifications have been made to the 1997 financial statements to
conform to the presentation in 1998. The reclassifications had no effect on the
1997 net loss.
2. Sale of Oil and Gas Properties
On June 4, 1998, Company entered into an agreement to sell the Company's
Colorado oil and gas properties with an effective date of March 1, 1998, in
order to provide liquidity and to repay short-term bank debt. The Company
realized proceeds from the disposition of these properties in the amount of
$900,327. The proceeds were used as follows:
Bank debt $ 540,000
Payables to related parties 42,894
Advances to affiliates 150,000
Accounts payable and working capital 167,434
---------
$ 900,327
=========
On September 22, 1998, the Company sold its Ohio River #1 well for
$125,000. The proceeds were used as follows:
Accounts payable $ 26,000
Working capital & operations 74,000
Debt to Class B Shareholder 25,000
---------
$ 125,000
=========
In October, 1998 the Company sold its Burning Springs leasehold for
$22,500. The proceeds were used in working capital and operations.
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3. Spin-off of Bishop Capital Corporation in June 1997
In November 1996, the Company's Board of Directors agreed to a pro rata
distribution of the outstanding common stock of Bishop Capital Corporation
("Bishop"). The Company's common stockholders of record on November 18, 1996
were entitled to the distribution of Bishop's shares which occurred on June 20,
1997. The Class B common stockholders did not participate in the distribution.
Accordingly, the consolidated statements of operations for the nine months ended
December 31, 1997 only include the Company's equity in the loss of Bishop for
the period from April 1, 1997 through June 20, 1997.
4. Net Loss Per Share
The computation of net loss per share is based on the rights of each class of
common stock. The Class B common stock was not entitled to participate in any
distribution of Bishop's shares which occurred on June 20, 1997. Accordingly,
the common shares were allocated 100% of Bishop's loss through June 20, 1997 and
a pro rata percentage of the remaining consolidated loss based on the ratio of
common shares outstanding to total common and Class B shares outstanding. The
Class B common shares were allocated the remaining pro rata percentage of the
loss.
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements and notes thereto.
Forward-Looking Statements
The Company believes that this report contains certain forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," "may" and words of similar import, or
statements of management's opinion. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
Results of Operations
Three Months Ended December 31, 1998 Compared to 1997
The Company's oil and gas sales revenue decreased by $192,000 or 100% in the
quarter ended December 31, 1998 compared to the corresponding quarter in 1997.
The primary factor in the decrease is attributed to the sale of the properties
referred to in note 2 to the financial statements.
The Company's one remaining well has been shut in for repairs.
The production volumes and average sales prices during the periods were as
follows:
Three Months Ended
December 31,
1998 1997
---- ----
Oil production (barrels) - 0 - 3,430
Average sales price per barrel $ n/a $17.33
Natural gas production (mcf) - 0 - 60,733
Average sales price per mcf $ n/a $ 2.19
Oil and gas production costs decreased by $123,000 compared to the corresponding
quarter ended December 31, 1997. The BOE basis (BOE means barrel of oil
equivalent, using a conversion ratio of six mcf of natural gas to one barrel of
oil), of comparing production costs per BOE were not applicable for the quarter
ended December 31, 1998 and were $7.80 for the comparable quarter of 1997.
General and administrative expenses decreased by $50,000 or 50% for the quarter
ended December 31, 1998 compared to the corresponding quarter in 1997 and is due
primarily to decreases in corporate overhead.
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Depreciation, depletion and amortization expense decreased by $32,000 or 99% in
the current quarter compared to the corresponding quarter in 1997 due to
decreased production volume because of the sale of the producing properties
referred to in note 2.
Interest expense decreased by $15,000 or 100% for the current quarter of 1998
over the corresponding quarter of 1997 due to a the repayment of debt.
Nine Months Ended December 31, 1998 Compared to 1997
The Company's oil and gas sales revenue decreased by $518,000 or 95%for the nine
months ended December 31, 1998 compared to the corresponding period in 1997.
Production volumes for oil decreased by 98% and natural gas decreased by 93% in
the current period compared to the corresponding period in 1997. The average
sales price of oil decreased 41% and the average sales price of natural gas
increased by 15% in the nine month period ended December 31, 1998 compared to
the corresponding period in 1997.
The production volumes and average sales prices during the periods were as
follows:
Nine Months Ended
December 31,
1998 1997
---- ----
Oil production (barrels) 145 13,9687
Average sales price per barrel $11.50 $17.97
Natural gas production (mcf) 10,517 164,751
Average sales price per mcf $ 2.10 $ 1.83
Oil and gas production costs decreased $303,000 or 90% in the nine months ended
December 31, 1998 compared to the corresponding period in 1997 due to the sale
of the properties referred to in note 2.. Production costs per BOE for the nine
months ended December 31, 1998 were $19.13 compared to $8.36 for the comparable
period in 1997. The increase is because the production costs were spread over a
smaller base.
General and administrative expenses decreased $148,000 or 42% between the nine
months ended December 31, 1998 and the corresponding period in 1997. The
principal reason for the reduction is decreased corporate overhead because of
curtailed operations.
Depreciation, depletion and amortization expense in the current nine month
period decreased $86,000 or 90% compared to the 1997 period due to the decreased
production volume after the sales of producing properties referred to in note 2.
The provision for impairment of oil and gas properties of $2,275,440 was
associated with the nine month period ending in 1997 and resulted from
management analyzing and evaluating the loss of proved undeveloped reserves
resulting from the unsuccessful drilling of the Commonwealth of Kentucky #7
development well and re-engineering of producing properties with current
operating data.
- 10 -
The equity in loss of Bishop decreased by $95,000 or 100 in the current nine
month period compared to the corresponding period in 1997 due to the
distribution in June 1997 of Bishop's shares related to the spin-off.
Interest expense decreased by $54,000 or 85% for the nine months ended December
31, 1998 over the corresponding period in 19976 due to the reduction of debt.
FINANCIAL CONDITION
At December 31, 1998, the Company had working capital of $130,000.
The following summary table reflects the Company's cash flows for the nine
months ended December 31, 1998 and 1997:
Nine Months Ended
December 31,
1998 1997
---- ----
Net cash used in operating activities $ (461,000) $(304,000)
Net cash provided by (used in)
investing activities 1,045,000 402,000
Net cash provided (used in) by
financing activities (565,000) (233,000)
Net cash used in operating activities decreased $157,000 for the nine months
ended December 31, 1998 compared to the nine months ended December 31, 1997 due
primarily to an decrease in operating activities. The increase in cash provided
by investing activities of $642,000 arose from the Company's sales of its
producing properties. The increase in the use of cash by financing activities of
$332,000 results from the repayment of the Company's debt.
Operating Strategy
The Company has sold a significant portion of its producing properties to meet
its current obligations including eliminating its bank debt. The Company's
operating objective is to increase value through pursuing merger or acquisition
opportunities with a substantial, stable company. The Company has been
negotiating with a candidate, Royal Scott Minerals, Inc, a wholly owned
subsidiary of a public company, Rackwood, Inc., listed on the London Stock
Exchange. Royal Scott Minerals has purchased options, which expired in September
1998, from Karlton Terry Oil Company, Francarep, Inc., Karlton Terry, Jubal
Terry, and Art and Music Outreach for Kids with the view to acquire their shares
in connection with a potential transaction. The principals have been in
negotiation with Royal Scott Minerals during the third quarter to extend the
options but the negotiations terminated late in January 1999 without the options
being extended. The Company cannot predict whether the option agreement
discussions will be reopened nor whether any agreement may be reached if they
are, the timing of the contemplated transaction or the results of the
transaction if any agreement is reached
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The Company is currently seeking other potential merger candidates. However,
there is no assurance that a merger can be negotiated. The Company cannot
predict whether an appropriate candidate can be engaged
In view of the Company's lack of liquidity, if the contemplated merger does not
take place, the Company's value and future potential could be considerably
diminished.
General
Many of the factors which may affect the Company's future operating performance
and long-term liquidity are beyond the Company's control, including, but not
limited to, oil and natural gas prices, the availability and attractiveness of
properties for acquisition, the adequacy and attractiveness of financing and
operational results. The Company is examining alternative sources of long-term
capital, including bank borrowing, the issuance of debt instruments and the sale
of equity securities of the Company. Availability of these sources of capital
and, therefore, the Company's ability to execute its operating strategy will
depend upon a number of factors, some of which are beyond the control of the
Company.
Year 2000 Issues
"Year 2000 problems" result primarily from the inability of some computer
software to property store, recall or use data after December 31, 1999. These
problems may affect may computers and other devices that contain "embedded"
computer chips. The Company's operations, however, do not rely extensively on
information technology ("IT") systems. The IT software and hardware systems the
Company operates are all publicly available, pre-packaged systems that are
readily replaceable with other functionally similar systems. Accordingly, the
Company does not believe that it will be materially affected by Year 2000
problems in its IT software and hardware systems.
The Company relies on non-IT systems that may suffer from Year 2000 problems
including telephone systems and facsimile and other office machines. Moreover,
the Company relies on third-parties that may suffer from Year 2000 problems that
could affect the Company's operations, including banks, oil field operators and
utilities. I light of the Company's substantially reduced operations, the
Company does not believe that such non-IT systems or third-party Year 2000
problems will affect the Company in a manner that is different or more
substantial than such problems affect other similarly situated companies or
industry generally. Consequently, the Company does not currently intend to
conduct a readiness assessment of Year 2000 problems or to develop a detailed
contingency plan with respect to Year 2000 problems that may affect the
Company's IT and non-IT systems or third-parties.
The foregoing is a "Year 2000 Readiness Disclosure" within the meaning of the
Year 2000 Information and Readiness Disclosure Act of 1998.
- 12 -
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule (submitted only in electronic
format)
b. Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN RIVERS OIL COMPANY
(Registrant)
Date: February 12, 1999 By: /s/ Karlton Terry
-----------------------------
Karlton Terry
President
(Principal Executive Officer)
Date: February 12, 1999 By: /s/ Karlton Terry
-----------------------------
Karlton Terry
President and Acting Chief
Financial Officer
(Principal Financial Officer)
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