U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2003.
[_] 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 0-8532
OAKRIDGE ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
Utah 87-0287176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4613 Jacksboro Highway
Wichita Falls, Texas 76302
(Address of principal executive offices)
(940) 322-4772 (Issuer's telephone number)
Not Applicable (Former name, former address and
former fiscal year,
if changed since last report)
The number of shares outstanding of each of the issuer's classes of common
equity, as of May 31, 2003: Common Stock, $.04 par value, 4,360,490 shares
Transitional Small Business Disclosure Format (check one);
YES [ ] NO [X]
Page #
Part I - Financial Information
1. Financial Statements:
Condensed Balance Sheet at
February 28, 2003 and May 31, 2003 1
Condensed Statements of Operations
For the Three Months Ended May 31, 2002 and 2003 2
Statement of Cash Flows
For the Three Months Ended May 31, 2002 and 2003 3
Notes to Condensed Financial Statements 4
2. Management's Discussion and Analysis or Plan of Operation 5
3. Controls and Procedures 9
Part II - Other Information
5. Other Information 9
6. Exhibits and Reports on Form 8-K 10
Signatures 10
Certifications 11
This Report contains forward looking statements that involve risks and
uncertainties. Accordingly, no assurances can be given that the actual events
and results will not be materially different than the anticipated results
described in the forward looking statements. See "Item 2. - Management's
Discussion and Analysis or Plan of Operation" of Part I and "Item 5. - Other
Information" of Part II for a description of various factors that could
materially affect the ability of the Company to achieve the results described in
the forward looking statements.
Item 1. Financial Statements.
Oakridge Energy, Inc.
CONDENSED BALANCE SHEETS
ASSETS
February 28, May 31,
2003 2003
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 3,375,427 $ 3,272,219
Trade accounts receivable 274,869 152,492
Investment securities available for sale 260,817 276,942
Prepaid expenses and other 21,196 16,235
------------ ------------
Total current assets 3,932,309 3,717,888
------------ ------------
Oil and gas properties, at cost using the successful efforts method of
accounting, net of accumulated depletion and depreciation of
$6,058,833 on February 28, 2003 and $6,103,981 on May 31, 2003 770,197 751,391
Coal and gravel properties, net of accumulated depletion and depreciation
of $8,027,008 on February 28, 2003 and $8,029,419 on May 31, 2003 285,199 282,789
Real estate held for development 2,941,989 2,911,235
Other property and equipment, net of accumulated depreciation
of $352,062 on February 28, 2003 and $358,153 on May 31, 2003 162,884 156,794
Other non-current assets 875,074 875,074
------------ ------------
$ 8,967,652 $ 8,695,171
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 112,692 $ 100,747
Accrued expenses 75,071 90,197
Deferred federal income taxes 21,585 27,547
------------ ------------
Total current liabilities 209,348 218,491
Reserve for reclamation costs 319,019 161,473
Deferred federal income taxes 115,030 76,201
------------ ------------
Total liabilities 643,397 456,165
------------ ------------
Stockholders' equity:
Common stock, $.04 par value, 20,000,000
shares authorized, 10,157,803 shares issued 406,312 406,312
Additional paid-in capital 805,092 805,092
Retained earnings 16,951,167 16,892,254
Accumulated other comprehensive income 36,801 46,965
Less treasury stock, at cost, 5,787,313 shares on February 28, 2003
and 5,797,313 on May 31, 2003 (9,875,117) (9,911,617)
------------ ------------
Total stockholders' equity 8,324,255 8,239,006
------------ ------------
$ 8,967,652 $ 8,695,171
============ ============
The accompanying notes are an integral part of these financial statements.
1
Oakridge Energy, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
3 Months Ended May 31,
2002 2003
----------- -----------
Revenues:
Oil and gas $ 264,945 $ 248,982
Gravel 20,023 31,141
----------- -----------
Total revenues 284,968 280,123
----------- -----------
Operating expenses:
Oil and gas 221,574 223,487
Coal and gravel 9,740 15,873
Real estate development 5,094 1,677
General and administrative 120,215 122,890
----------- -----------
Total operating expenses 356,623 363,927
----------- -----------
Loss from operations (71,655) (83,804)
Other income (loss) 54,463 (9,664)
----------- -----------
Loss before income taxes (17,192) (93,468)
Income tax benefit (6,355) (34,555)
----------- -----------
Net loss $ (10,837) $ (58,913)
=========== ===========
Basic and diluted loss per common share $ (0.00) $ (0.01)
=========== ===========
Weighted average shares outstanding 4,417,045 4,368,642
=========== ===========
2
Oakridge Energy, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
3 Months Ended May 31,
2002 2003
----------- -----------
Cash flows from operating activities:
Net loss $ (10,837) $ (58,913)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion and depreciation 64,640 55,113
Gain on sale of oil and gas properties 0 (238)
Gain (loss) on sale of other property and equipment (37,800) 18,602
Deferred federal income taxes (11,496) (38,829)
Net changes in assets and liabilities:
Trade accounts receivable (37,344) 122,377
Prepaid expenses and other current assets 3,300 4,961
Accounts payable 37,435 (11,945)
Accrued expenses (18,461) 15,126
Reclamation costs (960) (157,546)
----------- -----------
Net cash used in operating activities (11,523) (51,292)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (5,467) (26,341)
Additions to real estate held for development (33,082) (14,313)
Proceeds from sale of oil and gas properties 0 238
Proceeds from sale of other property and equipment 40,000 25,000
----------- -----------
Net cash provided by (used in) investing activities 1,451 (15,416)
----------- -----------
Cash flows from financing activities:
Purchases of treasury stock (5,687) (36,500)
----------- -----------
Net cash used in financing activities (5,687) (36,500)
----------- -----------
Net decrease in cash and cash equivalents (15,759) (103,208)
Cash and cash equivalents at beginning of period 3,424,261 3,375,427
----------- -----------
Cash and cash equivalents at end of period $ 3,408,502 $ 3,272,219
=========== ===========
Supplemental disclosures of cash flow information:
Income taxes paid $ 21,116 $ 19,765
Recognition in Stockholders' Equity of the net unrealized holding gain on
available for sale securities of $6,091 net of tax effect of $3,573 during the
quarter ended May 31, 2002 and $10,164 net of tax effect of $5,962 during the
quarter ended May 31, 2003.
The accompanying notes are an integral part of these financial statements.
3
OAKRIDGE ENERGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
(1) The accompanying unaudited financial statements for the three month
periods ended May 31, 2002 and 2003 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.
(2) The foregoing financial statements should be read in conjunction with
the annual financial statements and accompanying notes for the fiscal
year ended February 28, 2003.
(3) The Company's operating segments are set forth in the annual financial
statements and accompanying notes for the fiscal year ended February
28, 2003.
Information regarding operations and assets by segment is as follows:
For the three months ended May 31,
2002 2003
----------------- -----------------
Business segment revenue:
Oil and gas $ 264,945 $ 248,982
Gravel 20,023 31,141
----------------- -----------------
$ 284,968 $ 280,123
----------------- -----------------
Business segment profit (loss):
Oil and gas $ 43,371 $ 25,495
Coal and gravel 10,283 15,268
Real estate development (5,094) (1,677)
General corporate (120,215) (122,890)
----------------- -----------------
Loss from operations (71,655) (83,804)
Interest income and other, net 54,463 (9,664)
----------------- -----------------
Loss before income taxes $ (17,192) $ (93,468)
----------------- -----------------
As of As of
February 28, 2003 May 31, 2003
----------------- -----------------
Total assets:
Oil and gas $ 4,739,858 $ 4,511,592
Coal and gravel 285,199 282,789
Real estate development 2,941,989 2,911,235
General corporate 1,000,606 989,555
----------------- -----------------
$ 8,967,652 $ 8,695,171
----------------- -----------------
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with Items 6 and
7 of the Company's Annual Report on Form 10-KSB for the fiscal year ended
February 28, 2003 (the "2003 10-KSB") and the Notes to Condensed Financial
Statements contained in this report.
Results of Operations
The Company had a net loss of $58,913 ($.01 per share) in the three
months ended May 31, 2003 compared to a net loss of $10,837 ($.00 per share)
during the three months ended May 31, 2002. Lower oil and gas revenues and the
changeover of other income (loss) from being an income item to a loss were the
primary reasons for the increased loss in the 2003 quarter.
Oil and gas revenues declined approximately $16,000 (6.0%) during the
three months ended May 31, 2003 due to the continued decline of oil sales
production volumes, primarily from the Company's principal producing property in
Madison County, Texas. Oil revenues alone fell approximately $27,500 (12.6%) as
an approximate $3.95 per barrel (16.0%) increase in the Company's average oil
price received in the 2003 quarter was not sufficient to overcome a 2,170 barrel
(24.7%) decrease in sales production volumes. Gas revenues increased, however,
by approximately $15,400 (45.7%) in the 2003 quarter. Although gas production
sales volumes declined by approximately 35.0%, the Company's average gas price
received increased 124.0% from approximately $2.87 per MCF in the 2002 quarter
to approximately $6.43 per MCF in the 2003 quarter. The Company's product mix
continues to be heavily weighted toward oil. Fees in the amount of $9,750 and
$9,150 received by the Company in the 2002 and 2003 quarters, respectively, for
serving as the operator of most of the Company's North Texas area properties are
included in oil and gas revenues.
As discussed in the 2003 10-KSB, a secondary recovery (waterflood)
project was started on the Madison County, Texas property effective as of
December 1, 2002 and is progressing at a slow pace. During the three months
ended May 31, 2003, a second well was converted to a water injection well. After
the end of such period, the Company authorized the replacement of a string of
pipe in the other injection well and the recompletion of another well for water
supply. The operator of the property intends to complete the project out of the
property's cash flow rather than incurring a substantial part of the project's
installation expense upfront at one time. As a result, the time period before
the Company expects to see any significant increase in the revenues from this
property will likely be lengthened.
5
Revenues from the Company's gravel operations in La Plata County,
Colorado increased approximately $11,100 (55.5%) in the three months ended May
31, 2003. Pursuant to the terms of the extension of the Company's gravel
contract and surface lease with Four Corners Materials, Inc. ("Four Corners")
which was implemented in the fourth quarter of the last fiscal year, the Company
receives an increased royalty with respect to tonnage mined by Four Corners from
the additional acreage added to the gravel permit area and a road usage fee
based on the tonnage mined; however, the amount of the surface rentals paid by
Four Corners to the Company has been reduced. Consequently, in the 2003 quarter,
the Company's royalty received increased by approximately $2,100 (22.5%) and it
received approximately $12,000 in road usage fees (as opposed to none in the
2002 quarter), but the surface rentals the Company received decreased by $3,000
(28.6%).
The expenses of the Company's oil and gas operations increased
approximately $1,900 (.9%) in the three months ended May 31, 2003. The lease
operating expense component rose approximately $3,000 (2.1%). Significant
increases in such expense occurred on the Madison County, Texas property due to
the institution of the waterflood and with respect to the Vivian Parker #2 well
in Gregg County, Texas due to a workover being performed which has resulted in
increased production. Nevertheless, these increases in lease operating expense
were almost offset by an approximate $20,600 decline in such expense in the
North Texas area and minor decreases in such expense from other areas of
operation. In the North Texas area, the Company's net expense was significantly
reduced by funds received from the salvage of pipe recovered from wells plugged
and abandoned on three leases in prior quarters. An approximate $9,100 decline
in depletion expense (16.7%) due to the Company's lower oil and gas revenues
during the 2003 quarter and a lower remaining depletable balance than in the
2002 quarter roughly offset an increase in payroll expense resulting from the
addition of a field employee. There was no comparable payroll expense in the
three months ended May 31, 2002. In the 2002 quarter, the Company incurred
approximately $2,300 in expense with respect to its workover rig before it was
sold. The Company incurred no such expense in the 2003 quarter. All other
components of oil and gas operating expenses (production and ad valorem taxes
and engineering expense) were at approximately the same levels in the 2002 and
2003 quarters.
6
The expenses of the Company's coal and gravel operations increased
approximately $6,100 (63.0%) in the three months ended May 31, 2003 due to a
higher level of testing and permitting expenses incurred for the right of entry
permit for the gravel mine, annual required water and reclamation reports and
professional services obtained for the renewal coal mine permit needed to
complete the coal mine reclamation work. Real estate development expense was
approximately $3,400 (67.1%) lower in the 2003 period due to across the board
decreases in all components of the expense as the Company waited on the delivery
of the area plan pertaining to its property drafted by the City of Durango's
planning staff. See "Part II - Other Information - Item 5. Other Information."
General and administrative expense increased by approximately $2,700
(2.2%) in the three months ended May 31, 2003 due to a rise in employee benefit
expense and greater general depreciation expense, partially offset by the
absence of any shareholder reporting expense due to a timing difference and a
reduction in the expense of the independent petroleum engineering firm's annual
report with respect to the Company's proven oil and gas reserves. Employee
benefit expense for the 2003 period included coverage for dependents under the
Company's health insurance program but the 2002 period did not include the cost
of such coverage.
Other income (loss) changed from an approximate $54,500 income item in
the 2002 period to an approximate $9,700 loss item in the 2003 period, a
negative swing of approximately $64,200. In the 2002 period, the Company had a
$37,800 gain on the sale of its workover rig, but in the 2003 period the Company
incurred an approximate $18,600 loss on the sale of a trailer previously used in
its Colorado real estate operations. In addition, interest and dividend income
was approximately $8,000 lower in the 2003 period than in the 2002 period due to
the continued decline in interest rates.
The Company's weighted average shares outstanding declined by
approximately 48,400 shares (1.1%) in the 2003 period due to the purchases of
the Company's common stock made by the Company during the year ended May 31,
2003. The Company purchased 10,000 shares of its common stock during the 2003
three-month period.
7
Financial Condition and Liquidity
- ---------------------------------
During the first quarter of fiscal 2004, all of the Company's
activities were net users of funds, resulting in an approximate $103,200
reduction in the Company's cash and cash equivalents at May 31, 2003. Despite
the fact that the Company did not participate in any exploratory or development
drilling during the quarter, the Company's operating activities used
approximately $51,300 of funds as the Company expended approximately $157,500 on
coal mine reclamation costs. The Company's investing activities used
approximately $15,400 as additions made to the Company's oil and gas properties
and real estate held for development were in excess of the $25,000 in funds
received by the Company from the sale of a trailer formerly used in its real
estate operations. The Company's financing activities used $36,500 in funds, all
on purchases of the Company's common stock. Despite the net reduction in funds
during the quarter, at May 31, 2003 the Company had no indebtedness and cash,
cash equivalents and investment securities available for sale totaling
$3,549,200.
The Company expects to fund its contemplated operations, other than any
material expenditures on its Colorado real estate, and any stock purchases it
makes during the second quarter and the remainder of fiscal 2004 from its cash
and cash equivalents, sales of all or a portion of its investment securities
available for sale and any cash flow from its operations. Whether the Company
will need to secure additional financing in fiscal 2004 is strictly dependent
upon if and when the Company obtains the necessary governmental approvals to be
able to proceed with its Colorado real estate development. See "Part II - Other
Information - Item 5. Other Information." If the Company is successful in
obtaining such approvals by the end of the third quarter, the Company may need
to secure financing, possibly by as early as the latter part of fiscal 2004 or
the first part of fiscal 2005, to be able to complete the infrastructure for the
first phase of the development and the construction of an alternate access road
to the property. The Company's existing cash reserves should be sufficient to
allow the Company to initiate both projects. If such approvals continue to be
delayed, however, additional financing may not be needed by the Company until
the mid to latter part of fiscal 2005. To obtain such financing, the Company
will likely explore possible sales of the Company's equity securities in the
public markets or obtaining bank borrowings. The Company will also explore
selling parts of the property to other companies who would develop specific
portions of it. There can be no assurance that any of these financing options
will be available to the Company when needed.
8
ITEM 3. CONTROLS AND PROCEDURES.
Sandra Pautsky, the Company's President and principal executive
officer, and Carol J. Cooper, the Company's principal financial officer, have
evaluated the effectiveness of the Company's disclosure controls and procedures
[as defined in Rule 13a-14(c) of The Securities Exchange Act of 1934 (the
"Act")] as of a date within 90 days of the filing date of this report and have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
There have been no changes in the Company's internal controls or other
factors that could significantly affect these controls subsequent to the date of
their evaluation by Ms. Pautsky and Ms. Cooper, and no significant deficiencies
or material weaknesses were identified with respect to such internal controls.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
The draft of the Ewing Mesa Area Plan (the "Area Plan"), which includes
the Company's property, was submitted to the Company for review on June 4, 2003
by the City of Durango's planning staff. The Company, with the assistance of its
consultants, returned a proposed revised Area Plan to the staff on July 9, 2003.
A hearing to discuss the proposed Area Plan is tentatively scheduled before the
City of Durango Planning Commission on August 10, 2003.
The principal areas of difference between the draft of the Area Plan
prepared by the City's staff and the revised Area Plan proposed by the Company
involve two issues mentioned in the 2003 10-KSB - the type of additional access
road that will serve the Company's property and the density of housing on the
property. The City proposed in its draft what is called a "minor arterial" road
over the property while the Company believes a "connector" road will be
sufficient to service traffic on the property and be less interruptive with
respect to the development of the property. The City has also proposed a much
greater density of housing on the property than the Company has planned. The
Company is hopeful that these issues can be resolved in advance of the Planning
Commission meeting, but there can be no assurance that this will be the case.
9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - None.
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the
Company during the three months ended May 31, 2003.
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.
OAKRIDGE ENERGY, INC.
(Registrant)
Date: July 14, 2003 By /s/ Sandra Pautsky
-----------------------------------------
Sandra Pautsky, President
By /s/ Carol J. Cooper
-----------------------------------------
Carol J. Cooper, Chief Accounting Officer
10