U.S. SECURITIES AND EXCHANGE COMMISSION
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 September 30, 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 November 13, 1998 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
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS $
Current Assets:
Cash 47,936
Accounts receivable, affiliate 150,000
Prepaid expenses and other 10,102
----------
Total current assets 208,038
Oil and Gas Properties, at cost using successful efforts method:
Proved properties 149,320
Less accumulated depreciation, depletion and amortization (56,491)
----------
Net oil and gas properties 92,829
Other Assets 4,042
----------
Total Assets 304,909
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt 7,000
Accounts payable and accrued expenses 34,297
----------
Total current liabilities 41,297
Long-term Debt, less current maturities 68,846
Stockholders' Equity:
Preferred stock, $.50 par value; 5,000,000 shares
authorized, no shares issued 0
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 (4,389,193)
Less treasury stock, at cost 1,097,234 of common shares (1,729,742)
----------
Total stockholder's equity 194,766
Total Liabilities and Stockholders' Equity 304,909
==========
See the accompanying notes to these consolidated financial statements.
2
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Six Months
Ended September 30, Ended September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE:
Oil and gas sales $ 3,503 $ 160,735 $ 22,374 $ 347,822
Operator fees 0 1,000 0 2,500
----------- ----------- ----------- -----------
Total revenue 3,503 161,735 22,374 350,322
EXPENSES:
Oil and gas production costs 15,258 105,696 36,301 216,269
Exploration costs 0 1,000 972 4,127
General and administrative 59,657 98,211 145,930 242,924
Depreciation, depletion and amortization 1,331 38,000 8,587 62,000
Provision for impairment of oil and gas
properties 0 2,275,440 0 2,275,440
----------- ----------- ----------- -----------
Total expenses 76,246 2,518,347 191,790 2,800,760
LOSS FROM OPERATIONS (72,743) (2,356,612) (169,416) (2,450,438)
OTHER INCOME (EXPENSE)
Gain on sale of oil and gas properties 66,067 271,241
Equity in loss of Bishop
Capital Corporation (95,263)
Interest expense (27) (23,447) (9,911) (47,962)
LOSS BEFORE INCOME TAXES (6,703) (2,380,059) 91,914 (2,593,663)
INCOME TAXES
Income taxes (33,500)
Tax benefit of net operating
loss carry forward 33,500
Deferred income tax benefit 188,100 232,000
0 188,100 0 232,000
----------- ----------- ----------- -----------
NET LOSS ($ 6,703) ($2,191,959) $ 91,914 ($2,361,663)
=========== =========== =========== ===========
NET LOSS PER SHARE:
Common stock -- ($ 0.20) -- ($ 0.23)
=========== =========== =========== ===========
Class B common stock -- ($ 0.20) $ 0.01 ($ 0.21)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Common stock 3,611,770 3,615,770 3,611,770 3,615,245
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 Six Months
Ended September 30,
--------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 91,914 ($2,361,663)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation, depletion and amortization 8,732 62,000
Gain on sale of oil and gas properties (271,241)
Provision for impairment of oil and gas properties 2,275,440
Equity in loss of Bishop Capital Corporation 95,263
Deferred income tax benefit (232,000)
Issuance of treasury shares for services 5,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Oil and gas sales receivable 80,877 10,259
Receivable from related party (150,000)
Prepaid expenses and other 2,620 12,051
Increase (decrease) in:
Payable to Class B shareholder (55,319) 28,268
Payable to related party
Accounts payable and accrued expenses (122,161) 60,888
----------- -----------
Net cash provided by (used in) operating activities (414,578) (44,494)
Cash Flows From Investing Activities:
Capital expenditures for property and equipment (148,347)
Proceeds from sale of property and equipment 1,027,434 18,148
Net cash provided by (used in) investing activities 1,027,434 (130,199)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing 53,500
Principal payments on borrowing (565,000) (8,002)
Private placement offering costs (6,800)
Net cash provided by (used in) financing activities (565,000) 38,698
----------- -----------
Net Increase (Decrease) in Cash and Equivalents 47,856 (135,995)
Cash and Equivalents, beginning of year 80 136,267
Cash and Equivalents, end of year $ 47,936 $ 272
=========== ===========
Supplemental Disclosure of Noncash Investing and Financing Activities
Cash paid for interest $ 9,911 $ 47,598
Financing Activities:
Debt incurred for acquisition of oil and gas properties $ 12,425
Consummation of spin-off of Bishop Capital Corporation $ 1,595,190
Exchange of receivable for interest in oil and gas properties $ 22,500
See accompanying notes to these consolidated financial statements.
4
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 that are necessary for a fair
presentation of the of the financial position of the Company at September
30, 1998 and the results of operations and cash flows for the three and six
month periods ended September 30, 1998 and 1997. Quarterly results are not
necessarily indicative of the 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 U.S. 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
========
3. Spin-off of Bishop Capital Corporation in 1997
On June 20, 1997 the Company distributed on a pro rata basis, the
outstanding common stock of Bishop Capital Corporation to its common
shareholders.
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AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Net Income (Loss) Per Share
The computation of net income or loss per share is based on the rights of
each class of common stock. The Class B common stock is not entitled to
participate in any distribution of shares or assets of Bishop Capital
Corporation. Accordingly, through June 20, 1997, the common shares were
allocated 100% of the (then subsidiary's) loss and a pro rata percentage of
the remaining consolidated earnings or 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 September 30, 1998 Compared to 1997
------------------------------------------------------
The Company's oil and gas sales revenue decreased by $157,000 or 97% in the
quarter ended September 30, 1998 compared to the corresponding quarter in 1997.
There are two elements creating the decrease. The primary factor in the decrease
is attributed to the sale of the oil and gas properties referred to in note 2 to
the financial statements. The second factor is the decline in oil prices. In the
comparable quarter of 1997 the revenues associated with the properties was
$118,000. The production volume for oil decreased by 100% (5,000 barrels) and
natural gas production volume decreased 95% (46,000 mcf) in the current quarter
compared to the corresponding quarter in 1997. The average sales price of
natural gas increased 38% for quarter ended September 30, 1998 compared to the
corresponding quarter in 1997.
The production volumes and average sales prices during the periods were as
follows:
Three Months Ended
September 30,
-------------------
1998 1997
---- ----
Oil production (barrels) 0 5,015
Average sales price per barrel $ n/a $ 17.56
Natural gas production (mcf) 2,095 47,958
Average sales price per mcf $2.10 $ 1.52
Oil and gas production costs decreased by $90,400 compared to the corresponding
quarter in 1997, principally due to the sale of the properties. On a BOE basis
(BOE means barrel of oil equivalent, using a conversion ratio of six mcf of
natural gas to one barrel of oil), production costs per BOE were $43.69 compared
to $8.13 for the comparable quarter of 1997. Production costs on a BOE increased
because the production costs on the remaining properties are spread over a
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smaller base and costs were incurred in connection with repairing the Ohio River
#1 well equipment which was subsequently sold.
General and administrative expenses decreased by $31,000 or 31% for the quarter
ended September 30, 1998 compared to the corresponding quarter in 1997 and is
due primarily to decreases corporate overhead.
Depreciation, depletion and amortization expense decreased by $37,000 or 96% in
the current quarter compared to the corresponding quarter in 1997 due to
decreased production volume because of the sale of the properties described in
note 2.
Exploration expenses decreased because of the curtailment of exploration
activities.
Since the distribution of Bishop Capital Corporation shares related to the
spin-off was completed in September 1997, the operations of Bishop subsequent to
the distribution date are no longer included in the Company's consolidated
statement of operations.
Interest expense decreased by $23,000 or 100% for the current quarter of 1998
over the corresponding quarter of 1997 due to a lower average amount of debt
outstanding.
Six Months Ended September 30, 1998 Compared to 1997
----------------------------------------------------
The Company's oil and gas sales revenue decreased by $325,000 or 94% in the
period ended September 30, 1998 compared to the corresponding period in 1997.
There are two elements creating the decrease. The primary factor in the decrease
is attributed to the sale of the oil and gas properties referred to in note 2 to
the financial statements. The second factor is the decline in oil prices. In the
comparable period of 1997 the revenues associated with the properties was
$318,000. The production volume for oil decreased by 98% (10,000 barrels) and
natural gas production volume decreased 89% (90,000 mcf) in the current period
compared to the corresponding period in 1997. The average sales price of natural
gas increased 38% for period ended September 30, 1998 compared to the
corresponding period in 1997.
The production volumes and average sales prices during the periods were as
follows:
Six Months Ended
September 30,
-------------------
1998 1997
---- ----
Oil production (barrels) 145 10,427
Average sales price per barrel $ 11.50 $ 20.41
Natural gas production (mcf) 10,517 100,115
Average sales price per mcf $ 2.10 $ 1.59
Oil and gas production costs decreased by $179,000 compared to the corresponding
period in 1997, principally due to the sale of the properties. On a BOE basis
(BOE means barrel of oil equivalent, using a conversion ratio of six mcf of
natural gas to one barrel of oil), production costs per BOE were $19.13 compared
to $7.98 for the comparable period of 1997. Production costs on a BOE increased
because the production costs on the remaining properties are spread over a
smaller base.
General and administrative expenses decreased by $100,000 or 40% for the period
ended September 30, 1998 compared to the corresponding period in 1997 and is due
primarily to decreases corporate overhead arising from the curtailed operations.
8
Depreciation, depletion and amortization expense decreased by $53,000 or 86% in
the current period compared to the corresponding period in 1997 due to decreased
production volume because of the sale of the properties.
Exploration expenses decreased $3,000 because of the curtailment of exploration
activities.
Since the distribution of Bishop Capital Corporation shares related to the
spin-off was completed in September 1997, the operations of Bishop subsequent to
the distribution date are no longer included in the Company's consolidated
statement of operations.
Interest expense decreased by $38,000 or 79% for the current period of 1998 over
the corresponding period of 1997 due to a lower average amount of debt
outstanding
FINANCIAL CONDITION
At September 30, 1998, the Company had working capital of $167,000.
As a result of the property sales in the first six months of 1998, in which a
net gain of approximately $271,000 was realized (gross proceeds amounted to
$1,027,000) the Company's future net cash flow from oil and gas operations will
decrease significantly. The Colorado properties represented approximately 80% of
gross production revenues in fiscal 1998. The Company also repaid its bank
line-of-credit from the net proceeds of the sale in the amount of $540,000 and
paid notes payable to a Class B shareholder.
The following summary table reflects the Company's cash flows for the six months
ended September 30, 1998 and 1997:
Six months Ended
September 30,
--------------------------
1998 1997
---- ----
Net cash from (used in) in operating activities $ (414,600) $ (44,000)
Net cash provided by (used in) investing activities 1,027,000 (130,000)
Net cash provided (used in) by financing activities (565,000) 39,000
Net cash used in operating activities was $414,500 for the six months ended
September 30, 1998 compared to $44,500 in 199, primarily due to an increase in
accounts receivable affiliates ($150,000), a decrease in oil and gas sales and
the corresponding receivable ($81,000), decreases in amounts due a Class B
shareholder ($55,000), and decreases in payables ($122,000).
Net cash used in financing activities of $565,000 for the six months ended
September 30, 1997 resulted from the payment of the Company's line of credit in
full in the amount of $540,000 and the satisfaction of a contractual obligation
to a Class B shareholder in the amount of $25,000 incurred in connection with
oil and gas property acquisitions on September 1, 1997.
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
9
opportunities with a substantial, stable company. The Company is currently
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 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 Company cannot predict whether any agreement may be reached,
the timing of the contemplated transaction or the results of the transaction if
any agreement is reached
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 properly store, recall or use data after December 31, 1999. These
problems may affect many 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. In 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.
10
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: November 13, 1998 By: /s/ Karlton Terry
-------------------------------
Karlton Terry
President
(Principal Executive Officer)
Date: November 13, 1998 By: /s/ Karlton Terry
-------------------------------
Karlton Terry
President and Acting
Chief Financial Officer
(Principal Financial Officer
12