UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003 Commission File No.0-6119
TRI-VALLEY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-0617433
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 BUSINESS PARK SOUTH, SUITE 200, BAKERSFIELD, CALIFORNIA 93309
(Address of principal executive offices)
(661) 864-0500
(Registrant's telephone number, including area code)
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 of Registrant's common stock outstanding at March 31, 2003
was 19,746,348.
TRI-VALLEY CORPORATION
INDEX
Page
--------------
PART I - FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 3
Item 1. Consolidated Financial Statements. . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures. . . . . . . . . . . . . . . . . . 11
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 11
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 11
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The accompanying notes are an integral part of these
condensed financial statements.
3
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------
TRI-VALLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2003. .Dec. 31, 2002
(Unaudited) (Audited)
------------ -----------
Current Assets
Cash . . . . . . . . . . . . $ 1,508,370 $ 1,936,294
Accounts receivable, trade . 362,309 151,618
Prepaid expenses . . . . . . 12,029 12,029
------------ -----------
Total Current Assets . . . 1,882,708 2,099,941
------------ -----------
Property and Equipment, Net. . 2,077,944 1,974,501
------------ -----------
Other Assets
Deposits . . . . . . . . . . 316,705 316,705
Investments in partnerships. 17,400 17,400
Other. . . . . . . . . . . . 13,913 13,913
Goodwill (net of accumulated
amortization of $221,439
at December 31, 2002 . . . 212,414 212,414
------------ -----------
Total Other Assets . . . 560,432 560,432
------------ -----------
Total Assets . . . . . . $ 4,521,084 $ 4,634,874
============ ===========
The accompanying notes are an integral part of these
condensed financial statements.
4
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2003 Dec. 31, 2002
(Unaudited) (Audited)
------------ ------------
CURRENT LIABILITIES
Notes and contracts payable . . . . . . . $ 2,234 $ 13,792
Trade accounts payable & accrued expenses 308,790 640,240
Accounts payable to joint venture
participants. . . . . . . . . . . . . . 222,065 74,412
Advances from joint venture
participants. . . . . . . . . . . . . . 3,099,124 2,617,333
------------ ------------
Total Current Liabilities . . . . . . . 3,632,213 3,345,777
------------ ------------
Long-term Portion of Notes and
Contracts Payable . . . . . . . . . . . . 22,322 26,791
------------ ------------
Commitments
Shareholders' Equity
Common stock, $.001 par value:
100,000,000 shares authorized;
19,746,348 and 19,726,348 issued
and outstanding at March 31, 2003
and Dec. 31, 2002, respectively . . . . 19,747 19,726
Less: Common stock in treasury,
at cost, 100,025 shares. . . . . . . . . (13,370) (13,370)
Common stock receivable . . . . . . . . . -0- (2,250)
Capital in excess of par value. . . . . . 8,903,103 8,879,724
Accumulated deficit . . . . . . . . . . . (8,042,931) (7,621,524)
------------ ------------
Total Shareholders' Equity. . . . . . . 866,549 1,262,306
------------ ------------
Total Liabilities and
Shareholders' Equity. . . . . . . . . $ 4,521,084 $ 4,634,874
============ ============
The accompanying notes are an integral part of these
condensed financial statements.
5
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
-----------------------
Ended March 31,
-----------------
2003 2002
------------ ------------
Revenues
Sale of oil and gas . . . . . . . . . . . . . . . . . $ 266,647 $ 165,454
Other income. . . . . . . . . . . . . . . . . . . . . 6,613 15,071
Interest income . . . . . . . . . . . . . . . . . . . 3,520 2,209
------------ ------------
Total Revenues. . . . . . . . . . . . . . . . . . . 276,780 182,734
------------ ------------
Cost and Expenses
Oil and gas lease expense . . . . . . . . . . . . . . 56,325 49,723
Mining exploration expense. . . . . . . . . . . . . . 30,307 31,124
Project geology, geophysics,
land & administration . . . . . . . . . . . . . . . 289,019 91,153
Depletion, depreciation and
amortization. . . . . . . . . . . . . . . . . . . . 7,233 12,982
Interest. . . . . . . . . . . . . . . . . . . . . . . 713 248
General and administrative. . . . . . . . . . . . . . 314,590 261,621
------------ ------------
Total Cost and Expenses . . . . . . . . . . . . . . 698,187 446,851
------------ ------------
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . $ (421,407) $ (264,117)
============ ============
Net Loss per Common Share . . . . . . . . . . . . . . . $ (.02) $ (.01)
============ ============
Weighted Average Number of Shares . . . . . . . . . . . 19,731,348 19,689,748
============ ============
The accompanying notes are an integral part of these
condensed financial statements.
6
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
-----------------------
Ended March 31,
-----------------
2003 2002
----------- -----------
Cash Flows from Operating Activities
Net loss/profit . . . . . . . . . . . . . . . . . . . . . $ (421,407) $ (264,117)
Adjustments to reconcile net income
to net cash used from operating activities:
Depreciation, depletion and amortization. . . . . . . 7,233 12,982
Shares issued officer compensation. . . . . . . . . . -0- 14,500
Changes in operating capital:
Accounts receivable-(Increase)decrease. . . . . . . . (210,691) (10,069)
Trade accounts payable-Increase(decrease) . . . . . . (347,477) (36,543)
Accounts payable to joint venture
participants and related parties-Increase(decrease) 147,653 2,799
Advances from joint venture
Participants-Increase(decrease) . . . . . . . . . . 481,791 728,930
----------- -----------
Net Cash Used by Operating Activities . . . . . . . . . . . (342,898) 448,482
----------- -----------
Cash Flows from Investing Activities
Capital expenditures. . . . . . . . . . . . . . . . . . . (94,649) (229,571)
----------- -----------
Cash Flows from Financing Activities
Principal payments on long-term debt. . . . . . . . . . (16,027) (894)
Proceeds from issuance of common stock. . . . . . . . . . 25,650 -0-
----------- -----------
Net Cash Provided (used) by Financing Activities. . . 9,623 (894)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents. . . . (427,924) 218,017
Cash and Cash Equivalents at Beginning
Of Period . . . . . . . . . . . . . . . . . . . . . . . . 1,936,294 911,913
----------- -----------
Cash and Cash Equivalents at
End of Period . . . . . . . . . . . . . . . . . . . . . . $1,508,370 $1,129,930
=========== ===========
Supplemental Information:
Cash paid for interest. . . . . . . . . . . . . . . . . . $ 713 $ 248
Cash paid for taxes . . . . . . . . . . . . . . . . . . . $ 5,446 $ -0-
8
TRI-VALLEY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND 2002
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
-----------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for the
three-month period ended March 31, 2003, are not necessarily indicative of the
results to be expected for the full year.
The accompanying consolidated financial statements do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles; and, therefore, should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
NOTE 2 - PER SHARE COMPUTATIONS
------------------------
Per share computations are based upon the weighted average number of common
shares outstanding during each year. Common stock equivalents are not included
in the computations since their effect would be anti-dilutive.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
----------------------------------
On January 1, 2002, we adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). Under SFAS 142, goodwill is a nonamortizable
asset, and is subject to an annual review for impairment, and an interim review
when certain events or circumstances occur that indicate the carrying value may
not be recoverable. Under SFAS 142, we had a transitional period of six months
from the date of adoption to complete our goodwill impairment testing. We
evaluated the recoverability of the recorded amount of goodwill based on certain
operating and financial factors. Such impairment testing included discounted
cash flow tests which require broad assumptions and significant judgment to be
exercised by management. As a result of this analysis, no impairment of
goodwill was identified.
On January 1, 2002, we adopted SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" (SFAS 144). Under SFAS 144, long-lived assets to
be disposed of are measured at the lower of carrying amount or fair value less
costs to sell, whether reported in continuing operations or in discontinued
operations. Discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. A long-lived asset must be tested for impairment whenever events or
changes in circumstances indicate that its carrying amount may be impaired. The
implementation of this standard had no effect on results of operations.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" (SFAS 143). Under SFAS 143, the fair value of a liability for an
asset retirement obligation should be recorded in the period in which it is
incurred. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss if the settled
amount differs from the liability recorded. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. We are currently evaluating this guidance
and have not determined the impact on our financial position, results of
operations, or net cash flows, however, such impact could be material.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses the financial
accounting and reporting for costs associated with exit or disposal activities.
SFAS 146 states that a liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair value in the
period when the liability is incurred. A liability is established only when
present obligations to others are determined. SFAS 146 does not apply to costs
associated with the retirement of long-lived assets covered in SFAS 143 (see
above). It applies to costs associated with an exit activity that does not
involve an entity newly acquired in a business combination or with a disposal
activity covered by SFAS 144 (see above). We will apply SFAS 146 for exit or
disposal activities initiated after December 31, 2002. We are evaluating this
guidance and do not believe that it will have a material impact on our financial
position, results of operations, or net cash flows.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
--------------
BUSINESS REVIEW
Notice Regarding Forward-Looking Statements
----------------------------------------------
This report contains forward-looking statements. The words, "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "could," "may,"
"foresee," and similar expressions are intended to identify forward-looking
statements. These statements include information regarding expected development
of the Company's business, lending activities, relationship with customers, and
development in the oil and gas industry. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially and adversely from those anticipated, believed,
estimated or otherwise indicated.
Petroleum Activities
---------------------
During the first quarter of 2003 we performed a work over on the Pimental 1-15,
which resulted in limited success. We are planning further work on this well in
the second quarter to increase production. We continue to prepare for the
drilling of the Sunrise-Mayel 2HR in the second quarter.
Precious Metals
----------------
We had no activity on our Alaska claims block this quarter. The Company is no
longer looking for gold on its 42 square mile claim block at Richardson, Alaska.
Rather it is preparing programs to measure the gold it has already found. We
estimate it will take about $1.25 million to drill two lode (hard rock) targets
and one placer (stream gravels) target to further define the boundaries of the
deposits and the grade of contained gold (ounces per ton for lode and ounces per
yard for placer). Hopefully, we will be able to secure financing to allow us to
implement the designed programs by the end of the third quarter.
Three Months Ended March 31, 2003 as compared with Three Months ended March 31,
--------------------------------------------------------------------------------
2002
----
In the quarter ended March 31 revenue was $276,780 compared to $182,734 for the
same quarter in 2002. This increase resulted from an increase in price for our
natural gas.
Costs and expenses increased $251,336 for the period ending March 31, 2003
compared to the same period in 2002. Project geology, geophysics, land and
administration expenses are $197,866 higher for the quarter ended March 31, 2003
compared to the same quarter in 2002. This increase is due to increased
activity to better define our projects and develop new ones. General and
administration costs were $52,969 higher for the quarter ended March 31, 2003
compared to the same quarter in 2002. This was due to increased investor
relation costs and salaries.
For the quarter ended March 31, 2003, we had a loss of $421,407 compared to a
loss of $264,117 for the quarter ended March 31, 2002. This increase was due
primarily to the increased spending on geology, geophysics and general and
administration expenses.
ITEM 2. (CONTINUED)
Capital Resources and Liquidity
----------------------------------
Current assets are $1,882,708 at March 31, 2003 compared to $2,099,941 as of
December 31, 2002. This is due to expenditures for property acquisition and
delay rentals. Current liabilities are $3,632,213 for the three months ended
March 31, 2003, compared to $3,345,777 for the period ended December 31, 2002.
This increase is due to advances from joint venture participants in our drilling
programs.
OPERATING ACTIVITIES. We had a negative cash flow of $342,898 for the three
months ended March 31, 2003 compared to a positive cash flow of $448,482 for the
same period in 2002. This change is due to an increase in accounts receivable
and a decrease in accounts payable. Our primary sources of funds are comprised
of selling prospect and oil and gas sales.
INVESTING ACTIVITIES. In the first three months of 2003 we spent $94,649 on
capital expenditures compared to $229,571 for the same period in 2002. These
expenditures were the result of leasing activities to acquire leases for our
drilling program. We expect to recoup these amounts as the drilling prospects
are sold to drilling programs.
FINANCING ACTIVITIES. Net cash used by financing activities was $9,623 for the
quarter ended March 31, 2003 compared to ($894) for the same period in 2002.
This change was due to increased principal payments on long-term debt and
proceeds from issuance of common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
Tri-Valley Corporation does not engage in hedging activities and does not use
commodity futures or forward contracts in its cash management functions.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------
As of March 31, 2003, an evaluation was performed under the supervision and with
the participation of the Company's management, including the Company's CEO and
CFO, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were effective as of March 31, 2003. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to March 31, 2003.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------------------
None
ITEM 2. CHANGES IN SECURITIES
-----------------------
During the quarter ended March 31, 2003, we issued a total of 20,000 shares of
our common stock in a private transaction pursuant to the exemption contained in
Section 4(2) of the Securities Act of 1933. These shares are restricted
securities, which bear a legend restricting transfer of the shares unless
registered or sold under exemption from registration requirements under the
Securities Act. A summary of these share issuances follows:
We issued 5,000 shares for aggregate consideration of $2,500.00. These shares
were issued on exercise of options by non-affiliated third party who acquired
the options from an ex-employee. The exercise price for these shares was $.50
each.
We issued 15,000 shares to three officers of the Company. These shares were
awarded for service by the Board of Directors and in accordance with employment
contract provisions. The price of these shares was $1.36 per share on March 24,
2003, the date of the award.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
Exhibit 99.1. Certifications Pursuant to 18 U.S.C. 1350
(b) Reports on Form 8-K:
On March 31, 2003 we filed an 8-K to announce a significant revenue
increase and a profitable year ending December 31, 2002.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRI-VALLEY CORPORATION
May 6, 2003 /s/ F. Lynn Blystone
------------------------
F. Lynn Blystone
President and Chief Executive Officer
May 6, 2003 /s/ Thomas J. Cunningham
---------------------------
Thomas J. Cunningham
Secretary, Treasurer, Chief Financial Officer
CIVIL CERTIFICATION
I, F. Lynn Blystone, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tri-Valley
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 6, 2003
/s/ F. Lynn Blystone
-----------------------
Chief Executive Officer
EXHIBIT 99.1
CIVIL CERTIFICATION
I, Thomas J. Cunningham, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tri-Valley
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 6, 2003
/s/ Thomas J. Cunningham
---------------------------
Chief Financial Officer
CERTIFICATION
Each of the undersigned hereby certifies that this Quarterly Report on Form 10-Q
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, and the information contained in such report
fairly represents, in all material respects, the financial condition and results
of operations of the Company.
May 6, 2003 /s/ F. Lynn Blystone
------------------------
F. Lynn Blystone
President and Chief Executive Officer
May 6, 2003 /s/ Thomas J. Cunningham
---------------------------
Thomas J. Cunningham
Secretary, Treasurer, Chief Financial Officer