Calibre Energy, Inc. Form 10QSB-A September 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB/A
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2006
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Commission
File Number 000-50830
CALIBRE
ENERGY, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
88-0343804
|
(State
or other jurisdiction
|
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
|
Identification
No.)
|
|
|
|
1667
K Street NW, Suite 1230
Washington,
DC
(Address
of principal executive offices)
20006
(Zip
Code)
(202)
223-4401
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether 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 _
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Exchange Act). Yes No
X_
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
No
X_
As
of
October 31, 2006, 58,350,806 shares of common stock were
outstanding.
CALIBRE
ENERGY, INC. QUARTERLY REPORT ON FORM 10-QSB
FOR
THE QUARTERLY PERIOD ENDED
September
30, 2006
TABLE
OF CONTENTS
PART
I
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FINANCIAL
INFORMATION
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PAGE
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Item
1.
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1
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2
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3
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4
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5
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Item
2.
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14
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Item
3.
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20
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Item
4.
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20
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PART
II
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OTHER
INFORMATION
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Item
1.
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21
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Item
2.
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21
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Item
3.
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21
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Item
4.
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21
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Item
5.
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21
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Item
6.
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21
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22
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23
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PART
I - FINANCIAL INFORMATION
Calibre
Energy, Inc.
|
|
Consolidated
Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
|
$
|
3,409,807
|
|
$
|
2,105,749
|
|
Accounts
receivable -
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
|
262,159
|
|
|
33,960
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|
Related
party
|
|
|
175,288
|
|
|
300,000
|
|
Prepaid
expenses and other
|
|
|
121,782
|
|
|
104,100
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,969,036
|
|
|
2,543,809
|
|
|
|
|
|
|
|
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|
Noncurrent
Assets
|
|
|
|
|
|
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Oil
and gas properties, using full cost method
|
|
|
|
|
|
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|
Properties
subject to amortization
|
|
|
7,258,594
|
|
|
830,646
|
|
Properties
not subject to amortization
|
|
|
10,780,675
|
|
|
4,478,235
|
|
Furniture
and office equipment
|
|
|
401,751
|
|
|
121,778
|
|
Less:
Accumulated depreciation, depletion, and amortization
|
|
|
(549,607
|
)
|
|
(35,599
|
)
|
Net
property, furniture and office equipment
|
|
|
17,891,413
|
|
|
5,395,060
|
|
Advances
to operator-related party
|
|
|
520,723
|
|
|
-
|
|
Investments-equity
method
|
|
|
87,500
|
|
|
-
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|
Other
assets
|
|
|
34,755
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
22,503,427
|
|
$
|
7,938,869
|
|
|
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|
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Liabilities
and Shareholders’ Equity
|
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Current
Liabilities
|
|
|
|
|
|
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|
Accounts
payable - trade
|
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|
1,223,464
|
|
|
946,852
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|
Accounts
payable - related party
|
|
|
846,876
|
|
|
-
|
|
Accounts
payable - employees
|
|
|
|
|
|
98,630
|
|
Accrued
expenses
|
|
|
141,966
|
|
|
20,482
|
|
Total
liabilities
|
|
|
2,212,306
|
|
|
1,065,964
|
|
|
|
|
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Shareholders’
Equity
|
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Preferred
stock; $.001 par value; 10,000,000 authorized; none issued
|
|
|
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-
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Common
stock; $.001 par value; 100,000,000 authorized; 58,350,806 and 47,000,000
issued and outstanding at September 30, 2006, and December 31, 2005,
respectively
|
|
|
58,351
|
|
|
47,000
|
|
Additional
paid-in capital
|
|
|
24,199,329
|
|
|
8,727,556
|
|
Accumulated
deficit
|
|
|
(3,966,559
|
)
|
|
(1,901,651
|
)
|
Total
shareholders’ equity
|
|
|
20,291,121
|
|
|
6,872,905
|
|
|
|
|
|
|
|
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|
Total
liabilities and shareholders’ equity
|
|
$
|
22,503,427
|
|
$
|
7,938,869
|
|
Calibre
Energy, Inc.
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|
Statements Of
Operations
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|
For
the Three and Nine Months Ended September 30,
2006 and
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|
for
the Period from August 17, 2005 (Inception) to September
30, 2005
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(Unaudited)
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Three
Months Ended
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Nine
Months Ended
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Period
from August 17, 2005(Inception) until September 30,
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September
30, 2006
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|
September
30, 2006
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2005
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Revenue:
|
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|
|
|
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Oil &
gas sales
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$
|
245,262
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|
$
|
375,161
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$
|
-
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|
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Expenses:
|
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Lease
operating
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|
99,655
|
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|
116,085
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|
-
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|
Severance
and ad valorem taxes
|
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|
18,421
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|
28,485
|
|
|
-
|
|
Depreciation,
depletion and amortization
|
|
|
428,527
|
|
|
514,008
|
|
|
-
|
|
Compensation
expense
|
|
|
321,810
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|
855,221
|
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|
1,443,250
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|
Professional
fees
|
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|
243,699
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|
860,896
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|
607
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General
and administrative
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|
(39,008)
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|
156,606
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|
9,160
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|
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|
1,073,104
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|
2,531,301
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|
1,453,017
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Net
Income (Loss) From Operations
|
|
|
(827,843
|
)
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|
(2,156,140
|
)
|
|
(1,453,017
|
)
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|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
23,569
|
|
|
91,231
|
|
|
1,731
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
|
(804,274
|
)
|
|
(2,064,909
|
)
|
|
(1,451,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
Basic
and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
56,704,747
|
|
|
54,300,690
|
|
|
34,691,730
|
|
Calibre
Energy, Inc.
|
|
Consolidated
Statement of Shareholders’ Equity
|
|
For
the Nine Months Ended September 30, 2006
|
|
(Unaudited)
|
|
|
|
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|
Common
Stock
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Balance,
December 31, 2005
|
|
|
47,000,000
|
|
$
|
47,000
|
|
$
|
8,727,556
|
|
$
|
(1,901,651
|
)
|
$
|
6,872,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for reverse merger
|
|
|
3,525,000
|
|
|
3,525
|
|
|
(3,525
|
)
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, net of offering costs
|
|
|
3,160,000
|
|
|
3,160
|
|
|
5,811,434
|
|
|
|
|
|
5,814,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless
exercise of warrants
|
|
|
295,806
|
|
|
296
|
|
|
(296
|
)
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
expense
|
|
|
|
|
|
|
|
|
10,253
|
|
|
|
|
|
10,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
(673,612
|
)
|
|
(673,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2005
|
|
|
53,980,806
|
|
$
|
53,981
|
|
$
|
14,545,422
|
|
$
|
(2,575,263
|
)
|
$
|
12,024,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, net of offering costs
|
|
|
2,620,000
|
|
|
2,620
|
|
|
4,812,180
|
|
|
|
|
|
4,814,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
expense
|
|
|
|
|
|
|
|
|
10,251
|
|
|
|
|
|
10,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
(587,020
|
)
|
|
(587,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2006
|
|
|
56,600,806
|
|
$
|
56,601
|
|
$
|
19,367,853
|
|
$
|
(3,162,283
|
)
|
$
|
16,262,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
1,750,000
|
|
|
1,750
|
|
|
4,810,750
|
|
|
|
|
|
4,812,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
expense
|
|
|
|
|
|
|
|
|
20,726
|
|
|
|
|
|
20,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
(804,274
|
)
|
|
(804,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2006
|
|
|
58,350,806
|
|
$
|
58,351
|
|
$
|
24,199,329
|
|
$
|
(3,966,559
|
)
|
$
|
20,291,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Cash Flows
|
|
For
the Nine Months Ended September 30, 2006
|
|
and
for the Period from August 17, 2005 (Inception) until September 30,
2005
|
|
(Unaudited)
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,064,908
|
)
|
$
|
(1,451,286
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Noncash
recapitalization expense
|
|
|
100,000
|
|
|
-
|
|
Accretion
of stock option expense
|
|
|
41,230
|
|
|
1,470,250
|
|
Depreciation
and depletion expense
|
|
|
514,008
|
|
|
-
|
|
Changes
in working capital components:
|
|
|
|
|
|
|
|
(Increase)
in accounts receivable
|
|
|
(403,487
|
)
|
|
-
|
|
(Increase)
in other current assets
|
|
|
(117,683
|
)
|
|
-
|
|
(Increase)
in accounts payable
|
|
|
(191,324
|
)
|
|
246,743
|
|
Increase
in accrued expense
|
|
|
121,484
|
|
|
-
|
|
Net
cash (used in) operating activities
|
|
|
(2,000,680
|
)
|
|
265,707
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
Additions
to oil and gas properties
|
|
|
(12,034,930
|
)
|
|
(650,000
|
)
|
Additions
to furniture, office equipment, other assets and leasehold
improvements
|
|
|
(314,728
|
)
|
|
(60,228
|
)
|
Investment
in Potomac Energy
|
|
|
(87,500
|
)
|
|
-
|
|
Receipts
on notes receivable
|
|
|
650,000
|
|
|
-
|
|
Disbursements
on note receivable
|
|
|
(350,000
|
)
|
|
-
|
|
Net
cash (used in) investing activities
|
|
|
(12,137,158
|
)
|
|
(710,228
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
15,441,896
|
|
|
2,803,556
|
|
Net
cash provided by financing activities
|
|
|
15,441,896
|
|
|
2,803,556
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
$
|
1,304,058
|
|
$
|
2,359,035
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
2,105,749
|
|
|
-
|
|
End
of period
|
|
|
3,409,807
|
|
|
2,359,035
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
-
|
|
|
-
|
|
Income
taxes paid
|
|
|
-
|
|
|
-
|
|
CALIBRE
ENERGY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1.
Basis
of Presentation
The
accompanying unaudited interim financial statements of Calibre Energy, Inc.
(“Calibre”) have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction with
the
audited financial statements and notes thereto contained in Calibre’s annual
report filed with the SEC on Form 10K-SB/A for the period ending December 31,
2005. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes
to
the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year
2005 as reported in Form 10K-SB/A, have been omitted.
Certain
reclassifications have been made to amounts in prior periods to conform with
the
current period presentation.
Note
2.
Organization
and Business Operations
Calibre
is an exploration and production company focused on the acquisition,
exploitation and development of high quality, long-lived producing and
non-producing fractured gas and oil shale properties in selected producing
basins in North America and in anunexplored region of the Arbil Province of
Kurdistan, Iraq. Headquartered in Washington, DC and Houston,
Texas, Calibre is a Nevada corporation that was formed on August 17,
2005.
Calibre
intends to expand and develop our exploration and production business and
reserves by initially emphasizing the identification and development of shale
gas opportunities in the Barnett Shale and the Fayetteville Shale and the
development of an unexplored area of Kurdistan, Iraq. Calibre has identified
that the Mississippian developments of the Barnett Shale in the Ft. Worth Basin
and the Fayetteville Shale development in the Arkoma Basin and the Bina-Bawi
project in Arbil Province of Kurdistan provide the greatest near term economic
value. Calibre is currently participating in three projects with Kerogen
Resources, Inc., a privately held exploration and production company located
in
Houston, Texas. The projects are the Reichmann Petroleum project, South Ft.
Worth Basin project and Williston Basin project. Calibre also has acquired
10% participating interest in an Exploration and Production Sharing
Agreement with the Kurdish Regional Government in Kurdistan, Iraq, pursuant
to a
joint operating agreement with Hawler Energy, Ltd (Bina-Bawi Project).
Note
3.
Summary
of Significant Accounting Policies
Stock
Based Compensation
Calibre
adopted Statement of Financial Accounting Standards No. 123R, Share-Based
Payment, effective January 1, 2006. Accordingly, Calibre began recording
compensation expense associated with stock options and other forms of equity
compensation in accordance with SFAS No. 123R, as interpreted by SEC Staff
Accounting Bulletin No. 107. Prior to January 1, 2006, Calibre had accounted
for
stock options according to the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations,
and therefore no related compensation expense was recorded for awards granted
with no intrinsic value. Calibre adopted the modified prospective transition
method provided for under SFAS No. 123R, and, consequently, has not
retroactively adjusted results from prior periods. Under this transition method,
compensation cost associated with the issuance of stock options will be
recognized as a quarterly amortization based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123R. See Note
6.
During
the period from inception (August 17, 2005) to September 30, 2005, Calibre
recognized $1,416,250 in share-based compensation expense. If compensation
cost
for our share-based compensation plan been determined consistent with SFAS
No.
123R, Calibre's net income and earnings per share would have been reduced to
the
following pro forma amounts:
|
Period
from Inception (August 17, 2005) to September 30, 2005
|
|
Net
loss, as reported
|
|
$1,451,286
|
|
Add:
Stock based intrinsic value included in report loss
|
|
1,416,250
|
|
Less:
Total stock-based employee compensation expense determined under
the fair
value based method for all awards
|
|
(1,549,446)
|
|
Pro-forma
net loss
|
|
$1,584,482
|
|
Basis
and diluted net loss per share
As
reported
|
|
$(0.04)
|
|
Pro-forma
|
|
$(0.05)
|
|
|
|
|
|
The
fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield $0, expected volatility of 58%, risk-free interest
rate of 5.0%, and expected lives of 10 years.
Investments
Investments
are accounted for under the equity method in circumstances where we are deemed
to not exercise significant influence over the operations of the investee.
Under
the equity method, we recognize our share of the investee’s earnings and losses
in our consolidated statements of operations.
Included
in investments at September 30, 2006 is an equity investment of $87,500. This
investment has been accounted for under the equity method.
Note
4.
Going
Concern
As
shown
in the accompanying financial statements, Calibre has incurred operating losses
since inception and expects to continue to incur losses for the next twelve
months. Calibre’s business plan requires substantial capital investment prior to
achieving sufficient positive cash flow to sustain its operations. Future
profitability is dependent on the success of its exploration programs. These
factors raise substantial doubt about its ability to continue as a going
concern. Calibre’s ability to achieve and maintain profitability and positive
cash flow is dependent upon Calibre’s ability to locate profitable properties,
generate revenue from their planned business operations, and control exploration
cost. Management plans to fund its future operations from additional financings
and commercial production of its exploration programs. However, there is no
assurance that Calibre will be able to obtain additional financing from
investors or private lenders and, if available, such financing may not be on
commercial terms acceptable to Calibre or its shareholders or that our
exploration programs will be successful.
Note
5.
Related
Party Transactions
Calibre
participates in certain oil and gas prospects with Kerogen Resources (“Kerogen”)
in which Kerogen has identified and offered participation to Calibre. Calibre’s
CEO owns approximately 16% of Kerogen.
Calibre
is party to a letter agreement with Kerogen for participation in the Reichmann
project. During the nine month period ending September 30, 2006, pursuant to
such agreement we have paid $4,890,123 to Kerogen, including $1,770,240 in
the
three month period ending September 30, 2006. Kerogen then paid such amount
to
Reichmann Petroleum Corporation as reimbursement of capital and operating
expenses.
Calibre
has entered into a Participation Agreement with Kerogen for the exploration
and development of prospects in the South Ft. Worth Basin. Calibre is obligated
to pay Kerogen $597,000 for its identification of prospects; Calibre has paid
Kerogen $500,000 of such amount through September 30, 2006, although no payments
were made in the three month period ending September 30, 2006 under this
agreement. Additionally, Calibre has advanced $1,822,427 to Kerogen for
participation in leases in the Hill County area of Texas, including $638,273
in
the three months ended September 30, 2006.
Calibre
has entered into a Participation Agreement with Kerogen for the exploration
and
development of prospects in the Williston Basin. Calibre is obligated to pay
Kerogen $638,600 for its identification of prospects; Calibre has paid Kerogen
$550,000 of such amount through September 30, 2006, although, no payments were
made to Kerogen during the three month period ending September 30, 2006 under
this agreement.
Calibre
has entered into a Joint Operating Agreement ("JOA") with Hawler Energy, Ltd
("Hawler"), a wholly owned subsidiary of Prime Natural Resources. W.
Richard Anderson, a Director of Calibre, is the CEO of Prime Natural
Resources. The JOA with Hawler makes the Company party to and gives the Company
a 10% interest in an Exploration and Production Sharing Agreement with the
Kurdish Regional Government for the exploration and development of the Bina
Bawi
prospect. Calibre is obligated to pay Hawler $5,500,000; Calibre has paid
Hawler $2,000,000 of such amount during the three month period ending September
30, 2006.
Calibre
shares facilities and some overhead costs with Standard Drilling, Inc.("Standard
Drilling"), a related partner that has certain common executive officers,
in Washington D.C. Calibre has entered into a service agreement pursuant to
which Standard Drilling will pay Calibre for office space and supplies, use
of
office equipment, secretarial services and any other services Calibre provide
to
Standard Drilling in sharing the Washington D.C. office space. Standard Drilling
reimburses Calibre for 50% of the costs of the health insurance provided to
officers who are employed by both companies. The average payment by Standard
Drilling to Calibre under the services agreement is expected to be $70,000
per
quarter for 2006 and will be reviewed for any potential adjustment in January
2007. The services agreement may be terminated by either party on 30 days
notice.
Potomac
Energy, LLC (“Potomac”) is a joint venture entity formed by Calibre and Standard
Drilling to acquire software licenses and data sufficient to build and maintain
a land title database that will cover a portion of the Ft. Worth Basin in north
central Texas. Calibre and Standard Drilling each own 50% of Potomac, and each
contributed $87,500 to Potomac in the quarterly period ended September 30,
2006.
Calibre and Standard Drilling will share 50/50 in all costs of Potomac. Each
Company will have access to the Potomac database. In addition, Calibre will
have
a right to participate in 50% of any prospect generated by the database. Potomac
had no other activities in the period ended September 30, 2006 other than the
purchase of software and has no assets other than the software. Potomac is
governed by a two person board comprised of one representative of Calibre and
one representative of Standard Drilling. William B. Nunnallee ,Calibre’s Vice
President of Land, serves as an officer and director of Potomac.
Calibre
believes all of the transactions with related parties have been on terms no
less
favorable to it than those terms which may have been obtained from unrelated
third parties.
Note
6.
2005
Stock Incentive Plan
Calibre
adopted the 2005 Stock Incentive Plan (the “Plan”) in October 2005. Under the
Plan, options may be granted to key employees and other persons who contribute
to the success of Calibre. Calibre has reserved 9,000,000 shares of common
stock
for the plan. Option awards are generally granted with an exercise price equal
to the market price of Calibre’s stock at the date of grant. No options were
exercised during the three month period ended September 30, 2006.
During
the three month period ended September 30, 2006, Calibre issued 100,000
incentive stock options to an employee of Calibre with an exercise price of
$2.10. These options expire on July 27, 2016, vest 25% on each
anniversay of the date of issuance over 4 years and had a fair value
of $167,594 at the date of grant. Calibre valued these options using the
Black-Scholes option -pricing valuation model. The model uses market sourced
inputs such as interest rates, stock prices, and option volatilities, the
selection of which requires management’s judgment, and which may impact the
value of the options. The assumptions used in the Black-Scholes valuation model
were: a risk-free interest rate of 5.00%; the current stock price at date of
issuance of $2.10 per share; the exercise price of the options of $2.10 per
share; the term of 10 years; volatility of 70.94%; and dividend yield of 0.0%.
For the three month period ended September 30, 2006, Calibre recorded
compensation expense of $10,475 to amortize the cost of these non-vested options
over the service period of the options.
Prior
to
January 1, 2006, Calibre granted a total of 650,000 non-vested options including
options to purchase 50,000 shares of common stock at an exercise price of $0.12
per share, and options to purchase 600,000 shares of common stock at an exercise
price of $0.24 per share. All non-vested options vest over a four year service
period and expire 10 years after the date of grant. At September 30, 2006,
Calibre had compensation expense of $162,629 to amortize the cost of these
non-vested options over the service period of the options.
A
summary
of option activity as of September 30, 2006, and changes during the nine months
ended September 30, 2006 is presented below:
Options
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
Outstanding
at January 1, 2006
|
6,450,000
|
$0.09
|
9.05
|
|
Granted
|
100,000
|
$2.10
|
9.75
|
|
Exercised,
forfeited, or expired
|
-
|
-
|
-
|
-
|
Outstanding
at September 30, 2006
|
6,550,000
|
$0.12
|
9.06
|
$15,781,000
|
|
|
|
|
|
Exercisable
at September 30, 2006
|
6,550,000
|
$0.12
|
9.06
|
$15,781,000
|
The
weighted-average grant-date fair value of options granted during the nine months
ended September 30, 2006 was $1.68 per share
A
summary
of Calibre’s non-vested shares as of September 30, 2006 and changes during the
nine months ended September 30, 2006, is presented below:
Nonvested
Shares
|
Shares
|
Weighted-
Average
Grant-Date
Fair
Value
|
Nonvested
at January 1, 2006
|
650,000
|
$0.25
|
Granted
|
100,000
|
$1.68
|
Vested
|
-
|
-
|
Forfeited
|
-
|
-
|
Nonvested
at September 30, 2006
|
750,000
|
$0.44
|
As
of
September 30, 2006, there was $288,991 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted-average period
of
3.3 years. No shares vested or were exercised during the nine month period
ended
September 30, 2006.
Note
7. Warrants
Calibre’s
warrants outstanding and exercisable as of September 30, 2006 are:
|
|
|
|
Exercise
Price
|
Number
of shares
|
Remaining
life
|
Exercisable
Number of Shares Remaining
|
|
|
|
|
$0.40
|
2,000,000
|
1.0
years
|
2,000,000
|
$0.75
|
10,000,000
|
1.0
years
|
9,600,000
|
$2.00
|
577,500
|
1.5
years
|
577,500
|
$2.75
|
5,780,000
|
1.5
years
|
4,030,000
|
|
18,357,500
|
|
16,207,500
|
During
the nine months ended September 30, 2006, 400,000 warrants were exercised
on a
cashless basis resulting in the issuance of 295,806 shares of common stock
and
1,750,000 warrants were exercised at $2.75 per share resulting in the issuance
of 1,750,00 share of common stock and proceeds of $4,812,500. In
connection with the exercise of the 1,750,000 warrants Calibre issued additional
warrants to purchase 1,000,000 shares of the Company’s common stock at $1.50 per
share with an expiration of November 5, 2008.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion and analysis should be read in conjunction with the
unaudited consolidated financial statements and notes thereto included elsewhere
in this report. The terms “Calibre Energy,” “Calibre,” “we,” “us” and “our”
refer to Calibre Energy, Inc.
Overview
Cautionary
Statement Regarding Forward-Looking Statements
This
report contains certain “forward-looking statements”. Statements included in
this report that are not historical facts, that address activities, events
or
developments that we expect or anticipate will or may occur in the future,
including things such as plans for growth of the business, future capital
expenditures, competitive strengths, goals, references to future goals or
intentions or other such references are forward-looking statements. These
statements can be identified by the use of forward-looking terminology,
including “may,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or
similar words. These statements are made by us based on our past experience
and
our perception of historical trends, current conditions and expected future
developments as well as other considerations we believe are appropriate under
the circumstances. Whether actual results and developments in the future will
conform to our expectation is subject to numerous risks and uncertainties,
many
of which are beyond our control. Therefore, actual outcomes and results could
materially differ from what is expressed, implied or forecast in these
statements. Any differences could be caused by a number of factors, including,
but not limited to:
·
|
a
decline in or substantial volatility of crude oil and natural gas
commodity prices;
|
·
|
the
incurrence of significant costs and liabilities in the future resulting
from our failure to comply with new or existing environmental regulations
or an accidental release of hazardous substances into the environment;
and
|
·
|
other
financial, operational and legal risks and uncertainties detailed
from
time to time in our Securities and Exchange Commission
filings.
|
All
forward-looking statements included in this report and all subsequent written
or
oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by these cautionary statements.
The forward-looking statements speak only as of the date made, other than as
required by law, and we undertake no obligation to publicly update or revise
any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Plan
of Operation
We
are
engaged in oil and natural gas exploration and exploitation activities. Our
current activities are in the Barnett Shale in the Ft. Worth Basin located
in
northern Texas, the Fayetteville Shale in the Arkoma Basin located in Arkansas,
and in the Bina Bawi Prospect located in the Arbil Province of Iraqi Kurdistan.
We have a limited operating history since our oil and gas business was
formed on August 17, 2005.
Our
goal
is to expand and develop our exploration and production business and our
reserves by initially emphasizing the identification and development of shale
gas opportunities in the Barnett Shale and the Fayetteville Shale and the
development of the unexplored Bina Bawi Prospect in the Arbil Province of Iraqi
Kurdistan. We believe both the Mississippian development of the Barnett
Shale in the Ft. Worth Basin and the Fayetteville Shale development in the
Arkoma Basin provide the potential to develop low-risk, long-lived natural
gas
reserves. We believe these developments have the most promising economics
of any shale gas wells compared to the various producing basins in the United
States. Additionally, we believe the Bina-Bawi Prospect represents an
unexplored oil exploration and development opportunity.
Results
of Operations for Nine Months Period Ended September 30,
2006
We
commenced our oil and gas operations in August 2005. Prior to that time, we
did
not have any significant activities or assets. Consequently, we are not able
to
compare results of operations for the nine months ended September 30, 2006
to
any earlier period.
Net
Sales
For
the
nine months ended September 30, 2006, our oil and gas net sales were $375,161.
Sales revenues were derived primarily from the sale of gas production of 67,671
Mcf at an average price of $5.60 per Mcf. At the beginning of the period, we
had
five wells on production and during the period, seven new wells began
commercial production. We are still in the operational development stage of
our
exploration program. Accordingly, we do not expect to generate substantial
revenues during the majority of 2006 until the completion of the initial stages
of our drilling program.
General
and Administrative Expenses
For
the
nine months ended September 30, 2006, general and administrative expenses were
$1,872,724. A total of $156,607 was for costs associated with our general and
administrative expenses, $860,896 was for professional fees principally
associated with capital raising activities, and $855,221 was for compensation
expense.
Net
Loss
For
the
nine months ended September 30, 2006, we had a net loss of $2,064,909. The
net
loss is primarily attributable to minimal operating revenues to support general
and administrative costs until such time as we achieve more substantial
operating results from our drilling program.
Results
of Operations for Three Months Period Ended September 30,
2006
We
commenced our oil and gas operations in August 2005. Prior to that time, we
did
not have any significant activities or assets. During the period from August
17,
2005 (Inception) until September 30, 2005, our operations were very
limited. Consequently, comparisions between results of operations for
the three months ended September 30, 2006 and the period from August 17,
2005 (Inception) until September 30, 2005 are limited.
Net
Sales
For
the
three months ended September 30, 2006, our oil and gas net sales were $245,262.
Seven additional wells began producing during the period which resulted in
an
increased revenue rate in the three month period ending September 30, 2006.
Although we have expanded our operations significantly in
comparison to the the period from August 17, 2005 (Inception) until
September 30, 2005, we are still in the operational development stage of our
exploration program. Accordingly, we do not expect to generate substantial
revenues during the majority of 2006 until the completion of the initial stages
of our drilling program.
General
and Administrative Expenses
For
the
three months ended September 30, 2006, general and administrative expenses
were
$526,501. We incurred costs associated with our continuing general and
administrative expense of $136,279, were paid $175,288 by Standard Drilling,
Inc. pursuant to a shared services agreement for service rendered since February
14, 2006. $243,699 was for professional fees principally associated with capital
raising activities, and $321,810 was for salaries and wages for employees.
During the period, we reimbursed shared costs associated with the shared
services agreement put into place during the quarter with Standard Drilling,
Inc. with whom we share office space and secretarial services in Washington,
D.C. Also, we continued incur higher professional expenses as a result of higher
third party investor relation fees and higher legal and accounting fees due
to
the preparation and filing of our registration statement on Form SB-2 with
the
Securities and Exchange Commission. During the three months ended September
30,
2006, we incurred significantly higher general and administrative
expenses in comparison to the the period from August 17, 2005 (Inception)
until September 30, 2005. We have added operational and financial
personnel and have increased our business activity.
Net
Loss
For
the
three months ended September 30, 2006, we had a net loss of $804,274. The net
loss is primarily attributable to minimal operating revenues to support general
and administrative costs until such time as we achieve operating results from
our drilling program. During the period from August 17, 2005 (Inception)
until September 30, 2005, we incurred compensation expense for option granted
to
founders, executive and directors which we did not incur in the the three months
ended September 30, 2006. As a result, our net loss was
lower.
Liquidity
and Capital Resources
As
of
September 30, 2006, we had cash of $3,409,807 and working capital of $1,756,731.
We expect to have monthly overhead costs of approximately $200,000 per month
for
the next twelve months. Since our inception, our primary sources of liquidity
have been generated by the sale of equity securities. To date, the net proceeds
from the sales of securities have been used to fund our exploration programs
and
our general and administrative costs including substantial costs for the
registration of our securities. Our future liquidity and our liquidity in the
next twelve months depend on the success of our exploration programs and our
continued ability to obtain sources of capital to fund our continuing
development.
On
October 31, 2005, we raised an aggregate of $8,000,000 ($7,243,056 net of
offering costs) through the sale of 20,000,000 shares of common stock and
warrants to purchase 10,000,000 shares of common stock at an exercise price
of
$0.75 per share and a term of 2 years. As of September 30, 2006, 400,000
warrants to purchase our common stock have been exercised on a cashless basis.
In
March
and April 2006, we raised an aggregate of $11,560,000 ($10,629,394 net of
offering costs) through the sale of 5,780,000 shares of common stock and
warrants to purchase 5,780,000 shares of common stock at an exercise price
of
$2.75 per share and a term of 2 years.
In
September, we raised $4,812,500 through the exercise of 1,750,000 warrants
at an
exercise price of $2.75 per share.
Cash
flow from operating activities
For
the
nine month period ended September 30, 2006, net cash used in operating
activities was $2,000,680 primarily attributed to a net loss of $2,064,909
in
the period.
Cash
flow from investing activities
For
the
nine month period ending September 30, 2006, net cash used in investing
activities was $12,137,158, driven primarily by our investment in oil and gas
properties in the Ft. Worth Basin, an initial investment in properties in the
Arkoma Basin and in the Bina-Bawi project.
Cash
flow from financing activities
For
the
nine month period ending September 30, 2006, net cash provided by financing
activities was $15,441,896, which was attributed to our sale of common stock
and
purchase warrants.
Hedging
We
did
not hedge any of our oil or natural gas production during 2005 and have not
entered into any such hedges from January 1, 2006 through the date of this
filing.
Contractual
Commitments
|
|
Payments
Due By Period
|
|
|
|
Total
|
|
Less
Than 1 Year
|
|
1-3
Years
|
|
3-5
Years
|
|
Rent
|
|
$
|
372,513
|
|
$
|
129,742
|
|
$
|
113,552
|
|
$
|
129,219
|
|
Drilling
Wells in Progress
|
|
$
|
5,525,541
|
|
$
|
5,525,541
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
5,898,054
|
|
$
|
5,655,283
|
|
$
|
113,552
|
|
$
|
129,219
|
|
As
of
October 31, 2006, all of our drilling well obligations are associated with
the
Reichmann Petroleum project and the Bina-Bawi Project. Our contract obligations
are associated with our office leases in Washington, D.C. and Houston, TX.
Off-Balance
Sheet Arrangements
As
of
September 30, 2006, we had no off-balance sheet arrangements.
Related
Party Transactions
Calibre
is party to a letter agreement with Kerogen Resources ("Kerogen") pursuant
to
which we are participating in the Reichmann project. During the nine month
period ending September 30, 2006, pursuant to such agreement we have paid
$4,890,123 to Kerogen, including $1,770,240 in the three month period ending
September 30, 2006. Kerogen then paid such amount to Reichmann Petroleum
Corporation as reimbursement of capital and operating expenses.
Calibre
has entered into a Participation Agreement with Kerogen for the exploration
and
development of prospects in the South Ft. Worth Basin. Pursuant to this
agreement we are obligated to pay Kerogen $597,000 for its identification of
prospects; we have paid Kerogen $500,000 of such amount to date, although no
payments were made in the period ending September 30, 2006 under this agreement.
Additionally, we have advanced $1,822,427 to Kerogen for participation in leases
in the Hill County area of Texas, including $638,273 in the three months ending
September 30, 2006.
We
have
entered into a Participation Agreement with Kerogen for the exploration and
development of prospects in the Williston Basin. Pursuant to this agreement
we
are obligated to pay Kerogen $638,600 for its identification of prospects;
we
have paid Kerogen $550,000 of such amount to date. However, we made no payments
to Kerogen during the period ending September 30, 2006 in respect to this
agreement.
We
have
entered into a Joint Operating Agreement ("JOA") with Hawler Energy, Ltd
("Hawler"), a wholly owned subsidiary of Prime Natural Resources. Calibre
Director W. Richard Anderson is the CEO of Prime Natural Resources. The JOA
with
Hawler makes the Company party to and gives the Company a 10% stake in an
Exploration and Production Sharing Agreement with the Kurdish Regional
Government for the exploration and development of the Bina Bawi prospect.
Pursuant to this agreement Calibre is obligated to pay Hawler $500,000;
Calibre has paid Hawler $2,000,000 of such amount during the period ending
September 30, 2006.
We
share
facilities and certain overhead costs with Standard Drilling in Washington
D.C.
We have entered into a service agreement which Standard Drilling will pay us
for
office space and supplies, use of office equipment, secretarial services and
any
other services we provide to them in sharing the Washington D.C. office space.
Standard Drilling reimburses us for 50% of the costs of the health insurance
provided to officers who are employed by both companies. The average payment
by
Standard Drilling to Calibre under the services agreement is $70,000 per quarter
for 2006 and will be reviewed for any potential adjustment in January 2007.
The
services agreement may be terminated by either party on 30 days
notice.
Potomac
Energy, LLC (“Potomac”) is a joint venture entity formed by Standard Drilling
and us to acquire software licenses and data sufficient to build and maintain
a
land title database that will cover a portion of the Ft. Worth Basin in north
central Texas. We and Standard Drilling each own 50% of Potomac and each
contributed $87,500 to Potomac in the quarterly period ended September 30,
2006.
We and Standard Drilling will share 50/50 in all costs of Potomac. Each of
us
will have access to the Potomac database. In addition, we will each have a
right
to participate in 50% of any prospect generated by the database. Potomac had
no
other activities in the period ended September 30, 2006 other than the purchase
of software and has no other assets than the software. Potomac is governed
by a
two person board comprised of one representative of Standard Drilling and one
of
our representatives. William B. Nunnallee, our Vice President of Land, serves
as
an officer and director of Potomac.
We
believe all of the transactions with related parties have been on terms no
less
favorable to us than those terms which may have been obtained from unrelated
third parties.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these consolidated financial statements requires
us
to make estimates and judgments that affect the reported amounts of assets,
liabilities and expenses. We base our estimates on historical experience and
on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect our most significant judgments and estimates used in preparation of
our
consolidated financial statements.
Employee
Stock Plan.
In
December 2004, the FASB issued SFAS No.123R, "Accounting for Stock-Based
Compensation" (“SFAS No. 123R”). SFAS No.123R establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No.123R requires that the fair value of such equity
instruments be recognized as expense in the historical financial statements
as
services are performed. Prior to SFAS No.123R, only certain pro forma
disclosures of fair value were required. SFAS No.123R shall be effective for
small business issuers as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. Calibre adopted SFAS
No.
123R as of January 1, 2006.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk.
Market
risk is the risk of loss arising from adverse changes in market rates and
prices. We are exposed to risks related to increases in the prices of fuel
and
raw materials consumed in exploration, development and production. We do not
engage in commodity price hedging activities.
Item
4. Controls and Procedures.
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2006. Based on
this evaluation, our Chief Executive Officer, Prentis B. Tomlinson, Jr. and
Chief Financial Officer, O. Oliver Pennington, III have concluded that, as
of
September 30, 2006, our disclosure controls and procedures were effective,
in
that they ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act are (1) recorded, processed,
summarized and reported within the time periods specified in the Commission’s
rules and forms, and (2) accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
In
the
period ending December 31, 2005 and the quarter ending on March 31, 2006, our
management concluded that our disclosure controls and procedures were not
effective. Changes in the internal controls were initially identified in the
fourth quarter 2005 that materially affected our internal control over financial
reporting. During the previous periods, Calibre substantially increased its
business activities. Over
the
quarterly period ending June 30, 2006, Calibre improved its
system of internal control over financial reporting by (1) initiating a plan
to
formalize accounting and disclosure procedures; (2) further developing our
internal IT systems; (3) hiring additional personnel (4) engaging a third party
provider of accounting, bookkeeping and IT services that specializes in oil
and
gas accounting; (5) performing additional reviews of our internal accounting
information prior to review by our independent auditors to ensure that no items
that would have a material affect or are reasonably likely to have a material
affect on internal control over financial reporting will be identified prior
to
issuance of our reports.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings.
Our
management is not aware of any significant litigation, pending or threatened,
that would have a significant adverse effect on our financial position or
results of operations.
Item
2. Sales
of Unregistered Securities and Use of Proceeds.
Recent
Sales of Unregistered Securities.
Set
forth below is certain information concerning all issuances of securities by
the
Company during the fiscal quarter ended September 30, 2006 that were not
registered under the Securities Act.
In
March
and April of 2006, Calibre completed a private placement to institutional and
other accredited investors in which it sold 5,780,000 units. Each unit, composed
of one share of common stock and a warrant to purchase a share of common stock,
was sold at a price of $2.00. Aggregate gross proceeds to Calibre were
$11,560,000. Offering costs were $930,606 and are reflected as a reduction
in
the proceeds. Calibre issued to the placement agents who assisted with the
sale
of the share and warrants, warrants to purchase 577,500 shares of Common Stock
at a price of $2.00 per share. The shares of common stock and warrants were
offered and sold pursuant to the exemption from registration afforded by Rule
506 under the Securities Act of 1933 (the “Securities Act”), Regulation S,
and/or Section 4(2) of the Securities Act.
Item
3. Defaults
upon Senior Securities.
None.
Item
4. Submission
of Matters to a Vote of Security Holders.
None.
Item
5. Other
Information.
None.
Item
6. Exhibits.
Exhibit
31.1*
|
Chief
Executive Officer Certification Pursuant to Section 13a-14 of the
Securities Exchange Act
|
Exhibit
31.2*
|
Chief
Financial Officer Certification Pursuant to Section 13a-14 of the
Securities Exchange Act
|
Exhibit
32.1*
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
Exhibit
32.2*
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
*Filed
herewith
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CALIBRE
ENERGY, INC.
Registrant
Dated: January
18, 2007
By: S/
Prentis B. Tomlinson, Jr.
Prentis
B. Tomlinson, Jr.
President
and Chairman of the Board of Directors
Dated: January
18, 2007
By: S/O.
Oliver Pennington, III
O.
Oliver
Pennington, III
Chief
Financial Officer
INDEX
TO EXHIBITS
OF
CALIBRE
ENERGY, INC.
Exhibit
31.1 *
|
Chief
Executive Officer Certification Pursuant to Section 13a-14 of the
Securities Exchange Act
|
Exhibit
31.2
*
|
Chief
Financial Officer Certification Pursuant to Section 13a-14 of the
Securities Exchange Act
|
Exhibit
32.1
*
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
Exhibit
32.2
*
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
*Filed
herewith