Calibre Energy, Inc. 10-QSB/A
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB/A
Amendment
No. 1
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 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 20006
(Address
of principal executive offices)
(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
August 14, 2006, 56,600,806 shares of common stock were
outstanding.
CALIBRE
ENERGY, INC. QUARTERLY REPORT ON FORM 10-QSB
FOR
THE QUARTERLY PERIOD ENDED
June
30, 2006
TABLE
OF
CONTENTS
PART
I - FINANCIAL INFORMATION
Calibre
Energy, Inc.
|
|
(unaudited)
|
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
|
$
|
4,649,432
|
|
$
|
2,105,749
|
|
Accounts
receivable - Oil and gas sales
|
|
|
97,406
|
|
|
33,960
|
|
Note
receivable - related party
|
|
|
- |
|
|
300,000
|
|
Prepaid
expenses and other
|
|
|
20,621
|
|
|
104,100
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
4,767,459
|
|
|
2,543,809
|
|
|
|
|
|
|
|
|
|
Noncurrent
Assets
|
|
|
|
|
|
|
|
Oil
and gas properties, using full cost method
|
|
|
|
|
|
|
|
Properties
subject to amortization
|
|
|
7,325,495
|
|
|
830,646
|
|
Properties
not subject to amortization
|
|
|
5,653,718
|
|
|
4,478,235
|
|
Furniture
and office equipment
|
|
|
361,101
|
|
|
121,778
|
|
Less:
Accumulated depreciation, depletion, amortization and
impairment
|
|
|
(121,079
|
)
|
|
(35,599
|
)
|
Net
property, furniture and office equipment
|
|
|
13,219,235
|
|
|
5,395,060
|
|
Advances
to operator-related party |
|
|
|
|
|
- |
|
Other
assets
|
|
|
22,662
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$18,794,006
|
|
|
$7,938,869
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
|
1.447,435
|
|
|
946,852
|
|
Accounts
payable - related party |
|
|
1,031,650 |
|
|
- |
|
Accounts
payable - employees
|
|
|
-
|
|
|
98,630
|
|
Accrued
expenses
|
|
|
52,751
|
|
|
20,482
|
|
Total
liabilities
|
|
|
2,531,836
|
|
|
1,065,964
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
Preferred
stock; $.001 par value; 10,000,000 authorized; none issued
|
|
|
-
|
|
|
-
|
|
Common
stock; $.001 par value; 100,000,000 authorized; 56,600,806 and 47,000,000
issued and outstanding at June 30, 2006, and December 31, 2005,
respectively
|
|
|
56,601
|
|
|
47,000
|
|
Additional
paid-in capital
|
|
|
19,367,853
|
|
|
8,727,556
|
|
Accumulated
deficit
|
|
|
(3,162,285
|
)
|
|
(1,901,651
|
)
|
Total
shareholders’ equity
|
|
|
16,262,169
|
|
|
6,872,905
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
18,794,006
|
|
$
|
7,938,869
|
|
Calibre
Energy, Inc.
|
|
For
the Three Months and Six Months Ended June 30,
2006
|
(unaudited)
|
|
|
Three
Months
Ended
June
30,
2006
|
|
Six
Months
Ended
June
30,
2006
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Oil
& Gas Sales
|
|
$
|
90,761
|
|
$
|
129,899
|
|
Total
revenue
|
|
|
90,761
|
|
|
129,899
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Lease
operating expense
|
|
|
19,969
|
|
|
16,430
|
|
Severance
and ad valorem taxes
|
|
|
6,846
|
|
|
10,063
|
|
Depletion
expense
|
|
|
53,448
|
|
|
85,479
|
|
Compensation
expense
|
|
|
250,729
|
|
|
610,280
|
|
Professional
fees
|
|
|
219,245
|
|
|
420,810
|
|
General
and administrative (excluding compensation expense and professional
fees)
|
|
|
171,086
|
|
|
315,132
|
|
Total
operating expense
|
|
|
721,323
|
|
|
1,458,194
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(630,562
|
)
|
|
(1,328,295
|
)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
43,542
|
|
|
67,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(587,020
|
)
|
$
|
(1,260,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(0.01
|
)
|
$ |
(0.01
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
56,705,704
|
|
|
49,755,558
|
|
|
|
|
|
|
|
|
|
Calibre
Energy, Inc.
|
|
For
the Six Months Ended June 30, 2006
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Calibre
Energy, Inc.
|
|
For
the Six Months Ended June 30, 2006
|
(unaudited)
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
Net
loss
|
|
$
|
(1,260,633
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
Noncash recapitalization
expense
|
|
|
100,000
|
|
Accretion
of stock option expense
|
|
|
20,504
|
|
Depreciation
and depletion expense
|
|
|
85,479
|
|
Changes
in working capital components:
|
|
|
|
|
(Increase)
in accounts receivable
|
|
|
(63,446
|
)
|
(Increase)
in other current assets
|
|
|
(16,521
|
)
|
(Increase)
in other assets
|
|
|
(22,662
|
)
|
Increase
in accounts payable
|
|
|
1,433,603
|
|
Increase
in accrued expense
|
|
|
32,269
|
|
Net
cash (used in) operating activities
|
|
|
308,594
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
Additions
to oil and gas properties
|
|
|
(8,454,980
|
)
|
Additions
to furniture, office equipment, other assets and leasehold
improvements
|
|
|
(239,325
|
)
|
Receipts
on notes receivable
|
|
|
650,000
|
|
Disbursements
on note receivable
|
|
|
(350,000 |
) |
Net
cash (used in) investing activities
|
|
|
(8,394,305
|
)
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
10,629,394
|
|
Net
cash provided by financing activities
|
|
|
10,629,394
|
|
|
|
|
|
|
Net
increase in cash
|
|
$
|
2,543,683
|
|
|
|
|
|
|
Cash
|
|
|
|
|
Beginning
of period
|
|
$
|
2,105,749
|
|
End
of period
|
|
$
|
4,649,432
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
Interest
paid
|
|
|
-
|
|
Income
taxes paid
|
|
|
-
|
|
CALIBRE
ENERGY, INC.
(Unaudited)
Note
1. Basis
of Presentation
The
accompanying unaudited interim financial statements of Calibre Energy, Inc.
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
Energy, Inc. 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. 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
its
reserves by initially emphasizing the identification and development of shale
gas opportunities in the Barnett Shale and the Fayetteville Shale. 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 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 Reichmann Petroleum project,
South Ft. Worth Basin project and Williston Basin project.
Note
3. Summary
of Significant Accounting Policies
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.
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 through 2006. 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 our exploration programs. These factors raise
substantial doubt about our 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 we 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.
Calibre
is
party to a letter agreement with Kerogen Resources pursuant to which we are
participating in the Reichmann project. During the six month period ending
June
30, 2006, pursuant to such agreement we have paid $3,068,182 to Kerogen,
including $1,706,539 in the three month period ending June 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 Resources for the exploration
and
development of prospects in the South Ft. Worth Basin. Pursuant to this
agreement we are obligated to pay Kerogen Resources $597,000 for its
identification of prospects; we have paid Kerogen Resources $500,000 of such
amount to date, although no payments were made in the period ending June
30,
2006 under this agreement. Additionally, we have advanced $1,184,154 to Kerogen
for participation in leases in the Hill County area of Texas, including $517,517
in the three months ending June 30, 2006.
We
have
entered into a Participation Agreement with Kerogen Resources for the
exploration and development of prospects in the Williston Basin. Pursuant
to
this agreement we are obligated to pay Kerogen Resources $638,600 for its
identification of prospects; we have paid Kerogen Resources $550,000 of such
amount to date. However, we made no payments to Kerogen during the period
ending
June 30, 2006 in respect to this agreement.
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.
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 granted or exercised during the three month period ended June
30,
2006.
We
granted
a total of 650,000 nonvested options including options to purchase 50,000
shares
of common stock at an exercise price of $.12 per share, and options to purchase
600,000 shares of common stock at an exercise price of $.24 per share. All
nonvested options vest over a four year service period and expire 10 years
after
the date of grant. For the three month period ended June
30,
2006, Calibre
recorded
compensation expense of $10,251 to amortize the cost of nonvested options
over
the service period of the options.
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 57.99%, risk-free
interest rate of 5.0%, and expected lives of 10 years.
The
expected term of options granted is derived from the output of the option
valuation model and represents the period of time that options granted are
expected to be outstanding. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve
in
effect at the time of grant.
A
summary of Calibre’s nonvested shares as of June 30, 2006, and changes during
the six months ended June 30, 2006, is presented below:
Nonvested
Shares
|
|
Shares
|
|
Weighted-
Average
Grant-Date
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
650,000
|
|
$
|
162,629
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
650,000
|
|
$
|
162,629
|
|
As
of June
30, 2006, there was $142,125 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 3.5 years.
No shares vested or were exercisable during the six month period ended June
30,
2006.
Note
7. Warrants
Calibre’s
warrants outstanding and exercisable as of June 30, 2006 are:
|
|
|
|
|
|
|
|
Exercise
Price
|
|
Number
of shares
|
|
Remaining
life
|
|
Exercisable
Number
of Shares
Remaining
|
|
|
|
|
|
|
|
|
|
$0.40
|
|
|
2,000,000
|
|
|
1.25
years
|
|
|
2,000,000
|
|
$0.75
|
|
|
10,000,000
|
|
|
1.25
years
|
|
|
9,600,000
|
|
$2.00
|
|
|
577,500
|
|
|
1.75
years
|
|
|
577,500
|
|
$2.75
|
|
|
5,780,000
|
|
|
1.75
years
|
|
|
5,780,000
|
|
|
|
|
18,357,500
|
|
|
|
|
|
17,957,500
|
|
During
the
first quarter of 2006, 400,000 warrants were exercised on a cashless basis
resulting in the issuance of 295,806 shares of common
stock.
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.
Overview
- Plan of Operation
We
are
engaged in oil and natural gas exploration and exploitation activities in
the
Barnett Shale development in the
Ft.
Worth Basin located northern Texas and the Fayetteville Shale development
in the
Arkoma Basin located in Arkansas. We have a limited operating history as
our
predecessor company for financial reporting purposes was formed on August
17,
2005. We are engaged in the acquisition, exploitation and development of
producing and non-producing oil and gas-shale (source rock) properties in
selected producing basins in North America. Our oil and gas business commenced
in August 2005. Our current activities are in the Barnett Shale development
in
Northern Texas and the Fayetteville Shale development in Arkansas.
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. We believe
both the Mississippian development of the Barnett Shale in the Ft. Worth
Basin
and the Fayetteville Shale development in the Arkoma Basin provides the greatest
near term economic value to us. We believe these developments have the most
promising economics of any shale gas wells compared to the various producing
basins in the United States.
Results
of Operations for Six Months Period Ending June 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 six months ended June 30, 2006 to any
earlier period.
Net
Sales.
For
the
six months ended June 30, 2006, our oil and gas net sales were $129,899.
During
the majority of the period we had only two wells on production. However,
at the
end of the period, three new wells started 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
six months ended June 30, 2006, general and administrative expenses were
$1,346,222. A total of $315,132 was for costs associated with our general
and
administrative expenses, $420,810 was for professional fees principally
associated with capital raising activities, and $610,280 was for compensation
expense.
Net
Loss.
For
the
six
months
ended June 30, 2006, we had a net loss of $1,260,633. 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.
Results
of Operations for Three Months Period Ending June 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 three months ended June 30, 2006 to
any
earlier period.
Net
Sales.
For
the
three months ended June 30, 2006, our oil and gas net sales were $90,761.
Three
additional wells began producing at the end of period which resulted in an
increased revenue rate in the three month period ending June 30, 2006. 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 June 30, 2006, general and administrative expenses were
$641,060. A total of $171,086 was for costs associated with our continuing
general and administrative expense, $219,245 was for professional fees
principally associated with capital raising activities, and $250,729 was
for
compensation expense for employees. During the period, we incurred 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.
Net
Loss.
For
the
three
months ended June 30, 2006, we had a net loss $587,020. Lower compensation
expense and a slight improvement in revenues reduced the loss rate versus
the
prior period. 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.
Liquidity
and Capital Resources
As
of June
30, 2006, we had cash of $4,649,432 and working capital of $3,043,135. 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 (including the issuance of securities
in exchange for goods and services to third parties and to pay costs of
employees). 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 depends 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
and a
term of 2 years. As of June 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 and a term of 2 years.
Cash
flow from operating activities
For
the
six
month
period ending June 30, 2006, cash flow from operating activities was $308,594
primarily attributed to a net loss of $1,260,633 in the period offset by
an
increase in accounts payable of $1,433,603.
Cash
flow from investing activities
For
the
six
month
period ending June 30, 2006, net cash used in investing activities was
$8,394,305, driven primarily by our investment in oil and gas properties
in the
Ft. Worth Basin and an initial investment in properties in the Arkhoma
Basin.
Cash
flow from financing activities
For
the
six month period ending June 30, 2006, net cash provided by financing activities
was $10,629,394, which was attributed to our sale of common stock and purchase
warrants. At June 30, 2006, Calibre had received net proceeds from stock
issuances of $10,629,394 (gross proceeds of $11,560,000 less $930,606 of
offering costs).
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
|
|
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Lease
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Obligations
|
|
$
|
522,817
|
|
$
|
190,257
|
|
$
|
195,253
|
|
$
|
137,307
|
|
|
|
|
Drilling
Wells in Progress
|
|
$
|
3,490,000
|
|
$
|
3,490,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,012,817
|
|
$
|
3,680,257
|
|
$
|
195,253
|
|
$
|
137,307
|
|
|
|
|
As
of
August 1, 2006, all of our drilling well obligations are associated with
the
Reichmann Petroleum project. Our contract
obligations are associated with our office leases in Washington, D.C. and
Houston, TX.
Off-Balance
Sheet Arrangements
As
of June
30, 2006, we had no off-balance sheet arrangements.
Related
Party Transactions
We
are
party to a letter agreement with Kerogen Resources pursuant to which we are
participating in the Reichmann project. During the six month period ending
June
30, 2006, pursuant to such agreement we have paid $3,068,182 to Kerogen,
including $1,706,539 in the three month period ending June 30, 2006. Kerogen
then paid such amount to Reichmann Petroleum Corporation as reimbursement
of
operating expenses.
We
have
entered into
a
Participation Agreement with Kerogen Resources for the exploration and
development of prospects in the South Fort Worth Basin. Pursuant to this
agreement we are obligated to pay Kerogen Resources $597,000 for its
identification of prospects; we have paid Kerogen Resources $500,000 of such
amount to date, although no payments were made in the six months ending June
30,
2006 under this agreement. Additionally, during the six month period, we
have
advanced $1,184,154 to Kerogen for participation in leases in the Hill County
area of Texas, including $517,517 in the three months ending June 30,
2006.
We
have
entered into a Participation Agreement with Kerogen Resources for the
exploration and development of prospects in the Williston Basin. Pursuant
to
this agreement we are obligated to pay Kerogen Resources $638,600 for its
identification of prospects; we have paid Kerogen Resources $550,000 of such
amount to date. However, we made no payments to Kerogen during the six months
ending June 30, 2006 in respect to this agreement.
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.
We
have a
stock-based compensation plan, which is described more fully in Form 10-KSB/A
for the period ended December 31, 2005 filed with the SEC. As permitted under
generally accepted accounting principles, we accounted for the plan under
the
recognition and measurement principles of APB Opinion No. 25, Accounting
for
Stock Issued to Employees, and related interpretations. Accordingly, stock-based
employee compensation cost has been recognized, as all options granted under
the
plan had an exercise price less than the market value of the underlying common
stock on the date of grant, see Form 10-KSB/A filed with the SEC for more
information. The net loss at December 31, 2005 had compensation cost for
the
stock-based compensation plan been determined based on the grant date fair
values of awards (the method described in FASB Statement No. 123, Accounting
for
Stock-Based Compensation), would have increased $372,965 or $.01 per
share.
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.
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 June 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
June 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 last period ending June 30, 2006, Calibre
improved
its system of internal control over financial reporting during the fiscal
quarter covered by this report 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.
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.
Recent
Sales of Unregistered Securities.
Set
forth below is certain information concerning all issuances of securities by
the
Company during the fiscal quarter ended June 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.
None.
None.
None.
|
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
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:
October 3, 2006
|
|
By:
|
S/Prentis
B. Tomlinson, Jr.
|
|
|
|
Prentis
B. Tomlinson, Jr.
|
|
|
|
President
and Chairman of the Board of Directors
|
|
|
|
|
|
|
|
|
Dated:
October 3, 2006
|
|
By:
|
S/O.
Oliver Pennington, III
|
|
|
|
O.
Oliver Pennington, III
|
|
|
|
Chief
Financial Officer
|
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.