UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the
quarterly period ended June
30, 2007
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the
transition period from ________________ to _________________
Commission
file number 1-4668
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
|
(Exact
name of registrant as specified in its
charter)
|
BERMUDA
|
|
NONE
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
Clarendon
House, Church Street, Hamilton, Bermuda
|
HM
11
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(850)
653-2732
|
(Registrant's
telephone number, including area
code)
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (l) has filed all reports required to
be
filed by Section 13 or 15 (d) of the Securities Exchange Act of l934 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. T
Yes
¨
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer T
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨
Yes
T
No
The
number of shares outstanding of the issuer's single class of common stock as
of
August 9, 2007 was 46,211,604.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
June 30,
2007
Table
of Contents
PART
I - FINANCIAL INFORMATION
ITEM
1
|
Financial
Statements
|
Page
|
|
|
|
|
Consolidated
balance sheets at June 30, 2007 and December 31,
2006
|
3
|
|
|
|
|
Consolidated
statements of operations for the three and six month periods ended
June 30, 2007 and 2006 and for the period from January 31, 1953
(inception) to June 30, 2007
|
4
|
|
|
|
|
Consolidated
statements of cash flows for the six month periods ended June 30,
2007 and 2006 and for the period from January 31, 1953 (inception) to
June 30, 2007
|
5
|
|
|
|
|
Notes
to consolidated financial statements
|
6
|
|
|
|
ITEM
2
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
9
|
|
|
|
ITEM
3
|
Quantitative
and Qualitative Disclosure About Market Risk
|
11
|
|
|
|
ITEM
4
|
Controls
and Procedures
|
12
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
ITEM
5
|
Other
Information
|
13
|
|
|
|
ITEM
6
|
Exhibits
|
14
|
|
|
|
|
Signatures
|
15
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1
- Financial
Statements
CONSOLIDATED
BALANCE SHEETS
(Expressed
in U.S. dollars)
(A
Bermuda Corporation)
A
Development Stage Company
|
|
|
|
|
|
Assets
|
|
(Unaudited)
|
|
(Note)
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
49,613
|
|
$
|
342,541
|
|
Prepaid
expenses and other
|
|
|
9,752
|
|
|
29,255
|
|
Total
current assets
|
|
|
59,365
|
|
|
371,796
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
|
129,909
|
|
|
126,313
|
|
Petroleum
leases
|
|
|
2,395,069
|
|
|
2,199,809
|
|
Equipment,
net
|
|
|
10,195
|
|
|
11,455
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,594,538
|
|
$
|
2,709,373
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
172,704
|
|
$
|
5,322
|
|
Note
payable
|
|
|
126,000
|
|
|
-
|
|
Total
current liabilities
|
|
|
298,704
|
|
|
5,322
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
Common
stock, par value $.12 per share:
|
|
|
|
|
|
|
|
Authorized
- 250,000,000 shares
|
|
|
|
|
|
|
|
Outstanding
- 46,211,604 shares
|
|
|
5,545,392
|
|
|
5,545,392
|
|
Capital
in excess of par value
|
|
|
32,137,811
|
|
|
32,137,811
|
|
|
|
|
37,683,203
|
|
|
37,683,203
|
|
Deficit
accumulated during the development stage
|
|
|
(35,387,369
|
)
|
|
(34,979,152
|
)
|
Total
shareholders’ equity
|
|
|
2,295,834
|
|
|
2,704,051
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,594,538
|
|
$
|
2,709,373
|
|
Note:
The
balance sheet at December 31, 2006 has been derived from the
audited consolidated financial statements at that date.
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1
- Financial
Statements
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Expressed
in U.S. dollars)
(A
Bermuda Corporation)
A
Development Stage Company
(Unaudited)
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
For
the
period
from
Jan.
31, 1953
(inception)
to
June 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
$
|
3,613
|
|
$
|
11,220
|
|
$
|
4,807
|
|
$
|
26,463
|
|
$
|
3,974,451
|
|
Gain
on settlement
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,124,016
|
|
|
|
|
3,613
|
|
|
11,220
|
|
|
4,807
|
|
|
26,463
|
|
|
12,098,467
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
fees and costs
|
|
|
31,785
|
|
|
65,576
|
|
|
84,476
|
|
|
111,659
|
|
|
17,343,712
|
|
Administrative
expenses
|
|
|
92,715
|
|
|
80,293
|
|
|
159,628
|
|
|
196,667
|
|
|
10,410,911
|
|
Salaries
|
|
|
33,850
|
|
|
33,850
|
|
|
72,900
|
|
|
65,100
|
|
|
4,083,931
|
|
Shareholder
communications
|
|
|
648
|
|
|
1,601
|
|
|
10,228
|
|
|
4,852
|
|
|
4,103,738
|
|
Goodwill
impairment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
801,823
|
|
Write
off of unproved properties
|
|
|
85,792
|
|
|
-
|
|
|
85,792
|
|
|
-
|
|
|
6,664,721
|
|
Exploration
costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
247,465
|
|
Lawsuit
judgments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,941,916
|
|
Minority
interests
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(632,974
|
)
|
Other
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
364,865
|
|
Contractual
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,155,728
|
|
|
|
|
244,790
|
|
|
181,320
|
|
|
413,024
|
|
|
378,278
|
|
|
47,485,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(241,177
|
)
|
$
|
(170,100
|
)
|
$
|
(408,217
|
)
|
$
|
(351,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
accumulated during the development stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(35,387,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of Shares
outstanding (basic & diluted)
|
|
|
46,221,604
|
|
|
46,221,604
|
|
|
46,211,604
|
|
|
46,221,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share (basic & diluted)
|
|
$
|
(.005
|
)
|
$
|
(.004
|
)
|
$
|
(.009
|
)
|
$
|
(.008
|
)
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1
- Financial
Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in U.S. Dollars)
(A
Bermuda Corporation)
A
Development Stage Company
(Unaudited)
|
|
Six
months ended June 30,
|
|
For
the
period
from
Jan.
31, 1953
(inception)
to
|
|
|
|
2007
|
|
2006
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(408,217
|
)
|
$
|
(351,815
|
)
|
$
|
(35,387,369
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activites:
|
|
|
|
|
|
|
|
|
|
|
Gain
on settlement
|
|
|
-
|
|
|
-
|
|
|
(8,124,016
|
)
|
Goodwill
impairment
|
|
|
-
|
|
|
-
|
|
|
801,823
|
|
Minority
interest
|
|
|
-
|
|
|
-
|
|
|
(632,974
|
)
|
Depreciation
|
|
|
1,260
|
|
|
-
|
|
|
2,778
|
|
Write
off of unproved properties
|
|
|
85,792
|
|
|
-
|
|
|
6,723,968
|
|
Common
stock issued for services
|
|
|
-
|
|
|
-
|
|
|
119,500
|
|
Compensation
recognized for stock option grant
|
|
|
-
|
|
|
-
|
|
|
75,000
|
|
Recoveries
from previously written off properties
|
|
|
-
|
|
|
-
|
|
|
252,173
|
|
Net
change in:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other
|
|
|
19,503
|
|
|
188,105
|
|
|
(9,753
|
)
|
Accounts
payable and accrued liabilities
|
|
|
167,382
|
|
|
67,285
|
|
|
172,706
|
|
Income
taxes payable
|
|
|
-
|
|
|
(35,000
|
)
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(134,280
|
)
|
|
(131,425
|
)
|
|
(36,006,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Additions
to oil, gas, and mineral properties net of assets acquired for
common
stock and reimbursements
|
|
|
(195,260
|
)
|
|
(240,385
|
)
|
|
(6,135,251
|
)
|
Well
drilling costs
|
|
|
(85,792
|
)
|
|
(657,883
|
)
|
|
(1,104,227
|
)
|
Net
proceeds from settlement
|
|
|
-
|
|
|
-
|
|
|
8,124,016
|
|
Proceeds
from relinquishment of surface rights
|
|
|
-
|
|
|
-
|
|
|
246,733
|
|
Purchase
of certificate of deposit
|
|
|
(3,596
|
)
|
|
-
|
|
|
(129,909
|
)
|
Purchase
of minority interest in CPC
|
|
|
-
|
|
|
-
|
|
|
(801,823
|
)
|
Purchase
of fixed assets
|
|
|
-
|
|
|
-
|
|
|
(74,623
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(284,648
|
)
|
|
(898,268
|
)
|
|
124,916
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
-
|
|
|
|
|
Loan
proceeds
|
|
|
126,000
|
|
|
-
|
|
|
126,000
|
|
Loans
from officers
|
|
|
-
|
|
|
-
|
|
|
111,790
|
|
Repayments
of loans from officers
|
|
|
-
|
|
|
-
|
|
|
(111,790
|
)
|
Sale
of common stock net of expenses
|
|
|
-
|
|
|
-
|
|
|
30,380,612
|
|
Shares
issued upon exercise of options
|
|
|
-
|
|
|
-
|
|
|
884,249
|
|
Sale
of shares by subsidiary
|
|
|
-
|
|
|
-
|
|
|
820,000
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
3,720,000
|
|
Net
cash provided by financing activities
|
|
|
126,000
|
|
|
-
|
|
|
35,930,861
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(292,928
|
)
|
|
(1,029,693
|
)
|
|
49,613
|
|
Cash
and cash equivalents at beginning of period
|
|
|
342,541
|
|
|
2,250,236
|
|
|
-
|
|
Cash
and cash equivalents at end of period
|
|
$
|
49,613
|
|
$
|
1,220,543
|
|
$
|
49,613
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements
Note
1. Basis
of Presentation
The
accompanying unaudited consolidated financial statements include Coastal
Caribbean Oils & Minerals, Ltd. (the Company), its wholly owned subsidiary,
Coastal Petroleum Company (Coastal Petroleum) and Coastal Petroleum’s wholly
owned subsidiary, Williston Basin, Inc., and have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments are of a normal
recurring nature. Operating results for the three and six month periods ended
June 30, 2007 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2007. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2006.
Note
2. Going
Concern
As
of
June 30, 2007, the Company had no revenues, had recurring losses from operations
and has had an accumulated deficit during the development stage. The
Company's current cash position is not adequate to fund existing operations
or
exploration and development of its oil and gas properties. Management is
exploring options to sell interests in its leases or team with others for oil
and gas exploration and development activity, although there is no assurance
these efforts will be successful. These situations raise substantial doubt
about
the Company's ability to continue as a going concern. These consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or amounts
and
classification of liabilities, which may result from the outcome of this
uncertainty.
Note
3. Net
income (loss) per share
Net
income (loss) per share is based upon the weighted average number of common
and
common equivalent shares outstanding during the period. The Company’s basic and
diluted calculations of EPS are the same because the exercise of options is
not
assumed in calculating diluted EPS, as the result would be
anti-dilutive.
Note
4. Oil
& Gas Development Activity
Drilling
Activity
Currently
the Company is not drilling any wells.
The
Company began drilling its initial well in north central Montana in January
2006
under a farm-in agreement with the mineral owner on acreage in Blaine County.
The well hit the target Lodgepole reef, but the reef had been flushed with
fresh
water. Several other formations were drilled through that were prospective
for
oil or gas and each of them has been tested. While gas was encountered in the
testing, the well did not contain economic quantities of oil or gas. The Company
expensed $800,000 in drilling costs related to this well in the fourth quarter
of 2006. This well is being abandoned by the Company.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
4. Oil
& Gas Development Activity
(Continued)
The
Company has also participated in and acted as operator in a twin well to the
only known well to produce from the Lodgepole in Montana. The targeted Lodgepole
reef contained oil, but not in sufficient quantities to be commercial for the
Company. Likewise, an uphole test of the Mission Canyon Formation resulted
in
oil being encountered, but not in sufficient quantities to be commercial for
the
Company. The Company’s participation costs in the twin well were approximately
$225,000, which was expensed in the fourth quarter of 2006. The total cost
of
the well was approximately $1,260,000. This well is being abandoned by the
participants with the Company acting as operator until abandonment is
completed.
Montana
Leases
The
Company’s primary presence in Montana is in Valley County, where it holds leases
covering 137,163.26 net acres, which the Company acquired in three separate
acquisitions between July 2005 and February 2006. The leases acquired in those
acquisitions are contiguous to each other and are referred to collectively
as
“the Valley County Leases.”
The
first
acquisition of the Valley County Leases was in July 2005, when the Company
acquired the rights to drill two 6,500 foot wells to test Mississippian
Lodgepole Reefs in Valley County, in northeast Montana for a one time fee of
$50,000 from an entity controlled by one of the Company’s Directors. That
acquisition included a small amount of acreage and the option to drill fifty
additional prospects in the Valley County area.
The
second acquisition of the Valley County Leases was in November 2005, when the
Company acquired a group of oil and gas lease rights to approximately 109,423.26
net acres in eastern Montana for $1,568,000 from EOG Resources, Inc. and Great
Northern Gas Company. These leases are subject to various overriding royalty
interests to others ranging up to 19.5%. These leases expire in years from
2007
to 2014.
The
final
acquisition of acreage within the Valley County Leases was in February 2006,
when the Company acquired additional oil and gas leases in eastern Montana
covering 27,740 net acres contiguous to its existing Montana leases. These
leases were acquired from the Bureau of Land Management and United States
Department of the Interior.
The
Company has an agreement with a consultant entity, controlled by one of the
Company’s Directors, to identify Mississippian Lodgepole Reef prospects to be
drilled on and near its Valley County Leases. Previously under the agreement,
the Company was required to drill a test well on an identified Lodgepole Reef
prospect by a certain deadline, however, there is no longer a drilling
obligation under the agreement.
The
Company is currently looking to team with another entity to explore the
Company’s leases.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
4. Oil
& Gas Development Activity
(Continued)
The
Company is in the permitting process and expects to soon have a permit for
drilling on a 34,000 acre shallow natural gas prospect on its Montana leases.
This prospect by itself is of interest to independent oil and gas companies
and
the initial well to test the prospect would be less than the cost of a Lodgepole
test well, since it is not as deep.
North
Dakota Leases
In
July
2005, the Company acquired leases to the deeper rights in approximately 21,688
net acres in and near Slope County, North Dakota for a one time fee of $50,000
from an entity controlled by one of the Company’s Directors. Since that time,
some of the leases have expired and the Company currently holds leases on
9,388.94 gross and 9,150.31 net acres in Slope County. The Company is obligated
to drill a test well before September 1, 2007, and has the option to drill
the
remaining Lodgepole Reef prospects on these leases. The Company intends to
team
with other entities to share the cost of the initial 9,700 foot test well the
total estimated drilling cost of which is estimated to be $1,500,000.
Note
5. Income
Taxes
For
the
three and six month periods ending June 30, 2007 and 2006, the Company reported
a loss for both financial statement reporting and income tax purposes. The
Company has provided a 100% valuation allowance on its deferred tax asset as
a
result of its net operating loss carryforwards. The Company has approximately
$10,000,000 in net operating loss carryforwards at December 31,
2006.
Note
6. Related
Party Transactions
Pursuant
to a written agreement with respect to the Valley County Leases, the Company
uses an entity controlled by an individual who is a shareholder, officer and
director of the company to perform geotechnical analysis of potential drilling
sites at a cost of $1,000 per site. The Company paid and capitalized $2,000
and
$40,000 to this entity for the six months ended June 30, 2007, and 2006,
respectively.
The
Company pays a monthly retainer to the law firm of Angerer & Angerer. The
principals of the law firm include two individuals who are collectively
shareholders, officers and a director of the Company. The Company expensed
$72,000 and $72,000 in legal fees for the six months ended June 30, 2007 and
2006, respectively. The Company owes $24,000 in accrued legal fees to Angerer
& Angerer as of June 30, 2007.
The
Company has retained the law firm of Igler & Dougherty, P.A. as securities
counsel. One of the Company’s directors is a shareholder in the law firm. The
Company has expensed $9,760 and $40,639 in legal fees and costs for the six
months ended June 30, 2007 and 2006, respectively. The Company owes $450 in
accrued legal fees to Igler & Dougherty, P.A. as of June 30,
2007.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
7. Note
Payable
The
Company borrowed $126,000 in May 2007 to pay its lease obligations that were
due
in June 2007. The loan is to be repaid prior to the Company spudding the first
well on any of the approximately 42,000 acres of its leases covered by the
loan
agreement. Coastal assigned a 5% overriding royalty interest (before all
expenses) in 8/8ths of the oil or natural gas produced from those Valley County
Montana leases to the lender.
ITEM
2 Management's
Discussion and Analysis of Financial Condition and Results
of Operations
Forward
Looking Statements
Statements
included in Management’s Discussion and Analysis of Financial Condition and
Results of Operations, which are not historical in nature are intended to be
forward looking statements. The Company cautions readers that forward looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward looking
statements. Among the risks and uncertainties are: the uncertainty of securing
additional financing through the sale of shares of Coastal Petroleum and/or
Coastal Caribbean; changes in the income tax laws relating to tax loss carry
forwards; the failure of the Company’s test wells to locate oil or gas reserves
or the failure to locate oil or gas reserves which are economically feasible
to
recover; reductions in world wide oil or gas prices; adverse weather conditions;
or mechanical failures of equipment used to explore the Company’s
leases.
Critical
Accounting Policies
The
Company follows the full cost method of accounting for its oil and gas
properties. All costs associated with property acquisition, exploration and
development activities whether successful or unsuccessful are
capitalized.
The
capitalized costs are subject to a ceiling test which basically limits such
costs to the aggregate of the estimated present value discounted at a 10% rate
of future net revenues from proved reserves, based on current economic and
operating conditions, plus the lower of cost or fair market value of unproved
properties.
The
Company assesses whether its unproved properties are impaired on a periodic
basis. This assessment is based upon work completed on the properties to date,
the expiration date of its leases and technical data from the properties and
adjacent areas.
Liquidity and Capital Resources
Liquidity
The
Company has $50,000 in available cash, excluding certificate of deposits pledged
for drilling permits, at June 30, 2007 compared to $343,000 at December 31,
2006. Our current liabilities exceed our current assets by $240,000 at June
30,
2007. We have suspended payments to our directors, general legal counsel, and
employee during the second quarter of 2007 and have accrued $108,927 in expenses
as of June 30, 2007.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
2 Management's
Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The
Company borrowed $126,000 in May 2007 to pay its lease obligations that were
due
in June 2007. The loan is to be repaid prior to the Company spudding the first
well on any of the approximately 42,000 acres of its leases covered by the
loan
agreement. Coastal assigned a 5% overriding royalty interest (before all
expenses) in 8/8ths of the oil or natural gas produced from those Valley County
Montana leases to the lender.
As
of June
30,
2007,
the Company had no revenues, had recurring losses prior to 2005
and
had an accumulated deficit during the development stage. The Company's current
cash position is not adequate to fund existing operations or exploration and
development of its oil and gas properties. Management is exploring options
to
sell interests in its leases or team with others for oil and gas exploration
and
development activity, although there is no assurance these efforts will be
successful. These situations raise substantial doubt about the Company's ability
to continue as a going concern.
The
Company acquired oil and gas leasing rights for 25,000 acres in Slope County
North Dakota and for two well sites in Valley County, Montana for $100,000
from
an entity controlled by one of the Company’s directors. Since that time, some of
the leases have expired and the Company currently holds leases on 9,150.31
net
acres in Billings, Slope and Stark Counties. The leases include an option to
drill for additional prospects in the Valley County area. The leases provide
for
a 25% working interest, 20% net revenue interest in each well, on a well by
well
basis, to an entity controlled by one of the Company’s directors. The leases are
also subject to the overriding royalty interest of the landowner. The Company
does not expect to drill on these leases on its own within the next twelve
months, but will look to team with another entity to share the costs of such
drilling.
The
Company now holds leases in Valley County covering a total of 137,163.26 net
acres. The Company has received four permits to drill on its Valley County
Leases and is in the process of obtaining additional permits, including a permit
to drill a test well into the Company’s 34,000 acre shallow natural gas
prospect. The Company continues to seek others to team with and share the cost
of wells it intends to drill over the next year.
The
Company began drilling its initial well in north central Montana in January
2006
under a farm-in agreement with the mineral owner on acreage in Blaine County.
The well hit the target Lodgepole reef, but the reef had been flushed with
fresh
water. Several other formations were drilled through that were prospective
for
oil or gas and each of them has been tested. While gas was encountered in the
testing, the well did not contain economic quantities of oil or gas. The Company
expensed $800,000 in drilling costs related to this well in the fourth quarter
of 2006. The Company is abandoning this well.
The
Company has also participated in and acted as operator in a twin well to the
only known well to produce from the Lodgepole in Montana. The targeted Lodgepole
reef contained oil, but not in sufficient quantities to be commercial for the
Company. Likewise, an uphole test of the Mission Canyon Formation resulted
in
oil being encountered, but not in sufficient quantities to be commercial for
the
Company. The Company’s participation costs in the twin well were approximately
$225,000, which was expensed in the fourth quarter of 2006. The total cost
of
the well was approximately $1,260,000.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM 2 Management's
Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations
Six
months ended June 30, 2007 vs. June 30, 2006
In
2005
we acquired oil and gas leases in North Dakota and Montana and we began drilling
our first well in January 2006.
Our
activities for 2006 consisted primarily of identifying drilling prospects and
drilling two wells. We ceased substantial drilling activities in January 2007,
and for the remainder of 2007 we have sought other entities to team with to
drill on our leases. Therefore, our travel, lodging and other drilling related
expenses decreased from 2006 levels. We incurred $86,000 to prepare our wells
for abandonment. We also terminated one of our two employees in early 2007
to
reduce expenses. In 2006, we incurred legal fees related to seeking and
negotiating with drilling team members, which activities decreased in
2007.
Our
interest income decreased in 2007 from 2006 due to lower cash
balances.
Three
months ended June 30, 2007 vs. June 30, 2006
In
2005
we acquired oil and gas leases in North Dakota and Montana and we began drilling
our first well in January 2006.
Our
activities for 2006 consisted primarily of identifying drilling prospects and
drilling two wells. We ceased substantial drilling activities in January 2007,
and for the remainder of 2007 we have sought other entities to team with to
drill on our leases. Therefore, our travel, lodging and other drilling related
expenses decreased from 2006 levels. We incurred $86,000 to prepare our wells
for abandonment. We also terminated one of our two employees in early 2007
to
reduce expenses. In 2006, we incurred legal fees related to seeking and
negotiating with drilling team members, which activities decreased in
2007.
Our
interest income decreased in 2007 from 2006 due to lower cash
balances.
ITEM
3 Quantitative
and Qualitative Disclosure About Market Risk
The
Company does not have any significant exposure to market risk as there were
no
investments in marketable securities at June 30, 2007.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
4 Controls
and Procedures
I,
Phillip W. Ware, the principal executive officer and the principal financial
officer, have evaluated the Company’s
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
adopted under the Securities Act of 1934) as of the end of the period covered
by
this report and have concluded:
1. That
the
Company’s disclosure controls and procedures are effective and adequately
designed to ensure that material information relating to the Company, including
its consolidated subsidiary, is timely made known to such officers by others
within the Company and its subsidiary, particularly during the period in which
this quarterly report is being prepared; and
2. That
there were no significant changes in the Company’s internal controls or in other
factors that could materially affect or are reasonably likely to materially
affect these controls subsequent to the date of their evaluation, including
any
corrective actions with regard to significant deficiencies and material
weaknesses.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
II - OTHER INFORMATION
June
30, 2007
ITEM
5 Other
Information
Coastal
Caribbean is currently a passive foreign investment company, or PFIC, for United
States federal income tax purposes, which could result in negative tax
consequences to a shareholder. If, for any taxable year, the Company’s passive
income or assets that produce passive income exceed levels provided by U.S.
law,
the Company would be a "passive foreign investment company," or PFIC, for U.S.
federal income tax purposes. For the years 1987 through 2001, Coastal
Caribbean's passive income and assets that produce passive income exceeded
those
levels and for those years Coastal Caribbean constituted a PFIC. If Coastal
Caribbean is a PFIC for any taxable year, then the Company’s U.S. shareholders
potentially would be subject to adverse U.S. tax consequences of holding and
disposing of shares of our common stock for that year and for future tax years.
Any gain from the sale of, and certain distributions with respect to, shares
of
the Company’s common stock, would cause a U.S. holder to become liable for U.S.
federal income tax under section 1291 of the Internal Revenue Code (the interest
charge regime). The tax is computed by allocating the amount of the gain on
the
sale or the amount of the distribution, as the case may be, to each day in
the
U.S. shareholder’s holding period. To the extent that the amount is allocated to
a year, other than the year of the disposition or distribution, in which the
corporation was treated as a PFIC with respect to the U.S. holder, the income
will be taxed as ordinary income at the highest rate in effect for that year,
plus an interest charge.
For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2006.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
II - OTHER INFORMATION
June
30, 2007
ITEM
6 Exhibits
31.1 Certification
pursuant to Rule 13a-14 by Phillip W. Ware
32.1
Certification pursuant to Section 906 by Phillip W. Ware
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
June
30, 2007
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.
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COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Registrant
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Date:
August 9, 2007 |
By: |
/s/ Phillip
W. Ware |
|
Phillip
W. Ware
Chief
Executive Officer, President
and Treasurer
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