Calibre Energy, Inc. 10-QSB/A
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 March 31, 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
March 31, 2006, 53,980,806 shares of common stock were outstanding.
CALIBRE
ENERGY, INC. QUARTERLY REPORT ON FORM 10-QSB
FOR
THE QUARTERLY PERIOD ENDED
March
31, 2006
TABLE
OF
CONTENTS
Item
1. Financial
Statements.
|
|
|
Consolidated
Balance Sheets
|
|
(unaudited)
|
| |
|
|
|
|
| |
|
March
31,
|
|
December
31,
|
| |
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
|
4,308,654
|
|
2,105,749
|
|
Accounts
receivable
|
|
|
|
|
|
Oil
and gas sales
|
|
39,472
|
|
33,960
|
|
Note
receivable - related party
|
|
350,000
|
|
300,000
|
|
Prepaid
expenses and other
|
|
6,245
|
|
104,100
|
| |
|
|
|
|
|
Total
current assets
|
|
4,704,371
|
|
2,543,809
|
| |
|
|
|
|
|
Noncurrent
Assets
|
|
|
|
|
|
Oil
and gas properties, using full cost method
|
|
8,568,016
|
|
5,308,881
|
|
Furniture
and office equipment
|
|
282,386
|
|
121,778
|
|
Less:
Accumulated depreciation, depletion, amortization and
impairment
|
|
(67,631)
|
|
(35,599)
|
|
Net
property, furniture and office equipment
|
|
8,782,771
|
|
5,395,060
|
| |
|
|
|
|
|
Other
assets
|
|
11,100
|
|
-
|
| |
|
|
|
|
|
Total
assets
|
|
13,498,242
|
|
7,938,869
|
| |
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable - trade
|
|
1,443,367
|
|
946,852
|
|
Accounts
payable - employees
|
|
-
|
|
98,630
|
|
Accrued
expenses
|
|
30,735
|
|
20,482
|
|
Total
liabilities
|
|
1,474,102
|
|
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; 53,980,806 and 47,000,000
issued and outstanding at March 31, 2006 and December 31,
2005, respectively
|
|
53,981
|
|
47,000
|
|
Additional
paid-in capital
|
|
14,545,422
|
|
8,727,556
|
|
Accumulated
deficit
|
|
(2,575,263)
|
|
(1,901,651)
|
|
Total
shareholders’ equity
|
|
12,024,140
|
|
6,872,905
|
| |
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
13,498,242
|
|
7,938,869
|
|
|
|
Consolidated
Statement of Operations
|
|
For
the Three Months Ended March 31, 2006
|
|
(unaudited)
|
| |
|
|
|
Revenue
|
|
$
39,342
|
| |
|
|
|
Operating
expenses
|
|
|
|
Lease
operating expense
|
|
9,296
|
|
Depletion
expense
|
|
14,332
|
|
Compensation
expense
|
|
155,006
|
|
Professional
fees
|
|
246,568
|
|
General
and administrative (excluding compensation expense)
|
|
311,866
|
|
Total
operating expense
|
|
737,068
|
| |
|
|
|
Loss
from operations
|
|
(697,726)
|
| |
|
|
|
Interest
income
|
|
24,114
|
| |
|
|
| |
|
|
|
Net
loss
|
|
$(673,612)
|
| |
|
|
| |
|
|
|
Earnings
per share:
|
|
|
|
Basic
and diluted
|
|
$(0.01)
|
| |
|
|
|
Weighted
average shares outstanding
|
|
49,755,558
|
|
|
|
Consolidated
Statement of Shareholders’ Equity
|
|
For
the Three Months Ended March 31, 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, 2006
|
53,980,806
|
|
$53,981
|
|
$14,545,422
|
|
$(2,575,263)
|
|
$12,024,140
|
|
|
|
Consolidated
Statement of Cash Flows
|
|
For
the Three Months Ended March 31, 2006
|
|
(Unaudited)
|
| |
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
Net
loss
|
|
$(673,612)
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
Noncash
recapitalization expense
|
|
100,000
|
|
Accretion
of stock option expense
|
|
10,253
|
|
Depreciation
and depletion expense
|
|
32,032
|
|
Changes
in working capital components:
|
|
|
|
(Increase)
in accounts receivable
|
|
(5,512)
|
|
(Increase)
in other current assets
|
|
(2,145)
|
|
(Increase)
in other assets
|
|
(11,100)
|
|
Increase
in accounts payable
|
|
397,885
|
|
Increase
in accrued expense
|
|
10,253
|
|
Net
cash (used in) operating activities
|
|
(141,946)
|
| |
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
Additions
to oil and gas properties
|
|
(3,259,135)
|
|
Additions
to furniture, office equipment and leasehold improvements
|
|
(160,608)
|
|
Receipts
on notes receivable
|
|
300,000
|
|
Disbursements
on note receivable
|
|
(350,000)
|
|
Net
cash (used in) investing activities
|
|
(3,469,743)
|
| |
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
Proceeds
from sale of common stock
|
|
5,814,594
|
|
Net
cash provided by financing activities
|
|
5,814,594
|
| |
|
|
|
Net
increase in cash
|
|
2,202,905
|
| |
|
|
|
Cash
|
|
|
|
Beginning
of period
|
|
2,105,749
|
|
End
of period
|
|
$4,308,654
|
| |
|
|
|
Supplemental
cash flow information:
|
|
|
|
Interest
paid
|
|
-
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(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 the Company’s annual report filed with
the SEC on Form 10K-SBA. 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-SBA, have been omitted.
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 Delaware corporation that was formed on August 17,
2005.
Calibre
completed a reverse merger into a public company, Hardwood Doors and Milling
Specialties, Inc. (“Hardwood”), on January 27, 2006, in which Calibre obtained a
controlling interest. See Note 6 for details.
Calibre
anticipates applying a business model to achieve substantial annual growth
in
production and reserves with a relatively low risk approach. These plans include
deploying known techniques for use in identifying, predicting, and optimizing
future production volumes and rates. Using multi-discipline teams with core
competencies of petrophysics, reservoir and production engineering, geology
and
geophysics, the Calibre’s emphasis will be on the practical integrated
application of these technologies to identify previously “hidden” potential.
This model mitigates conventional exploration risk because Calibre will focus
on: a) shales that are laterally extensive (pervasive); b) basins where the
target zones have been previously penetrated and found to be productive; c)
shales that have been successfully fraced (contained); d) cuttings utilized
to
validate source rock potential, porosity, and permeability; and e) projects
that
will be financially leveraged.
Note
3. Summary
of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Calibre’s
financials are based on a number of significant estimates, including oil and
gas
reserve quantities which are the bases for the calculation of depreciation,
depletion and impairment of oil and gas properties, and timing and costs
associated with its retirement obligations.
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.
See Note
7.
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.
Note
5. Related
Party Transactions
Our
President and Chairman, Mr. Prentis B. Tomlinson, Jr., owns approximately an
18%
(on a fully diluted basis) stake of Kerogen Resources, Inc., a privately held
oil and gas exploration company and served as a Director and Chairman of the
Board of Directors from its formation in July 2005 until April 21, 2006.
We
are
parties to a letter agreement with Kerogen Resources pursuant to which we are
participating in the Reichmann project. During the period ending March 31,
2006,
pursuant to such agreement we have paid Kerogen $1,361,643. 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 period ending March 31,
2006 in respect to this agreement. Additionally, we have advanced $666,637
to
Kerogen for participation in leases in the Hill County area of
Texas.
The price
paid for leases represented market prices for similar acreage in the
area.
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
March 31, 2006 in respect to this agreement. The
terms
of participation by Calibre in the Agreements for both the Ft. Worth Basin
and
the Williston Basin are similar to Agreements entered into with other industry
companies with KRI in these basins.
We
held a
promissory note issued by Kerogen Resources. The principal owed pursuant
to the
note was $300,000 bearing interest at the rate of 6.25% per annum. The principal
of this note and accrued interest thereon was due and payable in a single
installment on the maturity date. The maturity date was the earlier of September
30, 2006 or the date on which Kerogen Resources received gross proceeds of
at
least $6,000,000 from a sale of equity, in one or more transactions.
This
note
was entered into by Mr. Tomlinson, a founder of Calibre Energy, in anticipation
of the formation of Calibre Energy. After the incorporation of Calibre Energy,
the company entered into agreements with Kerogen for the purpose of
identification, exploration and development of prospects in the Fort Worth
Basin
and Williston Basin. The Reichmann Petroleum Project and South Fort Worth
Basin
project are projects identified by these agreements.
On March
24, 2006, Kerogen Resources repaid $314,623.29, the full amount of the
promissory note and all interest due.
On
March
24, 2006, we loaned $350,000 to Standard Drilling, Inc. pursuant to a loan
bearing interest at 4% per annum. On April 7, 2006 Standard Drilling, Inc.
repaid us $350,544.54, the full amount of the loan with all interest due.
Mr. Tomlinson, our President, controls a limited liability company that, at
the
time of the loan, owned 53% of Standard Drilling, Inc.
Several
of
our officers, including our President and CFO, are also employed as officers
and/or directors of Standard Drilling, Inc., a company engaged in the business
of drilling services.
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. Shareholders’
Equity
Reverse
Merger
On
January
27, 2006, pursuant to an Amended and Restated Agreement and Plan of
Reorganization dated as of January 17, 2006 by and among Hardwood Doors
and
Milling Specialties, Inc., a Nevada corporation (”Hardwood”),
Calibre Acquisition Co., a Delaware corporation (“Merger
Sub”),
and
Calibre Energy, Inc., a Delaware corporation (“Calibre
Energy Delaware”),
( the
“Merger Agreement”), Merger Sub was merged with and into Calibre Energy
Delaware, and Calibre Energy Delaware became a wholly-owned subsidiary
of
Hardwood (the “Merger”).
As a
result of the Merger, Hardwood, which previously had no material operations,
acquired the business of Calibre Energy Delaware. For accounting purposes,
this
reorganization was treated as a reverse merger, with Calibre Energy,
Inc. being
the accounting acquirer and the go-forward financial statements reflect
Calibre’s history from its inception on August 17, 2005.
Each
outstanding share of common stock of Calibre Energy Delaware was converted
into
one share of common stock of Hardwood. All outstanding options and warrants
to
purchase common stock of Calibre Energy Delaware were assumed by Calibre
and
converted into options and warrants to purchase an equal number of shares
of
common stock of Hardwood. The Merger resulted in a change of control
of
Hardwood, with the former security holders of Calibre Energy Delaware
owning
approximately 93.0% of Hardwood’s outstanding common stock, or approximately
93.7% assuming the exercise of all outstanding options and warrants,
following
the closing of the Merger.
In
the
Merger, Hardwood issued 47,000,000 shares of its common stock in exchange
for
47,000,000 shares of common stock of Calibre Energy Delaware and reserved
for
issuance (1) 10,000,000 shares of common stock pursuant to outstanding
warrants
to purchase common stock of Calibre Energy Delaware that were assumed
by
Hardwood, and (2) 6,425,000 shares of common stock pursuant to outstanding
options to purchase common stock of Calibre Energy Delaware pursuant
to the
Calibre Energy, Inc. 2005 Stock Incentive Plan that were assumed by Hardwood.
In
connection with the Merger, Calibre paid Hardwood $100,000 as a deposit
pursuant
to the Merger Agreement. A condition to the Merger was an agreement by
the then
principal stockholder of Hardwood to cancel, immediately prior to the
Merger,
19,575,000 outstanding shares of common stock of Hardwood that had been
issued
to the principal shareholder. In consideration of such cancellation,
Hardwood
paid the principal shareholder $100,000, and Calibre
recognized recapitalization expense of $100,000. The then principal
shareholder of Hardwood also assumed the net liabilities of Hardwood.
As
a
result of the Merger, Hardwood has 50,525,000 shares of common stock
issued
and
outstanding and an additional 18,425,000 shares of common stock reserved
for issuance as described above.
In
connection with the consummation of the Merger, we changed our name to
Calibre
Energy, Inc.
Note
7. 2005
Stock Incentive Plan.
Calibre
adopted the 2005 Stock Incentive Plan (the “Plan”) in October 2005. The Plan is
designed to qualify under the Internal Revenue Code as an incentive stock option
plan. 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 March
31,
2006.
During
2005, we granted a total of 5,800,000 fully vested options including 5,150,000
options at an exercise price of $.05 per share and 650,000 shares at an exercise
price ranging from $0.12 to $0.24 per share. Compensation expense recorded
through December 31, 2005 for the options granted was $1,504,500.
We
also
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 March 31,
2006, Calibre
recorded
compensation expense of $10,251 to amortize the cost of nonvested options issued
prior to the adoption of SFAS No. 123R.
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 March 31, 2006, and changes during
the three months ended March 31, 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 March 31, 2006
|
650,000
|
$162,629
|
As
of
March 31, 2006, there was $152,378 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
3.75 years. No shares vested during the three month period ended March 31,
2006.
Note
8. Subsequent Events
Private
Placement
On
April
18, 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 per unit.
Aggregate
gross proceeds to Calibre were $11,560,000.
Offering costs were $ 892,000 and will be reflected as a reduction in the
proceeds. At March 31, 2006, Calibre had received net proceeds from stock
issuances of $5,814,594 (gross proceeds of $6,320,000 less $505,406 of offering
costs).
Each
warrant issued entitles the holder to acquire one additional share of Calibre
common stock at an exercise price of U.S. $2.75 per share at any time on or
before two years following the date of issuance. Provided that if the closing
price of our common stock on any exchange on which the common stock is traded
or
quoted equals or exceeds U.S.$4.00 for 20 consecutive trading days and if
either: (i) a registration statement registering the re-sale of the shares
issuable upon exercise of the warrants has been declared effective, or (ii)
Calibre has completed a “Canadian Going Public Transaction” as referred to in
the Warrant under the caption “Canadian Reporting Issuer Status,” then the
warrant term shall be automatically reduced to 30 days from the date of initial
issuance of a news release by Calibre announcing the change to the warrant
term.
In
connection with sales outside the United States, Calibre Energy paid finders
fees totaling $ 892,000 and issued to the finders warrants to acquire a total
of
577,500 shares on the same terms as those warrants issued to the investors
except that the exercise price for the finders warrants is $2.00 per
share
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 Ft. Worth Basin located northern Texas, the Bakkan
Shale development in the Williston Basin located in Montana and North Dakota,
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 was 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 as we believe these developments have the most
promising economics of any shale gas wells compared to the various producing
basins in the United States.
Acquisition,
exploration and development.
We
follow
the full cost method of accounting for oil and gas properties. Accordingly,
all
costs associated with acquisition, exploration, and development of oil and
gas
reserves, including directly related overhead costs and related asset retirement
costs, are capitalized.
General
and administrative. General and administrative expenses consist primarily of
salaries and benefits, office expense, professional services fees, and other
corporate overhead costs. We anticipate increases in general and administrative
expenses as we continue to develop and prepare for commercialization of our
technology
Results
of Operations
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 March 31, 2006 to
any
earlier period.
Net
Sales.
For
the
three months ended March 31, 2006, our oil and gas net sales were $
39,342.
We
are 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 March 31, 2006, general and administrative expenses
were
$713,440. A total of $311,866 was for actual costs associated with our
general
and administrative expense, $246,568 was for professional fees, and $155,006
was
for compensation expense.
Net
loss.
For
the
three months ended March 31, 2006, we had a net loss of $673,612.
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
March 31, 2006, we had cash of $4,308,654 and working capital of $3,230,269.
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. Our future liquidity 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 March 31, 2006, 400,000 warrants to purchase our common
stock have been exercised.
In
March
and April 2006, we raised an aggregate of $11,560,000 ($10,668,000 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
three month period ending March 31, 2006 cash used in operating activities
was
$141,946,
primarily attributed to a net loss of $673,612 in the period and to an increase
in accounts payable of $397,885.
Cash
flow from investing activities
For
the
three month period ending March 31, 2006, net cash used in investing activities
was $3,469,743, driven primarily by our investment in oil and gas properties
in
the Ft. Worth Basin.
Cash
flow from financing activities
For
the
three month period ending March 31, 2006, net cash provided by financing
activities was $5,814,594, which was attributed to our sale of common stock
and
purchase warrants. At March 31, 2006, Calibre had received net proceeds from
stock issuances of $5,814,594 (gross proceeds of $6,320,000 less $505,406 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
| |
|
Total
|
|
Payments
Due By Period
|
|
| |
|
|
|
Less
Than 1 Year
|
|
1-3
Years
|
|
3-5
Years
|
|
More
than 5 Years
|
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
|
|
$
|
258,335
|
|
$
|
101,554
|
|
$
|
156,781
|
|
|
|
|
|
|
|
|
Drilling
Well in Progress
|
|
|
3,183,898
|
|
|
3,183,898
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,442,233
|
|
$
|
3,285,452
|
|
$
|
156,781
|
|
|
|
|
|
|
|
As
of
March 31, 2006, we had no Long-term Debt Obligations, Capital Lease Obligations,
Purchase Obligations or other Long-term Liabilities reflected on the balance
sheet.
Off-Balance
Sheet Arrangements
As
of
March 31, 2006, we had no off-balance sheet arrangements.
Related
Party Transactions
Our
President and Chairman, Mr. Prentis B. Tomlinson, Jr., owns approximately an
18%
(on a fully diluted basis) stake of Kerogen Resources, Inc., a privately held
oil and gas exploration company and served as a Director and Chairman of the
Board of Directors from its formation in July 2005 until April 21, 2006.
We
are
parties to a letter agreement with Kerogen Resources pursuant to which we are
participating in the Reichmann project. During the period ending March 31,
2006,
pursuant to such agreement we have paid Kerogen $1,361,643. 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 period ending March 31,
2006 in respect to this agreement. Additionally, we have advanced $666,637
to
Kerogen for participation in leases in the Hill County area of
Texas.
The price
paid for leases represented market prices for similar acreage in the
area.
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
March 31, 2006 in respect to this agreement. The
terms
of participation by Calibre in the Agreements for both the Ft. Worth Basin
and
the Williston Basin are similar to Agreements entered into with other industry
companies with KRI in these basins.
We
held a
promissory note issued by Kerogen Resources. The principal owed pursuant
to the
note was $300,000 bearing interest at the rate of 6.25% per annum. The principal
of this note and accrued interest thereon was due and payable in a single
installment on the maturity date. The maturity date was the earlier of September
30, 2006 or the date on which Kerogen Resources received gross proceeds of
at
least $6,000,000 from a sale of equity, in one or more transactions.
This
note was entered into by Mr. Tomlinson, a founder of Calibre Energy, in
anticipation of the formation of Calibre Energy. After the incorporation
of
Calibre Energy, the company entered into agreements with Kerogen for the
purpose
of identification, exploration and development of prospects in the Fort Worth
Basin and Williston Basin. The Reichmann Petroleum Project and South Fort
Worth
Basin project are projects identified by these agreements.
On March
24, 2006, Kerogen Resources repaid $314,623.29, the full amount of the
promissory note and all interest due.
On
March
24, 2006, we loaned $350,000 to Standard Drilling, Inc., a private Drilling
Company based in Houston, TX., pursuant to a loan bearing interest at 4%
per annum. On April 7, 2006 Standard Drilling, Inc. repaid us $350,544.54,
the full amount of the loan with all interest due. Mr. Tomlinson, our
President, controls a limited liability company that, at the time of the loan,
owned 53% of Standard Drilling, Inc. and serves as its Chairman and CEO.
.
Several
of
our officers, including our President and CFO, are also employed as officers
and/or directors of Standard Drilling, Inc., a company engaged in the business
of drilling services. Serving as an officer and/or director for both companies
limits the amount of time available to be devoted by them to managing our
business. On average such officers devote approximately 35 hours per week
to
each company; however the actual amount devoted to managing either company
fluctuates from week to week depending upon the needs and activities of
each
company. We do not believe that the dual employment of our officers, and
the
resulting potential limitations on available time, has negatively affected
our
business. As our business develops, we anticipate engaging additional
management.
The
dual
obligations also create a risk of a conflict of interest for those officers.
We
intend to appoint two or more new directors who will be independent directors.
To the extent conflicts of interest do arise, we intend to have future
conflicts
of interest reviewed and resolved by special board committee made up of
independent directors. We are in the process of identifying individuals
who may
serve as independent directors.
We
anticipate engaging Standard Drilling to provide us with drilling services.
The
terms of any such engagement will be reviewed and approved or rejected
by the
special committee of independent directors. We expect the terms of any
such
agreement to be no less favorable to us than those terms which may have
been
obtained from unrelated third parties. When appropriate, we will obtain
competing bids from other drilling service companies, and may engage them
to
provide drilling services.
We
share
facilities and some overhead costs with Standard Drilling in Washington
D.C. and
are
finalizing a service agreement pursuant to which
Standard Drilling
will pay us
for
office space and supplies, secretarial services and any other services
we
provide to them in sharing the Washington D.C. office space. The average
monthly
payment by Standard Drilling to us under the services agreement is expected
to
be approximately $20,000. The services agreement may be terminated by either
party on 30 days notice.
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.
Reverse
Acquisition.
We
treated the merger of Calibre Energy, Inc. into a subsidiary of Hardwood Doors
and Milling Specialties, Inc. as a reverse acquisition. Pursuant to the guidance
in Appendix B of SEC Accounting Disclosure Rules and Practices Official Text,
the “merger of a private operating company into a non-operating public shell
corporation with nominal net assets typically results in the owners and
management of the private company having actual or effective operating control
of the combined company after the transaction, with the shareholders of the
former public shell continuing only as passive investors. These transactions
are
considered by the staff to be capital transactions in substance, rather than
business combinations. That is, the transaction is equivalent to the issuance
of
stock by the private company for the net monetary assets of the shell
corporation, accompanied by a recapitalization.” Accordingly, the reverse
acquisition has been accounted for as a recapitalization. For accounting
purposes, the original Calibre Energy, Inc. is considered the acquirer in the
reverse acquisition. The historical financial statements are those of the
original Calibre Energy, Inc. Earnings per share for periods prior to the merger
are restated to reflect the number of equivalent shares received by the
acquiring company
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
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 March 31, 2006. Based on this
evaluation, our chief executive officer and chief financial officer have
concluded that, as of March 31, 2006, our disclosure controls and
procedures were not effective. Our conclusion was based on (1) our lack
of
systematic accounting and disclosure procedures, (2) the initial stages
of the
development of our IT systems, (3) the hiring and development of new
personnel
and (4) the number of adjustments identified by our independent auditors
during
the course of their review. Changes in the internal controls initially
occurred
in the previous period. We do not consider any of the internal control
deficiencies to constitute a material weakness. We attribute all of the
identified weaknesses to the formative stage of our organizational development.
We currently lack the personnel resources to ensure that our disclosure
controls
and procedures are adequate. We
are
addressing the procedural and control issues by adding more formalized
accounting procedures and IT systems and by developing and adding to
our
personnel in the reporting and control
area.
Calibre
has substantially increased its business activities since the merger on January
27, 2006. Accordingly, Calibre has been required to improve 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 development of our internal IT systems; (3) hired
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
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 March 31, 2006 that were not registered
under the Securities Act.
On
January
27, 2006 when Calibre was named “Hardwood Doors and Milling Specialties, Inc.,”
it issued: (i) 47,000,000 shares of common stock, (ii) warrants to acquire
10,000,000 shares of common stock at a price of $0.75 per share, and (iii)
warrants to acquire 2,000,000 shares of common stock at $0.40 per share, to
the
shareholders and warrant holders of Calibre Energy, Inc., a Delaware corporation
("Calibre") in exchange for all the outstanding capital stock and warrants
of
Calibre. The shares of common stock issued in the acquisition 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. Calibre subsequently changed its name to “Calibre Energy,
Inc.”
In
March
and April of 2006, Calibre issued 5,780,000 shares of common stock and warrants
to acquire 5,780,000 shares of common stock at a price of $2.75 of Calibre
Energy, Inc., a Nevada corporation (“Calibre”). In March and April, 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:
August 24, 2006 |
By: |
/s/ Prentis
B. Tomlinson, Jr. |
| |
|
Prentis
B. Tomlinson, Jr. |
| |
|
President
and |
| |
|
Chairman
of the Board of Directors |
| |
|
|
| |
|
|
| Dated:
August 24, 2006 |
By: |
/s/ O.
Oliver Pennington |
| |
|
O.
Oliver Pennington |
| |
|
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.