UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
Commission File Number 000-50830
CALIBRE ENERGY, INC.
--------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0343804
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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
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(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 (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 registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of May 18, 2007
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Common Stock, par value $.001 per share 62,437,704
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Transitional Small Business Format (check one): Yes |_| No |X|
1
CALIBRE ENERGY, INC. QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED
March 31, 2007
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
- Balance Sheets as of March 31, 2007 December 31, 2006 (unaudited) 3
- Statement of Operations for the
Three months ended March 31, 2007 and 2006 (unaudited) 4
- Statement of Shareholders' Equity
Three months ended March 31, 2007 and 2006 (unaudited) 5
- Statement of Cash Flows for the
Three months ended March 31, 2007 and 2006 (unaudited) 6
- Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Controls and Procedures 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 17
Signatures 18
Index to Exhibits 19
2
PART I - FINANCIAL INFORMATION
Calibre Energy, Inc.
Balance Sheets
As of March 31, 2007 and December 31, 2006
(Unaudited)
March 31, December 31,
2007 2006
Assets
Current Assets
Cash $ 4,913 $ 1,257,134
Accounts receivable
Oil and gas sales - related party 518,021 233,690
Related party 125,965 406,143
Prepaid expenses and other 68,130 105,564
------------- ------------
Total current assets 717,029 2,002,531
Non-Current Assets
Oil and gas properties, using full cost method
Properties subject to amortization 9,444,540 9,444,540
Properties not subject to amortization 11,871,403 10,823,688
Furniture and office equipment 521,434 485,960
Less: Accumulated depreciation, depletion, and amortization (6,301,385) (6,154,621)
------------- ------------
Net oil and gas properties, furniture and office equipment 15,535,992 14,599,567
Advances to operator-related party 277,336 317,552
Investments-equity method 78,750 83,125
Other assets, net 130,771 137,213
------------- ------------
Total assets $ 16,739,878 $ 17,139,988
============= =============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable - trade 1,233,706 1,095,696
Accounts payable - related party 1,740,591 1,740,591
Advances from shareholder 199,000 -
Accrued expenses 144,010 192,675
Rights payable 1,703,446 1,703,446
------------- -------------
Total current liabilities 5,020,753 4,732,408
Non-Current Liabilities
Asset retirement obligations 54,088 53,242
------------- -------------
Total Liabilities $ 5,074,841 $ 4,785,650
Shareholders' Equity
Preferred stock; $.001 par value; 10,000,000 authorized; none issued - -
Common stock; $.001 par value; 100,000,000 authorized; 62,437,704 and 62,350,806 issued and
outstanding at March 31, 2007, and December 31, 2006, respectively 62,437 62,351
Additional paid-in capital 24,947,657 24,453,099
Accumulated deficit (13,345,057) (12,161,112)
------------- ------------
Total shareholders' equity 11,665,037 12,354,338
------------- -------------
Total liabilities and shareholders' equity $ 16,739,878 $ 17,139,988
============= =============
See notes to financial statements.
3
Calibre Energy, Inc.
Statements Of Operations
For the Three Months Ended March 31, 2007 and 2006
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2007 2006
Revenue:
Oil & gas sales $ 232,346 $ 39,342
Expenses:
Lease operating expense 54,700 9,296
Severance and ad valorem taxes 17,609 -
Depreciation, depletion and amortization 146,766 14,332
General and administrative 1,195,449 713,440
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1,414,524 737,068
------------- -------------
Net Income (Loss) From Operations (1,182,178) (697,726)
Loss from equity investment (4,375) -
Interest income 2,608 24,114
------------- -------------
Net Income (Loss) $ (1,183,945) $ (673,612)
============= =============
Earnings per share - basic and diluted $ (0.02) $ (0.01)
Weighted average shares outstanding - basic and diluted 62,383,553 49,755,558
See notes to financial statements.
4
Calibre Energy, Inc.
Statement of Shareholders' Equity
From the Three Month Period ending March 31, 2007
(Unaudited)
Common Stock Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
Balance, December 31, 2006 62,350,806 $62,351 $24,453,099 $(12,161,112) $12,354,338
Issuance of common stock for:
- cashless exercise of warrants 14,974 15 (15) -
- exercise of warrants 20,000 20 14,980 15,000
- cash 51,924 51 33,699 33,750
Warrant expense - - 388,324 388,324
Stock-based compensation - - 57,570 57,570
Net loss (1,183,945) (1,183,945)
----------- -------- ------------ ------------- ------------
Balance, March 31, 2007 62,437,704 $62,437 $24,947,657 $(13,345,057) $11,665,037
=========== ======== ============ ============= ============
See notes to financial statements.
5
Calibre Energy, Inc.
Statement of Cash Flows
For the Three Months Ended March 31, 2007 and 2006
(Unaudited)
March 31 March 31
2007 2006
Cash flows from operating activities
Net loss $(1,183,945) $ (673,612)
Adjustments to reconcile net loss to net cash used in operating activities:
Non cash recapitalization expense - 100,000
Non cash warrant expense 388,324 -
Stock based compensation 57,570 10,253
Depreciation , depletion and amortization 146,766 32,032
Accretion of asset retirement obligation 847 -
Equity in losses of affiliates 4,375 -
Changes in working capital components:
(Increase) in accounts receivable (4,153) (5,512)
Decrease/(Increase) in other current assets 37,434 (2,145)
Decrease/(Increase) in other assets 6,442 (11,100)
Increase in accounts payable 138,010 397,885
(Decrease)/Increase in accrued expense (48,667) 10,253
------------ ------------
Net cash (used in) operating activities (456,997) (141,946)
------------ ------------
Cash flows from investing activities
Additions to oil and gas properties (1,007,500) (3,259,135)
Additions to furniture, office equipment, other assets and leasehold improvements (35,474) (160,608)
Receipts on notes receivable - 300,000
Disbursements on note receivable - (350,000)
------------ ------------
Net cash (used in) investing activities (1,042,974) (3,469,743)
------------ ------------
Cash flows from financing activities
Advances from shareholder 199,000 -
Proceeds from sale of common stock 48,750 5,814,594
------------ ------------
Net cash provided by financing activities 247,750 5,814,594
------------ ------------
Net increase in cash $(1,252,221) $ 2,202,905
============ ============
Cash
Beginning of period 1,257,134 2,105,749
End of period $ 4,913 $ 4,308,654
Supplemental cash flow information:
Interest paid - -
Income taxes paid - -
See notes to financial statements.
6
CALIBRE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements of Calibre Energy, Inc.
("Calibre") have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction with the
audited financial statements and notes thereto contained in Calibre's annual
report filed with the SEC on Form 10-KSB for the period ending December 31,
2006. 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
2006 as reported in Form 10-KSB have been omitted.
Certain reclassifications have been made to amounts in prior periods to
conform with the current period presentation.
Note 2. Organization and Business Operations
Calibre is an independent exploration and production company focused on the
acquisition, exploitation, development and sale of crude oil and natural gas; in
the Irbil Province of Kurdistan, Iraq; in the Barnett Shale in Texas; and the
Fayetteville Shale in Arkansas. Calibre is a Nevada corporation, headquartered
in Washington, DC and Houston, Texas. Calibre's predecessor company for
financial reporting purposes was formed on August 17, 2005.
Calibre intends to expand and develop its exploration and production business
and reserves by focusing on the exploration of the Bina Bawi Project in
Kurdistan, Iraq and on its projects in the Barnett Shale. Calibre has a 10%
participating interest in the Bina Bawi Exploration and Production Sharing
Agreement with the Kurdish Regional Government in Kurdistan, Iraq, pursuant to a
joint operating agreement with Hawler Energy, Ltd.
In October of 2005, Calibre commenced its operating activities by focusing on
shale gas opportunities in the Barnett Shale and the Fayetteville Shale. Calibre
initially targeted the Mississippian developments of the Barnett Shale in the
Ft. Worth Basin and the Fayetteville Shale development in the Arkoma Basin.
Calibre is currently participating in three projects with Kerogen Resources,
Inc., a privately held exploration and production company located in Houston,
Texas. The projects are the Reichmann Petroleum project, South Ft. Worth Basin
project and Williston Basin project.
Calibre believes that major oil companies, in the course of exploring large
tracts of international acreage, frequently choose to ignore or abandon smaller
discoveries, or discoveries with special infrastructure requirements. Smaller
companies, such as Calibre, without the overhead structures of these larger
companies can often, through careful due diligence, planning and local
intelligence, acquire and turn such discoveries into economic and profitable
developments. Calibre's management has industry experience in many international
producing areas and has the capability to continue to expand the scope of our
activities as opportunities arise. Key elements of Calibre's ultimate success
include our ability to select opportunities that will promote value creation, to
form strategic alliances with influential local partners in certain prolific
hydrocarbon regions, to develop our potential as an operator of our future
projects, and as a non-operator to develop a close association with the
operating companies for our projects and to maintain a certain degree of control
over the timing, expense levels and execution of our projects.
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.
7
Calibre's financials are based on a number of significant estimates, including
oil and gas reserve quantities which are the basis for the calculation of
depreciation, depletion and impairment of oil and gas properties, and timing and
costs associated with its retirement obligations.
Oil and Gas Properties
Calibre follows 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.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalizable as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. Calibre assesses the
realizability of unproved properties on at least an annual basis or when there
has been an indication that impairment in value may have occurred. Impairment of
unproved properties is assessed based on management's intention with regard to
future exploration and development of individually significant properties and
the ability of Calibre to obtain funds to finance such exploration and
development. Calibre is currently participating in oil and gas exploration and
development activities on onshore properties in the Fort Worth Basin, the
Williston Basin and the Arkoma Basin and in an international onshore project in
Irbil, Kurdistan, Iraq. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized. Calibre expects to evaluate the properties
not subject to amortization by the end of 2007 or as events occur that indicate
the potential for impairment. The costs not subject to amortization as of March
31, 2007 are as follows:
Acquisition Exploration G&G Capitalized
Year Incurred Costs Costs Costs Development Costs Interest Total
------------------------------------------------------------------------------------------------------------------------
2007 - $1,048,715 - - - $1,048,715
2006 4,076,347 2,269,106 - - - 6,345,453
2005 1,042,418 1,083,130 2,352,687 - - 4,478,235
------------------------------------------------------------------------------------------------------------------------
Total $5,118,765 $4,400,951 $2,352,687 - - $11,871,403
The fair value of an asset retirement obligation is recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
present value of the estimated asset retirement costs is capitalized as part of
the carrying amount of the long-lived asset. For Calibre, asset retirement
obligations relate to the abandonment of oil and gas producing facilities. The
amounts recognized are based upon numerous estimates and assumptions, including
future retirement costs, future recoverable quantities of oil and gas, future
inflation rates and the credit-adjusted risk-free interest rate.
Under full cost accounting rules for each cost center, capitalized costs of
proved properties, less accumulated amortization and related deferred income
taxes, shall not exceed an amount (the "cost ceiling") equal to the sum of (a)
the present value of future net cash flows from estimated production of proved
oil and gas reserves, based on current economic and operating condition,
discounted at 10 percent, plus (b) the cost of properties not being amortized,
plus (c) the lower of cost or estimated fair value of any unproved properties
included in the costs being amortized, less (d) any income tax effects related
to differences between the book and tax basis of the properties involved. If
capitalized costs exceed this limit, the excess is charged as an impairment
expense.
Investments
Investments are accounted for under the equity method in circumstances where we
are deemed to exercise significant influence over the operations of the
investee. Under the equity method, we recognize our share of the investee's
earnings and losses in our statements of operations. Included in investments at
March 31, 2007 is an equity investment of $78,750. This investment has been
accounted for under the equity method.
Revenue and Cost Recognition
Calibre uses the sales method of accounting for natural gas and oil revenues.
Under this method, revenues are recognized based on the actual volumes of gas
and oil sold to purchasers. The volume sold may differ from the volumes to which
Calibre is entitled based on our interest in the properties. Costs associated
with production are expensed in the period incurred.
8
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
2007. At March 31, 2007, Calibre had an accumulated deficit of $13,345,057 and a
working capital deficit of $4,303,724. However, of this $4,303,724 working
capital deficit, $1,703,446, consisted of a non-cash liability related to a
charge for a registration delay expense that will be settled in Calibre common
stock. Calibre has limited financial resources until such time that Calibre is
able to raise additional capital or generate positive cash flow from operations.
These factors raise substantial doubt about Calibre's 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 by obtaining
additional financing and commencing commercial production. However, there is no
assurance that Calibre will be able to obtain additional financing from
investors or private lenders and, if available, such financing may not be on
commercial terms acceptable to Calibre or its shareholders.
Note 5. Reichmann Petroleum Bankruptcy
On December 8, 2006, the operator of the properties in the Barnett Shale
Project, Reichmann Petroleum, filed for voluntary Chapter 11 bankruptcy
protection. All development activity on this joint venture with Reichmann has
ceased pending the resolution of legal claims. Calibre's interests in the
Reichmann-operated properties are held through Calibre's agreement with Kerogen.
As a result of the bankruptcy, Calibre's net share of working interest
production is expected to be paid into a separate account under the control of
the bankruptcy court. As of March 31, 2007, Calibre had an outstanding related
party accounts receivable balance of $518,021 from Kerogen related to revenue
from certain wells in the Reichmann project. Furthermore, as of March 31, 2007,
Calibre had an outstanding joint interest payable balance of approximately $1.7
million to Kerogen for capital expenditures. As a result of the bankruptcy,
related party accounts receivable may or may not be collectible. Calibre has
petitioned the bankruptcy court and expects a resolution in the bankruptcy court
that will permit payment of Calibre's share of working interest production.
Calibre believes it will be successful in collecting its share of production
revenues either in cash or in production-in-kind from Reichmann and Kerogen.
Accordingly, no allowance has been made for the related party accounts
receivable.
Additionally, Kerogen has petitioned the bankruptcy court to potentially
continue with the development of the Reichmann leases with a new operator.
Calibre believes, but cannot provide assurance, that the bankruptcy court will
resolve to permit ongoing development operations on the project leases, however,
the terms of the leases for the project generally require commencement of
drilling operations within the primary term of each lease. If development does
not proceed as a result of the Reichmann bankruptcy, those undeveloped and
partially developed leases in the project will terminate and Calibre will have
to impair these properties. Capital expenditures invested to date in these
partially developed wells are approximately $1.3 million.
Note 6. Related Party Transactions
Kerogen Resources
Our President and Chairman, Mr. Prentis B. Tomlinson, Jr., owns a 8.47%
(on a fully diluted basis) stake of Kerogen Resources, Inc. ("Kerogen"), a
privately held oil and gas exploration company. Calibre is party to three
agreements with Kerogen pursuant to which we are participating in the following
projects: the Reichmann project; the South Ft. Worth Basin project; and the
Williston Basin project. We made no payments to or received any funds from
Kerogen during the period ending March 31, 2007 with respect to these
agreements. We recorded the estimated amount of revenue due from Kerogen in
respect of these agreements for the three months ended March 31, 2007.
Standard Drilling, Inc.
On January 16, 2007, Calibre entered into a Business Opportunity
Agreement with Standard Drilling, Inc. pursuant to which Calibre agreed not to
acquire, invest in or operate any oil field services business. Calibre also
agreed to advise Standard Drilling, Inc., of any such opportunities presented to
Calibre. In exchange, Standard Drilling, Inc. agreed not to acquire, invest in
or operate any exploration and production business other than what it currently
holds and to advise Calibre of any exploration and production business that is
presented to it.
Hawler Energy, Ltd.
Pursuant to a Novation Agreement dated September 11, 2006, Calibre
purchased for $5.5 million a 10% participating interest from Hawler in the
Exploration and Production Sharing Agreement (the "EPSA") between A&T, Hawler
Energy and the Oil and Gas Petrochemical Establishment of the Kurdistan Regional
Government (the "OGE"), subject to final approval of OGE. The EPSA provides for
the exploration and development of the Bina Bawi prospects. In connection with
the agreement, Calibre paid Hawler $2.0 million on September 15, 2006 and agreed
to pay an additional $1.0 million upon completion of the first well of the Bina
Bawi prospect. Further, Calibre agreed to pay up to $2.5 million of Hawler's
participating interests similar to a carried interest. Calibre paid Hawler
Energy $910,000 during the three months ending March 31, 2007 and has paid a
total of $4,356,606 since inception.
9
Advances from Shareholder
On February 9, 2007, our Chairman and Chief Executive Officer, Prentis
B. Tomlinson, Jr., began advancing Calibre cash to cover general and
administrative costs until additional financing could be secured. As of March
31, 2007, Mr. Tomlinson had advanced the Company $199,000, which is shown in the
accompanying financial statements as Advances from Shareholder. Calibre is
obligated to repay Mr. Tomlinson on demand.
Note 7. 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. During the three month period ended March 31, 2007, no options were
granted or exercised.
A summary of option activity as of March 31, 2007 is presented below:
Weighted Average
Weighted Average Remaining Aggregate
Options Shares Exercise Price Contractual Term Intrinsic Value
------------------------------------------------------------------------------------------------------------------------
Outstanding at January 1, 2007 2,850,000 $0.45 - -
Granted - - - -
Exercised, Forfeited, or Expired - - - -
------------------------------------------------------------------------
Outstanding at March 31, 2007 2,850,000 $0.45 8.74 $518,500
Exercisable at March 31, 2007 1,962,500 $0.13 8.59 $460,000
Note 8. Warrants
Calibre's warrants outstanding and exercisable as of March 31, 2007 are:
Weighted Average
Weighted Average Remaining Aggregate Intrinsic
Warrants Warrants Exercise Price Contractual Term Value
------------------------------------------------------------------------------------------------------------------------
Outstanding at January 1, 2007 17,207,500 $1.26 0.73
Issued 1,000,000 0.75 0.10 -
Exercised, Forfeited, or Expired (45,000) 0.75 - -
-----------------------------------------------------------------------
Outstanding at March 31, 2007 18,162,500 $1.24 0.83
Exercisable at March 31, 2007 18,162,500 $1.24 0.83
During the three months ended March 31, 2007, 45,000 warrants were exercised,
25,000 on a cashless basis and 20,000 at $0.75 per share, resulting in the
issuance of 34,974 shares of common stock.
On February 23, 2007, Calibre issued a total of 1,000,000 warrants, with each
warrant exercisable into one share of common stock at an exercise price of $0.75
per share, in anticipation of obtaining additional financing from the parties
involved in the November 2006 Private Placement. The warrants will expire two
years after the date of issuance. For the three month period ended March 31,
2007, Calibre recorded general and administrative expense of $388,324 to
recognize these financing costs. The fair value of each warrant issued was
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 95.56%, risk-free interest rate of 4.7%, and expected lives of two
years. The expected term of warrants 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.
10
Note 9. Subsequent Events
Private Placement
On April 13, 2007, Calibre completed a private placement of 8,000,000
shares of Series A Convertible Preferred Stock with BlueWater Capital Group,
LLC, a private investment group controlled by Calibre's Chairman, CEO and
President, Prentis B. Tomlinson, Jr., in exchange for net proceeds of $5,000,000
of which $1,000,000 has been received by Calibre and the remaining $4,000,000
has been structured as a non-interest bearing note payable to Calibre in monthly
increments of $800,000 through September 2007. The Series A Convertible
Preferred Stock provide for votes equal to 51% of the total votes entitled to be
cast by all outstanding capital stock. After the receipt of the total proceeds,
the preferred shares may be convertible, at the election of the Holder, into a
fixed amount of common stock, equal to 75% of total outstanding shares then
issued and outstanding at the time of conversion.
Each holder of shares of Series A Convertible Preferred Stock shall be
entitled at the election of the holder to cause any or all of such shares to be
converted into shares of common stock on the basis of the Conversion Ratio then
in effect, provided, however, that the conversion of the Series A Convertible
Preferred Stock shall not be effective until the Articles of Incorporation of
the Company have been amended to increase the number of authorized shares of
common stock to at least 200,000,000 shares (the "Amendment"). Each share of
Series A Convertible Preferred Stock shall be convertible into shares of common
stock based on the ratio required to cause the number of shares of common stock
issuable upon the conversion of 8,000,000 shares of Series A Preferred Stock to
equal 75% of the number of shares of common stock then issued and outstanding
after the conversion (the "Conversion Ratio").
The Series A Convertible Preferred Stock are not entitled to receive
any dividends unless dividends are declared and paid on the Company's common
stock. If dividends are paid on common stock, then each holder of a share of
Series A Convertible Preferred Stock shall be entitled to receive the amount of
dividends such holder would have received if its shares of Series A Convertible
Preferred Stock had already been converted into shares of common stock. The
Series A Convertible Preferred Stock were not issued in conjunction with any
warrants.
Prior to conversion, the Series A Convertible Preferred Stock have a
liquidation preference equal to $5 million. In the event of any liquidation,
dissolution or winding up of Calibre, either voluntary or involuntary (a
"liquidation event"), a holder of the Series A Convertible Preferred Stock shall
be entitled to receive out of Calibre's assets, prior to the holders of the
common stock and the holders of Preferred Stock with rights junior to the Series
A Convertible Preferred Stock, for each share of Series A Convertible Preferred
Stock held by such holder, $.625 per share (the "Liquidation Preference").
The voting power of each share of Series A Convertible Preferred Stock
shall be equal to the number of votes required to cause the aggregate of the
votes entitled to be cast by all of the issued and outstanding Series A
Convertible Preferred Stock to equal 51% of all votes entitled to be cast by all
classes of stock. The Series A Convertible Preferred Stock shall be entitled to
vote on any and all matters brought to a vote of holders of common stock.
Holders of Series A Convertible Preferred Stock shall be entitled to notice of
all shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided to the holders of the common
stock pursuant to the Company's Bylaws and applicable statutes.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction
with the unaudited 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:
o a decline in or substantial volatility of crude oil and
natural gas commodity prices;
o 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;
o political, economic, and legal uncertainty in Iraq; and
o other financial, operational and legal risks and uncertainties
detailed from time to time in our Securities and Exchange
Commission filings.
All forward-looking statements included in this report and all
subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements. The forward-looking statements speak only as of the date
made, other than as required by law, and we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Plan of Operation
We are an independent exploration and production company focused on the
acquisition, exploitation, development and sale of crude oil and natural gas in
Irbil Province of Kurdistan, Iraq; in the Barnett Shale in Texas; and the
Fayetteville Shale in Arkansas. We are a Nevada corporation, headquartered in
Washington, DC and Houston, Texas. Our predecessor company for financial
reporting purposes was formed on August 17, 2005.
We intend to expand and develop our exploration and production business
and reserves by focusing on the exploration of the Bina Bawi Project in
Kurdistan, Iraq and on our projects in the Barnett Shale. We have a 10%
participating interest in the Bina Bawi Exploration and Production Sharing
Agreement with the Kurdish Regional Government in Kurdistan, Iraq, pursuant to a
joint operating agreement with Hawler Energy, Ltd. (Bina Bawi Project).
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 increase our staff to expand our operations.
12
Results of Operations for Three Month Period Ended March 31, 2007
Oil and Gas Revenues.
For the three months ended March 31, 2007, our oil and gas net sales
were $232,346 versus $39,342 for the three months ended March 31, 2006. Oil and
gas revenues are derived from our proportionate share of working interests in
oil and gas properties.
On December 8, 2006, the operator of the properties in the Barnett
Shale Project, Reichmann Petroleum, filed for voluntary Chapter 11 bankruptcy
protection. All development activity on this joint venture with Reichmann has
ceased pending the resolution of legal claims. Calibre's interests in the
Reichmann-operated properties are held through Calibre's agreement with Kerogen.
As a result of the bankruptcy, Calibre's net share of working interest
production is expected to be paid into a separate account under the control of
the bankruptcy court. As a result of the bankruptcy, receivable revenue may or
may not be collectible. Calibre has petitioned the bankruptcy court and expects
a resolution in the bankruptcy court that will permit payment of Calibre's share
of working interest production. Calibre believes it will be successful in
collecting its share of production revenues either in cash or in
production-in-kind from Reichmann and Kerogen. Accordingly, no allowance has
been made for the receivable.
General and Administrative Expenses.
For the three months ended March 31, 2007, general and administrative
expenses totaled $1,195,449 versus $713,440 for the three months ended March 31,
2006. A total of $546,184, which includes $388,324 of warrant expense, was for
costs associated with our general and administrative expenses, versus $211,866
in the prior period, $318,133 was for professional fees principally associated
with public company costs versus $246,568 in the prior period, and $331,132 was
for compensation expense versus $255,006 in the prior period.
Net Loss.
For the three months ended March 31, 2007, we had a net loss of
$1,183,945 versus a net loss of $673,612 for the three months ended March 31,
2006. The net loss is primarily attributable to minimal operating revenues to
support general and administrative costs until such time as we achieve more
substantial operating results from our drilling program.
Liquidity and Capital Resources.
As of May 10, 2007, we had approximately $1,565 in cash, and expect to
realize an additional $4,000,000 in equity proceeds from the April 13, 2007
placement of our Series A Preferred Convertible Stock with BlueWater Capital
Group, LLC a private investment group controlled by our Chairman and Chief
Executive Officer, Prentis B. Tomlinson, Jr . We anticipate that the proceeds
from the Series A Preferred will be sufficient to cover our planned capital and
operating expense budget for the remainder of 2007.
Our operations beyond 2007 will require substantial capital
expenditures. If we are not able to continue to raise funds or dramatically
increase our operational cash flow, we will be forced to curtail certain
operations and may be unable to continue as a going concern. Additional
financing through partnering, public or private equity financings, lease
transactions or other financing sources may not be available on acceptable
terms, or at all. Additional equity financings could result in significant
dilution to our stockholders.
As of March 31, 2007, we had cash of $4,913 and negative working
capital of $4,303,724, of which $1,703,446 is for a non-cash registration
penalty to certain shareholders arising from the inability to obtain an
effective registration.
On April 13, 2007, Calibre completed a private placement of 8,000,000
shares of Series A Convertible Preferred Stock with BlueWater Capital Group,
LLC, a private investment group controlled Calibre's our Chairman, CEO and
President, Prentis B. Tomlinson, Jr., in exchange for net proceeds of $5,000,000
of which $1,000,000 has been received by Calibre and the remaining $4,000,000
has been structured as a non interest bearing note payable to Calibre in monthly
increments of $800,000 over the next 5 months. The Series A Preferred provides
for votes equal to 51% of the total votes entitled to be cast by all outstanding
capital stock. After the receipt of the total proceeds, the preferred shares may
be convertible, at the election of the Holder, into a fixed amount of common
stock, equal to 75% of total outstanding shares of common stock at the time of
conversion.
13
Each holder of shares of Series A Convertible Preferred Stock shall be
entitled at the election of the holder to cause any or all of such shares to be
converted into shares of Common Stock on the basis of the Conversion Ratio then
in effect, provided, however, that the conversion of the Series A Convertible
Preferred Stock shall not be effective until the Articles of Incorporation of
the Company have been amended to increase the number of authorized shares of
Common Stock to at least 200,000,000 shares (the "Amendment"). Each share of
Series A Convertible Preferred Stock shall be convertible into shares of Common
Stock based on the ratio required to cause the number of shares of Common Stock
issuable upon the conversion of 8,000,000 shares of Series A Preferred Stock to
equal 75% of the number of shares of Common Stock then issued and outstanding
after the conversion (the "Conversion Ratio").
The Series A Preferred are not entitled to receive any dividends unless
dividends are declared and paid on the Company's Common Stock. If we pay
dividends on our Common Stock, then each holder of a share of Series A
Convertible Preferred Stock shall be entitled to receive the amount of dividends
such holder would have received if its shares of Series A Convertible Preferred
Stock had already been converted into shares of Common Stock. The Series A
Preferred were not issued in conjunction with any warrants.
Prior to conversion, the Series A Preferred has a liquidation
preference equal to $5 million. In the event of any liquidation, dissolution or
winding up of Calibre, either voluntary or involuntary (a "liquidation event"),
a holder of the Series A Convertible Preferred Stock shall be entitled to
receive out of Calibre's assets, prior to the holders of the Common Stock and
the holders of Preferred Stock with rights junior to the Series A Preferred, for
each share of Series A Convertible Preferred Stock held by such holder, $0.625
per share (the "Liquidation Preference").
The voting power of each share of Series A Convertible Preferred Stock
shall be equal to the number of votes required to cause the aggregate of the
votes entitled to be cast by all of the issued and outstanding Series A
Convertible Preferred Stock to equal 51% of all votes entitled to be cast by all
classes of stock. The Series A Convertible Preferred Stock shall be entitled to
vote on any and all matters brought to a vote of holders of common stock.
Holders of Series A Convertible Preferred Stock shall be entitled to notice of
all shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided to the holders of the common
stock pursuant to the Company's Bylaws and applicable statutes.
Cash flow from operating activities
For the three month period ended March 31, 2007, net cash used in
operating activities was $456,997, primarily attributed to a net loss of
$1,183,945 in the period,versus net cash used in operating activities of a
$141,946 in the three month period ended March 31, 2006.
Cash flow from investing activities
For the three month period ended March 31, 2007, net cash used in
investing activities was $1,042,974, primarily attributed to our investment in
the Bina Bawi project, versus net cash used in investing activities of a
$3,469,743 for the three month period ended March 31, 2006.
Cash flow from financing activities
For the three month period ended March 31, 2007, net cash flows from
financing activities was an advance from a shareholder for $199,000 and proceeds
from new equity of $48,750 versus net cash flows from financing activities of a
$5,814,594 for the three month period ended March 31, 2006.
Hedging
We did not hedge any of our oil or natural gas production during 2006
and have not entered into any such hedges from January 1, 2007 through the date
of this filing.
Contractual Commitments - March 31, 2007
Payments Due By Period
Less Than More than 3
1 Year Year 2 Year 3 Years Total
Obligations $212,842 $184,675 $108,261 $176,342 $682,120
Drilling Well in Progress 584,258 2,494,258 - - 3,078,516
------------------------------------------------------------
Total $797,100 $2,678,933 $108,261 $176,342 $3,760,636
============================================================
14
All of our drilling well obligations are associated with the Bina Bawi
Project.
As of March 31, 2007, we had no long-term debt obligations, capital
lease obligations or purchase obligations We have asset retirement obligations
of $54,088.
Off-Balance Sheet Arrangements
As of March 31, 2007, we had no off-balance sheet arrangements.
Related Party Transactions
Our President and Chairman, Mr. Prentis B. Tomlinson, Jr., owns a 8.47%
(on a fully diluted basis) stake of Kerogen Resources, Inc. ("Kerogen"), a
privately held oil and gas exploration company. Calibre is party to three
agreements with Kerogen pursuant to which we are participating in the following
projects: the Reichmann project; the South Ft. Worth Basin project; and the
Williston Basin project. We made no payments to or received any funds from
Kerogen during the period ending March 31, 2007 with respect to these
agreements. We recorded the estimated amount of revenue due from Kerogen in
respect of these agreements for the three months ended March 31, 2007.
Pursuant to a Novation Agreement dated September 11, 2006, Calibre
purchased for $5.5 million a 10% participating interest from Hawler in the
Exploration and Production Sharing Agreement (the "EPSA") between A&T, Hawler
Energy and the Oil and Gas Petrochemical Establishment of the Kurdistan Regional
Government (the "OGE"), subject to final approval of OGE. The EPSA provides for
the exploration and development of the Bina Bawi prospects. In connection with
the agreement, Calibre paid Hawler $2.0 million on September 15, 2006 and agreed
to pay an additional $1.0 million upon completion of the first well of the Bina
Bawi prospect. Further, Calibre agreed to pay up to $2.5 million of Hawler's
participating interests similar to a carried interest. Calibre paid Hawler
Energy $910,000 during the three months ending March 31, 2007 and has paid a
total of $4,356,606 since inception.
We share facilities and certain overhead costs with Standard Drilling
in Washington D.C. We have entered into a service agreement by which Standard
Drilling will pay us for office space and supplies, use of office equipment,
secretarial services and any other services we provide to them in sharing the
Washington D.C. office space. Standard Drilling reimburses us for 50% of the
costs of the health insurance provided to officers who are employed by both
companies. The average payment by Standard Drilling to Calibre under the
services agreement is $70,000 per quarter for 2006 and will be reviewed for any
potential adjustment in January 2007. The services agreement may be terminated
by either party on 30 days notice.
Potomac Energy, LLC ("Potomac") is a joint venture entity formed by
Standard Drilling and us to acquire software licenses and data sufficient to
build and maintain a land title database that will cover a portion of the Ft.
Worth Basin in north central Texas. We and Standard Drilling each own 50% of
Potomac and each contributed $87,500 to Potomac. We and Standard Drilling will
share 50/50 in all costs of Potomac. Each of us will have access to the Potomac
database. In addition, we will each have a right to participate in 50% of any
prospect generated by the database. Potomac had no activities in the period
ended March 31, 2007. Potomac is governed by a two person board comprised of one
representative of Standard Drilling and one of our representatives. William B.
Nunnallee, our Vice President of Land, serves as an officer and director of
Potomac.
On February 9, 2007, our Chairman and Chief Executive Officer, Prentis
B. Tomlinson, Jr., began advancing the Company sums to cover general and
administrative costs until additional financing could be secured, under a note
receivable. As of March 31, 2007, Mr. Tomlinson had advanced the Company
$199,000, which is shown in the balance sheet in the accompanying financial
statements as Advances from Shareholders. Calibre is obligated to repay Mr.
Tomlinson on demand.
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 financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these 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 financial
statements.
15
Item 3. Controls and Procedures.
Our management, with the participation of our Chief Executive Officer
and Interim 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,
2007. Based on this evaluation, our Chief Executive Officer and Interim Chief
Financial Officer, Prentis B. Tomlinson, Jr., and has concluded that, as of
March 31, 2007, 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. 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 to maintain and monitor our oil and gas properties and reserves.
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 for oil and gas properties and reserve calculations;
(2) further development of our internal IT systems; (3) performing additional
reviews of our internal oil and gas properties and reserve calculations 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.
There were no significant changes in our internal control over
financial reporting during the quarter ended March 31, 2007 that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Our management is not aware of any significant litigation, pending or
threatened, that would have a significant adverse effect on our financial
position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities. Set forth below is certain
information concerning all issuances of securities by the Company during the
fiscal quarter ended March 31, 2007 that were not registered under the
Securities Act.
In January of 2007, Calibre issued 34,974 shares of common stock in
exchange for the exercise of 45,000 warrants; 25,000 were exercised on a
cashless basis and 20,000 were exercised at $0.75 per share. In March of 2007,
Calibre issued 51,924 shares of common stock pursuant to a Private Placement.
On February 23, 2007, Calibre issued a total of 1,000,000 warrants at
an exercise price of $0.75 in anticipation of obtaining additional financing
from the parties involved in the November 2006 Private Placement. The warrants
will expire two years after the date of issuance.
On April 13, 2007, we completed a private placement of 8,000,000 shares
of Series A Convertible Preferred Stock with BlueWater Capital Group, LLC, a
private investment group controlled by our Chairman, CEO and President, Prentis
B. Tomlinson, Jr., in exchange for net proceeds of $5,000,000 of which
$1,000,000 has been received by Calibre and the remaining $4,000,000 has been
structured as a non interest bearing note payable to Calibre in monthly
increments of $800,000 over the next 5 months. The Series A Convertible
Preferred Stock has that number of votes equal to 51% of the total votes
entitled to be cast by all outstanding capital stock. After the receipt of the
total proceeds, the preferred shares may be convertible, at the election of the
Holder, into a fixed amount of common stock, equal to 75% of total outstanding
shares of common stock after the time of conversion.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None. Item 6. Exhibits.
Exhibit 31.1* Chief Executive Officer and 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
*Filed herewith
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CALIBRE ENERGY, INC.
Registrant
Dated: May 21, 2007 By: S/ Prentis B. Tomlinson, Jr.
Prentis B. Tomlinson, Jr.
Chairman and Chief Executive Officer and Interim Chief Financial Officer
18
INDEX TO EXHIBITS
OF
CALIBRE ENERGY, INC.
Exhibit 31.1 * Chief Executive Officer and 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
*Filed herewith
19