1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005.
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER 000-31945
POWDER RIVER BASIN GAS CORP.
(Exact name of registrant as specified in its charter)
COLORADO 84-1521645
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104, 3208 8TH Ave NE
Calgary, AB T2A 7V8
(Address of principal executive offices)
Issuer's telephone number: (403) 263-5010
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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
At March 31, 2005, there were outstanding 106,050,961 shares of the
Registrant's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: Yes [X] No [ ]
2
PART I
FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
(UNAUDITED)
TABLE OF CONTENTS
Page
----
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2005 (Unaudited) and December 31, 2004 . . . . . . . . . . . .3
Consolidated Statements of Operations (Unaudited)
For the three months ended March 31, 2005 and 2004 . . . . . . . . . . .4
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2005 and 2004 . . . . . . . . . . .5
Notes to the Consolidated Financial Statements . . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 11
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . . 14
Part II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults by the Company on its
Senior Securities. . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matter to a Vote
Of Security Holders. . . . . . . . . . . . . . . . . . . . . . 14
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3
POWDER RIVER BASIN GAS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and December 31, 2004
4
POWDER RIVER BASIN GAS CORP
Consolidated Balance Sheets
ASSETS
-------
March 31, December 31,
2005 2004
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 507,290 $ 168,539
Accounts receivable 2,467,757 1,081,719
------------ ------------
Total Current Assets 2,975,047 1,250,258
PROPERTY AND EQUIPMENT (Net) 12,096 12,896
------------ ------------
OIL AND GAS PROPERTIES USING FULL COST ACCOUNTING
Properties not subject to amortization 2,322,070 1,669,114
Properties being amortized 1,063,674 1,063,674
Accumulated amortization (7,230) (5,630)
------------ ------------
Net Oil and Gas Properties 3,378,514 2,727,158
OTHER ASSETS
Deposits and other assets 18,589 15,500
------------ ------------
Total Other Assets 18,589 15,500
------------ ------------
TOTAL ASSETS $ 6,384,246 $ 4,005,812
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 32,566 $ 23,094
Accrued expenses 6,282 -
Income taxes payable 530,400 -
Note payable, related party 100,250 137,226
Notes payable 990,700 354,700
------------ ------------
Total Current Liabilities 1,660,198 515,020
------------ ------------
Total Liabilities 1,660,198 515,020
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, 200,000,000 shares authorized
of $0.001 par value, 106,050,961 and
104,050,961 shares issued and outstanding,
respectively 106,050 104,050
Capital in excess of par value 6,405,129 6,115,479
Other comprehensive income 2,705 2,705
Accumulated deficit (1,789,836) (2,731,442)
------------ ------------
Total Stockholders' Equity 4,724,048 3,490,792
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,384,246 $ 4,005,812
============ ============
5
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Operations
(Unaudited)
For the
Three Months Ended
March 31,
2005 2004
------------ ------------
REVENUE
Oil and gas sales $ 76,221 $ 39,063
Property and working interest sales 1,875,000 -
------------ ------------
Total Revenue 1,951,221 39,063
EXPENSES
Depreciation, depletion and amortization 2,400 18,150
General and administrative 231,400 16,803
Value of warrants granted for marketing
and legal costs 91,650 -
Lease operating costs 54,459 6,220
------------ ------------
Total Expenses 379,909 41,173
------------ ------------
NET OPERATING INCOME (LOSS) 1,571,312 (2,110)
OTHER INCOME (EXPENSE)
Litigation settlement (Note 5) (90,000) -
Interest expense (9,306) (12,810)
------------ ------------
Total Other Income (Expense) (99,306) (12,810)
------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES 1,472,006 (14,920)
INCOME TAXES (530,400) -
------------ ------------
NET INCOME (LOSS) $ 941,606 $ (14,920)
============ ============
BASIC INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.00)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 104,406,517 86,108,261
============ ============
6
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Cash Flows
(Unaudited)
For the
Three Months Ended
March 31,
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 941,606 $ (14,920)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation, depletion and amortization 2,400 18,150
Additional expense for granting of warrants 91,650 -
Changes in operating assets and liabilities:
Increase in accounts receivable (1,386,038) -
Increase (decrease) in deposits and other assets (3,089) (2,000)
Increase in taxes payable 530,400 -
Increase (decrease) in accounts payable and accrued
expenses 15,754 16,430
------------ ------------
Net Cash Provided by (Used in) Operating Activities 192,683 17,660
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas property development (87,956) (17,660)
Proceeds from sale of interest in leases 200,000 -
------------ ------------
Net Cash Used in Investing Activities 112,044 (17,660)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term liabilities 90,000 -
Payments on notes payable and long-term liabilities (55,976) -
Proceeds from issuance of common stock - -
------------ ------------
Net Cash Provided by Financing Activities 34,024 -
------------ ------------
NET INCREASE (DECREASE) IN CASH 338,751 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 168,539 -
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 507,290 $ -
============ ============
7
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the
Three Months Ended
March 31,
2005 2004
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 5,252 $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for acquired oil and gas properties $ 200,000 $ -
Oil and gas properties acquired through the issuance of
debt $ 565,000 $ -
Common stock issued for retirement of payables $ - $ 130,000
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POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
March 31, 2005 and December 31, 2004
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein is unaudited and has been
prepared consistent with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, these financial
statements do not include all information and footnotes required by
generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the
audited financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31,
2004. In the opinion of management, these financial statements
contain all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim period presented.
The results of operations for the three months ended March 31, 2005
and 2004 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2 - DILUTED INCOME (LOSS) PER SHARE
Following is a reconciliation of the diluted income (loss) per share
for the three months ended March 31, 2005 and 2004:
For the
Three Months Ended
March 31,
2005 2004
------------ ------------
Net income (loss) available to
common shareholders $ 941,606 $ (14,920)
Weighted average shares 104,406,517 86,108,261
Effect of dilutive securities 2,733,334 -
------------ ------------
107,139,851 86,108,261
============ ============
Basic income (loss) per share (based
on weighted average shares) $ 0.01 $ (0.00)
============ ============
The diluted income per share for the three months ended March 31, 2005
includes common stock equivalents, consisting of 4,100,000 warrants,
which were granted on January 31, 2005.
9
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
March 31, 2005 and December 31, 2004
NOTE 3 - OIL AND GAS PROPERTIES
The full cost method is used in 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, are capitalized. In addition, depreciation on
property and equipment used in oil and gas exploration and interest
costs incurred with respect to financing oil and gas acquisition,
exploration and development activities are capitalized in accordance
with full cost accounting. Capitalized interest for the three months
ended March 31, 2005 and 2004 was $0. All capitalized costs of proved
oil and gas properties subject to amortization are being amortized on
the unit-of-production method using estimates of proved reserves.
Investments in unproved properties and major development projects not
subject to amortization are not amortized until proved reserves
associated with the projects can be determined or until impairment
occurs. 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. As of March 31, 2005 and December 31, 2004,
proved oil and gas reserves had been identified on certain of the
Company's oil and gas properties. During the three months ended March
31, 2005 and 2004, the Company recorded depletion of $1,600 and $1,408
on its producing properties. All other wells are incomplete as of
March 31, 2005 and December 31, 2004.
NOTE 4 - SIGNIFICANT TRANSACTIONS
During the three months ended March 31, 2005, the Company purchased a
75% working interest in a producing property for a total of $800,000.
For the purchase price of $800,000, the Company paid $30,000 in cash,
signed a promissory note for $570,000 payable by December 31, 2005
bearing no interest, and issued a total of 2,000,000 shares of common
stock valued at $0.10 per share (or $200,000). The shares issued were
valued at the market price of the common stock on the date that the
agreement was entered into.
On March 1, 2005, the Company sold 25% of the acquired working
interest in the producing property as described above, to an unrelated
party for a total of $2,500,000, less a commission of $425,000,
resulting in a gain on the sale of $1,875,000.
10
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
March 31, 2005 and December 31, 2004
NOTE 4 - SIGNIFICANT TRANSACTIONS (Continued)
Also during the three months ended March 31, 2005, the Company granted
a total of 4,100,000 warrants to purchase common stock as follows:
Dates
Warrants Exercise Price of Expiration
-------------- -------------- -------------
1,000,000 $ 0.12 January 31, 2006
1,000,000 $ 0.18 January 31, 2007
1,000,000 $ 0.16 January 31, 2006
1,000,000 $ 0.24 January 31, 2007
100,000 $ 0.16 March 31, 2006
The Company estimates the fair value of each stock award at the grant
date by using the Black-Scholes option pricing model pursuant to FASB
Statement 123, "Accounting for Stock-Based Compensation". Under the
provisions of SFAS 123, additional expense of $91,650 was recorded for
the three months ended March 31, 2005 under the Black-Scholes option
pricing model for these warrants, which was calculated based upon the
following assumptions:
Risk free interest rate 2.89% - 3.25%
Expected life 1 to 2 years
Expected volatility 89.19%
Dividend yield 0.00%
NOTE 5 - LITIGATION SETTLEMENT
During the three months ended March 31, 2005, the Company entered into
a settlement agreement in connection with a lawsuit against the
Company's predecessor company for alleged services rendered, totaling
$90,000. Terms of the settlement include payment of $5,000 per month,
non-interest bearing, until paid.
11
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cautionary Statement Regarding Forward_looking Statements
_________________________________________________________
This report may contain "forward_looking" statements. Examples of
forward_looking statements include, but are not limited to: (a) projections
of revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of plans and
objectives of our management or Board of Directors; (c) statements of our
future economic performance; (d) statements of assumptions underlying other
statements and statements about us and our business relating to the future;
and (e) any statements using the words "anticipate," "expect," "may,"
"project," "intend" or similar expressions.
Plan of Operation
_________________
The Company is an oil and gas exploration company that is engaged in the
evaluation and development of coalbed methane (CBM) reserves as well as
shallow oil reserves within the Powder River Basin in the State of Wyoming.
The Company's focus has been in obtaining leasehold interests in acreage
within the Powder River Basin, currently a most prolific coalbed methane
gas exploration play in the domestic United States. Its attributes include
low cost, shallow depth drilling and completion; a proven play with major
operators and an existing and expanding infrastructure; greater and longer
production yields when comparing cost/benefit analyses to other basins and,
a very low exploration risk.
As of December 31, 2004, the Company owns a total of 11,878 acres in
thirteen different leases within Converse, Crook, Johnson, and Sheridan
counties. The Company has a 100 percent working interest in most of their
leases to date. The Company's leases are adjacent to larger CBM developers
and operators such as Western Gas Resources, Williams Companies, Phillips
Petroleum, J.M. Huber and others. This close proximity to other operators
allows the Company to benefit from the established infrastructure of
gathering systems, pipelines, electricity sources, roads, etc.
As of March 31, 2005, the Company has drilled and completed two CBM wells
in their Zullig Lease, located just west of Clearmont, Wyoming in Sheridan
County. The company expects to produce 300 Mcf per day from these wells,
which will extend yields and maintain production consistency. In addition,
the Company drilled eleven other wells on the lease to a minimal depth of
ten percent of their total depth in order to meet certain state
requirements in reducing the well spacing from eighty acres to forty acres.
The Company has also completed a purchase of 960 acres in Arcadia Parish,
Louisiana.
During 2004, the Company also purchased a 25% working interest in a 9 well
re-work program in Oklahoma. Five wells have been re-worked and were put
in production during 2004 with the remaining four to be completed in 2005.
The Company also purchased a 22 well re-work program in Louisiana in
November of 2004 and well re-work was started immediately with all wells to
be in production in 2005.
12
During the three months ended March 31, 2005, the Company purchased a 75%
working interest in a producing property, and then subsequently sold 25% of
this acquired working interest to an unrelated party.
The Company's business strategy for the next twelve months includes focused
acquisitions and drilling operations which may be curtailed, delayed or
cancelled as a result of a variety of factors, including unexpected
drilling conditions, pressure or irregularities in formations, equipment
failures or accidents, weather conditions and shortages or delays in
equipment delivery. The Company has drilled two gas wells that will
produce commercially viable gas resources once the appropriate
infrastructure (i.e., pipeline) is in place. The Company also plans to
continue to increase production on its Louisiana and Oklahoma projects.
Results of Operations
_____________________
Three Months Ended March 31, 2005 compared with 2004
____________________________________________________
Revenues: During the three months ended March 31, 2005, the Company
reported an increase in oil and gas sales compared to the three months
ended March 31, 2004 of approximately $37,000 or 95%. The Company also
reported revenues related to property and working interest sales of
$1,875,000 during the three months ended March 31, 2005. The Company
expects to continue to sell property and working interests in its
properties in the future as the properties are developed and additional
properties are acquired. The Company is currently working to raise
development capital to increase production and anticipates it will be
successful in raising the funds necessary to complete work in progress.
Expenses: During the three months ended March 31, 2005, the Company
reported a substantial increase in expenses of approximately $339,000
compared to the three months ended March 31, 2004 primarily due to the
increased production and lease operating costs, additional travel, and
administrative expenses. The Company also reported an expense of $91,650
for the three months ended March 31, 2005 as a result of certain common
stock warrants granted during the period for marketing and legal services
rendered.
Liquidity and Capital Resources
_______________________________
On March 31, 2005, the Company had $1,660,198 in current liabilities, which
includes notes payable due within the next twelve months of $1,090,950, and
taxes payable totaling $530,400. The current accounts payable include
payments to auditors, accounting and legal as well as start up costs. The
accrued expenses include accumulated interest on the outstanding notes owed
by the Company.
The growth of the Company's business will require substantial capital on a
continuing basis, and there is no assurance that any such required
additional capital will be available on satisfactory terms and conditions,
if at all. The Company may pursue, from time to time, opportunities to
acquire oil and natural gas properties and businesses that may utilize the
capital currently expected to be available for its present operations. The
amount and timing of the Company's future capital requirements, if any, may
depend upon a number of factors, including drilling, transportation, and
equipment costs, marketing expenses, staffing levels, competitive
conditions, and purchases or dispositions of assets, many of which are not
in the Company's control. In addition, the Company's pursuit of additional
capital could result in the incurrence of additional debt or potentially
dilutive issuances of equity securities.
13
The Company's ability to meet any future debt service will be dependant
upon the Company's future performance, which will be subject to oil and
natural gas prices, the Company's level of production, general economic
conditions and financial, business and other factors affecting the
operations of the Company, many of which are beyond its control. There can
be no assurance that the Company's future performance will not be adversely
affected by such changes in oil and natural gas prices and / or production
nor by such economic conditions and / or financial, business and other
factors. In addition, there can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
bank credit will be available in an amount to enable the Company to service
its indebtedness or make necessary expenditures. In such event, the
Company would be required to obtain such financing from the sale of equity
securities or other debt financing. There can be no assurance that any
such financing will be available on terms acceptable to the Company. Should
sufficient capital not be available, the Company may not be able to
continue to implement its business strategy.
Impact of Inflation
___________________
At this time, we do not anticipate that inflation will have a material
impact on our current or future operations.
Critical Accounting Policies and Estimates
__________________________________________
Except with regard to the estimated future cash flows of the capitalized
oil and gas properties, the Company does not employ any critical accounting
policies or estimates that are either selected from among available
alternatives or require the exercise of significant management judgment to
apply or that if changed are likely to materially affect future periods.
Management reviews the carrying value of the capitalized oil and gas
properties annually for evidence of impairment and considers, based on its
current marketing activities, plans and expectations, and the perceived
effects of competitive factors, whether any write-downs should be taken or
whether the estimated reserves should be changed.
Recent Accounting Pronouncements
________________________________
In December, 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R
requires that compensation cost related to share-based employee
compensation transactions be recognized in the financial statements.
Share-based employee compensation transactions within the scope of SFAS
123R include stock options, restricted stock plans, performance-based
awards, stock appreciation rights and employee share purchase plans. The
provisions of SFAS 123R are effective as of the first interim period that
begins after December 15, 2005.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets, an Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. The amendments made by SFAS 153 are based on the principle
that exchanges of nonmonetary assets should be measured based on the fair
value of the assets exchanged. Further, the amendments eliminate the narrow
exception in APB Opinion No. 29 for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. The Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. We do not expect to enter into any
transactions that would be affected by adopting SFAS 153.
14
ITEM 3.
CONTROLS AND PROCEDURES
Our principal executive and principal financial officer has participated
with management in the evaluation of effectiveness of the controls and
procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under
the Exchange Act as of the end of the period covered by this report. Based
on that evaluation, our principal executive and principal financial officer
believes that our disclosure controls and procedures (as defined in Rule
13a-15(e) or Rule 15d-15(e) under the Exchange Act) are effective as of the
end of the period covered by the report. There have been no changes in our
internal controls that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting during
the period covered by this report.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings at March 31, 2005.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2005, the Company issued 2,000,000
shares of common stock valued at $0.10 per share or $200,000 as part of a
transaction to purchase a 75% working interest in a producing property.
The Company effected the above transaction in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as
provided in Section 4(2) thereof. Each certificate issued for unregistered
securities contained a legend stating that the securities have not yet been
registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter
participated in, nor were any commissions or fees paid to any underwriter
in connection with any of these transactions. None of the transactions
involved a public offering. The Company believes that each person had
knowledge and experience in financial and business matters which allowed
them to evaluate the merits and risks of its securities; and that each
person was knowledgeable about its operations and financial condition.
ITEM 3 - DEFAULTS BY THE COMPANY ON ITS 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 - Certification of principal executive officer and
principal financial officer as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act Of 2002
Exhibit 32.1 - Certification of principal executive officer and
principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes_Oxley Act of 2002
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Powder River Basin Gas Corp.
Date: May 13, 2005 By: /s/ Brian Fox
Brian Fox, President and Chief
Financial Officer