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 SEPTEMBER 30,
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 September 30, 2005, there were outstanding 111,600,961 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
September 30, 2005 (Unaudited) and December 31, 2004 . . . . .3
Consolidated Statements of Operations (Unaudited)
For the three months and nine months
Ended September 30, 2005 and 2004. . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2005 and 2004. . . . .5
Notes to the Consolidated Financial Statements . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 12
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . 15
Part II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 16
Item 3. Defaults by the Company on its Senior Securities . . . . . . 16
Item 4. Submission of Matter to a Vote
Of Security Holders. . . . . . . . . . . . . . . . . . . . . 16
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 17
3
POWDER RIVER BASIN GAS CORP
Consolidated Balance Sheets
ASSETS
-------
September 30, December 31,
2005 2004
------------- -------------
(Unaudited)
CURRENT ASSETS
Cash $ 436,504 $ 168,539
Accounts receivable 2,282,798 1,081,719
Prepaid expenses 21,706 -
------------- -------------
Total Current Assets 2,741,008 1,250,258
PROPERTY AND EQUIPMENT (Net) 29,327 12,896
------------- -------------
OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING
Properties not subject to amortization 2,304,815 1,669,114
Properties being amortized 1,063,674 1,063,674
Accumulated amortization (10,430) (5,630)
------------- -------------
Net Oil and Gas Properties 3,358,059 2,727,158
OTHER ASSETS
Deposits and other assets 465,090 15,500
------------- -------------
Total Other Assets 465,090 15,500
------------- -------------
TOTAL ASSETS $ 6,593,484 $ 4,005,812
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 19,458 $ 23,094
Accrued expenses 10,990 -
Income taxes payable 530,400 -
Note payable, related party 60,250 137,226
Notes payable 753,700 354,700
------------- -------------
Total Current Liabilities 1,374,798 515,020
------------- -------------
Total Liabilities 1,374,798 515,020
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, 200,000,000 shares authorized
of $0.001 par value, 111,600,961 and
104,050,961 shares issued and outstanding,
respectively 111,601 104,050
Capital in excess of par value 7,542,461 6,115,479
Subscription receivable (50,000) -
Other comprehensive income 2,705 2,705
Accumulated deficit (2,388,081) (2,731,442)
------------- -------------
Total Stockholders' Equity 5,218,686 3,490,792
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,593,484 $ 4,005,812
============= =============
The accompanying notes are an integral part of these financial statements.
4
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
REVENUE
Oil and gas sales 130,955 66,000 519,415 154,829
Property and working
interest sales 706,083 605,978 2,581,083 605,978
------------ ------------ ------------ ------------
Total Revenue 837,038 671,978 3,100,498 760,807
------------ ------------ ------------ ------------
EXPENSES
Depreciation, depletion and
amortization 3,206 3,800 8,408 10,793
General and administrative 309,004 227,229 795,154 260,763
Value of warrants granted
for marketing, legal and
consulting costs 376,132 - 467,782 -
Stock compensation 656,750 - 656,750 -
Lease operating costs 85,244 36,172 197,469 53,325
------------ ------------ ------------ ------------
Total Expenses 1,430,337 267,201 2,125,564 324,881
------------ ------------ ------------ ------------
NET OPERATING INCOME (LOSS) (593,299) 404,777 974,934 435,926
OTHER INCOME (EXPENSE)
Litigation settlement (Note 5) - - (90,000) -
Gain on sale of assets - - 2,841 -
Interest expense (2,500) (34,636) (14,014) (59,446)
------------ ------------ ------------ ------------
Total Other Income (Expense) (2,500) (34,636) (101,173) (59,446)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
INCOME TAXES (595,799) 370,141 873,761 376,480
INCOME TAXES - - (530,400) -
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (595,799) $ 370,141 $ 343,361 $ 376,480
============ ============ ============ ============
BASIC INCOME (LOSS) PER
COMMON SHARE $ (0.01) $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 109,670,526 93,941,939 106,728,617 89,292,963
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
5
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
---------------------------
2005 2004
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 343,361 $ 376,480
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 8,408 10,793
Gain on sale of assets (2,841) -
Additional expense for granting of warrants 467,782 -
Common stock issued for services rendered 656,750 55,000
Changes in operating assets and liabilities:
Increase in accounts receivable (1,201,079) (673,742)
Increase in deposits and other assets (446,295) (60,100)
Increase in taxes payable 530,400 -
Increase in accounts payable and accrued expenses 7,354 41,143
------------- -------------
Net Cash Provided by (Used in) Operating Activities 363,840 (250,426)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas property development (349,618) (40,670)
Expenditures for property and equipment (17,198) -
Proceeds from sale of interest in leases 453,917 137,057
------------- -------------
Net Cash Provided by (Used in) Investing Activities 87,101 (40,670)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term liabilities 90,000 76,617
Payments on notes payable and long-term liabilities (332,976) (41,000)
Proceeds from issuance of common stock 60,000 280,000
------------- -------------
Net Cash Provided by (Used in) Financing Activities (182,976) 315,617
------------- -------------
NET INCREASE IN CASH 267,965 24,521
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 168,539 -
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 436,504 $ 24,521
============= =============
The accompanying notes are an integral part of these financial statements.
6
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
---------------------------
2005 2004
------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 5,252 $ 15,000
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 $ - $ 70,003
The accompanying notes are an integral part of these financial statements
7
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 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 nine months ended September 30, 2005
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 and nine months ended September 30, 2005 and
2004:
For the
Three Months Ended
September 30,
--------------------------
2005 2004
------------ ------------
Net income (loss) available to
common shareholders $ (595,799) $ 370,141
============ ============
Weighted average shares 109,670,526 93,941,939
Effect of dilutive securities - -
------------ ------------
109,670,526 93,941,939
============ ============
Basic income (loss) per share (based
on weighted average shares) $ (0.01) $ 0.00
============ ============
Weighted average shares issuable upon the exercise of stock warrants
(12,700,000 warrants) were not included in the foregoing calculation
for the three months ended September 30, 2005 because they are
antidilutive.
8
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2005 and December 31, 2004
NOTE 2 - DILUTED INCOME (LOSS) PER SHARE
For the
Three Months Ended
September 30,
--------------------------
2005 2004
------------ ------------
Net income available to
common shareholders $ 343,361 $ 376,480
============ ============
Weighted average shares 106,728,617 89,292,963
Effect of dilutive securities 8,255,311 -
------------ ------------
114,983,928 89,292,963
============ ============
Diluted income (loss) per share (based
on weighted average shares) $ 0.00 $ 0.00
============ ============
The diluted income per share for the nine months ended September 30,
2005 includes common stock equivalents, consisting of 12,700,000
warrants.
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 nine months
ended September 30, 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 September 30, 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 nine
months ended September 30, 2005 and 2004, the Company recorded
depletion of $4,800 and $10,793 on its producing properties. All
other wells are incomplete as of September 30, 2005 and December 31,
2004.
9
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2005 and December 31, 2004
NOTE 4 - SIGNIFICANT TRANSACTIONS
During the nine months ended September 30, 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.
On August 22, 2005, the Company sold a working interest in a separate
producing property to an unrelated party for a total of $1,200,000,
less a commission of $240,000, resulting in a gain on the sale of
$946,083.
Also during the nine months ended September 30, 2005, the Company
granted a total of 9,200,000 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
4,000,000 $ 0.185 December 31, 2007
(see note below)
500,000 $ 0.21 December 31, 2007
100,000 $ 0.185 December 31, 2006
100,000 $ 0.30 December 31, 2007
200,000 $ 0.20 August 31, 2006
200,000 $ 0.30 August 31, 2007
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 $467,782 was recorded
for the nine months ended September 30, 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 2.42 years
Expected volatility 126.40%
Dividend yield 0.00%
10
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2005 and December 31, 2004
NOTE 4 - SIGNIFICANT TRANSACTIONS (Continued)
NOTE: A total of 2,000,000 of these options were granted to an
employee of the Company, were issued at the market price of the
Company's common stock on the date of issue and are accounted for
under APB 25, "Accounting for Stock Issued to Employees". As such, no
compensation expense was recognized. Had compensation cost for the
issuance of the options been determined based on fair market value at
the grant dates consistent with the method of FASB Statement 123,
"Accounting for Stock Based Compensation," our net income (loss) and
income (loss) per share would have changed, as noted with the pro
forma amounts indicated below:
For the
Three Months Ended
September 30,
--------------------------
2005 2004
------------ ------------
Net income (loss) as reported $ (595,799) $ 370,141
Pro forma$ (849,535) $ 370,141
Basis income (loss) per share
As reported $ (0.01) $ 0.00
Pro forma $ (0.01) $ 0.00
On July 31, 2005, the Company issued 1,000,000 shares of common stock
through the exercise of common stock warrants at $0.06 per share for
total cash proceeds of $60,000. In addition, on August 1, 2005, the
Company issued an additional 1,000,000 shares of common stock through
the exercise of common stock warrants at $0.05 per share for a
subscription receivable totaling $50,000.
On August 1, 2005, the Company issued a total of 3,550,000 shares of
common stock at $0.185 per share to various employees and consultants
for services rendered totaling $656,750. The shares were valued based
upon the market price of the shares on the date of issuance.
NOTE 5 - LITIGATION SETTLEMENT
During the nine months ended September 30, 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.
NOTE 6 - SUBSEQUENT EVENT RELATED PARTY TRANSACTION
Subsequent to September 30, 2005, the Company acquired 100% of the
outstanding common stock of Renco Energy, Inc. ("Renco"), a wholly-
owned subsidiary of Renco Resources, Inc., a company in which the
Company's President has an approximate 15% interest in, by issuing
7,800,000 shares of the Company's outstanding common stock. During
July 2004, the Company had entered into a Purchase and Sale Agreement
to purchase Renco, subject to an independent valuation of Renco's
assets. This independent valuation was not completed until recently.
11
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2005 and December 31, 2004
NOTE 6 - SUBSEQUENT EVENT RELATED PARTY TRANSACTION (Continued)
The Company expects to finalize the transaction on or about November
15, 2005. Condensed unaudited financial information for Renco as of
September 30, 2005 is as follows:
Current assets $ 91,231
Property, equipment and oil and
gas properties 507,998
------------
Total Assets $ 599,229
============
Current liabilities $ 708,337
Stockholders' equity (109,108)
------------
Total Liabilities and Stockholders' Equity $ 599,229
============
Production revenue $ 134,876
Total expenses (107,316)
------------
Net Income $ 27,560
============
12
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 September 30, 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.
13
During the nine months ended September 30, 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.
A 25% working interest in a separate property was also sold during August
2005 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 and Nine Months Ended September 30, 2005 compared with 2004
------------------------------------------------------------------------
Revenues: During the three months ended September 30, 2005, the Company
reported an increase in oil and gas sales compared to the three months
ended September 30, 2004 of approximately $65,000 or 98%. During the nine
months ended September 30, 2005, the Company reported an increase in oil
and gas sales compared to the nine months ended September 30, 2004 of
approximately $365,000 or 235%. The Company also reported revenues related
to property and working interest sales of $2,581,083 during the nine months
ended September 30, 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 and nine months ended September 30,
2005, the Company reported a substantial increase in expenses of
approximately $1,163,000 and $1,800,000, respectively, compared to the
three months and nine months ended September 30, 2004, primarily due to the
increased production and lease operating costs, additional travel, and
administrative expenses. The Company also reported expenses of $467,782
and $656,750 for the nine months ended September 30, 2005 as a result of
certain common stock warrants granted and common shares issued during the
period for payroll, marketing, managerial and legal services rendered.
Liquidity and Capital Resources
-------------------------------
On September 30, 2005, the Company had $1,374,798 in current liabilities,
which includes notes payable due within the next twelve months of $813,950,
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.
12
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.
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.
15
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 September 15, 2005. We do not expect to enter into any
transactions that would be affected by adopting SFAS 153.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, a Replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No.
154 replaces APB Opinion No. 20, Accounting Changes and SFAS No 3,
Reporting Accounting Changes in Interim Financial Statements and changes
the requirement for the accounting for and reporting of a change in
accounting principles. SFAS No. 154 applies to all voluntary changes in
accounting principles. It also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. When a pronouncement
includes specific transition provisions, those provisions should be
followed. The provisions of SFAS No. 154 will be effective for accounting
changes made in fiscal year beginning after December 15, 2005. We do not
expect that the adoption of SFAS No. 154 will have a material impact on the
Company's financial condition or operations in future years.
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.
16
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings at September 30, 2005.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 31, 2005, the Company issued 1,000,000 shares of common stock
through the exercise of common stock warrants at $0.06 per share for total
cash proceeds of $60,000. In addition, on August 1, 2005, the Company
issued an additional 1,000,000 shares of common stock through the exercise
of common stock warrants at $0.05 per share for a subscription receivable
totaling $50,000.
On August 1, 2005, the Company issued a total of 3,550,000 shares of common
stock at $0.185 per share to various employees and consultants for services
rendered totaling $656,750. The shares were valued based upon the market
price of the shares on the date of issuance.
The shares issued in the foregoing transactions were issued in reliance on
the exemption from registration and prospectus delivery requirements of the
Act set forth in Section 3(b) and/or Section 4(2) of the Securities Act and
the regulations promulgated thereunder.
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
17
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: November 14, 2005 By: /s/ Brian Fox
---------------------------------------
Brian Fox, President and Chief
Financial Officer