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EXCEL - IDEA: XBRL DOCUMENT - Earth Energy Reserves, Inc. | Financial_Report.xls |
EX-32 - EXHIBIT 32 - Earth Energy Reserves, Inc. | earthenergy10q1q11ex32.htm |
EX-31 - EXHIBIT 31 - Earth Energy Reserves, Inc. | earthenergy10q1q11ex31.htm |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended September 30, 2011
-OR-
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from _________ to________
Commission File Number 000-51489
Earth Energy Reserves, Inc.
(Exact name of registrant as specified in its charter)
NEVADA |
| 75-3000774 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
621 17th Street, Suite 1640, Denver, CO |
| 80293 |
(Address of principal executive offices) |
| (Zip Code) |
(303) 297-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerate filer, or a small reporting company as defined by Rule 12b-2 of the Exchange Act):
Large accelerated filer [ ] |
| Non-accelerated filer [ ] |
Accelerated filer [ ] |
| Smaller reporting company [x] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
The number of outstanding shares of the registrant's common stock,
November 21, 2011:
Common Stock - 11,747,282
2
EARTH ENERGY RESERVES, INC.
FORM 10-Q
For the quarterly period ended September 30, 2011
INDEX
PART 1 FINANCIAL INFORMATION
|
| Page |
Item 1. Financial Statements (Unaudited) |
| 4 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
| 11 |
Item 3. Quantitative and Qualitative Disclosure About Market Risk |
| 13 |
Item 4. Controls and Procedures |
| 13 |
PART II OTHER INFORMATION
Item 1. Legal Proceedings |
| 14 |
Item 1A. Risk Factors |
| 14 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| 14 |
Item 3. Defaults upon Senior Securities |
| 14 |
Item 4. (Removed and Reserved) |
| 14 |
Item 5. Other Information |
| 14 |
Item 6. Exhibits |
| 14 |
|
|
|
SIGNATURES |
| 15 |
3
EARTH ENERGY RESERVES, INC.
BALANCE SHEETS
|
| September 30 |
| June 30 |
|
| 2011 |
| 2011 |
|
| (Unaudited) |
| (Audited) |
ASSETS |
|
|
|
|
CURRENT ASSETS |
|
|
|
|
Cash |
| $ 56,461 |
| $ 220,778 |
TOTAL CURRENT ASSETS |
| 56,461 |
| 220,778 |
|
|
|
|
|
Deposit - land |
| 40,000 |
| - |
|
|
|
|
|
TOTAL ASSETS |
| $ 96,461 |
| $ 220,778 |
|
| ========= |
| ======== |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
Accounts payable |
| $ 60,333 |
| $ 70,054 |
Accrued expenses |
| 65,318 |
| - |
TOTAL CURRENT LIABILITIES |
| 125,651 |
| 70,054 |
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
Series A preferred stock, $0.0001 par value, authorized |
| 3 |
| 3 |
10,000,000 shares, 32,580 and 32,580 shares issued |
|
|
|
|
and outstanding in 2011 and 2010, respectively |
|
|
|
|
Common stock, $0.0001 par value, authorized 90,000,000 |
| 1,174 |
| 1,167 |
shares, 11,747,282 and 11,669,782 shares issued and |
|
|
|
|
outstanding in 2011 and 2010, respectively |
|
|
|
|
Additional paid-in capital |
| 4,121,809 |
| 3,731,389 |
Accumulated (deficit) - since quasi-reorganization, July 1, 2010 |
| (4,152,176) |
| (3,344,335) |
|
| (29,190) |
| 388,224 |
Common stock subscriptions receivable |
| - |
| (237,500) |
TOTAL STOCKHOLDERS' EQUITY |
| (29,190) |
| 150,724 |
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ 96,461 |
| $ 220,778 |
|
| ========= |
| ========= |
The accompanying notes are an integral part of these financial statements.
4
EARTH ENERGY RESERVES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
|
| Three Months Ended | ||
|
| September 30, | ||
|
| 2011 |
| 2010 |
|
|
|
|
|
EXPENSES |
|
|
|
|
Salaries |
| $171,867 |
| $ 195,763 |
Stock-based compensation |
| 390,018 |
| 667,534 |
General and administrative |
| 245,957 |
| 270,407 |
|
|
|
|
|
TOTAL OPERATING EXPENSES |
| 807,842 |
| 1,133,704 |
|
|
|
|
|
NET OPERATING LOSS |
| (807,842) |
| (1,133,704) |
|
|
|
|
|
OTHER INCOME/(EXPENSE) |
|
|
|
|
Interest income |
| 1 |
| - |
|
|
|
|
|
TOTAL OTHER INCOME/(EXPENSES) |
| 1 |
| - |
|
|
|
|
|
(LOSS) BEFORE INCOME TAXES |
| (807,841) |
| (1,133,704) |
|
|
|
|
|
INCOME TAXES |
| - |
| - |
|
|
|
|
|
NET (LOSS) |
| $(807,841) |
| $ (1,133,704) |
|
|
|
|
|
BASIC AND DILUTED (LOSS) PER SHARE |
| $ (0.07) |
| $ (0.10) |
|
| ======== |
| ========== |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED |
| 11,727,907 |
| 11,172,000 |
|
| ======== |
| ========== |
The accompanying notes are an integral part of these financial statements.
5
EARTH ENERGY RESERVES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| Three Months Ended, | ||
|
| September 30, | ||
|
| 2011 |
| 2010 |
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
Net (loss) for the period |
| (807,841) |
| (1,133,704) |
Adjustments to reconcile net (loss) to net cash used by |
|
|
|
|
operating activities: |
|
|
|
|
Employee share-based compensation |
| 390,018 |
| 667,534 |
Contributed service fees |
| 410 |
| - |
Change in operating assets and liabilities: |
|
|
|
|
Accounts payable and accrued expenses |
| 55,596 |
| 73,391 |
|
|
|
|
|
NET CASH (USED) BY OPERATING ACTIVITIES |
| (361,817) |
| (392,779) |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
Purchase of furniture and fixtures |
| - |
| (19,455) |
Deposit on purchase of oil and gas properties |
| (40,000) |
| (102,751) |
|
|
|
|
|
NET CASH (USED) BY INVESTING ACTIVITIES |
| (40,000) |
| (122,206) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
Proceeds from the sale of common stock |
| - |
| 62,000 |
Proceeds from common stock subscriptions receivable |
| 237,500 |
| 800,000 |
Purchase and retirement of Series A preferred stock |
| - |
| (44,547) |
|
|
|
|
|
(Continued on next page)
6
EARTH ENERGY RESERVES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NET CASH PROVIDED BY FINANCING ACTIVITIES |
| 237,500 |
| 817,453 |
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
| (164,317) |
| 302,468 |
|
|
|
|
|
CASH AT BEGINNING OF PERIOD |
| 220,778 |
| 329,773 |
|
|
|
|
|
CASH AT END OF PERIOD |
| $ 56,461 |
| $ 632,241 |
|
| ======= |
| ======= |
SUPPLEMENTAL CASH FLOWS DISCLOSURES |
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Income taxes |
| $ - ======= |
| $ - ======= |
Interest |
| $ - |
| $ - |
|
| ======= |
| ======= |
The accompanying notes are an integral part of these financial statements.
7
EARTH ENERGY RESERVES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Earth Energy Reserves, Inc. (formerly Asian American Business Development Company) (Company) was incorporated in the State of Nevada on February 12, 2002 as Wiltex First, Inc. On March 10, 2005, the Company filed a certificate of amendment with the State of Nevada changing its name to Asian American Business Development Company and, on March 13, 2006 the Companys name was changed to Earth Energy Reserves, Inc.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the audited financial statements at June 30, 2011. Operating results for the three months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending June 30, 2012.
NOTE 2: GOING CONCERN
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplates continuation of the Company as a going concern. Since inception, the Company has incurred net operating losses. The future success of the Company will depend on its ability to attain additional capital, or to find an acquisition to add value to its present shareholders and ultimately, upon its ability to attain future profitable operations.
8
EARTH ENERGY RESERVES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
NOTE 3: EQUITY TRANSACTIONS
During the three month period ended September 30, 2011, the company had the following stock transactions:
- Received $237,500 in Subscriptions Receivable from sale of common stock which
occurred in the prior quarter.
- The Companys Private Placement Memorandum involving Series 2 Units was
completed June 30, 2011. A new Private Placement Memorandum for the offering of
Series 3 Units was initiated in July 2011, although no new sales of common stock
were sold as of September 30, 2011, however, significant common stock sales are
expected in the upcoming quarter.
- 100,000 common shares were issued during the quarter to one officer of the Company,
upon meeting the required vesting schedule.
- During the current quarter, the Company cancelled 22,500 common shares to correct an
apparent discrepancy between the tabulated list of shares earned for services provided
to the Company, dating from 2007, and the ledger of shares actually issued.
- Stock based employee compensation was recorded in the amount of $390,018.
- Resulting number of common shares issued and outstanding at September 30, 2011 is
11,747,282.
NOTE 4: QUASI RE-ORGANIZATION
Effective July 1, 2010 and with shareholder approval, the Company entered into a quasi-reorganization (also referred to as a corporate adjustment). As a result of the quasi-reorganization all prior period losses charged to accumulated deficit were eliminated against additional paid-in capital. A quasi-reorganization requires that retained earnings be dated for ten years after the quasi-reorganization takes place.
NOTE 5: SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 21, 2011, the date which the financial statements were available to be issued.
9
EARTH ENERGY RESERVES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
On May 3, 2011, the Company entered into a letter of intent with an energy company to purchase various interests in producing oil and gas leases located in the state of Louisiana, internally known as the NOLA-A Project. Until the definitive purchase agreement is executed by both companies, either company may terminate the negotiations regarding this proposed transaction, with or without cause. The estimated purchase price is $1,050,000, subject to customary closing settlement adjustments. The Company anticipates signing the binding Purchase and Sale Agreement with the Seller on or about November 21, 2011, with closing anticipated at December 31, 2011.
On July 26, 2011 the Company entered into a letter of intent with a large mineral owner to enter an oil and gas lease of 71,900 acres in northern Louisiana for exploration and production of coal bed methane reservoirs, known internally as the NOLA-B Project. The Company anticipates consummating the lease by December 31, 2011, with drilling to be initiated as soon as practical, but no later than one year from the lease date. An initial lease bonus payment of $719,000 will be paid by the Company upon signing of the lease.
On July 15, 2011, the Company engaged the services of Heritage Fincorp to act as Managing Broker Dealer in the raising of $15 million (with optional extension to a $30 million offering) in equity, via private placement. The July 1, 2011 Private Placement Memorandum offers the Companys Series 3 Units, consisting of one common share of the Companys stock and two warrants to purchase shares of stock. Series 3 Units are priced at $1.50 each, with an initial 10 million Units offered, with optional extension to 20 million Units.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Trends and Uncertainties. We intend to be an independent oil and natural gas company engaged in the acquisition, drilling and production of oil and natural gas in the United States. Our future operations may be adversely affected by our competitors, fluctuating oil prices, changing foreign political environments, and any prolonged recessionary periods.
Capital and Source of Liquidity. We are evaluating and pursuing several acquisitions in conventional oil and gas reservoirs, with the intent to maintain diversification in our asset portfolio.
We believe that there will be sufficient capital from recent equity financing and the proposed equity and debt financing to conduct operations for the next twelve months.
Presently, proceeds of Earth Energy's equity financing and cash comprise all of the total cash necessary to conduct operations. Any proposed acquisitions will determine the amount of additional financing necessary to continue operations.
We are currently pursuing equity financing. The board of directors shall determine the amount and type of any additional financing necessary as our financial situation dictates.
Investing Activities. For the three months ended September 30, 2011 the registrant placed $40,000 in good faith deposits toward the acquisition of the NOLA-B leasehold, pursuant to the corresponding July 26, 2011 Letter of Intent. For the three months ended September 30, 2010 the registrant did not pursue any investing activities.
Financing Activities. For the three months ended September 30, 2011, no common stock was sold, although $237,500 in prior subscriptions receivable was received for prior stock sales. As a result, we had net cash flows from financing activities of $237,500 for the three months ended September 30, 2011.
For the three months ended September 30, 2010, we sold common stock for $62,000, and $800,000 in prior subscriptions receivable was received for prior stock sales. We re-purchased and retired Series A Preferred Stock of $44,547. As a result, we had net cash flows from financing activities of $817,453 for the three months ended September 30, 2010.
11
Results of Operations. We have had only minimal revenue since inception. Until completion of our recent private offering, most of our expenses have been paid by Galaxy Partners Ltd. Corp, a company controlled by James Hogue, an officer, director and principal shareholder of Earth Energy and through the sale of our common stock. For the three months ended September 30, 2011 and the three months ended September 30, 2010, Earth Energy received no revenues.
For the three months ended September 30, 2011, the registrant had general and administrative expenses of $245,957 compared to $270,407 for the three months ended September 30, 2010.
The expenses for the three months ended September 30, 2011 and 2010 consisted of salaries, stock based compensation, and the expense of engineering and geological consultants, as well as customary legal, accounting, auditing and general office overhead expenses.
Plan of Operation. We have developed an operating strategy that is based on acquiring underdeveloped oil and gas properties that include or are adjacent to existing active production, and are thus, lower risk but with attractive rates of return on the development potential. We have elected directors and appointed and hired officers and consultants with substantial experience in unconventional gas production, including coal bed methane reservoirs, plus the expertise in horizontal wellbore drilling, and we have correspondingly pursued several acquisitions in this arena. We are also evaluating and pursuing several acquisitions in conventional oil and gas reservoirs, with the intent to maintain diversification in our asset portfolio. We have a bias towards desiring to be the operator of the properties we are acquiring but are not exclusively against acquiring non-operated positions in oil and gas assets.
Earth Energy may experience problems, delays, expenses, and difficulties sometimes encountered by an enterprise in Earth Energy's stage, many of which are beyond Earth Energy's control. These include, but are not limited to, unanticipated problems relating to additional costs and expenses that may exceed current estimates and competition.
Earth Energy is not delinquent in any of its obligations even though Earth Energy has generated no operating revenues. Earth Energy intends to pursue our business plan utilizing cash made available from the private sale of our securities and future operations. Our management is of the opinion that the proceeds of the sales of its securities and future revenues will be sufficient to pay our expenses for the next twelve months.
Earth Energy is pursuing financing for its operations and seeking additional private investments. In addition, Earth Energy is seeking to expand its revenue base. Failure to secure such financing or to raise additional equity capital and to expand its revenue base may result in the Corporation not being able pay its obligations.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not consider the effects of interest rate movements to be a material risk to our financial condition. We do not hold any derivative instruments and do not engage in any hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
During the three months ended March 31, 2011, there were no changes in our internal controls over financial reporting (as defined in Rule 13a- 15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2011. Based on this evaluation, our chief executive officer and chief principal financial officer have concluded such controls and procedures to be effective as of March 31, 2011 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
Not applicable for smaller reporting companies
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. (Removed and Reserved)
Item 5. Other Information
None
Item 6. Exhibits
Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
14
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.
Dated: November 21, 2011
EARTH ENERGY RESERVES, INC.
By:
/s/Steven A. Kranker
Steven A. Kranker
Principal Executive Officer
By:
/s/Doyle Pennington
Doyle Pennington
Interim Principal Financial Officer
15