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, 2006.
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.)
202, 1212 31st Ave NE
Calgary, AB T2E 7S8
(Address of principal executive offices)
Issuer's telephone number: (403) 228-9222
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, 2006, there were outstanding 120,694,807 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, 2006 (Unaudited) and December 31, 2005 . . . . . . . . . .3
Consolidated Statements of Operations (Unaudited)
For the three months and nine months ended
September 30, 2006 and 2005. . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2006 and 2005. . . . . . . . . .5
Notes to the Consolidated Financial Statements . . . . . . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 10
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. . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
POWDER RIVER BASIN GAS CORP
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2006 2005
------------- -------------
(Unaudited)
CURRENT ASSETS
Cash $ 2,343,872 $ 382,861
Accounts receivable, net 7,327,163 1,872,334
Accounts receivable, net - related parties 982,091 649,519
Prepaid stock offering costs 151,075 -
------------- -------------
Total Current Assets 10,804,201 2,904,714
------------- -------------
PROPERTY AND EQUIPMENT (Net) 26,485 26,721
------------- -------------
OIL AND GAS PROPERTIES USING
FULL COST ACCOUNTING
Properties not subject to amortization 3,107,444 3,535,724
Properties being amortized 6,506,626 1,367,251
Accumulated amortization (144,605) (25,241)
------------- -------------
Net Oil and Gas Properties 9,469,465 4,877,734
------------- -------------
OTHER ASSETS
Deposits and other assets 176,537 15,500
------------- -------------
Total Other Assets 176,537 15,500
------------- -------------
TOTAL ASSETS $ 20,476,688 $ 7,824,669
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 89,317 $ 51,739
Stock deposits 755,375 -
Accrued expenses 92,075 -
Income taxes payable 4,782,294 811,355
Note payable, related party - 46,902
Notes payable 1,192,000 1,368,700
------------- -------------
Total Current Liabilities 6,911,061 2,278,696
------------- -------------
Total Liabilities 6,911,061 2,278,696
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, 200,000,000 shares
authorized of $0.001 par value,
120,694,807 and 115,314,807 shares
issued and outstanding, respectively 120,694 115,314
Capital in excess of par value 8,583,014 7,678,394
Subscriptions receivable (539,333) (259,333)
Other comprehensive income 2,705 2,705
Accumulated deficit 5,398,547 (1,991,107)
------------- -------------
Total Stockholders' Equity 13,565,627 5,545,973
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,476,688 $ 7,824,669
============= =============
The accompanying notes are an integral part of these financial statements
3
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
REVENUE
Oil and gas sales, net $ 225,828 $ 130,955 $ 1,021,625 $ 519,415
Property and working
interest sales 5,171,145 946,083 16,771,145 3,246,083
------------ ------------ ------------ ------------
Total Revenue 5,396,973 1,077,038 17,792,770 3,765,498
------------ ------------ ------------ ------------
EXPENSES
Depreciation, depletion
and amortization 91,970 3,206 124,202 8,408
General and administrative 555,763 965,755 1,788,675 1,451,905
Commission on working
interest sales 1,199,000 240,000 3,584,000 665,000
Value of warrants granted
for marketing and legal
costs - 376,132 - 467,782
Lease operating costs 94,334 85,244 637,524 197,469
------------ ------------ ------------ ------------
Total Expenses 1,941,067 1,670,337 6,134,401 2,790,564
------------ ------------ ------------ ------------
NET OPERATING INCOME (LOSS) 3,455,906 (593,299) 11,658,369 974,934
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Other expense - - (300,000) (90,000)
Gain on sale of assets - - - 2,841
Interest income 12,756 - 13,773 -
Interest expense - (2,500) (11,549) (14,014)
------------ ------------ ------------ ------------
Total Other Income (Expense) 12,756 (2,500) (297,776) (101,173)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
INCOME TAXES 3,468,662 (595,799) 11,360,593 873,761
INCOME TAXES (1,287,682) - (3,970,939) (530,400)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 2,180,980 $ (595,799) $ 7,389,654 $ 343,361
============ ============ ============ ============
BASIC INCOME (LOSS)
PER COMMON SHARE $ 0.02 $ (0.01) $ 0.06 $ 0.00
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 120,694,807 109,670,526 119,946,529 106,728,617
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
POWDER RIVER BASIN GAS CORP
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,389,654 $ 343,361
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 124,202 8,408
Gain on sale of assets - (2,841)
Common stock issued for services rendered 399,000 656,750
Additional expense for granting of warrants - 467,782
Changes in operating assets and liabilities:
Increase in accounts receivable and accounts
receivable, related (5,787,401) (1,201,079)
Increase in prepaid stock offering costs (59,000) -
Increase in deposits and other assets (161,037) (446,295)
Increase in taxes payable 3,970,939 530,400
Increase in accounts payable and accrued expenses 37,578 7,354
------------ -----------
Net Cash Provided by Operating Activities 5,913,935 363,840
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas property development (2,731,095) (349,618)
Expenditures for property and equipment (4,602) (17,198)
Proceeds from sale of interest in leases - 453,917
------------ ------------
Net Cash Used in Investing Activities (2,735,697) 87,101
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term liabilities - 90,000
Payments on notes payable and long-term liabilities (1,973,602) (332,976)
Stock deposits received 755,375 -
Proceeds from issuance of common stock 116,000 60,000
------------ ------------
Net Cash Used in Financing Activities (1,102,227) (182,976)
------------ ------------
NET INCREASE IN CASH 2,076,011 267,965
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 382,861 168,539
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,458,872 $ 436,504
============ ============
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,
--------------------------
2006 2005
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 11,549 $ 5,252
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for acquired oil and gas properties $ 115,000 $ 200,000
Oil and gas properties acquired through the issuance
of debt $1,750,000 $ 565,000
Common stock issued for subscriptions receivable $ 280,000 $ -
The accompanying notes are an integral part of these financial statements.
6
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2006 and December 31, 2005
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, 2005. 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, 2006 and
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, 2006 and 2005:
For the
Three Months Ended
September 30,
-----------------------------
2006 2005
-------------- --------------
Net income available to common shareholders $ 2,180,980 $ (595,799)
============== =============
Weighted average shares 120,694,807 109,670,526
Effect of dilutive securities 8,100,000 -
-------------- --------------
128,794,807 109,670,526
============== =============
Basic income per share (based
on weighted average shares) $ 0.02 $ (0.01)
============== =============
The diluted income per share for the three months ended September 30, 2006
includes common stock equivalents, consisting of 8,100,000 warrants, which
were granted during 2005. Weighted average shares issuable upon the
exercise of stock warrants (8,100,000 warrants) were not included in the
foregoing calculation for the three months ended September 30, 2005 because
they are antidilutive.
7
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2006 and December 31, 2005
NOTE 2 - DILUTED INCOME (LOSS) PER SHARE (Continued)
For the
Three Months Ended
September 30,
-----------------------------
2006 2005
-------------- --------------
Net income available to
common shareholders $ 7,389,654 $ 343,361
============== =============
Weighted average shares 119,946,529 106,728,617
Effect of dilutive securities 8,246,154 8,255,311
-------------- --------------
128,192,683 114,983,928
============== =============
Basic income per share (based
on weighted average shares) $ 0.06 $ 0.00
============== =============
The diluted income per share for the nine months ended September 30, 2006
and 2005 includes common stock equivalents, consisting of 8,100,000 and
8,100,000 warrants, respectively, which were granted during 2005.
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 and nine months ended September
30, 2006 and 2005 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, 2006 and December 31, 2005, 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, 2006 and 2005, the Company recorded
depletion of $119,363 and $4,800 on its producing properties. All other
wells are incomplete as of September 30, 2006 and December 31, 2005.
8
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2006 and December 31, 2005
NOTE 4 - SIGNIFICANT TRANSACTIONS
During the nine months ended September 30, 2006, the Company issued the
following shares of common stock:
- 1,100,000 shares through the exercise of common stock warrants at
prices ranging from $0.10 to $0.16 per share, for total proceeds
of $116,000.
- 1,900,000 shares for services rendered to various outside
consultants at $0.21 per share, for a total value of $399,000.
- 500,000 shares for work to be performed on one of the Company's
oil and gas properties, valued at $115,000, or $0.23 per share.
- 2,000,000 shares to an unrelated individual in exercise of common
stock warrants at prices ranging from $0.12 to $0.16 per share,
for total proceeds of $280,000. The $280,000 was not received by
the Company at September 30, 2006, thus the amount is recorded as
a subscription receivable.
Also during the nine months ended September 30, 2006, the Company sold 25%
of a working interest in a producing property to an unrelated party for a
total of $11,800,000, less a commission of $2,360,000. The carrying value
of the 25% working interest at the date of the sale was $200,000. The
receivable balance on this transaction at September 30, 2006 was
$3,512,000.
In May 2006, the Company purchased a 95% working interest in a separate
property in Texas for a total of $500,000. During the nine months ended
September 30, 2006, the Company sold 7.5% of their working interest in this
property to an unrelated party for a total of $6,000,000, less a commission
of $1,200,000. The carrying value of the 7.5% interest at the date of the
sale was $39,375. The receivable balance on this transaction at September
30, 2006 was $2,536,190.
Since the Company is in the business of buying and selling working
interests in producing oil and gas properties, the sale of working
interests is being recorded as revenue in the accompanying statements of
operations for the three months and nine months ended September 30, 2006
and 2005.
During 2005, the Company purchased a 75% working interest in a producing
property for a total of $800,000. During 2006, the Company purchased an
additional 20% working interest on this same producing property for an
additional $1,000,000, plus $250,000 worth of restricted common stock. At
September 30, 2006, the balance owing on this note was $750,000, payable at
$100,000 every ninety days, with no interest. The $250,000 worth of stock
had not been issued, thus the amount is also included in notes payable at
September 30, 2006.
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.
9
POWDER RIVER BASIN GAS CORP.
Notes to the Consolidated Financial Statements
September 30, 2006 and December 31, 2005
NOTE 4 - SIGNIFICANT TRANSACTIONS (Continued)
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.
During the nine months ended September 30, 2006, the Company received a
total of $755,375 for the issuance of a total of 2,289,015 shares of common
stock, each at $0.33 per share. Since the shares have not yet been issued
by the Company, the amount received has been recorded as stock deposits
until such time as the shares are issued to the investors. The Company has
either paid or accrued a total of $151,075 in stock offerings costs related
to this stock issuance.
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 in the business of acquiring the working interest in leases
of oil and gas leases with the intent of reselling a portion of the working
interests acquired. The Company reviews and evaluates the geological and
other technical data applicable lease in order to determine the likely
viability and possible profitability of commencing and completing multiple
well drilling programs on the properties covered by the leases. If
determined to be viable, the Company also engages third party contractors
to explore for, drill, re-work and further develop the properties in order
to maximize economically justified oil and gas production from those leases
in a cost effective manner.
The Company's current focus is in obtaining leasehold interests which have
an upside through re-working existing wells or drilling in proven areas.
With extensive research on each new purchase, the Company can minimize its
risk as well as reduce any risk for the investors included in the marketing
program.
During 2005, the Company acquired the Monroe project containing
approximately 300 acres. The Company is working to activate the wells on
this project.
During 2005, the Company acquired the Kirby lease in Polk County, TX
containing one producer and on injection well. These wells were re-
completed and put in production in 2005.
During 2005, the Company acquired a 75% working interest in Lincoln County,
Oklahoma containing approximately 960 acres. The Company is currently re-
working wells on this project.
During 2005, the Company purchased a 75% working interest in the Weesatche
project in Goliad County, Texas. This is a drilling project which contains
approximately 2300 acres. An additional 20% interest was purchased during
2006 for an additional $1,250,000. At the time of this filing, 8 wells
have been drilled which are now in production.
During 2005, the Company purchased a project in the San Juan Basin in New
Mexico. This is a re-work program as well as an offset drilling program
which is planned to commence in 2006.
In May 2006, the Company purchased a 95% working interest in the Brookshire
Salt Dome in Waller County, Texas.
At the time of this filing one well has been drilled and is waiting
completion to be put on production. The Company plans to continue drilling
in the fourth quarter.
11
The Company also purchased a 100% working interest in a project in Amite
County, Mississippi. This is a re-work program with production anticipated
by December 2006.
At December 31, 2005, the Company held 80 to 100% working interest in the
following lease properties in Wyoming, all of which were purchased prior to
2003, for future development:
Lease WY County Net Acres Gross Acres
------- --------- --------- ---------
Cranston Crook 1,934 1,934
Franklin Crook 620 1,944
Griffith (1) Crook 320 640
Griffith (2) Crook 160 320
Griffith (3) Crook 440 600
Kanode Crook 920 1,000
Olds (D Road) Crook 200 640
Olds (Keyhole) Crook 120 480
Karmon Johnston 320 320
Noteboom Johnston 800 800
Legerski Sheridan 340 360
Robb Sheridan 1,486 2,520
Zullig Sheridan 256 320
The 2 wells were completed on the Zullig Lease in 2002 and tested again in
2004. Management of the Company has decided to seek to farm out further
development on these wells. As of December 31, 2005, the Company had no
material or significant production from any of these properties in WY.
At September 30, 2006, the Company owned working interests in producing oil
and gas leases:
Percent of
Working Interest
Lease WY County Net Acres Owned by the Co.
------- --------- --------- ---------------
Leonard Heirs Arcadia Parish, LA 960 75%
Osage Project Osage County, OK 960 25%
Springhill A Webster Parish, LA 154 75%
Springhill B Bossier Parish, LA 440 75%
Converse Converse County, WY 1,815 100%
Monroe Project Franklin Parish, TX 300 100%
Kirby Lease Polk County, TX 40 100%
Sparks Project Lincoln County, OK 960 75%
Weesatche Goliad County, TX 2,300 70%(1)
San Juan San Juan, New Mexico 3,560 75%
Brookshire Waller County, Texas 647 87.5%(2)
Foster Lease Amite County, MS 40 100%
12
(1) During the nine months ended September 30, 2006, the Company sold
25% of a working interest in a producing property to an unrelated
party for a total of $11,800,000, less a commission of
$2,360,000. The carrying value of the 25% working interest at
the date of the sale was $200,000. The receivable balance on
this transaction at September 30, 2006 was $3,512,000. As a
result of this sale, the Company's owned working interest in this
property was reduced to 70%.
(2) During the nine months ended September 30, 2006, the Company sold
7.5% of a working interest in a non-producing property to an
unrelated party for a total of $6,000,000, less a commission of
$1,200,000. The carrying value of the 7.5% working interest at
the date of the sale was $39,375. The receivable balance on this
transaction at September 30, 2006 was $2,536,190. As a result of
this sale, the Company's owned working interest in this property
was reduced to 87.5%.
Since the Company is in the business of buying and selling working
interests in producing oil and gas properties, the sale of working
interests has been included as revenue in the accompanying statement of
operations for the nine months ended September 30, 2006.
Results of Operations
_____________________
Nine Months Ended September 30, 2006 compared with 2005
__________________________________________________________________
Revenues: During the nine months ended September 30, 2006, the Company
reported an increase in oil and gas sales compared to the nine months ended
September 30, 2005 of approximately $502,000 or approximately 97%. The
Company also reported revenues related to property and working interest
sales of $16,771,145 during the nine months ended September 30, 2006,
compared to $3,246,083 for 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.
Expenses: During the nine months ended September 30, 2006, the Company
reported a substantial increase in expenses of approximately $3,344,000
compared to the nine months ended September 30, 2005, primarily due to the
increased commissions on working interest sales, increased lease operating
costs related to the increase in production revenue, and consulting
services rendered.
Liquidity and Capital Resources
_______________________________
On September 30, 2006, the Company had $6,911,061 in current liabilities,
which includes notes payable due within the next twelve months of
$1,192,000, and taxes payable estimated at $4,782,294. 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, and stock deposits received totaling
$755,375 for which shares will be issued during the next few months.
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. The Company believes, also, that its current marketing program of
selling working interests will generate sufficient cash flow in the future.
There can be no assurance, however, 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 September 15, 2005. We do not expect to enter into any
transactions that would be affected by adopting SFAS 153.
14
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.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings at September 30, 2006.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended September 30, 2006, the Company issued the
following shares of common stock:
- 1,100,000 shares through the exercise of common stock warrants at
prices ranging from $0.10 to $0.16 per share, for total proceeds of
$116,000.
- 1,900,000 shares for services rendered to various outside consultants
at $0.21 per share, for a total value of $399,000.
- 500,000 shares for work to be performed on one of the Company's oil
and gas properties, valued at $115,000, or $0.23 per share.
- 2,000,000 shares to an unrelated individual in exercise of common
stock warrants at prices ranging from $0.12 to $0.16 per share, for total
proceeds of $280,000. The $280,000 was not received by the Company at
September 30, 2006, thus the amount is recorded as a subscription
receivable.
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.
15
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
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, 2006 By: /s/ Brian Fox
Brian Fox, President and Chief
Financial Officer