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UNITED STATES | |||
SECURITIES AND EXCHANGE COMMISSION | |||
Washington, D.C. 20549 | |||
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FORM 10-QSB | |||
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[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2002 | ||
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[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | ||
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COMMISSION FILE NUMBER: 0-5525 | |||
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CASTLEGUARD ENERGY, INC. | |||
(Exact name of Registrant as specified in its charter) | |||
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Florida | 75-2615565 | ||
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4625 Greenville Avenue, Suite 203, Dallas, TX | 75206 | ||
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(214) 361-1755 | |||
(Registrant's telephone number, including area code) | |||
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Securities registered pursuant to Section 12(b) of the Act: NONE | |||
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Securities registered pursuant to Section 12(g) of the Act: | |||
Common Stock Without Par Value | |||
(Title of Class) | |||
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Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 [ ] | ||
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At June 30, 2002, there were 17,248,626 Common shares outstanding. | |||
______________________________ | |||
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Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] |
CASTLEGUARD ENERGY, INC. | ||
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INDEX | ||
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Part 1. | Financial Information: |
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Item 1. | Financial Statements |
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| Accountant's Review Report |
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| Balance Sheets - |
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| Statements of Operations - |
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| Statements of Cash Flows - |
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| Statements of Stockholders' Equity - |
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| Notes to Financial Statements |
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Part II. | Other Information: |
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Item 1. | Legal Proceedings |
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Item 2. | Changes in Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Submission of Matters to a Vote of Security Holders |
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Item 5. | Other Information |
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Item 6. | Exhibits and Reports on Form 8-K |
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| Signatures |
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Item 1. FINANCIAL STATEMENTS |
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS |
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Board of Directors |
Castleguard Energy, Inc. |
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We have reviewed the accompanying balance sheet of Castleguard Energy, Inc. as of June 30, 2002, and the related statements of income for the three and six months periods and stockholders' equity and cash flows for the six month period then ended. These financial statements are the responsibility of the Company's management. |
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We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of analytical procedures applied to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. |
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Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. |
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Whitley Penn |
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Dallas, Texas |
August 13, 2002 |
CASTLEGUARD ENERGY INC. |
BALANCE SHEETS |
June 30, | December 31, | |||||||||
(Unaudited) | (Audited) | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash | $ | 49,658 | $ | 99,979 | ||||||
Accounts receivable | 131,367 | 146,877 | ||||||||
Total current assets | 181,025 | 246,856 | ||||||||
Petroleum and natural gas interests, net | 1,439,188 | 1,459,384 | ||||||||
Deferred debt issue cost, net | 24,162 | - | ||||||||
TOTAL ASSETS | $ | 1,644,375 | $ | 1,706,240 | ||||||
LIABILITIES & STOCKHOLDERS' EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 38,965 | $ | 83,880 | ||||||
Current portion of long-term debt | 260,004 | 238,337 | ||||||||
Total current liabilities | 298,969 | 322,217 | ||||||||
Long-term debt, less current portion | 265,667 | 367,078 | ||||||||
Accrued stock to be issued | - | 7,315 | ||||||||
Deferred income taxes | 80,000 | 61,000 | ||||||||
TOTAL LIABILITIES | 644,636 | 757,610 | ||||||||
Stockholders' equity: | ||||||||||
Common stock, $0.001 par value, |
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50,000,000 shares authorized; 19,146,626 | 19,147 | 19,014 | ||||||||
Paid-in capital | 965,824 | 958,643 | ||||||||
Retained earnings | 70,768 | 26,973 | ||||||||
Less: Treasury stock, 1,862,000 shares at cost | (56,000) | (56,000) | ||||||||
Total stockholders' equity | 999,739 | 948,630 | ||||||||
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY | $ | 1,644,375 | $ | 1,706,240 | ||||||
CASTLEGUARD ENERGY INC. | |||||||
STATEMENTS OF INCOME | |||||||
(Unaudited) | |||||||
Three months | Three months | Six months | Six months | ||||
Oil and gas Revenues | $ 185,912 | $ 250,482 | $ 355,337 | $ 784,744 | |||
Expenses: | |||||||
Lease operating expense and taxes | 31,315 | 21,431 | 60,639 | 41,790 | |||
Depreciation, depletion and amortization | 57,759 | 41,193 | 118,656 | 95,799 | |||
General and administrative | 47,183 | 92,214 | 94,566 | 185,465 | |||
136,257 | 154,838 | 273,861 | 323,054 | ||||
Income from operations | 49,655 | 95,644 | 81,476 | 461,690 | |||
Interest and financing costs | (6,124) | (29,948) | (18,681) | (64,905) | |||
Income before income taxes | 43,531 | 65,696 | 62,795 | 396,785 | |||
Provision for income taxes | 13,220 | 29,000 | 19,000 | 48,000 | |||
Net income | $ 30,311 | $ 36,696 | $ 43,795 | $ 348,785 | |||
Basic earnings per common share | $ .00 | $ .00 | $ .00 | $ .02 | |||
Weighted average number of common | 17,285 | 17,152 | 17,223 | 17,022 | |||
CASTLEGUARD ENERGY INC. | |||||||||||||
STATEMENTS OF CASH FLOWS | |||||||||||||
(Unaudited) | |||||||||||||
Six Months Ended | |||||||||||||
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| 2002 |
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Cash Flows from Operating Activities: | |||||||||||||
Net income | $ | 43,795 | $ | 348,785 | |||||||||
Adjustments to reconcile net income to net cash | |||||||||||||
provided by operating activities: | |||||||||||||
Depreciation, depletion and amortization | 118,656 | 95,799 | |||||||||||
Deferred income taxes | 19,000 | 48,000 | |||||||||||
Amortization of financing costs | 4,833 | 26,559 | |||||||||||
Stock issued to consultants | - | 21,971 | |||||||||||
Change in assets and liabilities: | |||||||||||||
Decrease in receivables and payables | (29,493) | (5,449) | |||||||||||
Net cash provided by operating activities | 156,791 | 532,665 | |||||||||||
Cash Flows from Investing Activities: | |||||||||||||
Additions to petroleum and natural gas interests | (105,131) | (100,998) | |||||||||||
Proceeds from property sale | 6,671 | - | |||||||||||
Net cash used in investing activities | (98,460) | (100,998) | |||||||||||
Cash Flows from Financing Activities: | |||||||||||||
Refinancing of bank loan | 583,343 | - | |||||||||||
Payments on long-term debt | (692,083) | (180,000) | |||||||||||
Net cash used by financing activities | (108,740) | (180,000) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (50,321) | 251,667 | |||||||||||
Cash and cash equivalents, beginning of period | 99,979 | 795 | |||||||||||
Cash and cash equivalents, end of period | $ | 49,658 | $ | 252,462 | |||||||||
Supplemental information: | |||||||||||||
Interest paid | 14,130 | 38,590 |
STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||
(Unaudited for year 2002 first six months) | ||||||
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| Common Stock | Paid-in | Treasury | Earnings | Stockholders' | |
| Shares | Amount | Capital | Stock | (deficit) | Equity |
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Balance, December 31, 2000 | 17,353,626 | $ 17,354 | $ 808,332 | $ (56,000) | $ (312,743) | $ 453,943 |
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Issuance of stock accrued | 1,400,000 | 1,400 | 131,600 |
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Issuance of stock for services | 260,000 | 260 | 21,711 |
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| 21,971 |
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Net income |
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| 339,716 | 339,716 |
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Balance, December 31, 2001 | 19,013,626 | $ 19,014 | $ 958,643 | $ (56,000) | $ 26,973 | $ 948,630 |
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Issuance of stock |
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to settle litigation | 133,000 | 133 | 7,161 |
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| 7,314 |
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Net income |
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| 43,795 | 43,795 |
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Balance, June 30, 2002 | 19,146,626 | $ 19,147 | $ 965,824 | $ (56,000) | $ 70,768 | $ 999,739 |
CASTLEGUARD ENERGY, INC | |
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NOTES TO FINANCIAL STATEMENTS | |
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Note 1 - Future Operations | |
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The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company is in the process of growing through the acquisition of oil and gas interests. The Company intends to finance this growth through future cash flow, the issuance of common stock and debt. Future growth may be limited by the extent of internally generated cash flow, the Company's ability to obtain financing from share issuances and debt to finance future expansion of working interests. | |
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Note 2 - Summary of Significant Accounting Policies and Practices | |
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(a) | Description of Business |
| Castleguard Energy, Inc. is an independent energy company engaged in the exploration for and the acquisition, development and exploitation of crude oil and natural gas properties, and in the production of crude oil and natural gas in North America through working interests operated by other parties. The Company's activities are conducted in the states of Louisiana, Texas and Alabama. |
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(b) | Net Income (Loss) per Weighted Average Share |
| Basic net income (loss) per weighted average share is calculated using the weighted average number of shares of common stock outstanding. |
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(c) | Oil and Gas Sales |
| Petroleum and natural gas sales are recognized upon delivery to the metered point upstream of the pipeline connection. |
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(d) | Basis of Presentation |
| The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB of Regulations S-B. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2001 included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-KSB. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have b een made. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. |
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CASTLEGUARD ENERGY, INC | |||
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NOTES TO FINANCIAL STATEMENTS | |||
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Note 3 - Long-Term Debt | |||
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Long-term debt is a secured note payable to a commercial bank, payable at $21,667 per month plus interest at the Wall Street Journal's prime rate plus 3/4 of one percent. The note is collateralized by the company's interest in oil and gas properties and is also guaranteed by two directors of the Company. Maturities of the debt are as follows: | |||
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2002 | $130,002 | ||
2003 | 260,004 | ||
2004 | 135,665 | ||
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Debt covenants restrict other debt, pledge of assets, payments of dividends, mergers and changes in ownership. | |||
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Note 4 - Related Party Transactions | |||
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In January, 2001, the Company's directors entered into an agreement with H & S Production, Inc. (a company wholly owned by the Company's Chairman, Scott Heape) to participate in a farmout agreement covering leasehold interests in the Mings Chapel Field in East Texas whereby the Company has the opportunity to participate in up to three development wells. The first and second wells were drilled, completed, and put on line in 2001. A third well is planned to be drilled in the summer of 2002; additionally, four proven but undeveloped locations have been identified as a result of the first two wells drilled on this prospect. | |||
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Item 2. |
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CASTLEGUARD ENERGY, INC. |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL |
CONDITION AND RESULTS OF OPERATIONS |
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This Quarterly Report on Form 10-QSB includes "forward-looking" statements within the meaning of Section 27a of the Securities Act of 1933, as amended (the "Securities Act"), and section 21e of the Securities Exchange Act of 1934, as amended (the "exchange act"). Specifically, all statements other than statements of historical facts included in this report regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward- looking statements. These forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the curr ent view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, price levels for oil and natural gas, concentration of oil and natural gas reserves and production, drilling risks, uncertainty of oil and gas reserves, risks associated with the development of additional revenues and with the acquisition of oil and gas properties and other energy assets, operating hazards and uninsured risks, general economic conditions, governmental regulation, changes in industry practices, marketing risks, one time events and other factors described herein ("cautionary statements"). Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove i ncorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward- looking statements. All subsequent written and oral forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements. Reference is made to disclosure regarding "Forward-Looking Statements and Cautionary Statements" included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001, which is incorporated herein by reference. |
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The Company is an independent oil and gas exploration company whose strategic focus is the application of advanced seismic imaging and computer-aided exploration technologies in the systematic search for commercial hydrocarbon reserves, primarily in the states of Texas and Louisiana. The Company attempts to leverage its technical experience and expertise with seismic to identify exploration and exploitation projects with significant potential economic return. The company intends to participate in selected exploration projects as a non-operating, working interest owner, sharing both risk and rewards with its partners. The Company has and will continue to pursue exploration opportunities in regions where the Company believes significant opportunity for discovery of oil and gas exists. By reducing drilling risk through seismic technology, the Company seeks to improve the expected return on investment in its oil and gas exploration projects. The Co mpany attempts to limit capital requirements by forming industry alliances and exchanges a portion of its interest for cash and/or a carried interest in its exploration projects. |
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RESULTS OF OPERATIONS |
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Three and Six Month Periods Ended June 30, 2002 vs. 2001 |
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Commodity price declines this year compared to last year have adversely affected the second quarter of 2002 and the first six months when compared with the same periods last year. The adverse effect was partially offset by increased volumes of natural gas sales in the second quarter of 2002 versus 2001 and by cost containment activities that reduced general and administrative costs nearly 50% in the second quarter and the six months compared with last year. |
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Volumes of gas sales increased in the second quarter compared to last year, from 48,123 MCF to 63,118 MCF, and for the six months, from 118,459 MCF to 129,786 MCF, as the result of higher deliveries from the Company's Minden Louisiana properties. Oil sales volumes declined in the second quarter and the six months, from 798 barrels to 564 barrels and from 1,581 barrels to 1,192 barrels, respectively. |
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Prices for natural gas were $2.73 per MCF in the second quarter this year versus $4.77 per MCF last year, and $2.54 per MCF for the six months this year versus $6.27 last year. |
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The combination of volume increases and price declines resulted in a decline in second quarter revenues of 26% and 55% for the six months. |
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For the second quarter and the six months, increases in lease operating expenses and depletion, depreciation and amortization (DD&A) were offset by a decline in general and administrative expense. Income from operations still declined in both periods compared to last year principally as a result of the aforementioned commodity price declines for natural gas. Interest and financing cost was lower for the three and six months as the result of lower debt levels and lower interest rates. |
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LIQUIDITY AND CAPITAL RESOURCES |
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Cash flow for the six months ended June 30, 2002 was adequate to meet operating requirements and debt service with an amount for new investment. New investment opportunities exceed the Company's estimate of cash available in the future, however, so that additional financing will be required to fully exploit all opportunities. No efforts have yet been made to arrange such financing. The lack of additional funding may limit the Company's deal flow in the future. |
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Part II. Other Information |
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Item 1. Legal Proceedings |
Not Applicable |
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Item 2. Changes in Securities and Use of Proceeds |
Not Applicable |
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Item 3. Defaults Upon Senior Securities |
Not Applicable |
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Item 4. Submission of Matters to a Vote of Security Holders |
Not Applicable |
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Item 5. Other Information |
Not Applicable |
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Item 6. Exhibits and Reports on Form 8-K |
(a) | Exhibits - |
(b) | Reports on Form 8-K - One Report on Form 8-K were filed during the last quarter of the period covered by this report. |
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| On June 5, 2002, the Company filed a Report on Form 8K relating to the change of the Company's certifying accountant from Jackson Rhodes P.C. to Whitley Penn. |
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SIGNATURES |
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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. |
| CASTLEGUARD ENERGY, INC. |
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August 14, 2002 | /s/ Bob G. Honea |
| BY: Bob G. Honea, Director/President |