U.S. 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, 2004.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ------------ TO
------------.
COMMISSION FILE NUMBER 000-33499
FIDELIS ENERGY, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS
SPECIFIED IN ITS CHARTER)
NEVADA 16-1599721
------ -----------
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2920 N. SWAN RD., SUITE 207, TUCSON, AZ 85712
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(877) 241-6100
ISSUER'S TELEPHONE NUMBER
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY, AS OF THE LATEST PRACTICAL DATE: SEPTEMBER 30, 2004 56,338,000
- ------------------------------------
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE). YES ; NO X
PART I
ITEM 1. FINANCIAL STATEMENTS
FIDELIS ENERGY, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, December 31,
2004 2003
------------------ ------------------
ASSETS
Current Assets:
Cash $ 23,844 $ 99,991
Accounts Receivable 6,846 -
------------------ ------------------
Current Assets 30,690 99,991
------------------ ------------------
Oil and Gas Properties, Using Successful Efforts Method
Oil & Gas Leases 505,000 -
Oil & Gas Exploration Costs 765,145 -
------------------ ------------------
1,270,145 -
------------------ ------------------
Other Property and Equipment
Furniture & Fixtures 18,793 -
Office Equipment 13,005 -
Leasehold Improvement 55,865 -
Less: Accumulated Depreciation (1,317) -
------------------ ------------------
Total Property & Equipment, Net of Depreciation 86,346 -
------------------ ------------------
Other Assets:
Deposit 5,173 -
------------------ ------------------
Total Other Assets 5,173 -
------------------ ------------------
TOTAL ASSETS $ 1,392,354 $ 99,991
================== ==================
FIDELIS ENERGY, INC.
(A Development Stage Company)
BALANCE SHEETS
(Continued)
(Unaudited)
September 30, December 31,
2004 2003
------------------ ------------------
LIABILITIES
Current Liabilities:
Accounts Payable $ 88,521 $ 12,543
Accrued Expense 42,550 -
Note Payable 397,561 151,072
Related Party Note Payable 107,661 -
Note Payable to Shareholder 2,901 3,256
------------------ ------------------
Total Current Liabitlies 639,194 166,871
------------------ ------------------
Non-Current Liabilities
Convertible Debenture Credit Line 1,122,250 -
------------------ ------------------
TOTAL LIABILITIES 1,761,444 166,871
------------------ ------------------
STOCKHOLDERS' EQUITY
Common Stock, Par value $.001
Authorized 100,000,000 shares, Issued 56,338,000 and
57,420,000 shares at September 30, 2004 and
December 31, 2003 56,338 57,420
Paid-In Capital 163,782 80,200
Common Stock to be Issued, 500,000 and 0 500 -
Retained Deficit (90,452) (90,452)
Deficit Accumulated During the Development Stage (499,258) (114,048)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (369,090) (66,880)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,392,354 $ 99,991
================== ==================
See accompanying notes
FIDELIS ENERGY, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
since
November 6,
2000
For the Three Months Ended For the Nine Months Ended Inception of
September 30, September 30, Development
2004 2003 2004 2003 Stage
----------------- ----------------- --------------- ----------------- ----------------
Revenues: $ 9,869 $ - $ 12,446 $ - $ 12,446
Expenses:
Selling & Marketing 19,014 - 48,679 - 48,679
General & Admin. 19,819 13,674 51,740 17,204 155,173
Consulting 30,000 - 78,556 - 78,556
Salaries & Director Fees 50,500 - 204,500 - 204,500
----------------- ----------------- --------------- ----------------- ----------------
Operating Loss (109,464) (13,674) (371,029) (17,204) (474,462)
----------------- ----------------- --------------- ----------------- ----------------
Other Expense
Interest (6,317) (1,323) (14,181) (3,834) (24,796)
----------------- ----------------- --------------- ----------------- ----------------
Net Income (Loss) $ (115,781)$ (14,997) $ (385,210)$ (21,038) $ (499,258)
================= ================= =============== ================= ================
Basic & Diluted Loss $ (0.01) $ - $ (0.01) $ -
================= ================= =============== =================
Weighted Average Shares 56,338,000 720,556,000 57,481,660 684,167,200
================= ================= =============== =================
See accompanying notes
FIDELIS ENERGY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
Since
November
6, 2000
For the Nine Months Ended Inception of
September 30, Development
2004 2003 Stage
----------------- ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (385,210) $ (21,038) $ (499,258)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities:
Depreciation and Amortization 1,317 - 13,317
Shares Issued for Services 100,000 40 100,040
Change in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (6,846) - (6,846)
(Increase) Decrease in Deposits (5,173) - (5,173)
Increase (Decrease) in Accounts Payable 75,978 (590) 88,521
Increase (Decrease) in Accrued Expenses 55,588 - 55,588
----------------- ----------------- ------------------
Net Cash Used in Operating Activities (164,346) (21,588) (253,811)
----------------- ----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture & Fixtures (18,793) - (18,793)
Purchase of Office Equipment (13,005) - (13,005)
Payment for Leasehold Improvements (55,865) - (55,865)
Purchase of Oil & Gas Leases (505,000) - (505,000)
Oil & Gas Exploration Costs (765,145) - (765,145)
Purchase of Intangible Assets - - (12,000)
----------------- ----------------- ------------------
Net Cash Used by Investing Activities (1,357,808) - (1,369,808)
----------------- ----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Convertible Debenture 1,122,250 - 1,122,250
Issuance of Common Shares for Cash 88,000 - 232,395
Purchase of Treasury Stock - - (97,362)
Payment of Notes Payable (70,385) - (70,385)
Proceeds from Notes Payable 306,142 5,564 460,470
Capital Contributed by Shareholder - - 95
----------------- ----------------- ------------------
Net Cash Provided by Financing Activities 1,446,007 5,564 1,647,463
----------------- ----------------- ------------------
FIDELIS ENERGY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
Since
November
6, 2000
For the Nine Months Ended Inception of
September 30, Development
2004 2003 Stage
----------------- ----------------- ------------------
Net (Decrease) Increase in Cash $ (76,147) $ (16,024) $ 23,844
Cash at Beginning of Period 99,991 16,024 -
----------------- ----------------- ------------------
Cash at End of Period $ 23,844 $ - $ 23,844
================= ================= ==================
Cash paid during the year for:
Interest $ 323 $ - $ 1,339
Franchise and income taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
On February 25, 2004, the Company purchased 10,500,000 (1,050,000 pre
split) of its common shares for a loan payable of $105,000. These shares were
returned to treasury and cancelled.
See accompanying notes
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Fidelis Energy is presented to
assist in understanding the Company's financial statements. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Interim Reporting
The unaudited financial statements as of September 30, 2004, and for
the three and nine month period then ended, reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
the three and nine months. Operating results for interim periods are not
necessarily indicative of the results which can be expected for full years.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of $499,258
for the period from November 6, 2000 (inception) to September 30, 2004 and
requires additional financing in order to finance its business activities on an
ongoing basis. The Company is actively pursuing alternative financing, has
arranged a $5,000,000 convertible debenture and has had discussions with other
various third parties, although no additional firm commitments have been
obtained.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, acquiring interests in various
exploration and production opportunities and the success of its current oil and
gas operations.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Nevada on
November 6, 2000. Since November 6, 2000, the Company is in the development
stage, and has not commenced planned principal operations. On June 10, 2003, the
Company changed its name to Eagle Star Energy, Inc. to reflect the current
direction of the company. On February 24, 2004, the Company changed its name to
Fidelis Energy, Inc. The Company operated as a development stage company until
the first quarter of 2004, when it began exploration for oil and gas. During the
second quarter of 2004, the Company acquired a proven well field and was setting
up the extraction process.
Nature of Business
The Company was originally formed to engage primarily in the business
of providing comparative automobile information via the Internet and printed
materials. The Company was not successful in its plans and during the 2nd
quarter of 2003 changed the business plan.
The Company is in the development stage of the oil and gas industry.
The Company's primary objective is to identify, acquire and develop working
interest percentages in smaller, underdeveloped oil and gas projects in
California and Canada that do not meet the requirements of the larger producers
and developers. The Company intends to acquire smaller, underdeveloped producers
generally under control of small family-owned operators who are interested in
selling out.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Reclassification
Certain reclassifications have been made in the 2003 financial
statements to conform with the September 30, 2004 presentation.
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with one financial institution, in the form of demand deposits.
Loss per Share
Basic loss per share has been computed by dividing the loss for the
year applicable to the common stockholders by the weighted average number of
common shares outstanding during the years. The effect of common stock
equivalent shares would be anti-dilutive and thus are not shown.
Stock Options
The Company has adopted SFAS No. 123, "Stock Option and Purchase
Plans", which establishes standards for reporting compensation expense for stock
options that have been issued. The fair value of each grant is equal to the
market price of the Company's stock on the date of grant if an active market
exists or at a value determined in an arms length negotiation between the
Company and the non- employee.
Depreciation
Property and Equipment are stated at cost. Depreciation and
amortization is calculated on a straight-line basis over the estimated useful
lives of the assets as follows:
Asset Rate
- ------------------------------------------------ -----------------
Office equipment 5 years
Leasehold improvements Term of lease
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Oil and Gas Producing Activities
The Company is in the development stage and has earned minimal revenues
from its planned operations. It is primarily engaged in the acquisition,
exploration and development of oil and gas properties. The Company uses the
successful efforts method of accounting for these activities. Under this method
of accounting, geological and geophysical costs and the costs of carrying and
retaining undeveloped properties are charged to expense when incurred since they
do not result in the acquisition of assets. Costs incurred to drill exploratory
wells and exploratory-type stratigraphic test wells that do not find proved
reserves are charged to expense when it is determined that the wells have not
found proved reserves. Costs incurred to acquire properties and drill
development wells, development-type stratigraphic test wells, successful
exploratory wells, and successful exploratory-type stratigraphic wells are
capitalized. Capitalized costs of wells and related equipment will be amortized,
depleted, or depreciated using the units-of-production method. Costs of unproved
properties will be assessed periodically to determine if an impairment loss
should be recognized.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - INCOME TAXES
As of December 31, 2003, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately $114,000 that
may be offset against future taxable income through 2023. Current tax laws limit
the amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount available to
offset future taxable income may be limited. During 2004, the Company has
realized net operating losses of approximately $385,210 that will be available
to offset income, if any, during the remainder of 2004 and if not used in 2004
any remaining amount will be available to offset future tax able income through
2024. No tax benefit has been reported in the financial statements, because the
Company believes there is a 50% or greater chance the carryforwards will expire
unused. Accordingly, the potential tax benefits of the loss carryforwards are
offset by a valuation allowance of the same amount.
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - DEVELOPMENT STAGE COMPANY/ GOING CONCERN
The Company has not commenced its intended principal operations and as
is common with a company in the development stage of oil and gas extraction, the
Company has had recurring losses. Continuation of the Company as a going concern
is dependent upon obtaining the additional working capital necessary to be
successful in its planned activity, and the management of the Company has
developed a strategy, which it believes will accomplish this objective through
additional equity funding and long term financing, which will enable the Company
to operate for the coming year
NOTE 4 - COMMITMENTS
On January 22, 2004, the Company entered into a lease for office space.
The rental charges are approximately $4,300 per month commencing May 1, 2004.
The lease expires April 30, 2008.
The minimum future lease payments under this leases for the next five
years are:
Ending December 31,
2004 $ 34,028
2005 52,053
2006 53,620
2007 55,233
2008 18,591
-----------------
Total Minimum Lease Payments $ 213,525
=================
The leases generally provides that insurance, maintenance, utilities
and tax expenses are obligations of the Company. It is expected that in the
normal course of business, leases that expire will be renewed or replaced by
leases on other properties.
NOTE 5- NOTE PAYABLE FROM SHAREHOLDER
The Company has borrowed money from a shareholder in order to pay
general and administrative expenses. For purposes of these financial statements,
interest has been calculated at an imputed interest rate of 4 to 10 percent. As
of September 30, 2004 and December 31, 2003, the Company owed $2,901 and $3,256,
respectively, relating to these notes.
NOTE 6 - SHORT-TERM NOTE PAYABLE
On November 17, 2003, the Company repurchased 152,000,000 (400,000 pre
split) shares of its commons stock from the previous president and treasurer. In
connection, with this purchase the Company agreed to pay $150,000 for the common
stock and the outstanding shareholder loan of $52,638 payable on or before March
15, 2004, at an interest rate of 6%. As of September 30, 2004 and December 31,
2003, the Company owes $84,959 and $151,072 on this loan.
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - SHORT-TERM NOTE PAYABLE (Continued)
On April 2, 2004, the Company borrowed $305,000 from a third party. The
loan is due April 2, 2005 and bears interest of 5 percent. As of September 30,
2004, the Company owes $312,602.
NOTE 7 - CONVERTIBLE DEBENTURE CREDIT LINE
During the nine months ended September 30, 2004, the Company received
$1,122,250 for a stock subscription of 1,122,250 common shares. On October 25,
2004, the Company renegotiated this transaction in the form of a Convertible
Debenture Credit Line of up to $5 million. Thus, these amounts have been
reclassified from Common Stock to be Issued to a Current Liability. The Credit
Line bares interest annual rate of Libor plus 2% percent and shall be payable 2
years from the issuance. The principal amount shall be convertible, in part for
$1 per Preferred Series A Shares, at the option of the Company within the first
six months and thereafter by the lender until the loan is satisfied or
liquidated. The Preferred Shares shall be convertible to Common Stock on a basis
equivalent to 20% of Common Stock of the Company then outstanding.
NOTE 8 - RELATED PARTY TRANSACTIONS
On February 25, 2004, the Company purchased 10,500,000 (1,050,000 pre
split) of its common shares for a loan payable of $105,000. These shares were
returned to treasury and cancelled. Interest at a rate of 4.22% has been imputed
on the loan. As of September 30, 2004, the Company owes $107,661.
NOTE 9 - COMMON STOCK
On June 10, 2003, the Company issued 15,200,000 (40,000 pre split)
common shares to two people for services.
On November 17, 2003, the Company repurchased and subsequently canceled
152,000,000 (400,000 pre split) shares of its common stock from the previous
president and treasurer. Also, on this date the Company approved a 38:1 forward
split. All references to common stock reflect the split.
On December 23, 2003, the Company issued 19,800,000 (1,980,000 pre
split) common shares for cash.
On January 26, 2004, the Company issued 8,800,000 (880,000 pre split)
common shares for cash.
On February 25, 2004, the Company purchased 10,500,000 (1,050,000 pre
split) of its common shares for a loan payable of $105,000. These shares were
returned to treasury and cancelled.
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 - COMMON STOCK (Continued)
On April 1, 2004, the Company issued 750,000 shares of common stock to
its three directors for services rendered. As a result of this issuance, $60,000
in compensation expense was recorded. Additionally, 500,000 shares of common
stock are pending issuance to two other directors and an additional $40,000 in
compensation was recorded.
On June 22, 2004, 132,000 were returned to treasury for cancellation.
NOTE 10 - STOCK OPTIONS
Pursuant to a 2004 Stock Option and Compensation Plan, grants of shares
can be made to employees, officers, directors, consultants and independent
contractors of non-qualified stock options as well as for the grant of stock
options to employees that qualify as incentive stock options under Section 422
of the Internal Revenue Code of 1986 or as non-qualified stock options. The Plan
is administered by the Board of Directors ("Board"), which has, subject to
specified limitations, the full authority to grant options and establish the
terms and conditions for vesting and exercise thereof.
In order to exercise an option granted under the Plan, the optionee
must pay the full exercise price of the shares being purchased. Payment may be
made either: (i) in cash; or (ii) at the discretion of the Board, by delivering
shares of common stock already owned by the optionee that have a fair market
value equal to the applicable exercise price; or (iii) with the approval of the
Board, with monies borrowed from us.
Subject to the foregoing, the Board has broad discretion to describe
the terms and conditions applicable to options granted under the Plan. The Board
may at any time discontinue granting options under the Plan or otherwise
suspend, amend or terminate the Plan and may, with the consent of an optionee,
make such modification of the terms and conditions of such optionee's option as
the Board shall deem advisable.
On March 17, 2004, the Board of Directors approved a stock option plan
whereby 8,000,000 common shares have been set aside for employees, officers,
directors and third party service providers to be distributed at the discretion
of the Board of Directors. As of September 30, 2004, 1,250,000 options have been
granted to the five officers/directors of the Company for an exercise price of
$0.10 per share, increasing annually at 6% per annum from the grant date of
March 17, 2004. The term of the options is 10 years. No compensation expense was
recorded because the Company feels that the exercise price was equal to or
greater than the fair value of the stock on the grant date.
The following table sets forth the options and warrants outstanding as
of September 30, 2004 and December 31, 2003:
FIDELIS ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 - STOCK OPTIONS (Continued)
September 30, December 31,
2004 2003
--------------------- --------------------
Options Outstanding, Beginning of year - -
Granted 1,250,000 -
Expired - -
Exercised - -
--------------------- --------------------
Options Outstanding, End of year 1,250,000 -
===================== ====================
Exercise price for options outstanding, end of period $0.10 -
===================== ====================
NOTE 11 - OIL AND GAS ACTIVITIES
As of September 30, 2004, the Company has earned $12,446 from its
proven reserves in the Comanche Point property.
On November 5, 2003, the Company executed two farm-in leases for the
purpose of oil and gas exploration. The subject properties are located in the
province of Alberta, Canada and are termed the Buffalo Lake Prospect and the
Lake Island Prospect. In February, the Company forfeited the Buffalo Lake lease
in return for a farm-in lease on a deep-gas well project termed the "Boyne Lake"
field. The Company allowed this lease to expire unused.
On March 16, 2004, the Company entered into a purchase agreement for
participation and acquisition of a 80 percent working interest in the Commanche
Point Producing Company, Tejon Lease. As compensation for its right, title and
interest in the property, the Company paid $305,000 for acquisition rights and
additional $200,000 to be used as working capital. As this is a proven property,
the $505,000 has been capitalized.
As of September 30, 2004, $765,145 has been capitalized in connection
with the exploration of unproven properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's annual report on Form 10-KSB for the year ended December 31, 2003.
Plan of Operation
The Company was originally formed to engage primarily in the business of
providing comparative automobile information via the Internet and printed
materials. The Company was not successful in its plans and during the 2nd
quarter of 2003 changed the business plan.
The Company is a development state company in the oil and gas industry. The
Company's primary objective is to identify, acquire and develop working interest
percentages in smaller, underdeveloped oil and gas projects in California and
Canada that do not meet the fit the portfolio requirements of the larger
producers and developers. The Company intends to acquire smaller, underdeveloped
working interests, royalty interests and/or producers, often under control of
small family-owned operators who are interested in selling out. Through
analyzing information obtained through modern development techniques such as
horizontal drilling and 3-D seismic, production from these under developed and
under utilized projects can often be increased. The Company plans to acquire
projects following due diligence necessary to fully evaluate the projects
potential.
The Company intends to engage primarily in the business of acquiring and
operating, as a working interest partner, smaller oil and gas leases, and
exploratory oil and gas wells. The Company maintains relatively low overhead by
contracting certain operating and investigative functions out to experienced,
licensed private oil and gas operators.
Normally only those projects that are in close proximity to delivery systems
such as pipelines or refineries will be pursued. Whereas there are large oil and
gas fields that could be aggressively engaged, the management of the Company
believes that the production required to warrant the investment into such
capital intensive infrastructures is of greater risk than the Company is willing
to bear at present, and the necessary capital for such is currently unavailable
to the Company. Hence, in the near future, the Company will only pursue those
projects that can be tied into pipelines or trucked from onsite storage
facilities to proximate refineries with minimal costs involved.
March 16, 2003, the Company entered into a purchase agreement for participation
and acquisition of an 80% working interest in the Comanche Point Producing
Company, Tejon Lease for lands in Sections 28,29,32 and 33, R18W, S.B.B.M, Kern
County, California.
During the 2nd quarter, the Company closed on the above purchase for $305,000
and also during that quarter provided $200,000 toward the implementation of a
pilot steam project for the property. Funds were obtained from the proceeds of
two loans, the first $305,000 to a private, unaffiliated lender at the rate of
Prime Plus 3%, and the second of $200,000 from the proceeds of a loan from
Chunuk Financial Corp. at the rate of Libor Plus 2%. The initial steam testing
on the first well was completed in late September. The second well entered steam
in late October. The data from the results of the steam pilot
program is expected in mid-November. Should the steam program provide marked
improvement in oil production, than the Company plans to implement a full
rotational steam program on all of the 16 wells located in the Comanche Point
Field. The cost of a full steam program is anticipated to be approximately $1.2
million. Prior to steaming, the field has only produced approximately 20 barrels
per day.
Also during the 2nd quarter, the Company an aggregate of $655,619 in part from
loan proceeds of a credit line loan to Chunuk Financial Corp., at the rate of
Libor Plus 2%., and closed on the purchase of a 35% working interest in a gas
exploration project, termed North Franklin, located south of Sacramento,
California and encompassing approximately 1,800 acres of land. Additionally,
during the 3rd quarter the Company invested an additional $109,526 to drill the
first exploration well, name ArcherWhitney #1. The well went to the 7,800-foot
depth and was successful in its location of the expected gas field. The well was
capped and is expected to be tied into the pipeline delivery system in November.
The Company expects an open flow rate of 3MMcf to 5MMcf for the first well.
There are 5 other possible well locations to be drilled into the field and
tie-in costs are expected to be minimal due to the proximity of the wells to the
delivery system.
Results of Operations
The Company has only limited operations, and has realized only limited revenues
from the sale of oil from the Comanche Point Field. The Company has realized a
net loss from operations of $499,258 since inception due primarily to legal,
accounting and management fees necessary to bring the Company through to the
development stage.
The Company had selling and marketing expenses from continuing operations of
$19,014 and $48,679 for the three and nine months ended September 30, 2004 and
$0 and $0 for the three and nine months ended 2003. General and administrative
expenses were $100,319 and $334,796 for the three and nine months ended
September 30, 2004, which consisted mainly of officer wages and consulting
expense compared to $13,674 and $17,204 for the three and nine months ended
September 30, 2003. The increase is attributable to the fact that the Company
was largely dormant in 2003. In the first quarter of 2004 the Company started
its exploration of oil and gas properties.
Liquidity and Capital Resources
Cash and cash equivalents from inception to date have been insufficient to
provide the operating capital necessary to operate the Company. The necessary
capital to operate the Company was initially provided by the principals and
founders of the Company in the form of both debt and capital stock issuances as
set forth in the financial statements incorporated herein. In the third quarter,
the proceeds necessary to operate the Company and provide for acquisition
capital came from the proceeds of loans and a credit line as previously
disclosed. Such loans will continue to provide cash for operations until the
sale of gas occurs from the North Franklin project. In summary, there has been
an absence of liquidity and capital resources to operate the Company
self-sufficiently. Such inadequacy will continue until the tie-in of the
Archer-Whitney #1 well, at which time the Company anticipates adequate revenues
to operate the Company and experience profitable operations.
The Company recorded a net loss from operations of $385,210 for the nine months
ended September 30,
2004 compared to a net loss of $21,038 for the same period in 2003. Increase in
the net loss is attributable to the costs incurred in the working interest
acquisitions of the North Franklin prospect and the Comanche Point Oil Field,
along with the costs associated with the improvements made to both of those
projects.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer have concluded, based on an
evaluation conducted within 90 days prior to the filing date of this Quarterly
Report on Form 10-QSB, that the Company's disclosure controls and procedures
have functioned effectively so as to provide those officers the information
necessary whether:
(i) this Quarterly Report on Form 10-QSB contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this Quarterly Report on Form 10-QSB, and
(ii) the financial statements, and other financial information included
in this Quarterly Report on Form 10-QSB, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this Quarterly
Report on Form 10-QSB.
There have been no significant changes in the Company's internal
controls or in other factors since the date of the Chief Executive Officer's
evaluation that could significantly affect these internal controls, including
any corrective actions with regards to significant deficiencies and material
weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Title of Document
3i Articles of Incorporation (1)
3ii Bylaws (1)
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Incorporated by reference to the Registrant's registration statement on Form
10-SB filed on January 14, 2002
(b) Reports on Form 8-K filed.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned.
Fidelis Energy, Inc.
(Registrant)
DATE: November 10, 2004 By: /s/ Daniel Hodges
------------------------------- ----------------------------
Daniel Hodges
President and Chairman of Board
(Principal Executive Officer)
DATE: November 10, 2004 By: /s/ Sterling Klein
------------------------------- ----------------------------
Sterling Klein
Secretary / Treasurer
(Principal Financial Officer)