________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: March 31, 2008
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _________
Commission file number: 000-53124
COLONY ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0662309
(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer Identification No.)
2100 West Loop South, Suite 900, Houston, Texas 77027
(Address of principal executive offices) (Zip Code)
713/590-5060
(Registrant's telephone number, including area code)
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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller Reporting Company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of common stock, $.001 par value, outstanding as of June
04, 2008: 6,375,000 shares
________________________________________________________________________________
COLONY ENERGY, INC.
PERIOD ENDED MARCH 31, 2008
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS 1
Financial statements of Colony Energy, Inc. (unaudited):
Balance sheets as of March 31, 2008 and December 31, 2007 1
Statements of expenses for the three months ended March 31,
2008 and 2007 and period from July 20, 2000 (inception)
through March 31, 2008 2
Statements of cash flows for the three months ended March
31, 2008 and 2007 and 2007 and period from July 20, 2000
(inception) through March 31, 2008 3
Notes to financial statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 5
ITEM 4T. CONTROLS AND PROCEDURES 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 6. EXHIBITS 9
SIGNATURES 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLONY ENERGY, INC.
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2008 2007
------------ --------------
ASSETS
Current Assets
Cash $ 85,551 $ 136,168
Prepaid expenses 5,000 1,470
----------- -------------
Total Current Assets 90,551 137,638
OIL AND GAS PROPERTIES, full cost method
Unevaluated properties, Net of
Impairment Expense 277,172 277,383
---------- -------------
TOTAL ASSETS $ 367,723 $ 415,021
========== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 32,573 $ 6,532
Accrued interest payable - related party 19,856 6,767
Notes payable - related parties 525,000 525,000
--------- -------------
Total Current Liabilities and
Total Liabilities 577,429 538,299
STOCKHOLDERS' DEFICIT
Preferred stock, $0.01 par value, 10,000,000
shares authorized, none outstanding - -
Common stock, 50,000,000 common shares
authorized with a par value of $0.001,
6,375,000 common shares issued and
outstanding 6,375 6,375
Subscription receivable (9,000) (9,000)
Additional paid-in capital 5,693 5,693
Deficit accumulated during the exploration
stage (212,774) (126,346)
---------- ------------
Total Stockholders' Deficit (209,706) (123,278)
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 367,723 415,021
============ ============
1
COLONY ENERGY, INC.
( An Exploration Stage Company)
Statements of Expenses
Three months ended March 31, 2008 and 2007 and
Period from July 20, 2000 (inception) through March 31, 2008
(Unaudited)
For the period
July 20, 2000
Three months Three months (Inception)
ended ended through
March 31, March 31, March 31,
2008 2007 2008
OPERATING EXPENSES:
General and administrative $ 73,339 $ - $ 120,431
Impairment of unevaluated
oil and gas properties - - 64,383
---------- ---------- -------------
Total Operating Expenses 73,339 - 184,814
---------- ---------- -------------
LOSS FROM OPERATIONS (73,339) - (184,814)
---------- ---------- -------------
OTHER EXPENSE
Interest expense (13,089) (123) (27,960)
---------- ---------- -------------
Total Other Expenses (13,089) (123) (27,960)
---------- ---------- -------------
NET LOSS $ (86,428) $ (123) $ (212,774)
========== ========== =============
Net loss per common share $ (0.01) $ (0.00)
========== ==========
Weighted average shares
outstanding - basic and
diluted 6,375,000 5,100,000
========= ==========
2
COLONY ENERGY, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2008 AND 2007 AND
PERIOD FROM JULY 20, 2000 (INCEPTION) THROUGH MARCH 31, 2008
(Unaudited)
For the period
July 20, 2000
Three months Three months (Inception)
ended ended through
March 31, March 31, March 31,
2008 2007 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (86,428) $ (123) $ (212,774)
Adjustments to reconcile net
loss to cash provided by
(used in) operating
activities:
Change in:
Warrants issued for
compensation - - 593
Impairment of unevaluated
oil and gas properties - - 64,383
Changes in assets and
liabilities:
Prepaid expenses (3,530) - (5,000)
Accounts payable and
accrued liabilities 39,130 123 46,097
------------- ------------ ------------
Net Cash Provided by (Used
in) Operating Activities (50,828) - (106,701)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchase) of oil and gas
property 211 - (335,023)
------------- ----------- ------------
Net Cash Provided by (Used
in) Investing Activities 211 - (335,023)
------------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from the sale of
common stock - - 2,275
Proceeds of note payable - - 987,500
Repayment of note payable - - (462,500)
------------- ----------- -------------
Net cash Provided by
Financing Activities - - 527,275
------------- ----------- -------------
NET INCREASE IN CASH (50,617) - 85,551
CASH AT BEGINNING OF PERIOD 136,168 972 -
-------------- ----------- -------------
CASH AT END OF PERIOD $ 85,551 $ 972 $ 85,551
============== =========== =============
Supplemental cash flow Disclosures
Interest Paid $ - $ - $ 8,104
Income taxes Paid $ - $ - $ -
============== =========== =============
3
COLONY ENERGY, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Colony Energy, Inc. ("Colony" or the "Company") was originally incorporated in
the State of Delaware on July 7, 2000 as "DirectMoviesOnline.Com Inc" but
changed its name to Colony Energy, Inc. on September 12, 2006. The Company
engages primarily in the exploration and development of oil and gas properties
in the United States. The Company currently participates in the exploration of
several unevaluated oil and gas properties.
Basis of Presentation
The accompanying unaudited interim financial statements of Colony have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange
Commission, and should be read in conjunction with the audited financial
statements and notes thereto contained in Colony's Form 10-12G. In the opinion
of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year. Notes to the financial statements
that would substantially duplicate the disclosures contained in the audited
financial statements for fiscal 2007 as reported in the Form 10-12G, have been
omitted.
Certain prior period numbers are reclassified to conform to current period
presentation.
NOTE 2. GOING CONCERN
Colony has been in the exploration stage since its formation and has not yet
realized any revenues from its planned operations. It is primarily engaged in
the acquisition, exploration and development of oil and gas properties. The
ability of the Company to emerge from the exploration stage with respect to its
principal business activity is dependent upon its successful efforts to raise
additional debt and/or equity financing and generate significant revenue. Colony
has incurred losses of $212,774 since inception. These factors raise substantial
doubt regarding Colony's ability to continue as a going concern.
Management plans to raise additional capital through equity and/or debt
financings. Colony cannot offer any assurances that it will be successful in
executing its plans to continue as a going concern. Colony's financial
statements at March 31, 2008 do not include any adjustments that might result
from the inability to continue as a going concern.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the audited financials statements and notes thereto contained in Colony's
Form 10-12G filed with SEC on March 6, 2008.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Colony Energy, Inc. is an early-stage, independent oil and gas exploration
and production company based in Houston, Texas. Our company was formed for the
purpose of providing video-on-demand service to consumers by means of broadband
or high-speed Internet connections. This business did not succeed, and our
company had been inactive from a business perspective since early 2001. During
the summer of 2006, we began considering the possible re-activation of
operations with a focus on the acquisition of attractive crude oil and natural
gas prospects, and the exploration, development and production of oil and gas on
these prospects. We entered into our first project related to oil and gas in
August 2007.
On August 29, 2007, we entered into an agreement (the "Enexco Agreement")
with Enexco, Inc. ("Enexco"), a privately held entity engaged in the drilling
and completion of wells on oil and gas leases covering lands located in Oklahoma
and Texas. Under the terms of the Enexco Agreement, we will make available, at
our discretion, to Enexco funds to cover 65% of the costs incurred by Enexco in
connection with its acquisition of three certain oil and gas leases, two in
Oklahoma and one in Texas. In consideration of our providing this financing, we
received an interest in each of the three leases, and an option to participate
in the drilling of each well on any of these leases. Before any well can be
drilled on any of these leases, Enexco must repay the amount loaned by us to
acquire the lease. We have acquired our only oil and gas assets thus far
pursuant to the Enexco Agreement, although we are currently seeking other assets
to acquire. The first well in which we participated pursuant to the Enexco
Agreement was drilled to its target depth and encountered the target sand.
However, the sand was "tight," and this well on the lease in Okfuskee County,
Oklahoma was plugged and abandoned. As of the date of this Quarterly Report,
the second well, located in Seminole County, Oklahoma and in which we are
participating pursuant to the Enexco Agreement, is awaiting fracture
stimulation. The results of this second well cannot now be determined.
There can be no assurance that we will be successful in our exploration,
development, and production activities. The oil and gas business involves
numerous risks, the principal ones of which are described in the section
captioned "Risk Factors" in our General Form for Registration of Securities on
Form 10.
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and related notes included elsewhere in this Report. In addition to
historical information, the discussion in this Report contains forward-looking
statements that involve risks and uncertainties. Actual results could differ
materially from those anticipated by these forward-looking statements due to
factors including, but not limited to, those factors set forth elsewhere in this
Report and in the section captioned "RISK FACTORS" in our General Form for
Registration of Securities on Form 10.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2008 Compared to the Quarter Ended March 31, 2007
-------------------------------------------------------------------------
We had minimal operations in the first quarter of 2008 consisting of the
continuation of the activation of our oil and gas exploration and production
activities. In first quarter of 2007, our activities were even more minimal as
we merely prepared to activate our exploration and production activities. We
had no revenues in either the first quarter of 2008 or the first quarter of
2007. In the first quarter of 2007, our only expenses consisted of $123 in
interest expense. In the first quarter of 2008, our largest expense was $73,339
in general and administrative expenses. Our interest expense in the first
quarter of 2008 increased to $13,089 as a result of a larger outstanding balance
of indebtedness. As a result of these two expenses, we experienced a $86,428
loss for the first quarter of 2008, or $.01 per share.
5
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2008, we had cash, cash equivalents and marketable securities of
approximately $85,551, representing a decrease of $50,617 versus cash of
$136,168 as of December 31, 2007.
We have already raised "seed" capital in the form of a loan in the amount
of approximately $525,000. The party who made this loan was CEI Ventures, LLC,
an entity owned by Kent E. Lovelace, Jr. (a director and an officer of ours),
the F.E.I. Energy Trust (a significant stockholder of ours), and Westside
Resources, L.P. ("WRLP"), an entity of which Jimmy D. Wright (a director of
ours) is the sole owner. The bulk of the proceeds of this loan went to fund our
obligations under the Enexco Agreement. This loan is secured by all of our
assets, including our oil and gas interests heretofore received in connection
with the Enexco Agreement, as well as all future oil and gas interests. Interest
accrues on this loan at a rate of 10% per annum. This loan can become due and
payable at any time upon the demand of the lender. In consideration of making
the loan, we granted warrants to the owners of CEI Ventures, LLC to purchase up
to an aggregate of 1,050,001 shares of our common stock for a per-share exercise
price of $.50. These warrants have a term of and are exercisable for five years.
In connection with this loan, we agreed to register all shares separately owned
by the owners of CEI Ventures, LLC or to be acquired pursuant to derivative
securities, including the shares to be acquired upon exercise of the warrants
issued in connection with the loans described above. In connection with this
loan, we entered into a "piggy back" registration rights agreements with the
owners of CEI Ventures, LLC, whereby each of them will have the right to include
in any registration with the U.S. Securities and Exchange Commission any and all
shares owned by them or to be acquired pursuant to derivative securities,
including the shares to be acquired upon exercise of the warrants issued in
connection with the loan described above.
Currently, we can finance only the limited exploration activity by the
Enexco Agreement described above. We will have to obtain additional financing
to pursue additional opportunities. At the present time, we are currently
trying to determine the scope of the business activities that we wish to pursue.
The amount of capital that we will need will depend on the scope of the business
activities that we ultimately decides to pursue, which is uncertain at this
time. However, for us to pursue business activities much greater than those
related to the Enexco Agreement, we would be required to undertake certain
financing activities. We currently do not have any binding commitments for, or
readily available sources of, additional financing. We cannot assure anyone
that additional financing will be available to us when needed or, if available,
that it can be obtained on commercially reasonably terms. If we do not obtain
additional financing we will not be able to expand the scope of our business or
even stay in business for that matter. If we are unable to obtain additional
funds, we may have to reduce the scope our business activities. If we do not
obtain additional financing, we may be constrained to attempt to sell our oil
and gas interests that we have accumulated. However, we cannot assure anyone
that we will be able to find interested buyers or that the funds received from
any such sale would be adequate to fund our activities. Under certain
circumstances, we could be forced to cease our operations and liquidate our
remaining assets, if any.
Production from our exploration and drilling efforts would provide us with
cash flow, and a proven reserve would increase the value of our leased rights
and should enable us to obtain bank financing (after the wells have produced for
a period of time to satisfy the related lender).
To conserve on our capital requirements, we intend occasionally to seek
other industry investors who are willing to participate in our exploration and
production activities. We expect to retain a promotional interest in these
prospects, but generally we will have to finance a portion (and sometimes a
significant portion) of the acquisition and drilling costs. Also, we may
acquire interests in properties by issuing shares of our common stock.
6
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion of our financial condition and results of operations is
based on the information reported in our financial statements. The preparation
of our financial statements requires us to make assumptions and estimates that
affect the reported amounts of assets, liabilities, revenues and expenses as
well as the disclosure of contingent assets and liabilities as of the date of
our financial statements. We base our assumptions and estimates on historical
experience and other sources that we believe to be reasonable at the time.
Actual results may vary from our estimates due to changes in circumstances,
weather, politics, global economics, mechanical problems, general business
conditions and other factors. Our significant accounting policies are detailed
in Note 3 to our financial statements included in this Quarterly Report. We
have outlined below certain of these policies that have particular importance to
the reporting of our financial condition and results of operations and that
require the application of significant judgment by our management.
KEY DEFINITIONS
----------------
Proved reserves, as defined by the SEC, are the estimated quantities of
crude oil, condensate, natural gas and natural gas liquids that geological and
engineering data demonstrate with reasonable certainty are recoverable in future
years from known reservoirs under existing economic and operating conditions.
Valuations include consideration of changes in existing prices provided only by
contractual arrangements, but not on escalations based upon future conditions.
Prices do not include the effect of derivative instruments, if any, entered into
by us.
Proved developed reserves are those reserves expected to be recovered
through existing equipment and operating methods. Additional oil and gas volumes
expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and mechanisms
of primary recovery are included as proved developed reserves only after testing
of a pilot project or after the operation of an installed program has confirmed
through production response that increased recovery will be achieved.
Proved undeveloped reserves are those reserves that are expected to be
recovered from new wells on non-drilled acreage, or from existing wells where a
relatively major expenditure is required for re-completion. Reserves on
non-drilled acreage are limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved reserves
for other non-drilled units are claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation.
USE OF ESTIMATES
------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
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.
OIL AND GAS PROPERTIES
-------------------------
We account for our oil and natural gas producing activities using the full
cost method of accounting as prescribed by the United States Securities and
Exchange Commission (SEC). Accordingly, all costs incurred in the acquisition,
exploration, and development of proved oil and natural gas properties, including
the costs of abandoned properties, dry holes, geophysical costs, and annual
lease rentals are capitalized. All general and administrative corporate costs
unrelated to drilling activities are expensed as incurred. Sales or other
dispositions of oil and natural gas properties are accounted for as adjustments
to capitalized costs, with no gain or loss recorded unless the ratio of cost to
proved reserves would significantly change. Depletion of evaluated oil and
natural gas properties is computed on the units of production method based on
proved reserves. The net capitalized costs of proved oil and natural gas
properties are subject to a full cost ceiling limitation in which the costs are
not allowed to exceed their related estimated future net revenues discounted at
10%, net of tax considerations. Costs associated with unevaluated properties
are excluded from the full cost pool until we have made a determination as to
the existence of proved reserves. We review our unevaluated properties at the
end of each quarter to determine whether the costs incurred should be
transferred to the full cost pool and thereby subject to amortization and
ceiling test.
7
ASSET RETIREMENT OBLIGATIONS
------------------------------
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). SFAS 143 requires that the fair value of an
asset retirement cost, and corresponding liability, should be recorded as part
of the cost of the related long-lived asset and subsequently allocated to
expense using a systematic and rational method.
REVENUE RECOGNITION
--------------------
We recognize oil and natural gas revenue under the sales method of
accounting for our interests in producing wells as oil and natural gas is
produced and sold from those wells.
PROVISIONS FOR TAXES
----------------------
We have adopted SFAS No. 109 "Accounting for Income Taxes". Pursuant to
this pronouncement, income taxes are accounted for using an asset and liability
approach. SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial statements and tax bases of assets and liabilities at the
applicable tax rates. A valuation allowance is utilized when it is more likely
than not, that some portion of, or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
FORWARD-LOOKING STATEMENTS
Statements in the preceding discussion relating to future plans,
projections, events, or conditions are forward-looking statements. Actual
results, including production growth and capital spending, could differ
materially due to changes in long-term oil or gas prices or other changes in
market conditions affecting the oil and gas industry; political events or
disturbances; severe weather events; reservoir performance; changes in OPEC
quotas; timely completion of development projects; changes in technical or
operating conditions; and other factors including those discussed herein and in
the section captioned "RISK FACTORS" in our General Form for Registration of
Securities on Form 10.
ITEM 4T. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Principal Executive Officer and Principal Financial Officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of
the period covered by this report, have concluded that, based on the evaluation
of these controls and procedures, that our disclosure controls and procedures
were not effective due to the lack of segregation of duties in financial
reporting, as our accounting functions are performed by one person with no
internal review, as our company does not have an audit committee. This is due to
the company's lack of working capital to hire additional staff. To remedy this,
we intend to engage another accountant to assist with financial reporting as
soon as our finances will allow.
CHANGE IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have not been any changes in our predecessors' internal controls over
financial reporting that occurred during the quarterly period ended March 31,
2008 that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.
8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not now a party to any legal proceeding requiring disclosure in
accordance with the rules of the U.S. Securities and Exchange Commission. In
the future, we may become involved in various legal proceedings from time to
time, either as a plaintiff or as a defendant, and either in or outside the
normal course of business. We are not now in a position to determine when (if
ever) such a legal proceeding may arise. If we ever become involved in such a
legal proceeding, our financial condition, operations, or cash flows could be
materially and adversely affected, depending on the facts and circumstances
relating to such proceeding.
ITEM 6. EXHIBITS
(a) The following exhibits are filed with this Quarterly Report or are
incorporated herein by reference:
Exhibit
Number Description
31.01 Certification pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934.
31.02 Certification pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934.
32.01 Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.02 Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COLONY ENERGY, INC.
(Registrant)
By: /s/ Kent E. Lovelace, Jr.
-------------------------
Kent E. Lovelace, Jr.,
Chief Executive Officer
(Principal Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)
June ___, 2008
Kent E. Lovelace, Jr.,
Chief Executive Officer
9