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| COGL.OB > SEC Filings for COGL.OB > Form 10-Q on 13-Nov-2008 | All Recent SEC Filings |
13-Nov-2008
Quarterly Report
Forward-Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited interim financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our Company's audited financial statements and 10-KSB for the year ended December 31, 2007 and unaudited interim financial statements and the related notes that appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all references to "common shares" refer to common shares in the capital of our Company and the terms "we", "us" and "our" mean Cheetah Oil & Gas Ltd.
Overview
We are a Nevada corporation incorporated on May 5, 1992. We are an exploration stage oil and gas company engaged in the exploration for petroleum and natural gas in the country of Papua New Guinea through our ten percent equity interest in Cheetah Oil & Gas B.C. Ltd. ("Cheetah BC"). We were previously intending to enter into the businesses of a technology venture finance company to organize, capitalize, acquire and finance technology companies, and subsequent to that attempted to acquire certain resource leases in the Raton Basin. Due to the inability to run these businesses with a profit, the default on the obligations of certain parties and the difficulty in attracting additional capital on terms favorable to existing shareholders, our previous management ceased operation of all prior businesses in 2002.
We currently hold a ten percent equity interest in Cheetah BC. Cheetah BC currently holds five petroleum prospecting licences and one petroleum retention licence in Papua New Guinea covering approximately 8.3 million acres. PRL 13, PPL 246 and PPL 250 are located in South-Central of Papua New Guinea and PPL 245, PPL 249 and PPL 252 are located along the Northern Coast.
Cash Requirements
We are an exploration stage oil and gas company engaged in the exploration for petroleum and natural gas. We currently hold a 10% equity interest in Cheetah BC, an exploration stage oil and gas company engaged in the exploration for petroleum and natural gas in the country of Papua New Guinea.
Our Company has a limited operating history and is considered to be in the exploration stage. The success of our Company is significantly dependent on a successful drilling, completion and production program by our partner Invicta Oil & Gas Ltd. (Invicta). On March 28, 2008, Invicta changed its name to LNG Energy Ltd.
In order to maintain our 10% equity interest in Cheetah BC, we anticipate that we will require a minimum of $500,000 to fund estimated working capital for the next 12 months. To this end, we entered into an agreement with
Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
Stock Based Compensation
The Company account for our stock options in accordance with FAS 123 (R) - Share Based Payment, and related interpretations in accounting for stock-based compensation awards to employees, directors and non-employees. In accordance with FAS 123 (R) - Share Based Payments, the Company recognizes stock-based compensation expense based on the fair value of the stock options on the date of grant. The fair value of the stock options at the date of grant is amortized over the vesting period, with the offsetting credit to additional paid in capital. If the stock options are exercised, the proceeds are credited to share capital.
Going Concern
Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We incurred a net loss of $256,142 for the nine month period ended September 30, 2008 [2007 - $8,669,225] and at September 30, 2008 had a deficit accumulated during the exploration stage of $14,491,507 [December 31, 2007 - $14,235,365]. We have not generated any revenue, have a substantial accumulated deficit and negative working capital of $393,432 as at September 30, 2008. We require additional funds to maintain our existing operations and to acquire new business assets. These conditions raise substantial doubt about our ability to continue as a going concern. Management's plans in this regard are to raise equity and debt financing as required, but there is no certainty that such financing would be available or that it would be available at acceptable terms. Should we be unsuccessful in obtaining further debt or equity financing in the near future, we may have to sell off our remaining 10% equity interest in Cheetah BC. The outcome of these matters cannot be predicted at this time.
On March 12, 2008, the Company entered into a demand loan agreement with Invicta whereby Invicta agreed to advance up to $500,000 in tranches to our Company by way of a working capital loan.
These financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Results of Operations - Nine Months Ended September 30, 2008 and 2007
The following summary of our results of operations should be read in conjunction with our financial statements for the three and nine month periods ended September 30, 2008 which are included herein.
Our net loss and comprehensive loss for the three months ended September 30, 2008, for the three months ended September 30, 2007 and the changes between those periods for the respective items are summarized as follows:
Three Months Ended Three Months Ended Change Between
September 30, September 30, Three Month
2008 2007 Period
$ $ Ended
September 30,
2008
and September
30, 2007
$
Legal, accounting and audit (13,296) (51,623) 38,327
General and administrative (3,264) (132,279) 129,015
Consulting fees (24,181) (82,149) 57,968
Interest and accretion (8,322) (744,562) 736,240
Impairment of oil & gas - (566,888) 566,888
properties
Impairment of goodwill - - -
Unrealized gains (loss) on 20,000 80,000 (60,000)
warrants
Foreign exchange gain (loss) 4,208 (24,031) 28,239
Income Taxes recovery - - - -
deferred
Other Income - 790 (790)
Net loss and comprehensive (24,855) (1,520,742) 1,495,887
loss for the period
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Revenues
We have had no operating revenues since our inception on May 5, 1992 through to the period ended September 30, 2008. We anticipate that we will not generate any revenues for so long as we are an exploration stage company.
General and Administrative
The decrease in our general and administrative expenses for the three months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC and the retirement of the convertible notes payable to Macquarie Holdings (USA) Inc. ("Macquarie").
Accounting, Audit and Legal
The decrease in accounting, audit and legal fees for the three months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC and the retirement of the convertible notes payable to Macquarie.
Consulting Fees
The decrease in consulting fees for the three months ended September 30, 2008 was due to a decrease in payments to the directors. During the period ending September 30, 2008 only two directors received monthly fees.
Interest and Accretion
The decrease in interest and accretion for the three months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC and the retirement of the convertible notes payable to Macquarie.
Foreign Exchange Gain (loss)
The decrease in foreign exchange loss for the three months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC.
The change in unrealized gains (loss) on the warrants for the three months ended September 30, 2008 was due to the shorter period of time when the warrants expire, increase in the rate of volatility and the decrease in the stock price.
Operating Activities
Net cash used in operating activities was $39,972 for the three months ended September 30, 2008 compared with cash used in operating activities of $193,283 in the same period in 2007. The decrease of $153,311 in operating activities is mainly attributable to the dilution of 90% ownership of Cheetah BC. As a result of this transaction the Company now only holds a 10% equity investment in Cheetah BC and, as a result, the scale of the Company's operations, as well as costs associated with such operations, has been significantly reduced.
Investing Activities
Net cash used in investing activities was $Nil in the three months ended September 30, 2008 compared to net cash provided by investing activities of $57,901 in the same period in 2007 was mainly attributable to the dilution of 90% ownership of Cheetah BC. As a result of this transaction the Company now only holds a 10% equity investment in Cheetah BC and, as a result the scale of the Company's operations, as well as costs associated with such operations, has been significantly reduced.
Financing Activities
Net cash used in financing activities was $Nil in the three months ended September 30, 2008 compared to $154,181 in the same period in 2007, an decrease of $154,181. This is mainly attributable to $156,000 in advances received.
Nine months Ended September 30, 2008 and 2007
Our net loss and comprehensive loss for the nine months ended September 30, 2008, for the nine months ended September 30, 2007 and the changes between those periods for the respective items are summarized as follows:
Nine months Ended Nine months Ended Change Between
September 30, September 30, Nine Month Period
2008 2007 Ended
$ $ September 30, 2008
and September 30, 2007
$
Legal, accounting and (109,220) (305,849) 196,629
audit
General and (7,697) (1,238,067) 1,230,370
administrative
Consulting fees (102,150) (224,292) 122,142
Interest and accretion (17,596) (2,054,864) 2,037,268
Impairment of oil & gas - (5,648,089) 5,648,089
properties
Impairment of goodwill - (497,000) 497,000
Unrealized gains (loss) (23,000) 58,041 (81,041)
on warrants
Foreign exchange gain 3,521 (143,276) 146,797
(loss)
Other Income - 6,171 (6,171)
Income Taxes recovery - - 1,378,000 (1,378,000)
deferred
Net loss and (256,142) (8,669,225) 8,413,083
comprehensive loss for
the period
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The decrease in our general and administrative expenses for the nine months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC and the retirement of the convertible notes payable to Macquarie.
Accounting, Audit and Legal
The decrease in accounting, audit and legal fees for the nine months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC and the retirement of the convertible notes payable to Macquarie.
Consulting Fees
The decrease in consulting fees for the nine months ended September 30, 2008 was due to a decrease in payments due to the directors. During the period ending September 30, 2008 only two directors received monthly fees to May 31, 2008 and only one director received monthly fees for June and July, 2008. Two directors received monthly fees during August and September 2008.
Interest and Accretion
The decrease in interest and accretion for the nine months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC and the retirement of the convertible notes payable to Macquarie.
Foreign Exchange Gain (loss)
The decrease in foreign exchange loss for the nine months ended September 30, 2008 was due to the transaction for the dilution of 90% ownership of Cheetah BC.
Unrealized gains (loss) on warrants
The change in unrealized gains (loss) on the warrants for the nine months ended September 30, 2008 was due to the shorter period of time when the warrants expire, increase in the rate of volatility and the decrease in the stock price.
Liquidity and Financial Condition
Working Capital
At
September At
30, December 31,
2008 2007
Current assets $ 386,199 $ 2,267,650
Current liabilities 779,631 2,473,332
Working capital $ (393,432 ) $ (205,682 )
Cash Flows
Nine Months Ended
September September
30, 30,
2008 2007
Cash flows used in operating activities $ (281,226 ) (636,457 )
Cash flows used in investing activities - (388,445 )
Cash flows provided by financing activities 289,080 1,048,649
Net increase in cash during period $ 7,854 23,747
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Net cash used in operating activities was $281,226 for the nine months ended September 30, 2008 compared with cash used in operating activities of $636,457 in the same period in 2007. The decrease of $355,231 in operating activities is mainly attributable to the dilution of 90% ownership of Cheetah BC. As a result of this transaction the Company now only holds a 10% equity investment in Cheetah BC and, as a result, the scale of the Company's operations, as well as costs associated with such operations, has been significantly reduced.
Investing Activities
Net cash used in investing activities was $Nil in the nine months ended September 30, 2008 compared to net cash provided by investing activities of $388,445 in the same period in 2007 was mainly attributable to the dilution of 90% ownership of Cheetah BC. As a result of this transaction the Company now only holds a 10% equity investment in Cheetah BC and, as a result, the scale of the Company's operations, as well as costs associated with such operations has been significantly reduced.
Financing Activities
Net cash from financing activities was $289,080 in the nine months ended September 30, 2008 compared to $1,048,649 in the same period in 2007 was mainly attributable to the decrease in advances received.
Contractual Obligations
As a "smaller reporting company", we are not required to provide tabular disclosure obligations.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Recently Issued Accounting Standards
In March 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133". SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. We are currently evaluating the impact of SFAS No. 161 on our financial statements, however, the adoption of this statement is not expected to have a material effect on our financial statements.
Changes in Accounting Policies
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.
º Level 1 - Quoted prices for identical instruments in active markets;
º Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
º Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value. The fair value of the warrants using a black-scholes model, using the following inputs at September 30, 2008 was as follows:
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets Significant Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
Total (Level 1 ) (Level 2 ) (Level 3 )
$ 39,000 $ - $ 39,000 $ -
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The provisions of SFAS 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007.
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115". This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, "Fair Value Measurements". The adoption of SFAS No. 159 did not have a material effect on our financial statements.
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