Nevada
|
41-1781991
|
|
(State
or other jurisdiction
|
(I.R.S.
employer identification no.)
|
|
of
incorporation or organization)
|
PART I. FINANCIAL INFORMATION |
Page
Number
|
||
ITEM
1. FINANCIAL
STATEMENTS
|
|||
|
|
|
|
Condensed
Consolidated Balance Sheets: September 30, 2006 (unaudited) and
June 30,
2006
|
3
|
||
Condensed
Consolidated Statements of Operations (unaudited): For the three
months
ended September 30, 2006 and 2005
|
4
|
||
Condensed
Consolidated Statements of Cash Flows (unaudited): For the three
months
ended September 30, 2006 and 2005
|
5
|
||
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
6
|
||
|
|||
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATIONS
|
11
|
||
|
|||
|
|||
ITEM
3. CONTROLS
AND PROCEDURES
|
15
|
||
|
|||
|
|||
PART
II. OTHER INFORMATION
|
|||
ITEM
1. LITIGATION
|
16
|
||
ITEM
6. EXHIBITS
|
16
|
||
SIGNATURES
|
17
|
Evolution
Petroleum Corporation and Subsidiaries
|
|||
Condensed
Consolidated Balance
Sheets
|
September
30,
2006
|
June
30,
2006
|
||||||
(unaudited)
|
|||||||
Assets
|
|||||||
Current
Assets:
|
|||||||
Cash
|
$
|
5,977,209
|
$
|
9,893,547
|
|||
Accounts
receivable, trade
|
350,367
|
132,371
|
|||||
Inventories
|
103,932
|
76,917
|
|||||
Prepaid
expenses
|
117,283
|
157,629
|
|||||
Retainers
and deposits
|
60,595
|
60,895
|
|||||
|
|
||||||
Total
current assets
|
6,609,386
|
10,321,359
|
|||||
Cash
in qualified intermediary account for "like-kind"
exchanges
|
34,983,588
|
34,662,368
|
|||||
Oil
& Gas properties - full cost
|
3,939,765
|
3,878,551
|
|||||
Oil
& Gas properties - not amortized
|
11,556
|
52,098
|
|||||
Less:
accumulated depletion
|
(432,172
|
)
|
(371,624
|
)
|
|||
|
|
||||||
Net
oil & gas properties
|
3,519,149
|
3,559,025
|
|||||
Furniture,
fixtures and equipment, at cost
|
20,041
|
16,561
|
|||||
Less:
accumulated depreciation
|
(9,320
|
)
|
(7,998
|
)
|
|||
Net
furniture, fixtures, and equipment
|
10,721
|
8,563
|
|||||
Restricted
deposits
|
326,835
|
326,835
|
|||||
Other
assets
|
78,235
|
79,808
|
|||||
|
|
||||||
Total
assets
|
$
|
45,527,914
|
$
|
48,957,958
|
|||
|
|
||||||
Liabilities
and Stockholders' Equity
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
241,849
|
$
|
310,272
|
|||
Accrued
liabilities
|
99,840
|
473,782
|
|||||
Income
taxes payable
|
-
|
2,978,650
|
|||||
Royalties
payable
|
11,092
|
47,054
|
|||||
|
|
||||||
Total
current liabilities
|
352,781
|
3,809,758
|
|||||
Long
term liabilities:
|
|||||||
Deferred
income taxes payable
|
13,101,350
|
13,101,350
|
|||||
Asset
retirement obligations
|
127,798
|
123,679
|
|||||
|
|
||||||
Total
liabilities
|
13,581,929
|
17,034,787
|
|||||
Common
Stock, totaling 351,333 shares subject to demand registration rights
|
790,500
|
790,500
|
|||||
Stockholders'
equity:
|
|||||||
Common
Stock, par value $0.001 per share; 100,000,000 shares authorized,
|
|
|
|||||
26,300,664
and 26,300,664, issued and outstanding as of September 30, 2006 and
|
|||||||
June
30, 2006, respectively, net of 351,333 shares of common stock subject
to
|
|||||||
demand
registration rights
|
26,300
|
26,300
|
|||||
Additional
paid-in capital
|
10,267,532
|
10,274,555
|
|||||
Deferred
stock based compensation
|
224,706
|
(265,167
|
)
|
||||
Retained
earnings
|
20,636,947
|
21,096,983
|
|||||
|
|
||||||
Total
stockholders' equity
|
31,155,485
|
31,132,671
|
|||||
Total
liabilities and stockholders' equity
|
$
|
45,527,914
|
$
|
48,957,958
|
|||
|
|
||||||
See
accompanying notes to condensed consolidated financial
statements.
|
Condensed
Consolidated Statements of Operations
|
||||||||||
(unaudited)
|
Three
Months
Ended
September
30,
|
Three
Months
Ended
September
30,
|
||||||
2006
|
2005
|
||||||
Revenues:
|
|||||||
Oil
sales
|
$
|
469,024
|
$
|
486,395
|
|||
Gas
sales
|
-
|
57,933
|
|||||
Price
risk management activities
|
(14
|
)
|
(1,444
|
)
|
|||
|
|
||||||
Total
revenues
|
469,010
|
542,884
|
|||||
Operating
Costs:
|
|||||||
Production
expenses
|
324,119
|
464,190
|
|||||
Production
taxes
|
34,660
|
14,484
|
|||||
Depreciation,
depletion and amortization
|
61,871
|
77,250
|
|||||
General
and administrative (includes $489,873 and
$113,074 of non-cash stock based compensation for the three months
ended
September 30, 2006 and 2005, respectively)
|
1,039,192
|
584,278
|
|||||
|
|
||||||
Total
operating costs
|
1,459,842
|
1,140,202
|
|||||
Loss
from operations
|
(990,832
|
)
|
(597,318
|
)
|
|||
Other
income and expenses:
|
|||||||
Interest
income
|
530,796
|
18,937
|
|||||
Interest
expense
|
-
|
(221,678
|
)
|
||||
|
|
||||||
Total
other income and expenses
|
530,796
|
(202,741
|
)
|
||||
|
|
||||||
Net
loss
|
(460,036
|
)
|
(800,059
|
)
|
|||
|
|
||||||
Loss
per common share
|
|||||||
Basic
and Diluted
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
|
Weighted
average number of common shares
|
|||||||
Basic
and Diluted
|
26,651,999
|
24,777,056
|
Three
Months
|
Three
Months
|
||||||
Ended
September 30,
|
Ended
September 30,
|
||||||
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(460,036
|
)
|
$
|
(800,059
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|||||||
used
by operating activities:
|
|||||||
Depletion
|
60,548
|
75,905
|
|||||
Depreciation
|
1,322
|
1,345
|
|||||
Non-cash
stock based compensation expense
|
489,873
|
113,074
|
|||||
Accretion
of asset retirement obligations
|
4,119
|
6,901
|
|||||
Accretion
of debt discount and non-cash loan costs
|
-
|
80,315
|
|||||
Changes
in assets and liabilities:
|
|||||||
Accounts
receivable
|
(217,996
|
)
|
118,799
|
||||
Inventories
|
(27,015
|
)
|
(266,719
|
)
|
|||
Accounts
payable
|
(68,423
|
)
|
118,889
|
||||
Royalties
payable
|
(35,962
|
)
|
(6,375
|
)
|
|||
Accrued
liabilities
|
(352,592
|
)
|
(37,938
|
)
|
|||
Income
taxes payable
|
(3,000,000
|
)
|
-
|
||||
Prepaid
expenses
|
40,346
|
42,087
|
|||||
Net
cash used by operating activities
|
(3,565,816
|
)
|
(553,776
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Development
of oil and gas properties
|
(74,996
|
)
|
(260,301
|
)
|
|||
Acquisitions
of oil and gas properties
|
(101,054
|
)
|
- | ||||
Proceeds
from asset sale, net
|
155,378
|
-
|
|||||
Capital
expenditures for furniture, fixtures and equipment
|
(3,480
|
)
|
(2,571
|
)
|
|||
Cash
in qualified intermediary account for "like-kind"
exchanges
|
(321,220
|
)
|
-
|
||||
Retainer
and deposits
|
300
|
(1,056
|
)
|
||||
Other
assets
|
1,573
|
2,976
|
|||||
Net
cash used in investing activities
|
(343,499
|
)
|
(260,952
|
)
|
|||
Cash
flow from financing activities:
|
|||||||
Payments
on notes payable
|
-
|
(6,754
|
)
|
||||
Proceeds
from issuance of common stock
|
-
|
231
|
|||||
Equity
and transaction costs
|
(7,023
|
)
|
-
|
||||
Net
cash used by financing activities
|
(7,023
|
)
|
(6,523
|
)
|
|||
Net
decrease in cash and cash equivalents
|
(3,916,338
|
)
|
(821,251
|
)
|
|||
Cash
and cash equivalents, beginning of period
|
9,893,547
|
2,548,688
|
|||||
Cash
and cash equivalents, end of period
|
$
|
5,977,209
|
$
|
1,727,437
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Interest
paid
|
$
|
-
|
$
|
141,365
|
|||
Income
taxes paid
|
$
|
3,000,000
|
$
|
-
|
Three
Months
Ended
September
30,
|
|||||||
2006
|
2005
|
||||||
Numerator:
|
|||||||
Net
loss applicable to common stockholders
|
$
|
(460,036
|
)
|
$
|
(800,059
|
)
|
|
Plus
income impact of assumed conversions:
|
|||||||
Preferred
stock dividends
|
N/A
|
N/A
|
|||||
Interest
on convertible subordinated notes
|
N/A
|
N/A
|
|||||
Net
loss applicable to common stockholders plus assumed
conversions
|
$
|
(460,036
|
)
|
$
|
(800,059
|
)
|
|
Denominator:
|
26,651,999
|
24,777,056
|
|||||
Affect
of potentially dilutive common shares:
|
|||||||
Warrants
|
N/A
|
N/A
|
|||||
Employee
and director stock options
|
N/A
|
N/A
|
|||||
Convertible
preferred stock
|
N/A
|
N/A
|
|||||
Convertible
subordinated notes
|
N/A
|
N/A
|
|||||
Redeemable
preferred stock
|
N/A
|
N/A
|
|||||
Denominator
for dilutive earnings per share - weighted average shares
|
26,651,999
|
24,777,056
|
|||||
Loss
per common share:
|
|||||||
Basic
and diluted
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
Three
Months
Ended
September
30,
2005
|
||||
Net
loss available to common shareholders, as reported
|
$
|
(800,059
|
)
|
|
Add:
Total stock based employee compensation benefit reported in net loss,
net
of related tax effects
|
42,884
|
|||
Deduct:
Total stock based employee compensation benefit determined under
fair
value of all awards, net of related tax effects
|
(256,357
|
)
|
||
Pro
forma net loss
|
$
|
(1,013,532
|
)
|
|
|
||||
Per
share data:
|
||||
basic
and diluted, as reported
|
$
|
(0.03
|
)
|
|
basic
and diluted, pro forma
|
$
|
(0.04
|
)
|
Number
of Options and Warrants
|
Weighted
Average Grant Price
|
Aggregate
Intrinsic Value (1)
|
Weighted
Average Remaining Contractual Term (in years)
|
||||||||||
Options/warrants
outstanding at July 1, 2005
|
2,487,500
|
$
|
1.38
|
||||||||||
Granted
|
1,311,000
|
$
|
1.70
|
||||||||||
Exercised
|
0
|
-
|
|||||||||||
Canceled,
forfeited, or expired
|
0
|
-
|
|||||||||||
Options/warrants
outstanding at June 30, 2006
|
3,798,500
|
$
|
1.49
|
||||||||||
Granted
|
0
|
-
|
|||||||||||
Exercised
|
0
|
-
|
|||||||||||
Canceled,
forfeited, or expired
|
0
|
-
|
|||||||||||
Options/warrants
outstanding at September 30, 2006
|
3,798,500
|
$
|
1.49
|
$
|
5,213,065
|
8.6
|
|||||||
Options/warrants
exercisable at September 30, 2006
|
1,746,625
|
$
|
1.33
|
$
|
2,727,084
|
8.4
|
Non-vested
Stock Options and Warrants
|
Number
of Options and Warrants
|
Weighted
Grant-Date Fair Value
|
|||||
Non-vested
at July 1, 2006
|
2,335,532
|
$
|
1.66
|
||||
Granted
|
0
|
||||||
Vested
|
(283,657
|
)
|
|||||
Canceled,
forfeited, or expired
|
0
|
||||||
Non-vested
at September 30, 2006
|
2,051,875
|
$
|
1.69
|
(i) |
2,100
Bbls of oil to be delivered monthly from March 2005 through February
2006
to Plains Oil Marketing LLC, at $48.35 per barrel, plus or minus
changes
in basis between: (a) the arithmetic daily average of the prompt
month
“Light Sweet Crude Oil” contract reported by the New York Mercantile
Exchange, and (b) Louisiana field posted price. This is accounted
for as a
normal delivery sales contract. This contract was extended for the
months
of March 2006 through May 2006 for 70 Bbls of oil per day at a fixed
price
of $52.55 per barrel of oil, and extended again for the months of
June
2006 through August 2006 for 90 Bbls of oil per day at a fixed price
$63.45 per barrel of oil. Lastly, on January 27, 2006 we extended
our
crude oil contracts with Plains Oil Marketing, LLC for an additional
six
months, covering the periods September 2006 through February 2007.
The
contract requires us to deliver 90 Bbls of oil per day, in exchange
for a
fixed price of $69.30 per Bbl, plus or minus NYMEX to posted field
price
basis risk.
|
(ii) |
100
Mcfd of natural gas at a fixed price of $6.21, delivered through
our Delhi
Field sales tap into Gulf South’s pipeline, for the account of Texla for
deliveries from March 2005 to May 2006. This is accounted for as
a normal
delivery sales contract.
|
(iii) |
Purchase
of a non-physical Put contract at $38.00 per barrel for 2,000 Bbls
of
crude oil production from March 2006 through February 2007. This
is
accounted for as a “mark-to-market” derivative investment. For the three
months ended September 30, 2006, $14 was expensed to reflect the
changes
in the market value of the Put from June 30, 2006 to September 30,
2006.
|
Asset
retirement obligation at June 30, 2006
|
$
|
123,679
|
||
Liabilities
incurred
|
-
|
|||
Liabilities
settled
|
-
|
|||
Accretion
expense
|
4,119
|
|||
Asset
retirement obligation at September 30, 2006
|
$
|
127,798
|
||
|
I |
Enhanced
oil recovery (EOR) projects in mature oil
reservoirs;
|
II |
Redevelopment
of mature oil and gas fields using modern and/or proprietary technology;
and
|
III |
Development
of low permeability resource plays using modern stimulation and completion
technologies, including horizontal
drilling.
|
· |
Reduced
exposure to the risk of whether resources are
present;
|
· |
Reduced
capital expenditures per net BOE for infrastructure, such as roads,
water
handling facilities and pipelines;
|
· |
Large
inventory of development opportunities, which provides a more predictable
future stream of drilling activity and production, as well as potentially
reducing risks from short-term oil and gas price
volatility;
|
· |
Reduced
operational risks and costs associated with lower pressures and lower
temperatures; and
|
· |
Control
of operations, development timing and technology
selection.
|
· |
We
received $50 million in cash at
closing.
|
· |
We
conveyed 100% of the working interests in the Delhi Holt Bryant Unit
to
Denbury Resources, retaining a 25% back-in working interest after
a $200
million simple payout, excluding capital
expenditures.
|
· |
We
retained separate override and mineral royalty interests equal to
7.4% on
all future production from the Delhi Holt Bryant
Unit.
|
· |
We
retained a 25% working interest in certain other depths in the Delhi
Field.
|
· |
We
received a commitment by Denbury Resources to install a CO2 enhanced
oil
recovery project, at Denbury’s sole capital cost and expense, subject to
financial penalties of up to $36 million for Denbury’s failure to expend
$100 million over six and one-half years, with yearly cumulative
benchmarks beginning with the period ending December 31, 2007.
|
· |
Initiative
II opportunities related to our Tullos
Field.
|
· |
Initiative
III coal bed methane opportunities related to our Delhi
Field.
|
· |
A
number of additional projects spanning these Initiatives.
|
Three
Months Ended
|
|||||||||||||
September
30,
|
|||||||||||||
2006
|
2005
|
Variance
|
%
change
|
||||||||||
Sales
Volumes, net to EPM:
|
|||||||||||||
Oil
(Bbl)
|
7,694
|
8,966
|
(1,272
|
)
|
-14
|
%
|
|||||||
Gas
(Mcf)
|
0
|
9,852
|
(9,852
|
)
|
-100
|
%
|
|||||||
Oil
and Gas (Boe)
|
7,694
|
10,608
|
(2,914
|
)
|
-27
|
%
|
|||||||
Revenue
data (a):
|
|||||||||||||
Oil
revenue
|
$
|
469,010
|
$
|
484,951
|
$
|
(15,941
|
)
|
-3
|
%
|
||||
Gas
revenue
|
0
|
57,933
|
(57,933
|
)
|
-100
|
%
|
|||||||
Total
oil and gas revenues
|
$
|
469,010
|
$
|
542,884
|
$
|
(73,874
|
)
|
-14
|
%
|
||||
Average
prices (a):
|
|||||||||||||
Oil
(per Bbl)
|
$
|
60.95
|
$
|
54.09
|
$
|
6.86
|
13
|
%
|
|||||
Gas
(per Mcf)
|
0
|
5.88
|
(5.88
|
)
|
-100
|
%
|
|||||||
Oil
and Gas (per Boe)
|
$
|
60.95
|
$
|
51.18
|
$
|
9.77
|
19
|
%
|
|||||
Expenses
(per Boe)
|
|||||||||||||
Lease
operating expenses and production taxes
|
$
|
46.63
|
$
|
45.12
|
$
|
1.51
|
3
|
%
|
|||||
Depletion
expense on oil and gas properties
|
$
|
7.87
|
$
|
7.16
|
$
|
0.71
|
10
|
%
|
|||||
A. |
Exhibits
|
31.1 |
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
|
31.2 |
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
|
32.1 |
Certification
of Chief Executive Officer pursuant Rule 13a-14(b) or Rule 15d-14(b)
under
the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section
1350.
|
32.2 |
Certification
of Chief Financial Officer pursuant Rule 13a-14(b) or Rule 15d-14(b)
under
the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section
1350.
|
|
|
|
Date: November 13, 2006 | By: | /s/ STERLING H. MCDONALD |
Sterling H. McDonald
Chief Financial Officer
Principal
Financial and Accounting Officer
|
||
Date: November 13, 2006 | /s / ROBERT S. HERLIN | |||
Robert
S. Herlin
Chief
Executive Officer
|
||||
Date: November 13, 2006 | /s/ STERLING H. MCDONALD | |||
Sterling
H. McDonald
Chief
Financial Officer
|
||||
/s / ROBERT S. HERLIN | ||||
Robert
S. Herlin
Chief
Executive Officer
|
||||
/s / STERLING H. MCDONALD | ||||
Sterling
H. McDonald
Chief Financial
Officer
|
||||