Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
1.
Description of Business
Wentworth Energy, Inc. (“Wentworth” or the “Company”) is engaged in oil and natural gas drilling, development and production. The Company operates two business segments, drilling operations and oil and gas production. Management reviews and evaluates operations of the two business segments separately.
Drilling operations are conducted by Barnico Drilling, Inc., (“Barnico”), a wholly owned subsidiary of Wentworth. Barnico engages in land contract drilling of oil and natural gas wells to maximum depths of approximately 8,000 feet. Until such time as the Company has the capital and is prepared to utilize the rigs on its own properties, Barnico is actively seeking third party contract drilling opportunities for use of its drilling rigs and crews. As of July 2007, Barnico had entered into a third party contract to drill two wells, with the potential of drilling two additional wells. Despite this recent contract, management anticipates the demand for contract drilling services may decline over the next 12 months because (a) certain drilling contracts in the market may require drilling rigs capable of drilling wells which are beyond the capabilities of Barnico’s rigs and (b) there are more drilling competitors in East Texas counties. Consequently, there can be no assurance that Barnico will continue to be able to deploy its drilling rigs and crew in the future.
The oil and gas production segment is engaged in the development, acquisition and production of oil and natural gas properties. Wentworth currently has oil and gas interests in Anderson, Freestone, Jones, Leon and Polk Counties, Texas. The Company’s strategy is to develop low risk, high probability shallow wells on its properties and lease out deeper zones of its properties for royalty interests.
General
The accompanying unaudited Interim Consolidated Financial Statements as of and for the three and six months ended June 30, 2007 and 2006 have been prepared by management, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These unaudited Interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006.
In the opinion of management, all adjustments which are of a normal and recurring nature and are necessary for a fair presentation of the financial position, results of operations, and cash flows as of June 30, 2007 and December 31, 2006 and for the three and six months ended June 30, 2007 and 2006 have been made. Results of operations for the three and six months ended June 30, 2007 and 2006 are not necessarily indicative of results of operations to be expected for the entire year or any other period.
7
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
2.
Significant Accounting Policies
a) Going concern
The accompanying Interim Consolidated Financial Statements have been prepared on the basis of accounting principles applicable to a going concern. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and retire its liabilities in other than the normal course of business and at amounts different from those in the accompanying financial statements. However, the Company has incurred significant losses from operations and is currently in default on its debt. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon achieving profitable operations and the successful restructuring or refinancing of the current senior secured convertible notes (the “convertible notes”) and convertible debentures. The Company is currently engaged in negotiation with the senior secured convertible noteholders (“convertible noteholders”) regarding the restructuring or refinancing of the convertible notes. Simultaneously, discussions are underway with potential lenders and investors to secure sufficient funds to refinance the existing convertible notes and convertible debentures, and provide working capital to continue developing the Company’s existing properties. However, between August 8 and August 13, 2007, the trustee under the deeds of trust securing the Company’s obligations under the convertible notes filed notices of foreclosure sale in the several Texas counties in which the Company’s oil and gas properties are located. The notices specify a foreclosure sale date of September 4, 2007. The Company has not yet been able to reach a mutually satisfactory agreement with the convertible noteholders on restructuring or refinancing the convertible notes, nor has the Company yet been able to secure sufficient funding from a third party lender or investor. If the Company cannot successfully restructure or refinance the existing convertible notes and convertible debentures prior to the scheduled foreclosure date, then the Company will be unable to continue as a going concern and will likely need to file for protection under the federal bankruptcy laws.
b)
Consolidation
The Interim Consolidated Financial Statements include the accounts of the Company and its two wholly-owned subsidiaries, Barnico and Wentworth Oil and Gas, Inc. Wentworth Oil and Gas, Inc. is dormant but has not yet been dissolved. All significant inter-company transactions have been eliminated in consolidation.
Interests in oil and natural gas properties of the Company and its subsidiaries are undivided interests and related assets, liabilities, revenue and expenses are accounted for on a proportionate gross basis.
c)
Deferred finance costs
Finance costs with respect to the 10% convertible debentures totaling $0.3 million were recorded January 12, 2006, and are being expensed using the interest method over the remaining months until maturity of the debentures on January 11, 2009. The Company also recorded a discount for the convertible debentures, as described in Note 5. Amortization expense through June 30, 2007 was approximately $35,000.
Finance costs with respect to the 9.15%
senor secured convertible notes totaling $11.3 million were recorded July 25, 2006 and are being expensed using the interest method over the remaining months until maturity of the notes in July 2009. The Company also recorded a discount for the notes as described in Note 6. Amortization expense through June 30, 2007 was approximately $1.48 million.
8
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
2.
Significant Accounting Policies (continued)
d)
Restricted Cash
In November 2006, the Company leased certain of its oil and gas interests. Under its agreements with the convertible noteholders, the proceeds were to be deposited in, and held in an escrow account. For this reason, the proceeds were treated as restricted funds and reflected in long-term assets in the Interim Consolidated Balance Sheets. The escrow account had not been established at the time the transaction closed, and these proceeds were therefore deposited into the Company’s general operating account. As a result, the Company may not be in compliance with the escrow agreement and convertible notes. Although the funds were classified for accounting purposes as restricted funds, they remain within the Company’s control in that operating account. The Company has used these funds for ongoing operations. The remaining cash balance is classified as Restricted on the Company’s Interim Consolidated Balance Sheet.
e)
Earnings (loss) per share
Basic earnings (loss) per share have been calculated based on the weighted average number of common shares outstanding during the period. The Company uses the treasury stock method of calculating fully diluted per share amounts whereby any proceeds from the exercise of stock options or other dilutive instruments are assumed to be used to purchase common shares at the average market price during the period. The dilutive effect of convertible securities is reflected in diluted earnings (loss) per share by application of the if-converted method. Under this method, conversion shall not be assumed for the purposes of computing diluted loss per share if the effect would be anti-dilutive. For the three and six months ended June 30, 2007, the Company had approximately 25,271,399 and 25,085,532 potentially dilutive shares, respectively, which are included in the calculation of earnings per share. The Company also had 98,536,201 potential dilutive shares for the three and six months ended June 30, 2007, not included in the dilutive calculation because they were antidilutive. For the three and six months ended June 30, 2007, presentation of basic and diluted earnings per share will be presented separately. For the three and six months ended June 30, 2006, the diluted loss per share is the same as basic loss per share, because the effect of common stock equivalents is anti-dilutive.
f)
Income taxes
Income taxes are computed using the asset and liability method of accounting in accordance with SFAS No. 109, “Accounting for Income Taxes.” A deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not such benefits will be realized. The Company’s deferred tax assets were fully reserved at June 30, 2007 and December 31, 2006.
Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109,” or FIN 48. FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. Upon the adoption of FIN 48, the Company had no unrecognized tax benefits. During the first quarter of 2007, the Company recognized no adjustments for uncertain tax benefits.
9
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
2.
Significant Accounting Policies (continued)
f)
Income taxes (continued)
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were accrued at June 30, 2007.
The tax years 2004 through 2006 remain open to examination by the major taxing jurisdictions in which the Company operates. Management expects no material changes to unrecognized tax positions within the next twelve months.
3.
Oil and Gas Properties
Anderson, Freestone and Jones Counties, Texas (P.D.C. Ball Properties)
In July 2006, the Company purchased a 90% undivided interest in the oil and natural gas fee mineral rights covering 27,557 gross acres (22,682 net acres) in Anderson, Freestone and Jones Counties, Texas (known as “the P.D.C. Ball property”) for $31.1 million which included cash and issuance of Wentworth’s stock. Total capitalized costs at June 30, 2007, net of proceeds from leasing, increased to $30.4 million from $28.9 million at December 31, 2006, and included acquisition, exploration and developmental costs.
Freestone County, Texas (Brackens Well 1)
On September 11, 2006, Wentworth acquired from an unrelated party an oil and gas lease for approximately 193 acres adjacent to the P.D.C. Ball property in Freestone County, Texas. Wentworth drilled a well (“Brackens Well 1”) on the property, and on February 19, 2007, it began production of natural gas. Wentworth has a 100% working interest and a 76.25% net revenue interest in the Brackens Well 1 and Wentworth is the operator.
Freestone County, Texas (Redlake Well 1-R)
On November 1, 2006, Wentworth entered into two mineral leases and a joint operating agreement with Marathon Oil (“Marathon”) granting Marathon the right to explore and develop approximately 9,200 acres of Wentworth’s oil and gas mineral interests in the P.D.C. Ball properties in Freestone County, Texas (the “Marathon Leased Property”). The agreements give Marathon the right to explore for oil and gas and develop the Marathon Leased Property in zones below approximately 8,500 feet, subject to a 21.5% royalty interest retained by Wentworth. Under the agreements, Marathon also has the right to participate with Wentworth on a 50% working interest basis on zones above 8,500 feet, with Wentworth retaining a 23% royalty interest. Drilling is performed by Barnico on these wells.
The first well drilled by Barnico above 8,500 feet on the Marathon Leased Property was Redlake 1R, which began production on March 26, 2007. Marathon and the Company each have a 50% working interest in the well. In addition, Wentworth has a 54.20% net revenue interest in this well and is the operator. Effective April 17, 2007, the Railroad Commission of Texas granted a name change of Redlake 1R after the Red Lake Gas Unit was plugged and abandoned. The new name for Redlake 1R is “Studdard & Stewart 1-R.”
10
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
3.
Oil and Gas Properties (continued)
Freestone County, Texas (Shiloh Well 1 and Shiloh Well 3)
On January 22, 2007, the Company purchased a 50% working interest in two natural gas wells (“Shiloh Well 1” and “Shiloh Well 3”) on 640 acres in Freestone County, Texas. The purchase price was $0.2 million cash, which was paid out of working capital. The Company has a net revenue interest of 38.75% and 38.50% in Shiloh Well 1 and Shiloh Well 3, respectively. The Company is the operator of both wells, which were producing natural gas upon acquisition.
Polk County, Texas
In January 2006, the Company entered into an agreement with an unrelated party pursuant to which Wentworth acquired an 82.5% working interest in an approximately 40 acre oil and gas lease on property located in Polk County, Texas. The Company purchased the working interest for consideration of $0.1 million cash and $2.0 million for reticulating and completing the well in 2006.
Capitalized Costs Relating to Oil and Gas Producing Activities
|
|
|
|
|
|
June 30, 2007
|
December 31, 2006
|
|
Unproved oil and gas properties
|
$ 10,492,122
|
$ 10,456,431
|
|
Proved oil and gas properties
|
22,307,499
|
20,847,589
|
|
Proved oil and gas royalties
|
353,888
|
353,888
|
|
Support equipment and facilities
|
2,069,154
|
1,962,500
|
|
Less accumulated depreciation, depletion, amortization
and impairment allowances
|
(714,291)
|
(318,549)
|
|
Net capitalized costs
|
$ 34,508,372
|
$ 33,301,859
|
Accumulated depreciation, depletion, amortization and impairment allowances include impairment costs of $234,046 as of June 30, 2007 and $204,713 of December 31, 2006. There are no net capitalized costs from the Company’s share of equity method investees.
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities
|
|
|
|
|
|
Three months ended June 30, 2007
|
Three months ended June 30, 2006
|
|
Property acquisition costs
|
|
|
|
Proved
|
$ -
|
$ -
|
|
Unproved, net of proceeds of sale
|
-
|
100,000
|
|
Total acquisition costs
|
-
|
100,000
|
|
Exploration costs
|
-
|
1,536,580
|
|
Development costs
|
57,328
|
-
|
|
Asset retirement costs
|
-
|
35,516
|
|
|
|
|
|
|
Six months ended June 30, 2007
|
Six months ended June 30, 2006
|
|
Property acquisition costs
|
|
|
|
Proved
|
$ 212,500
|
$ -
|
|
Unproved, net of proceeds of sale
|
-
|
163,750
|
|
Total acquisition costs
|
212,500
|
163,750
|
|
Exploration costs
|
94,839
|
1,562,273
|
|
Development costs
|
1,207,704
|
-
|
|
Asset retirement costs
|
96,000
|
99,041
|
11
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
3.
Oil and Gas Properties (continued)
Results of Operations for Oil and Gas Producing Activities for the three and six months ended June 30, 2007 and 2006
|
|
|
|
|
|
Three months ended June 30, 2007
|
Three months ended June 30, 2006
|
|
Oil and gas sales
|
$ 411,793
|
$ 17,752
|
|
|
|
|
|
Production costs
|
206,554
|
47,298
|
|
Exploration costs
|
24,496
|
22,174
|
|
Depreciation, depletion and amortization
|
289,824
|
1,481
|
|
Impairment of oil and gas properties
|
-
|
-
|
|
Total oil and gas expense
|
520,874
|
70,953
|
|
|
|
|
|
Net profit (loss) on oil and gas operations
|
(109,081)
|
(53,201)
|
|
Income tax expense
|
-
|
-
|
|
Results of operations for oil and gas producing activities (excluding corporate overhead and finance costs)
|
$ (109,081)
|
$ (53,201)
|
|
|
|
|
|
|
Six months ended June 30, 2007
|
Six months ended June 30, 2006
|
|
Oil and gas sales
|
$ 576,410
|
$ 41,889
|
|
|
|
|
|
Production costs
|
280,112
|
68,758
|
|
Exploration costs
|
210,877
|
22,174
|
|
Depreciation, depletion and amortization
|
369,979
|
1,974
|
|
Impairment of oil and gas properties
|
11,208
|
-
|
|
Total oil and gas expense
|
872,176
|
92,906
|
|
Net profit (loss) on oil and gas operations
|
(295,766)
|
(51,017)
|
|
Income tax expense
|
-
|
-
|
|
Results of operations for oil and gas producing activities (excluding corporate overhead and finance costs)
|
$ (295,766)
|
$ (51,017)
|
12
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
4.
Related Party Transactions
a)
The Company entered into transactions with related parties for the three and six months ended June 30, 2007 as follows. These amounts have been recorded at the exchange amount, being the amount agreed to by the parties.
|
|
|
|
|
|
Three months ended June 30, 2007
|
Six months ended June 30, 2007
|
|
|
|
|
|
Management fees paid to corporations controlled by directors
|
$ 71,528
|
$ 109,301
|
|
Rent paid to a corporation controlled by a family member of a director
|
$ 6,636
|
$ 9,039
|
|
Rent paid to directors
|
$ 9,600
|
$ 19,200
|
|
Consulting fees paid to a director
|
$ 109,740
|
$ 205,320
|
|
Rent paid to a director’s family member
|
$ 4,500
|
$ 9,000
|
|
Oilfield services fee paid to a director’s family members
|
$ -
|
$ 32,895
|
|
Note receivable from an entity for which its CEO is a director of the Company
|
$ 300,000
|
$ 300,000
|
b)
As of June 30, 2007, approximately $48,000 was owed to a family member of a director and corporations controlled by directors of the Company with respect of unpaid fees and expenses. The amount due to related parties is unsecured, and without interest or stated terms of repayment.
5.
Convertible Debentures Payable
On January 12, 2006, the Company entered into a securities purchase agreement with a single investor pursuant to which the investor (“debenture holder”) purchased 10% secured convertible debentures (“convertible debentures”) with a principal amount of $1.5 million and warrants to purchase 1,500,000 shares of the Company’s common stock until January 12, 2011. The Company is in default of the terms of its agreements with the debenture holder and, therefore, the debenture holder has the right to demand repayment. Accordingly, management has classified this debt and the related discount as current liabilities in the Interim Consolidated Balance Sheets. If the debenture holder demands repayment in cash, the Company does not believe that it will able to make such payment without acquiring additional financing.
The convertible debentures and the warrants issued in conjunction therewith contain provisions which cause the conversion price and exercise price to reset at lower prices under certain circumstances, and for the number of shares issuable in connection therewith to increase by a commensurate amount. If the conversion price and exercise price reset at a lower price, the Company may not have sufficient shares legally authorized to settle the conversion of the convertible debentures and the exercise of the warrants in shares.
13
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
5.
Convertible Debentures Payable (continued)
In connection with the convertible debentures, the Company recorded a $1.5 million debt discount due in January 2006 to the value of the equity consideration and beneficial conversion feature of the financing, pursuant to the guidance issued by the Emerging Issues Task Force (“EITF”). The debt discount is being amortized using the interest method over the life of the related convertible debentures and approximately $21,424 and $52,898 were expensed as of the three and six months ended June 30, 2007, respectively, and $6,389 and $426,263 were expensed as of the three and six months ended June 30, 2006, respectively.
Because the convertible debentures and the related warrants have a feature wherein the conversion price and exercise price resets, the Company has analyzed the convertible debentures and the related warrants pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. In such circumstances, EITF-00-19 requires bifurcation of the conversion feature and the related warrants from the debt and accounting for these instruments as a derivative contract liability with changes in fair value recorded in the Interim Consolidated Statements of Operations.
Pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments,” and EITF 05-2 “The Meaning of ‘Conventional Convertible Debt Instrument’ in EITF Issue No. 00-19,” the original fair value of the embedded beneficial conversion feature and freestanding warrants of $2.4 million has been recorded as a derivative contract liability as the debt is considered non-conventional convertible debt. In addition, the Company is required to report the derivative contract liability at fair value and record the fluctuation to the fair value of the derivative contract liability to current operations. The change in the fair value of the derivative contract liability resulted in a non-cash gain of $1.5 million and $3.5 million for the three and six months ended June 30, 2007, respectively, and resulted in a non-cash gain and loss, respectively, of $10.9 million and $4.1 million for the three and six months ended June 30, 2006. The fair value of the derivative contract liability outstanding as of June 30, 2007 was $0.6 million.
6.
Senior Secured Convertible Notes Payable
On July 25, 2006, the Company entered into a securities purchase agreement with six investors (“convertible noteholders”) pursuant to which the convertible noteholders purchased 9.15% senior secured convertible notes (the “convertible notes”) with a principal amount totaling $32.4 million, and Series A and Series B warrants to purchase, respectively, 46,214,287 and 16,175,000 shares of the Company’s common stock until July 25, 2011 at an initial price of $1.40 per share.
On May 1, 2007, April 30, 2007 and April 26, 2007, the Company received notices from three of its six convertible noteholders demanding full redemption of their convertible notes with an aggregate principal amount of $24.0 million of the $32.4 million total principal balance. The aggregate redemption price claimed by the three convertible noteholders who provided notices is in excess of $33.6 million. The Company does not have the funds to redeem the convertible notes.
14
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
6.
Senior Secured Convertible Notes Payable (continued)
The Company is dependent upon the successful restructuring or refinancing of its existing debt and obtaining adequate financing for its operations and capital needs. Management is continuing to explore financing opportunities, a process which began in the first quarter with the convertible noteholders and with other potential lenders and investors. To aid in the evaluation of its options, management engaged a financial advisor to assist in discussions with the convertible noteholders and other potential lenders and investors. The Company has not been able to reach a mutually satisfactory agreement with the convertible noteholders on restructuring or refinancing the convertible notes, nor has the Company been able to secure sufficient funding from a third party lender or investor. In addition, between August 8 and August 13, 2007, the trustee under the deeds of trust securing the Company’s obligations under the convertible notes filed notices of foreclosure sale in the several Texas counties in which the Company’s oil and gas properties are located. The notices specify a foreclosure sale date of September 4, 2007. If the Company cannot successfully restructure or refinance the existing convertible notes prior to the scheduled foreclosure date, the Company will be unable to continue as a going concern and will likely need to seek protection under the federal bankruptcy laws.
At June 30, 2007, $16.5 million was accrued relating to the restructuring of the convertible notes based on the aggregate redemption price claimed by the three convertible noteholders who delivered the redemption notices described above, and then applying the methodology by which their claimed redemption prices were derived to all convertible noteholders through to August 31, 2007. The Company disagrees with certain aspects of the defaults asserted in the redemption notices, with the amounts claimed and with the imposition of various aspects of the penalty provisions asserted. Accordingly, management does not believe that the convertible noteholders are entitled to this amount under the convertible notes.
The convertible notes and the warrants issued in conjunction therewith contain provisions which cause the conversion price and exercise price to reset at lower prices under certain circumstances, and for the number of shares issuable in connection therewith to increase by a commensurate amount. If the conversion price and exercise price reset at a lower price, there is a potential that the Company may not have sufficient shares legally authorized to be able to settle the conversion of the convertible notes and the exercise of the warrants in shares.
In connection with the notes, the Company recorded a $32,350,000 debt discount based on the value of the equity consideration and beneficial conversion feature of the financing pursuant to the guidance issued by the Emerging Issues Task Force. The debt discount is being amortized using the interest method over the life of the related notes. Accordingly, no amortization relating to these notes was expensed for the six months ended June 30, 2007.
15
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
6.
Senior Secured Convertible Notes Payable (continued)
Because the convertible notes and the related warrants have a feature wherein the conversion price and exercise price resets under certain circumstances, the Company has analyzed the convertible notes and the related warrants pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. In such circumstances, EITF 00-19 requires bifurcation of the conversion feature and the related warrants from the debt and accounting for these instruments as a derivative contract liability with changes in fair value recorded in the Interim Consolidated Statement of Operations.
Pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments,” and EITF 05-2 “The Meaning of ‘Conventional Convertible Debt Instrument’ in EITF Issue No. 00-19,” , the original fair value of the embedded beneficial conversion feature in the convertible notes and in the associated warrants of $146.0 million was recorded as a derivative contract liability as the debt is considered non-conventional convertible debt. In addition, the Company is required to report the derivative contract liability of the convertible notes and the associated warrants at fair value and record the fluctuation to the fair value of the derivative contract liability to current operations. See “Derivative Instruments”, “Critical Accounting Policies and Estimates” in Item 2 “Management’s Discussion and Analysis” for a discussion of the treatment of derivative contract liability. The change in the fair value of the derivative contract liability resulted in a non-cash gain of $40.4 million and $76.3 million for the three and six months ended June 30, 2007. The fair value of the derivative contract liability outstanding as of June 30, 2007 was $15.1 million.
7.
Asset Retirement Obligation
The following table summarizes changes in the Company’s asset retirement liability for the six months ended June 30, 2007 and 2006.
|
|
|
|
|
|
2007
|
2006
|
|
Asset retirement obligation at January 1
|
$ 155,241
|
$ 189,000
|
|
Asset retirement obligations incurred in the current period
|
96,000
|
99,041
|
|
Asset retirement obligations settled in the current period
|
(44,456)
|
-
|
|
Accretion expense
|
21,956
|
-
|
|
Revisions in estimated cash flows
|
-
|
-
|
|
Asset retirement obligation at June 30
|
$ 228,741
|
$ 288,041
|
16
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
8.
Stockholders’ Equity
Warrants Outstanding
Each warrant entitles the holder to purchase one share of the common stock of the Company at a fixed cash exercise price at any time during the term of the warrant, subject to certain adjustments and cashless exercise, in some cases.
|
|
|
|
|
|
|
Number of warrants
|
Average Exercise Price
|
Expiry Date
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
67,825,375
|
$1.28
|
September 20, 2011
|
|
Warrants granted
|
16,584,494
|
1.11
|
July 25, 2011
|
|
Warrants exercised
|
-
|
-
|
-
|
|
Outstanding at June 30, 2007
|
84,409,869
|
$1.22
|
|
Under the Series A and Series B warrants issued in conjunction with the convertible notes, and upon an event of default, the warrants exercise price adjusts to the lesser of the current warrant exercise price and the Average Market Price (as defined in the Series A and Series B warrants) of the Company’s common stock on the date of the event of default. Based on the events of default claimed by the three convertible noteholders, the warrant exercise price would have adjusted to $1.106 per warrant share, calculated as the lesser of $1.40 and the Average Market Price of the Company’s common stock on January 5, 2007 (the date of the first event of default assessed by the convertible noteholders), and the number of shares of common stock issuable under the Series A warrants would have increased from 46,214,287 to 58,499,097, and the number of shares of common stock issuable under the Series B warrants would have increased from 16,175,000 to 20,474,684. If the Average Market Price of the Company’s common stock declines (as was the case during the period from January 5, 2007 to June 30, 2007), then a subsequent event of default could result in a decrease in the exercise price and an increase in the number of shares of common stock issuable under the Series A and Series B warrants.
Options Outstanding
The following table presents options activity for the six months ended June 30, 2007.
|
|
|
|
|
|
|
|
Total
number of
options
|
Currently
exercisable
options
|
Weighted
Average
exercise price
|
Expiry date
|
|
Outstanding at December 31, 2006
|
14,813,500
|
7,732,254
|
$1.28
|
23 months
|
|
Options exercised
|
(120,000)
|
-
|
0.25
|
2/28/07
|
|
Options exercised
|
(100,000)
|
-
|
0.50
|
2/28/07
|
|
Options granted
|
150,000
|
-
|
1.50
|
9/20/08
|
|
Options granted
|
300,000
|
-
|
1.50
|
5/15/09
|
|
Options vested during period
|
-
|
602,752
|
1.50
|
6/30/10
|
|
Outstanding at March 31, 2007
|
15,043,500
|
8,335,006
|
1.30
|
20 months
|
|
Options vested during period
|
-
|
1,468,752
|
-
|
6/30/10
|
|
Options granted
|
200,000
|
-
|
0.50
|
4/2/10
|
|
Outstanding at June 30, 2007
|
15,243,500
|
9,803,758
|
$1.29
|
16 months
|
17
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
8.
Stockholders’ Equity (continued)
Stock-Based Compensation
Effective with its July 2004 inception, the Company adopted the fair value recognition provisions of SFAS No. 123(R) for all share-based payment awards to eligible participants.
Stock-based compensation expenses for the three and six months ended June 30, 2007 were $3,593,786 and $6,012,322, respectively, and the stock-based compensation expenses for the three and six months ended June 30, 2006 were $4,141,485 and $5,785,460, respectively.
At June 30, 2007, the balance of unearned stock-based compensation to be expensed in future periods related to unvested share-based awards, as adjusted for expected forfeitures, was approximately $17.8 million. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately 1.92 years. If factors change and we employ different assumptions in the application of SFAS No. 123(R) in future periods, the stock-based compensation expense that we record under SFAS No. 123(R) may differ significantly from what we have recorded in the current period.
On April 2, 2007, the Company granted stock options to a director to purchase up to 200,000 shares of the Company’s common stock at a price of $0.50 per share for a period of three years. Fair value of the options at the grant date was $0.63 per share. The options were granted pursuant to a commitment relating to stock options for service as a director. The market value of the stock on the grant date was $0.70.
2007 Stock Incentive Plan
In February 2007, the Company approved a written stock incentive plan whereby options for the purchase of up to 2,378,249 shares of the Company’s common stock at prices not less than the fair market value of the Company’s stock on the date of grant may be granted from time to time to eligible employees, directors, officers, consultants and advisors. On February 19, 2007, the Company granted stock options pursuant to the plan to two employees of the Company to purchase a total of 300,000 shares of the Company’s common stock at a price of $1.50 per share for a period of three years. Fair value of the options at the grant date was $0.08 per share.
18
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
9.
Commitments, Contingencies and Guarantees
Legal Proceedings
On May 8, 2007, Rodessa Operating Company, Inc. ("Rodessa") initiated a lawsuit against the Company in the 411th Judicial District Court of Polk County, Texas alleging breach of contract. In its petition, Rodessa claimed damages of $587,725 plus interest and attorney's fees for failure to pay amounts due under an operating agreement dated March 6, 2006 concerning the exploration and production regarding the Company's oil and natural gas interest in the single wellsite located in Polk County, Texas. Rodessa also sought to foreclose on its lien against, among other things, the Company’s oil and gas interest in the Polk County, Texas, well. As a result of the lawsuit, the Company undertook an audit of Rodessa's records as operator. Based on the audit, management believes the amount owed Rodessa by the Company is approximately $261,000 less proceeds from oil and natural gas production. A counterclaim has been asserted by the Company submitting that the operator has breached its duty of reasonable and prudent operation of the well site, and inducing excessive and unreasonable costs. The Company has participated in initial discussions with Rodessa regarding resolution of the lawsuit. Based on the audit results and initial discussions with Rodessa, management has accrued $477,000 in the Company’s Interim Consolidated Financial Statements, which represents the amount Rodessa invoiced the Company before commencing its lawsuit against the Company. Management believes this lawsuit should settle in the third quarter 2007 for not more than the accrued amount.
On April 26, April 30 and May 1, 2007, the Company received notices of default from three of the six convertible noteholders. Between August 8, 2007 and August 13, 2007, the trustee under the deeds of trust securing the Company’s obligations under the convertible notes filed notices of foreclosure sale in the several Texas counties in which the Company’s oil and gas properties are located. The Company received copies of these foreclosure notices on August 14, 2007, and the notices specify a foreclosure sale date of September 4, 2007. The Company continues to be engaged in discussions with the principal holders of the convertible notes and with potential lenders and investors. The Company has not yet been able to reach a mutually satisfactory agreement with the convertible noteholders to restructure or refinance the convertible notes, nor has the Company been able to secure sufficient funding from a third party lender or investor. If the Company cannot successfully restructure or refinance the convertible notes prior to the scheduled foreclosure date, then the Company will likely need to file for protection under the federal bankruptcy laws.
Other than the matters discussed above, there have been no material changes in the legal proceedings since filing of the Company’s Annual Report on Form 10-KSB filed on April 24, 2007.
10.
Segment Information
The Company operates two business segments, drilling operations and oil and gas production. Management reviews and evaluates operations of the two business segments separately. The drilling segment is conducted by Barnico which engages in land contract drilling of oil and natural gas wells. Until such time as the Company has the capital and is prepared to utilize the rigs on its own properties, Barnico is seeking third party contract opportunities for use of its drilling rigs and crews. Barnico’s operations reflect revenues from contracting one of Barnico’s two drilling rigs and crews to third parties.
19
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
10.
Segment Information (continued)
See Note 1, “Description of Business” for additional detailed information on Barnico.
The oil and gas production segment is engaged in the development, acquisition and production of oil and natural gas properties. Wentworth currently has oil and natural gas interests in Anderson, Freestone, Jones, Leon and Polk Counties, Texas. The Company’s strategy is to develop low risk, high probability shallow wells on its properties and lease out deeper zones of its properties for royalty interests.
The accounting policies of the reportable segments are the same as those described in the Company’s Annual Report on Form 10-KSB. The Company evaluates the segments based on income (loss) from operations. Segment activity for the three and six months ended June 30, 2007 and 2006 is shown below (in thousands):
|
|
|
|
|
|
Three months ended June 30,
|
|
|
2007
|
2006
Restated
|
|
Revenues
|
|
|
|
Drilling revenues
|
$ 5
|
$ -
|
|
Oil and gas production
|
412
|
18
|
|
Loss on sale of oil and natural gas property
|
(21)
|
-
|
|
Total revenues
|
$ 396
|
$ 18
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
2007
|
2006
Restated
|
|
Operating income (1)
|
|
|
|
Drilling
|
$ (268)
|
$ -
|
|
Oil and natural gas
|
10
|
(53)
|
|
Total operating (loss) income
|
(258)
|
(53)
|
|
General and administrative expense
|
5,568
|
5,216
|
|
Finance costs
|
1,921
|
753
|
|
Other income
|
(42,050)
|
16,644
|
|
Net Income
|
$ 34,302
|
$ 10,622
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2007
|
2006
Restated
|
|
Revenues
|
|
|
|
Drilling revenues
|
$ 870
|
$ -
|
|
Oil and gas production
|
577
|
42
|
|
Loss on sale of oil and natural gas property
|
(21)
|
-
|
|
Total revenues
|
$ 1,426
|
$ 42
|
20
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
10.
Segment Information (continued)
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2007
|
2006
Restated
|
|
Operating income (1)
|
|
|
|
Drilling
|
$ (6)
|
$ -
|
|
Oil and natural gas
|
(320)
|
(51)
|
|
Total operating (loss) income
|
(326)
|
(51)
|
|
General and administrative expense
|
8,894
|
7,574
|
|
Interest expense
|
3,570
|
917
|
|
Other income (expense), net
|
80,110
|
(4,115)
|
|
Net Income (loss)
|
$ 67,320
|
$ (12,657)
|
|
|
|
|
|
|
June 30, 2007
|
December 31, 2006
|
|
Identifiable Assets (2)
|
|
|
|
Drilling
|
$ 4,199
|
$ 6,314
|
|
Oil and natural gas
|
34,508
|
31,394
|
|
Corporate assets
|
11,527
|
18,068
|
|
Total assets
|
$ 50,234
|
$ 55,776
|
|
|
|
|
|
|
June 30, 2007
|
December 31, 2006
|
|
Capital Expenditures
|
|
|
|
Drilling
|
$ 47
|
$ 473
|
|
Oil and natural gas
|
1,395
|
31,156
|
|
Other
|
-
|
75
|
|
Total capital expenditures
|
$ 1,442
|
$ 31,704
|
|
|
|
|
|
|
Three months ended June 30
|
|
|
2007
|
2006
Restated
|
|
Depreciation, Depletion and Amortization
|
|
|
|
Drilling
|
$ 44
|
$ -
|
|
Oil and natural gas
|
293
|
1
|
|
Total depreciation, depletion and amortization
|
$ 337
|
$ 1
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2007
|
2006
Restated
|
|
Depreciation, Depletion and Amortization
|
|
|
|
Drilling
|
$ 154
|
$ -
|
|
Oil and natural gas
|
374
|
2
|
|
Total depreciation, depletion and amortization
|
$ 528
|
$ 2
|
|
|
|
|
(1)
|
Operating income is total operating revenues less operating expenses, depreciation, depletion and amortization and does not include non-operating revenues, general corporate expenses, interest expense or income taxes.
|
|
(2)
|
Identifiable assets are those used in Wentworth’s operations in each industry segment. Corporate assets are principally cash and cash equivalents, short-term investments, furniture and equipment.
|
21
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
11.
Restatement of Annual and Interim Consolidated Financial Statements
The Company has retroactively restated certain of its amounts reported as of December 31, 2006 and for the six months ended June 30, 2007. The restatements were made to correct the manner in which the amortization was calculated for deferred finance costs and discounts on convertible debt issued during 2006. The method of calculating amortization was changed from the straight-line method to the interest method, as prescribed by APB Opinion No. 21. In addition, guidance from SFAS No. 154, “Accounting Changes and Error Corrections,” was reviewed with regard to this matter. As a result, the Company retroactively restated the consolidated financial statements to apply the appropriate accounting treatment. The Company’s interim consolidated balance sheet as of June 30, 2007 and consolidated balance sheet as of December 31, 2006 have been restated to reflect the changes in assets, liabilities and stockholders’ equity. The Company’s interim consolidated statements of operations for the three- and six-month periods ended June 30, 2007 have been restated to reflect the change in finance costs. The Company’s interim consolidated statement of stockholders’ equity for the six-month period ended June 30, 2007 has been restated to reflect the change in the net loss for the period, and the Company’s interim consolidated statement of cash flow for the six-month period ended June 30, 2007 has been restated to reflect the change in the net loss for the period and the amortization of deferred finance costs and discounts on convertible debt.
The following is a summary of the impact of the restatement on the Company’s interim consolidated balance sheet as of June 30, 2007:
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Deferred finance costs
|
$ 7,902,848
|
$ 921,420
|
(a)
|
$ 8,824,268
|
|
Total assets
|
50,234,012
|
921,420
|
|
51,155,432
|
|
Discount on convertible debentures payable
|
(447,359)
|
(444,802)
|
(b)
|
(892,161)
|
|
Discount on senior secured convertible notes
|
(22,240,625)
|
(10,109,352)
|
(b)
|
(32,349,877)
|
|
Total current liabilities
|
44,873,837
|
(10,554,154)
|
|
34,319,683
|
|
Total liabilities
|
45,102,578
|
(10,554,154)
|
|
34,548,424
|
|
Accumulated deficit
|
(27,785,816)
|
11,475,574
|
(c)
|
(16,310,242)
|
|
Total stockholders’ equity
|
5,131,434
|
11,475,574
|
|
16,607,008
|
The following is a summary of the impact of these restatements on the Company’s interim consolidated statement of operations for the three-month period ended June 30, 2007:
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Finance costs
|
$ 4,855,090
|
$(2,933,601)
|
(a,b)
|
$ 1,921,489
|
|
Total expenses
|
10,423,260
|
(2,933,601)
|
|
7,489,659
|
|
Loss from operations
|
(10,681,553)
|
2,933,601
|
|
(7,747,952)
|
|
Net income
|
31,368,490
|
2,933,601
|
|
34,302,091
|
|
Basic income per share
|
1.30
|
0.12
|
|
1.42
|
|
Diluted income per share
|
1.24
|
0.12
|
|
1.36
|
22
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
11.
Restatement of Annual and Interim Consolidated Financial Statements (continued)
The following is a summary of the impact of these restatements on the Company’s interim consolidated statement of operations for the six-month period ended June 30, 2007:
|
|
|
|
|
|
|
|
Six-month Period Ended June 30, 2007
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Finance costs
|
$ 9,495,756
|
$(5,925,692)
|
(a,b)
|
$ 3,570,064
|
|
Total expenses
|
18,390,240
|
(5,925,692)
|
|
12,464,548
|
|
Loss from operations
|
(18,716,453)
|
5,925,692
|
|
(12,790,761)
|
|
Net income
|
61,393,897
|
5,925,692
|
|
67,319,589
|
|
Basic income per share
|
2.56
|
0.25
|
|
2.81
|
|
Diluted income per share
|
2.45
|
0.23
|
|
2.68
|
The following is a summary of the impact of these restatements on the Company’s interim consolidated statement of stockholders’ equity for the period from ended June 30, 2007:
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2007
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Net income
|
$61,393,897
|
$ 5,925,692
|
(a,b)
|
$ 67,319,589
|
|
Accumulated deficit
|
(27,785,816)
|
11,475,574
|
(c)
|
(16,310,242)
|
|
Total stockholder’s equity
|
5,131,434
|
11,475,574
|
|
16,607,008
|
The following is a summary of the impact of these restatements on the Company’s interim consolidated statement of cash flow for the six-month period ended June 30, 2007:
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2007
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Net income
|
$61,393,897
|
$ 5,925,692
|
(a,b)
|
$67,319,589
|
|
Amortization of deferred finance costs
|
5,565,834
|
(5,512,913)
|
(a)
|
52,921
|
|
Amortization of discount on convertible debt
|
1,928,353
|
(412,779)
|
(b)
|
1,515,574
|
The following is a summary of the impact of the restatement on the Company’s consolidated balance sheet as of December 31, 2006:
23
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
11.
Restatement of Annual and Interim Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Deferred finance costs
|
$ 9,831,201
|
$ 508,641
|
(d)
|
$10,339,842
|
|
Total assets
|
55,776,145
|
508,641
|
|
56,284,786
|
|
Convertible notes payable
|
1,144,652
|
(89,652)
|
(e)
|
1,055,000
|
|
Discount on convertible debentures payable
|
(711,179)
|
(233,880)
|
(f)
|
(945,059)
|
|
Discount on senior secured convertible notes
|
(27,632,291)
|
(4,717,709)
|
(f)
|
(32,350,000)
|
|
Total current liabilities
|
118,171,597
|
(5,041,241)
|
|
113,130,356
|
|
Total liabilities
|
118,326,838
|
(5,041,241)
|
|
113,285,597
|
|
Accumulated deficit
|
(89,179,713)
|
5,549,882
|
(d,f)
|
(83,629,831)
|
|
Total stockholders’ deficit
|
(62,550,693)
|
5,549,882
|
|
(57,000,811)
|
(a)
To decrease amortization of deferred finance costs by due to the change in the calculation from the straight-line method to the interest method.
(b)
To decrease amortization of discounts on convertible debentures and senior secured convertible notes due to the change in the calculation of amortization from the straight-line method to the interest method.
(c)
To decrease accumulated deficit due to the change in the calculation of amortization of deferred finance costs and amortization of discounts on convertible debentures from the straight-line method to the interest method.
(d)
To decrease amortization of deferred finance costs by $508,641 due to the change in the calculation from the straight-line method to the interest method.
(e)
To reclassify $89,652 between discount on convertible debentures and the related convertible debentures balance due to a recording error.
(f)
To decrease amortization of discounts on convertible debentures and senior secured convertible notes due to the change in the calculation of amortization from the straight-line method to the interest method.
The Company has retroactively restated certain of its amounts reported for the quarter and year to date ended June 30, 2006. The restatements were made to correct the manner in which warrants issued and classified as stockholders' equity in 2005 are reported in 2006 and the manner in which deferred finance costs and the discount on convertible debentures were being amortized.
EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock," requires that warrants be reassessed at each balance sheet date to determine whether they should be reclassified as derivative liabilities, rather than stockholders' equity, if applicable as a result of events during the period. In addition, guidance from SFAS No. 154, “Accounting Changes and Error Corrections,” was reviewed with regard to this matter. As a result, the Company retroactively restated the consolidated financial statements to apply appropriate accounting treatment to these items. Specifically, on January 12, 2006, the Company issued convertible debentures containing provisions which could cause the warrants issued in 2005 to require net-cash settlement in some circumstances. Accordingly, EITF 00-19 requires those warrants to be reclassified and recorded as of June 30, 2006 as derivative contract liabilities at their fair value, with any fluctuation to the fair value of that liability recorded to current operations.
24
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
11.
Restatement of Year-end and Interim Consolidated Financial Statements (continued)
In accordance with SFAS 154, the Company’s interim consolidated statements of operations for
the quarter and year to date ended June 30, 2006 have been restated to reflect, the change in loss on derivative contracts and the Company’s interim consolidated statement of cash flow for the quarter and year to date ended June 30, 2006 has been restated to reflect the change in the net loss for the period, and the loss on derivative contracts.
APB Opinion No. 21 requires the use of the interest method to amortize deferred financing costs and debts discounts. The Company was using the straight-line method which can be used only if it does not differ materially from the results of the interest method, The Company’s interim consolidated statements of operations for the quarter and year to date ended June 30, 2006 have been related to reflect changes in interest and bank charges and finance costs. The Company’s interim consolidated statement of cash flow for the quarter and year to date ended June 30, 2006 has been restated to reflect the change in net loss for the period, amortization of discount on convertible debentures and amortization of deferred finance costs.
On July 26, 2006, the Company changed its method of accounting for its oil and gas properties from the full cost method to the successful efforts method. Management believes the successful efforts method better conforms to industry practice and is the preferred method under generally accepted accounting principles. Management believes the change in accounting method did not affect prior years’ financial results or prior quarterly results, because all mineral interests were unproved. Therefore, restatement of the carrying value of unproved oil and gas properties in the current period is not required.
The following is a summary of the impact of the restatements on the Company’s interim consolidated statement of operations for the three- and six-month period ended June 30, 2006:
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2006
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Finance costs
|
$ 775,983
|
$ (23,230)
|
(e,f)
|
$ 752,753
|
|
Total expenses
|
5,991,682
|
(23,230)
|
|
5,968,452
|
|
Loss from operations
|
(6,044,883)
|
23,230
|
|
(6,021,653)
|
|
(Gain) loss on derivative contracts
|
(10,885,474)
|
(5,872,913)
|
(b)
|
(16,758,387)
|
|
Total other (revenue)/expense items
|
(10,771,148)
|
(5,872,913)
|
|
(16,644,061)
|
|
Net income (loss)
|
4,726,265
|
5,896,143
|
|
10,622,408
|
|
Basic and diluted income (loss) per share
|
0.29
|
0.37
|
|
0.66
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2006
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Finance costs
|
$ 944,378
|
$ (27,556)
|
(c,d)
|
$ 916,822
|
|
Total expenses
|
8,518,174
|
(27,556)
|
|
8,490,618
|
|
Loss from operations
|
(8,569,191)
|
27,556
|
|
(8,541,635)
|
|
(Gain) loss on derivative contracts
|
4,059,890
|
(55,024)
|
(a)
|
4,004,866
|
|
Total other (revenue)/expense items
|
4,171,019
|
(55,024)
|
|
4,115,995
|
|
Net income (loss)
|
(12,740,210)
|
82,580
|
|
(12,657,630)
|
|
Basic and diluted income (loss) per share
|
(0.80)
|
(0.00)
|
|
(0.80)
|
25
Wentworth Energy, Inc.
Notes to the Interim Consolidated Financial Statements (Unaudited)
June 30, 2007
11.
Restatement of Annual and Interim Consolidated Financial Statements (continued)
The following is a summary of the impact of the restatements on the Company’s interim consolidated statement of cash flow for the six-month period ended June 30, 2006:
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2006
|
|
|
Amounts as Originally Reported
|
Restatement Amount
|
|
Amounts as Revised
|
|
Net loss for the period
|
$ (12,740,210)
|
$ 82,580
|
(a,c,d)
|
$(12,657,630)
|
|
Amortization of discount on convertible debt
|
614,653
|
(84,222)
|
(d)
|
530,431
|
|
Amortization of deferred finance cost
|
56,745
|
56,666
|
(c)
|
113,411
|
|
Loss on derivative contracts
|
4,059,890
|
(55,024)
|
(a)
|
4,004,866
|
(a)
To increase the gain on derivative contracts by $55,024 for the change in the value of warrants recorded as derivative liabilities for the six-month period ended June 30, 2006.
(b)
To increase the gain on derivative contracts by $5,872,913 for the change in the value of warrants recorded as derivative liabilities for the three-month period ended June 30, 2006.
(c)
To increase amortization of deferred finance costs by $56,666 due to the change in the calculation from the straight-line method to the interest method for the six-month period ended June 30, 2006.
(d)
To decrease amortization of discount on convertible debentures by $84,222 due to the change in the calculation from the straight-line method to the interest method for the six-month period ended June 30, 2006.
(e)
To increase finance costs by $67,381 due to the change in the calculation from the straight-line method to the interest method for the three-month period ended June 30, 2006.
(f)
To decrease interest and bank charges by $90,611 due to the change in the calculation from the straight-line method to the interest method for the three-month period ended June 30, 2006.
12.
Subsequent events
On April 26, April 30 and May 1, 2007, the Company received notices of default from three of the six convertible noteholders. Between August 8, 2007 and August 13, 2007, the trustee under the deeds of trust securing the Company’s obligations under the convertible notes filed notices of foreclosure sale in the several Texas counties in which the Company’s oil and gas properties are located. The Company received copies of these foreclosure notices on August 14, 2007, and the notices specify a foreclosure sale date of September 4, 2007. The Company continues to be engaged in discussions with the principal holders of the convertible notes and with potential lenders and investors. The Company has not yet been able to reach a mutually satisfactory agreement with the convertible noteholders to restructure or refinance the convertible notes, nor has the Company been able to secure sufficient funding from a third party lender or investor. If the Company cannot successfully restructure or refinance the convertible notes prior to the scheduled foreclosure date, then the Company will likely need to file for protection under the federal bankruptcy laws.
26
