UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934
OMB:3235-0116
Exp:30Sept07
CONTINENTAL ENERGY CORPORATION
(Translation of registrant's name into English)
14001 Dallas Parkway, Suite 1200, Dallas, Texas 75240
(Address of registrant’s principal executive offices)
| For the month of: | FEBRUARY 2007 | Commission File No.: 0-17863 |
Under cover of this page and forming a part of this Form-6K filing please find attached the following documents:
| 1. | “Quarterly Report – For Fiscal Quarter Ended December 31, 2007: End Quarter – 2 of Fiscal Year 2008”, dated February 29, 2008. Includes un-audited quarterly interim financial statements for the second quarter ending December 31, 2007 of the Company’s 2008 fiscal year. Also includes management discussion and analysis of registrant’s affairs, material events disclosure. The report is presented in the Form-51/901F quarterly and annual report format required by the Canadian British Columbia Securities Commission in the registrant’s home jurisdiction |
All of the above listed documents have also been filed separately by the registrant electronically on SEDAR, the "System for Electronic Archiving and Retrieval", in compliance with Canadian British Columbia Securities Commission regulations in the registrant’s home jurisdiction. The listed documents are available for public review and download in Adobe Acrobat® PDF file format from SEDAR’s internet website, www.sedar.com.
i - Indicate by check mark whether the registrant files annual reports under cover of FORM 20-F X or Form 40-F .
ii - Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by: Regulation S-T Rule 101(b)(1) ___ or Regulation S-T Rule 101(b)(7) ___ .
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Iii – Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934; Yes or No X .
If “Yes” is marked, the file number assigned to the registrant in connection with Rule 12g3-2(b) is .
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CONTINENTAL ENERGY CORPORATION | Date: March 14, 2008 |
| (Registrant) |
By: "James D. Eger"
James D. Eger, Director & Secretary
CONTINENTAL ENERGY CORPORATION
(An Exploration Stage Company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 December 2007
Expressed in U.S. dollars
(Unaudited - Prepared by Management)
These financial statements have not been reviewed by the Company’s auditor.
| Continental Energy Corporation | Statement 1 |
| (An Exploration Stage Company) | |
| Interim Consolidated Balance Sheets | |
| Unaudited - Prepared by Management |
| 31 December | 30 June | |||||
| ASSETS | 2007 | 2007 | ||||
| Current | ||||||
| Cash | $ | 3,806,990 | $ | 1,514,279 | ||
| Accounts receivable | 30,717 | 43,088 | ||||
| Prepaid expenses and deposits | 27,857 | 117,894 | ||||
| 3,865,564 | 1,675,261 | |||||
| Investment in Continental Biofuels (Note 1) | 85,260 | - | ||||
| Advances to Continental Biofuels | 614 | - | ||||
| Investment in Bengara (Note 4a) | 1 | 1 | ||||
| Resource Property Costs (Note 4) | 1 | 1 | ||||
| Equipment (Note 5) | 108,560 | 88,685 | ||||
| $ | 4,060,000 | $ | 1,763,948 | |||
| LIABILITIES | ||||||
| Current | ||||||
| Accounts payable and accrued liabilities | $ | 36,830 | $ | 110,449 | ||
| SHAREHOLDERS’ EQUITY | ||||||
| Share Capital - Statement 2 (Note 6) | 11,653,646 | 11,731,566 | ||||
| Common Share Subscriptions - Statement 2 | - | 7,500 | ||||
| Contributed Surplus - Statement 2 | 7,458,547 | 3,221,931 | ||||
| Deficit - Statement 2 | (15,089,023 | ) | (13,307,498 | ) | ||
| 4,023,170 | 1,653,499 | |||||
| $ | 4,060,000 | $ | 1,763,948 | |||
ON BEHALF OF THE BOARD:
"Richard L. McAdoo"
_________________________, Director
"James D. Eger"
_________________________, Director
- See Accompanying Notes -
| Continental Energy Corporation | Statement 2 |
| (An Exploration Stage Company) | |
| Interim Consolidated Statements of Shareholders’ Equity | |
| Unaudited - Prepared by Management |
| Common Shares | Common Share | Contributed | ||||||||||||||
| Shares | Amount | Subscriptions | Surplus | Deficit | Total | |||||||||||
| Balance - 30 June 2006 | 57,107,936 | $ | 10,063,516 | $ | - | $ | 2,998,183 | $ | (10,704,498 | ) | $ | 2,357,201 | ||||
| Issuance of shares for: | ||||||||||||||||
| Shares issued for services | 111,111 | 80,000 | - | - | - | 80,000 | ||||||||||
| Exercise of warrants | 2,823,334 | 610,528 | - | (128,695 | ) | - | 481,833 | |||||||||
| Exercise of options | 3,330,000 | 1,000,522 | 7,500 | (433,522 | ) | - | 574,500 | |||||||||
| Share issuance costs | - | (23,000 | ) | - | - | - | (23,000 | ) | ||||||||
| Financing fees - warrants | - | - | - | 112,723 | - | 112,723 | ||||||||||
| Stock-based compensation | - | - | - | 673,242 | - | 673,242 | ||||||||||
| Loss for the year - Statement 3 | - | - | - | - | (2,603,000 | ) | (2,603,000 | ) | ||||||||
| Balance - 30 June 2007 | 63,372,381 | 11,731,566 | 7,500 | 3,221,931 | (13,307,498 | ) | 1,653,499 | |||||||||
| Issuance of shares for: | ||||||||||||||||
| Private placements | 5,015,000 | (85,420 | ) | - | 3,345,170 | - | 3,259,750 | |||||||||
| Placement fee | 250,000 | - | - | - | - | - | ||||||||||
| Exercise of options | - | 7,500 | (7,500 | ) | - | - | - | |||||||||
| Stock-based compensation | - | - | - | 891,446 | - | 891,446 | ||||||||||
| Loss for the period - Statement 3 | - | - | - | - | (1,781,525 | ) | (1,781,525 | ) | ||||||||
| Balance - 31 December 2007 | 68,637,381 | $ | 11,653,646 | $ | - | $ | 7,458,547 | $ | (15,089,023 | ) | $ | 4,023,170 | ||||
- See Accompanying Notes -
| Continental Energy Corporation | Statement 3 |
| (An Exploration Stage Company) | |
| Interim Consolidated Statements of Operations | |
| Unaudited - Prepared by Management | |
| For the Three | For the Three | For the Six | For the Six | |||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||
| 31 December | 31 December | 31 December | 31 December | |||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||
| Expenses | ||||||||||||
| Amortization | $ | 9,692 | $ | 6,072 | $ | 18,371 | $ | 14,454 | ||||
| Consulting | 31,858 | 22,795 | 31,858 | 46,549 | ||||||||
| Filing fees | 10,899 | 3,998 | 15,965 | 6,113 | ||||||||
| Financing fees - warrants | - | - | - | 112,723 | ||||||||
| Foreign exchange loss | 710 | 986 | 1,785 | 4,929 | ||||||||
| Interest and bank charges (recovery) | 1,235 | 1,258 | 1,974 | 2,485 | ||||||||
| Investor relations | 46,380 | 37,422 | 107,765 | 48,350 | ||||||||
| Management fees | 154,277 | 402,500 | 396,612 | 494,071 | ||||||||
| Office expenses | 103,761 | 47,676 | 191,339 | 136,376 | ||||||||
| Professional fees | 28,733 | 66,312 | 51,432 | 127,569 | ||||||||
| Rent, office maintenance and utilities | 12,114 | 2,867 | 22,606 | 67,077 | ||||||||
| Shareholder communication and transfer agen | 709 | 4,213 | 1,552 | 5,203 | ||||||||
| Stock-based compensation | 691,318 | - | 891,446 | 118,958 | ||||||||
| Telephone | 7,970 | 5,475 | 15,191 | 14,972 | ||||||||
| Travel and accommodation | 23,854 | 46,710 | 63,451 | 165,651 | ||||||||
| Loss Before the Undernoted | (1,123,510 | ) | (648,284 | ) | (1,811,347 | ) | (1,365,480 | ) | ||||
| Other Income (Expenses) | ||||||||||||
| Gain on settlement of debt | - | (424 | ) | - | 90,739 | |||||||
| Loss on equity investment in Continental Biofuels | (14,740 | ) | - | (14,740 | ) | |||||||
| Gain on disposal of Bengara | - | - | - | 60,324 | ||||||||
| Interest income | 40,468 | 22,571 | 68,735 | 48,197 | ||||||||
| (Write-down) recovery of resource property costs | (5,213 | ) | (1,324 | ) | (24,173 | ) | 3,379 | |||||
| Income (Loss) for the Period | $ | (1,102,995 | ) | $ | (627,461 | ) | $ | (1,781,525 | ) | $ | (1,162,841 | ) |
| Income (Loss) per Share - Basic and Diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) |
| Weighted Average Number of Shares Outstanding | 68,637,381 | 57,775,835 | 66,923,549 | 57,441,885 | ||||||||
- See Accompanying Notes -
| Continental Energy Corporation | Statement 4 |
| (An Exploration Stage Company) | |
| Interim Consolidated Statements of Cash Flows | |
| Unaudited - Prepared by Management | |
| For the Three | For the Three | For the Six | For the Six | |||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||
| 31 December | 31 December | 31 December | 31 December | |||||||||
| Cash Resources Provided By (Used In) | 2007 | 2006 | 2007 | 2006 | ||||||||
| Operating Activities | ||||||||||||
| Income (loss) for the period | ||||||||||||
| Items not affecting cash | $ | (1,102,995 | ) | $ | (627,461 | ) | $ | (1,781,525 | ) | $ | (1,162,841 | ) |
| Amortization | 9,692 | 6,072 | 18,371 | 14,454 | ||||||||
| Financing fees - warrants | - | - | - | 112,723 | ||||||||
| Gain on settlement of debt | - | 424 | - | (90,739 | ) | |||||||
| Gain on sale of Bengara | - | - | - | (60,324 | ) | |||||||
| Loss on equity investment in Continental Biofuels | 14,740 | - | 14,740 | |||||||||
| Stock-based compensation | 691,318 | - | 891,446 | 118,958 | ||||||||
| Write-down (recovery) of resource property costs | 1,324 | (3,379 | ) | |||||||||
| Changes in current assets and liabilities | 5,213 | - | 24,173 | |||||||||
| Accounts receivable | (11,381 | ) | (2,862 | ) | 12,371 | (2,587 | ) | |||||
| Prepaid expenses and deposits | 45,219 | 12,860 | 90,037 | (37,513 | ) | |||||||
| Due from/to related parties | (614 | ) | 166,994 | (614 | ) | 166,994 | ||||||
| Accounts payable and accrued liabilities | (163,162 | ) | 72,938 | (73,619 | ) | 55,130 | ||||||
| (511,970 | ) | (369,711 | ) | (804,620 | ) | (889,124 | ) | |||||
| Investing Activities | ||||||||||||
| Investment in Continental Biofuels | (100,000 | ) | - | (100,000 | ) | |||||||
| Disposition of Bengara | - | - | - | 75,520 | ||||||||
| Resource property costs | (5,213 | ) | (1,324 | ) | (24,173 | ) | (143,122 | ) | ||||
| Resource property costs reimbursed by joint venturers | - | - | - | 146,500 | ||||||||
| Proceeds from sale of Bengara shares, net | - | - | - | 21,000 | ||||||||
| Purchase of equipment, net of recovery | (12,984 | ) | (31,760 | ) | (38,246 | ) | (36,594 | ) | ||||
| (118,197 | ) | (33,084 | ) | (162,419 | ) | 63,304 | ||||||
| Financing Activities | ||||||||||||
| Share capital issued for cash, net | - | 303,500 | 3,259,750 | 303,500 | ||||||||
| - | 303,500 | 3,259,750 | 303,500 | |||||||||
| Change in Cash | (630,167 | ) | (99,295 | ) | 2,292,711 | (522,320 | ) | |||||
| Cash position - Beginning | 4,437,157 | 1,972,702 | 1,514,279 | 2,395,727 | ||||||||
| Cash Position - Ending | $ | 3,806,990 | $ | 1,873,407 | $ | 3,806,990 | $ | 1,873,407 | ||||
- See Accompanying Notes -
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 1. | Nature of Operations |
Continental Energy Corporation (“Continental” or the “Company”) is an oil and gas exploration company engaged in the acquisition of a portfolio of oil and gas exploration properties with high potential resource prospects. Continental is focusing its efforts in Indonesia where large tracts of acreage can be accumulated, there is a history of oil exploration success, and geological conditions are favorable for hydrocarbon accumulation. Continental is an exploration stage company and none of its oil and gas properties currently generate revenue.
On October 17, 2007 the Company entered a cofounder shareholders agreement pertaining to a new, partially-owned, special purpose company incorporated in Delaware named Continental Biofuels Corporation (“Continental Biofuels”) to pursue palm oil to biodiesel projects in Indonesia. The Company subscribed and purchased 1,000 shares of the 2,500 issued and fully paid share capital of Continental Biofuels representing a 40% stake, and largest single shareholding, in Continental Biofuels. The remaining 60% stake in Continental Biofuels is held by a cofounder group of five private investors led by Casimir Capital Group LLC of New York which includes two Directors of the Company, each of whom purchased a 10% stake. The Company’s CFO, Mr. James D. Eger has been appointed as the first President and CEO of Continental Biofuels. During the short term the Company expects this management control to be relinquished and the Company’s shareholding stake in Continental Biofuels to be diluted when new investors join Continental Biofuels in anticipated private or public fundings. The Company’s interest in Continental Biofuels has been recorded as an investment using the Equity Method.
| 2. | Significant Accounting Policies |
| a) | Basis of Presentation |
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP) and follow the same accounting policies and methods of their application as the most recent annual financial statements, except as noted below. These interim financial statements should be read in conjunction with the audited financial statements of the Company as at 30 June 2007. All amounts in these financial statements are expressed in United States dollars (“U.S. dollar”).
| b) | Change in Accounting Policy |
| i) | Valuation of warrants |
Effective 1 July 2007, the Company has adopted the following accounting policy with respect to the valuation of warrants issued as part of a private placement unit. The proceeds from the issue of units is allocated between common shares and common share purchase warrants on a pro-rata basis based on relative fair values as follows:
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 2. | Significant Accounting Policies – Continued |
| b) | Change in Accounting Policy – Continued |
| ii) | Share Capital |
Share capital issued for non-monetary consideration is recorded at an amount based on fair market value. The proceeds from the issue of units is allocated between common shares and common share purchase warrants on a pro-rata basis based on relative fair values as follows:
c) |
Consolidation |
These consolidated financial statements include the accounts of the Company and its subsidiary and one joint venture company as follows:
These consolidated financial statements also include the accounts of one former subsidiary as follows:
All intercompany transactions are eliminated upon consolidation.
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 3. | Fair Value of Financial Instruments |
The Company's financial instruments consist of cash, accounts receivable and accounts payable. The carrying value of these financial instruments approximates their fair value due to their short-term maturity or capacity of prompt liquidation. Except as noted below, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from the financial instruments.
The Company is exposed to currency risk in that some of its subsidiary operations are transacted in Indonesian Rupiah. The U.S. dollar value of the assets and liabilities of the subsidiary denominated in Rupiah will fluctuate due to changes in foreign exchange. The Company does not use any hedging instruments to reduce its foreign currency exposure.
| 4. | Resource Property Costs |
Details of oil and gas properties are as follows:
| 30 June | Exploration & | Costs | Recovery | 31 December | ||||||||
| 2007 | Development | Reimbursed by | (Impairment/ | 2007 | ||||||||
| Balance | (Recovery) | Joint Venturers | Abandonment) | Balance | ||||||||
| Bengara | $ | 1 | $ | 24,173 | $ | - | $ | (24,173 | ) | $ | 1 |
| 30 June | Exploration & | Costs | Recovery | 30 June | ||||||||||
| 2006 | Development | Reimbursed by | (Impairment/ | 2007 | ||||||||||
| Balance | (Recovery) | Joint Venturers | Abandonment) | Balance | ||||||||||
| Bengara | $ | 1 | $ | 259,886 | $ | (146,500 | ) | $ | (113,386 | ) | $ | 1 |
| a) | Bengara |
By a share purchase and transfer agreement with an effective date of 1 August 1998 and subsequent amendments between 30 September 1998 and 19 January 2000, the Company purchased 100% of the issued and outstanding shares of Bengara, a British Virgin Island company with oil and gas exploration activities in Indonesia. The Company accounted for the acquisition of Bengara using the purchase method of accounting for a business combination. On 1 January 2000 the Company farmed out 40% of its 100% interest in Bengara and its respective underlying properties to GeoPetro Resources Company.
On 29 September 2006, the Company sold 70% of its 60% interest in Bengara and its Bengara-II PSC to CNPC (Hong Kong) Limited (“CNPC-HK”), an unrelated buyer, for $21,000 cash. The Company retained an 18% shareholding of Bengara. Included in the Company’s statement of operations are the results of operations of Bengara from the date of acquisition to 29 September 2006.
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 4. | Resource Property Costs – Continued |
a) |
Bengara – Continued |
The Company recognized its portion of the proceeds on the sale of 70% of its 60% interest, being $21,000, as income. The net effect of this transaction was a gain of $23,906, net of taxes, based on the net book values recorded in Bengara as at 29 September 2006.
| Assets | $ | 9,522 | ||
| Liabilities | (12,428 | ) | ||
| Negative net book value of Bengara | (2,906 | ) | ||
| Proceeds on disposition | 21,000 | |||
| Gain on disposition of Bengara | $ | 23,906 | ||
Effective 29 September 2006, all consultant and rental contracts were terminated by Bengara due to the sale of its majority interest to CNPC-HK. Bengara paid 3 months severance on these contracts totalling approximately $133,000 of which the Company has paid its 60% share, being $79,800.
| 5. | Equipment |
Details are as follows:
| 31 December | ||||||||
| 2007 | ||||||||
| Accumulated | Net | |||||||
| Costs | Amortization | Book Value | ||||||
| Automobiles | $ | 35,040 | $ | 5,699 | $ | 29,341 | ||
| Computer equipment and software | 143,085 | 81,804 | 61,281 | |||||
| Field survey equipment | 24,247 | 6,309 | 17,938 | |||||
| $ | 202,372 | $ | 93,812 | $ | 108,560 | |||
| 30June | ||||||||
| 2007 | ||||||||
| Accumulated | Net | |||||||
| Costs | Amortization | Book Value | ||||||
| Automobiles | $ | 17,561 | $ | 1,427 | $ | 16,134 | ||
| Computer equipment and software | 123,293 | 70,240 | 53,053 | |||||
| Field survey equipment | 23,270 | 3,772 | 19,498 | |||||
| $ | 164,124 | $ | 75,439 | $ | 88,685 | |||
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 6. | Share Capital |
| a) | Authorized Share Capital |
The Company’s authorized share capital consists of 600,000,000 shares divided into 500,000,000 common shares without par value and 100,000,000 preferred shares without par value. As at 31 December 2007, there are no preferred shares issued or outstanding.
| b) | Private Placements |
On 23 August 2007, the Company closed an institutional private placement through the issuance of 5,000,000 common shares at $0.65 per share for net cash proceeds of $3,250,000. The placement included 10,000,000 share purchase warrants with each warrant having an exercise price of $0.90 per common share for a three year term expiring on 29 August 2010. The Company paid a one-time 5% arrangement fee to the institution in the form of 250,000 common shares in lieu of cash. The Company entered into an agreement granting the institution piggyback registration rights in the event of the Company initiated registration of any restricted securities on demand registration rights at any time after the second anniversary of the placement.
On 23 July 2007, a private placement was completed for 15,000 Units for total proceeds of $9,750. Each Unit consists of 15,000 common shares and 15,000 share purchase warrants with each warrant having an exercise price of $1.00 per common share for a two year term expiring on 23 July 2009.
On 1 May 2007, the Company executed an investor relations agreement and issued 111,111 common shares valued at $80,000 and additional cash proceeds of $20,000. During the current period, $80,000 was expensed to investor relations.
| c) | Stock Options |
The Company has established a share purchase option plan whereby the board of directors may, from time to time, grant options to directors, officers, employees or consultants. Options granted must be exercised within a period as determined by the Company's board of directors. Options vest on the grant date unless otherwise determined by the Company's board of directors. The aggregate number of common shares which may be reserved as outstanding Stock Options shall not exceed 20% of the total number of the Company's issued and outstanding common shares at any time, and the maximum number of options held by any one individual at any one time shall not exceed 5% of the total number of the Company's issued and outstanding common shares. New Stock Option Grants On 22 December 2007, the Company issued 4,000,000 stock options to directors, an employee and consultants of the Company exercisable at $0.24 per share on or before 31 December 2010 and 700,000 stock options to employees and consultants of the Company exercisable at $0.24 per share on or before 30 June 2009. The Company calculated the fair value of these options to be $691,318 on the grant date which was charged to operations.
On 17 September 2007, the Company issued 500,000 stock options to a director exercisable at $0.65 per share on or before 30 June 2010. The Company calculated the fair value of these options to be $200,128 on the grant date which was charged to operations.
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 6. | Share Capital – Continued |
| c) | Stock Options – Continued Prior |
Year’s Stock Option Grants
On 14 June 2007, a total of 1,400,000 stock options were granted to a director, an employee, and four consultants having an exercise price of $0.65 per share and expiring on 30 June 2009. The Company calculated the fair value of these options to be $554,284 on the grant date which was charged to operations.
On 14 September 2006, a total of 800,000 stock options were granted, of which 500,000 were granted to a consultant having an exercise price of $0.40 per share and expiring on 30 September 2009 and 300,000 were granted to a consultant having an exercise price of $0.40 per share and expiring on 30 September 2007. The Company calculated the fair value of these options to be $100,321 on the grant date which was charged to operations.
Prior Year Stock Option Amendments
During the 2007 fiscal year, a total of 600,000 stock options were amended, whereby the term was extended from 30 July 2006 until 30 June 2007. The Company calculated the incremental increase in the fair value of these amended options to be $18,637, which was charged to operations.
Total outstanding and exercisable
Details of outstanding share purchase options are as follows:
| Weighted | |||||
| Number of | Average | ||||
| Options | Exercise Price | ||||
| Options outstanding, 30 June 2006 | 8,302,426 | $ | 0.15 | ||
| Options granted | 2,200,000 | 0.56 | |||
| Options exercised | (3,330,000 | ) | 0.17 | ||
| Options cancelled | (2,522,426 | ) | 0.17 | ||
| Options outstanding, 30 June 2007 | 4,650,000 | 0.33 | |||
| Options granted | 5,200,000 | 0.28 | |||
| Options exercised | - | - | |||
| Options expired | - | - | |||
| Options outstanding, 31 December 2007 | 9,850,000 | $ | 0.30 | ||
As at 31 December 2007, the following share purchase options were outstanding:
| Number of | Price per | |||
| Options | shares | Share | Expiry date | |
| 750,000 | $0.15 | 29 June 2008 | ||
| 2,000,000 | $0.15 | 30 April 2009 | ||
| 700,000 | $0.24 | 30 June 2009 | ||
| 500,000 | $0.40 | 30 June 2009 | ||
| 1,400,000 | $0.65 | 30 June 2009 | ||
| 500,000 | $0.65 | 30 June 2010 | ||
| 4,000,000 | $0.24 | 31 December 2010 | ||
| Total outstanding and exercisable | 9,850,000 |
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 6. | Share Capital – Continued |
| d) | Warrants |
Prior Year Warrant Amendments
During the 2007 fiscal year, a total of 2,000,000 share purchase warrants were amended from the original exercise price of $0.50 per share to a new price of $0.40 per share and the expiry date amended from 29 April 2007 to 30 June 2008. The Company estimated the incremental increase in the fair value of these amended warrants to be $112,723 which was charged to operations.
Total outstanding and exercisable
Details of outstanding share purchase warrants are as follows:
| Weighted | ||||
| Number of | Average | |||
| Warrants | Exercise Price | |||
| Warrants outstanding, 30 June 2006 | 7,368,334 | $ | 0.28 | |
| Warrants issued | - | - | ||
| Warrants exercised | 2,823,334 | 0.17 | ||
| Warrants cancelled | 820,000 | 0.40 | ||
| Warrants outstanding, 30 June 2007 | 3,725,000 | 0.28 | ||
| Warrants issued | 10,015,000 | 0.90 | ||
| Warrants exercised | - | - | ||
| Warrants expired | - | - | ||
| Warrants outstanding, 31 December 2007 | 13,740,000 | $ | 0.73 | |
Details of outstanding share purchase warrants as at 31 December 2007 are as follows:
| Number of | Price per | |||
| Warrants | Shares | Share | Expiry Date | |
| 2,000,000 | $0.40 | 30 June 2008 | ||
| 1,725,000 | $0.15 | 30 June 2008 | ||
| 15,000 | $1.00 | 23 July 2009 | ||
| 10,000,000 | $0.90 | 29 August 2010 | ||
| 13,740,000 | ||||
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 6. | Share Capital – Continued |
| e) | Black-Scholes Option-Pricing Model Assumptions |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| 31 December | 30June | ||||
| 2007 | 2007 | ||||
| Expected dividend yield | 0.00% | 0.00% | |||
| Expected stock price volatility | 91% - 107% | 91% - 99% | |||
| Risk-free interest rate | 3.89% - 4.28% | 4.02% - 4.73% | |||
| Expected life of options (years) | 1.52 - 3.02 | 0.79 - 2.79 |
The fair value of each warrant amendment is estimated on the grant date and date of amendment using the Black-Scholes option-pricing model with the following assumptions:
| 31 December | 30 June | ||||
| 2007 | 2007 | ||||
| Expected dividend yield | 0.00% | 0.00% | |||
| Expected stock price volatility | 85% - 89% | 96% | |||
| Risk-free interest rate | 4.28% - 4.66% | 4.02% | |||
| Expected life of warrants (years) | 2.00 - 3.00 | 1.79 |
Option pricing models require the input of highly subjective assumptions including the estimate of the share price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.
| 7. | Related Party Transactions |
All related party transactions have been disclosed elsewhere in these consolidated financial statements, except as follows:
a) During the period, management fees in the amount of $180,000 (2006 - $185,625) were paid or accrued to directors of the Company. Of that amount, $Nil (2006 - $28,125) has been recorded in resource property costs. In addition, the Company paid bonuses totalling $60,000 (2006 -$Nil) to two directors during the year. In addition, the Company provided accommodations for a director of the Company in Indonesia at a cost of $4,725 (2006 - $9,000) . This amount is included in rent expense.
b) During the 2006 fiscal year, management wrote down a receivable of $138,178 determined to be uncollectible which was owing from a company controlled by the estate for a deceased director (the “defendant”). During the period, a statement has been filed on behalf of the defendant and the Company is in the process of filing documentation in relation to the claim. Management intends to pursue full collection of the receivable until payment or settlement is reached.
c) As at 31 December 2007, $5,657 (30 June 2007 - $9,583) is receivable from a director of the Company and netted against accounts payable and $12,245 (30 June 2007 - $7,864) is payable to a director of the Company.
The above transactions, occurring in the normal course of operations, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 8. | Income Taxes |
| a) | A reconciliation of income taxes at statutory rates with the reported taxes is as follows: |
| 30 June | 30 June | ||||||
| 2007 | 2006 | ||||||
| Income (loss) before income taxes | $ | (2,603,000 | ) | $ | 1,923,117 | ||
| Canadian federal and provincial income tax rates | 34.12 | % | 34.12 | % | |||
| Expected income tax (recovery) | (888,144 | ) | 656,168 | ||||
| Items not deductible for income tax purposes | 1,502,851 | (503,377 |
) | ||||
| (Unrecognized) recognized benefit of non-capital losses | (614,707 | ) | (152,791 | ) | |||
| Total income taxes (recovery) | $ | - | $ | - | |||
| Represented by: | |||||||
| Current income tax | $ | - | $ | - | |||
| Future income tax recovery | $ | - | $ | - | |||
| b) | The significant components of the Company's future income tax assets and liabilities are as follows: | |
| 30 June | 30 June | ||||||
| 2007 | 2006 | ||||||
| Future income tax assets (liabilities) | |||||||
| Non-capital loss carry forwards | $ | 1,128,909 | $ | 855,898 | |||
| Capital loss carry forwards | 272,971 | 53,176 | |||||
| Share issue costs | 14,126 | 19,619 | |||||
| Undepreciated capital cost in excess of accounting | |||||||
| net book value | 240,711 | 216,950 | |||||
| Mineral properties | 624,070 | 590,195 | |||||
| 2,280,787 | 1,735,838 | ||||||
| Valuation allowance | (2,280,787 | ) | (1,735,838 | ) | |||
| Net future income tax assets | $ | - | $ | - | |||
The Company has non-capital losses for Canadian tax purposes of approximately $3,504,845CDN available to offset against taxable income in future years, which, if unutilized, will expire through to 2027. The Company has capital losses for Canadian tax purposes of approximately $1,694,951CDN available to offset capital gains in the future. Subject to certain restrictions, the Company also has resource exploration expenditures of approximately $1,937,507CDN available to reduce taxable income of future years. Future tax benefits which may arise as a result of these losses, resource deductions and other tax assets have not been recognized in these financial statements, and have been offset by a valuation allowance.
| Continental Energy Corporation |
| (An Exploration Stage Company) |
| Notes to Interim Consolidated Financial Statements |
| 31 December 2007 |
| Unaudited - Prepared by Management |
| 9. | Segmented Information |
| North America | Indonesia | Consolidated | ||||||||
| 31 December 2007 | ||||||||||
| Segmented revenue | $ | - | $ | - | $ | - | ||||
| Segmented income (loss) | $ | (1,675,094 | ) | $ | (106,431 | ) | $ | (1,781,525 | ) | |
| Identifiable assets | $ | 3,860,181 | $ | 199,819 | $ | 4,060,000 | ||||
| 30 June 2007 | ||||||||||
| Segmented revenue | $ | - | $ | - | $ | - | ||||
| Segmented income (loss) | $ | (2,175,576 | ) | $ | (427,424 | ) | $ | (2,603,000 | ) | |
| Identifiable assets | $ | 1,613,914 | $ | 150,034 | $ | 1,763,948 |
| 10. | Comparative Figures |
Certain of the comparative figures have been reclassified to conform with the current year’s presentation.
| MANAGEMENT’S DISCUSSION & ANALYSIS |
| FORM 51-102F1 |
| CONTINENTAL ENERGY CORPORATION For |
| the Second Quarter Ended December 31, 2007 |
NATURE OF BUSINESS
Continental Energy Corporation (“Continental” or the “Company”) is an oil and gas exploration company engaged in the assembly of a portfolio of oil and gas exploration properties with high potential resource prospects. Continental is focusing its efforts in Indonesia where large tracts of acreage can be accumulated, there is a long and positive history of oil exploration success, and geological conditions are favorable for hydrocarbon accumulation. Continental has acquired rights to an Indonesian production sharing contract area covering 2,427 square kilometers (600,000 acres), the Bengara-II Block. Continental is an exploration stage company and none of its oil and gas properties currently generate revenue.
Our accompanying consolidated financial statements have been prepared using accounting principles generally accepted in Canada. Our fiscal year end is June 30th. All reported amounts are in United States dollars unless otherwise noted.
The date of this report is as of February 29, 2008.
FORWARD-LOOKING INFORMATION
This management discussion and analysis (“MD&A”) contains certain forward-looking statements and information relating to Continental that are based on the beliefs of its management as well as assumptions made by and information currently available to Continental. When used in this document, the words “anticipate”, “believe”, “estimate”, “expect” and similar expressions, as they relate to Continental or its management, are intended to identify forward-looking statements. This MD&A contains forward-looking statements relating to, among other things, regulatory compliance, the sufficiency of current working capital, and the estimated cost and availability of funding for the continued exploration and development of the Company’s oil and gas properties. Such statements reflect the current views of Continental with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Aside from factors identified in the annual MD&A, additional important factors, if any, are identified here.
HIGHLIGHTS OF THE PAST QUARTER
The “Past Quarter” ended December 31, 2007 marks the end of the second quarter and second three months of the Company’s annual fiscal year ending June 30, 2008. Significant events having material effect on the business affairs of the Company which have occurred during the Past Quarter are summarized below:
Punga-1 Exploration Well Spudded in Bengara-II Block
On October 15, 2007 the Company announced that its 18% owned Indonesian subsidiary Continental-GeoPetro (Bengara-II) Ltd. ("CGB2") has spudded the Punga-1 exploration well. The Punga-1 is the fourth well to be drilled as part of the 2007 drilling program for the Bengara-II Block, onshore East Kalimantan, Indonesia. Drilling of the Punga-1 to a planned total depth of 2,800 meters (9,186 feet) is expected to take up to 60 days at a cost of over $6,000,000. The Punga-1 will test a large, seismically mapped structural culmination at a location approximately 16 miles southeast of the Seberaba-1 exploration well location, and approximately 12 miles southeast of the Seberaba-4 appraisal well location.
Biofuels Subsidiary Formed
On October 17, 2007 the Company entered a cofounder shareholders agreement pertaining to a new, partially-owned, special purpose company incorporated in Delaware named Continental Biofuels Corporation (“CBC”). The Company subscribed and purchased 1,000 shares of the 2,500 issued and fully paid share capital of CBC representing a 40% stake, and largest single shareholding, in CBC. The remaining 60% stake in CBC is held by a cofounder group of five private investors led by Casimir Capital Group LLC of New York which includes two Directors of the Company, each of whom purchased a 10% stake. The Company’s CFO, Mr. James D. Eger has been appointed as the first President and CEO of CBC. During the short term the Company expects this management control to be relinquished and the Company’s shareholding stake in CBC to be diluted when new investors join CBC in anticipated private or public fundings.
The Company and its management have a long track record in oil and gas exploration in remote areas of Indonesia. This experience provides contacts, knowledge of local business practices, and long standing personal relationships with Indonesian and Malaysian palm oil plantation owners and local government plantation permit providers. As a result, the Company is in a unique position to act in the role of facilitator and strengthen CBC’s SE Asian operational capability and assist CBC to capitalize on palm oil plantation acquisition or development opportunities. At this time the Company does not intend to invest further working capital in CBC and expects its management role in CBC to be limited to a short term start up period. The Company views the investment in CBC as a broadening of its commercial asset base in keeping with its geographic focus on Asia, particularly Indonesia.
Share Purchase Warrants Activity
During the Past Quarter the following activity involving the Company’s share purchase warrants
occurred: Exercises - No outstanding share purchase warrants were exercised.
New Issues - No new share purchase warrants were exercised.
Expiry - No share purchase warrants expired.
Amendments - No amendments were made to the terms of any outstanding share purchase warrants.
Incentive Stock Options Activity
During the Past Quarter the following activity involving the Company’s incentive stock options occurred:
Exercises - No outstanding incentive stock options were exercised.
New Grants - A total of 4,000,000 new incentive stock options were granted to directors, employees and advisors having an exercise price of $0.24 per share and expiring on December 31, 2010. A total of 700,000 new incentive stock options were granted to advisors having an exercise price of $0.24 per share and expiring on June 30, 2009. Expiry - No outstanding incentive stock options expired.
Amendments - No amendments were made to the terms of any outstanding incentive stock options.
Shares Issues
During the Past Quarter no new shares were issued.
SUBSEQUENT EVENTS
Significant events possibly having material effect on the business affairs of the Company which have occurred since the end of the Past Quarter ended December 31, 2007 but prior to publication of this report are summarized below:
New Wire Transfer / Foreign Exchange Relationship
On January 9, 2008 the Board authorized establishment of a contractual relationship with Custom House of Vancouver, British Columbia, for the purposes of making online foreign currency payments originated by over-the-internet dual authorizations at favorable wire transfer costs and favorable exchange rates with a related direct debit facility at the Company’s Bank of Montreal bank account. This should streamline the payments process and reduce costs associated with transferring funds to the Company’s subsidiaries and foreign based vendors.
Share Purchase Warrants Activity
Subsequent to the end of the Past Quarter and up to the date of this report, the following activity involving the Company’s share purchase warrants occurred:
Exercises - No outstanding share purchase warrants were exercised.
New Issues - No new share purchase warrants were issued.
Expiry - No share purchase warrants expired.
Amendments - No amendments were made to the terms of any outstanding share purchase warrants.
Incentive Stock Options Activity
Subsequent to the end of the Past Quarter and up to the date of this report, the following activity involving the Company’s incentive stock options occurred:
Exercises - No outstanding incentive stock options were exercised.
New Grants - No new incentive stock options were granted.
Expiry - No outstanding incentive stock options expired.
Amendments - No amendments were made to the terms of any outstanding incentive stock options.
Shares Issues
Subsequent to the end of the Past Quarter and up to the date of this report no new shares have been issued.
SHAREHOLDING
As of the date of this report the Company had 68,637,381 common shares issued and outstanding.
As of the date of this report the Company had 9,850,000 unexercised stock options issued and outstanding.
As of the date of this report the Company had 13,740,000 unexercised warrants issued and outstanding.
As of the date of this report the Company had Nil preferred shares issued and outstanding.
RESULTS OF OPERATIONS
Financial Results for the Second Quarter Ended December 31, 2007
The Past Quarter ended December 31, 2007 marks the end of the Second Quarter and the second three months of the Company’s annual fiscal year ending June 30, 2008.
Summary of Quarterly Results
The following table sets out selected unaudited quarterly financial information of Continental and is derived from unaudited quarterly consolidated financial statements as filed on SEDAR.
| Basic Income (Loss) | Fully Diluted Income | ||||||
| Loss from Continued | per Share from | per Share from | |||||
| Operations and Net | Continued Operations | Continued Operations | |||||
| Period | Revenues | Income (loss) | and Net Income (loss) | and Net Income (loss) | |||
| 2nd Quarter 2008 | Nil | (1,102,995 | ) | (0.02 | ) | (0.02 | ) |
| 1st Quarter 2008 | Nil | (678,530 | ) | (0.01 | ) | (0.01 | ) |
| 4th Quarter 2007 | Nil | (973,445 | ) | (0.01 | ) | (0.01 | ) |
| 3rd Quarter 2007 | Nil | (466,714 | ) | (0.01 | ) | (0.01 | ) |
| 2nd Quarter 2007 | Nil | (627,461 | ) | (0.01 | ) | (0.01 | ) |
| 1st Quarter 2007 | Nil | (535,380 | ) | (0.01 | ) | (0.01 | ) |
| 4th Quarter 2006 * | Nil | (527,163 | ) | (0.01 | ) | (0.01 | ) |
| 3rd Quarter 2006 | Nil | (344,393 | ) | (0.01 | ) | (0.01 | ) |
* The 4th Quarter 2006 only consists of 2 months due to a change in fiscal year end from 31 July to 30 June.
Current Working Capital Situation
As at December 31, 2007, the Company's interim consolidated financial statements reflect a working capital position of $3,828,734. This represents an increase in the working capital of $2,263,922 compared to the June 30, 2007 working capital of $1,564,812. The increase was mainly due to the private equity placement with Macquarie for $3,250,000 offset by the Company’s general and administrative expenditures during the period. The cash balance at December 31, 2007 was $3,806,990 compared to $1,514,279 as at June 30, 2007, an increase of $2,292,711. During the current quarter, the Company’s cash balance decreased by $630,167.
The Company used $804,620 for operating activities during the six months ended December 31, 2007 compared with $889,124 in the six months ended December 31, 2006. During the current quarter, the Company used $511,970 as compared with $369,711 in the same fiscal quarter in the prior year.
The cash resources used for investing activities during the six months ended December 31, 2007 was $162,419 compared with a net recovery of $63,304 in the six months ended December 31, 2006. The large increase is mainly due to the investment in Continental Biofuels represented by the purchase of 1,500 shares at $100 per share for a total investment of $100,000. The Company’s property expenditures continue to be at a maintenance level until management decides to commence further exploration and development of its Indonesian properties. The prior year amount includes the proceeds from the sale of Bengara shares in the amount of $21,000. During the current quarter, the Company used $118,197 as compared with $33,084 in the same fiscal quarter in the prior year.
The cash resources provided by financing activities during the six months ended December 31, 2007 was $3,259,750 compared with $303,500 in the six months ended December 31, 2006. The Company completed the private equity placement with Macquarie for $3,250,000 during the first quarter. During the current quarter, cash resources provided by financing activities were $nil as compared with $303,500 in the same fiscal quarter in the prior year.
Investments
During the six months ended December 31, 2007, the Company invested $100,000 in Continental Biofuels for a 40% interest in the company which will be used to pursue palm oil to biodiesel projects in Indonesia. The Company also invested $24,173 in its Indonesian oil & gas properties and $38,246 in equipment purchases mainly relating to computer and computer software.
Finance
During the six months ended December 31, 2007, a total of 5,265,000 new shares were issued pursuant to private placements for net proceeds to the Company of $3,259,750. During the six months ended June 30, 2007 there were no Stock Options or Warrants exercised.
On December 31, 2007, the Company had options outstanding granted to directors, officers and consultants to purchase an aggregate of 9,850,000 shares at prices ranging from $0.15 to $0.65 and expiring at varying dates between June 29, 2008 and December 31, 2010.
On December 31, 2007, the Company had warrants outstanding to purchase an aggregate of 13,740,000 shares at prices ranging from $0.15 to $1.00 and expiring at varying dates between June 30, 2008 and August 29, 2010.
Operations
Overall, the Company had a loss from operations during the six months ended December 31, 2007 of $1,781,525 compared to $1,162,841 in the six months ended December 31, 2006. The Company had a loss per share of $0.03 in 2007 compared to a loss per share of $0.02 in 2006. During the current quarter, the Company had a loss from operations of $1,102,995 as compared with $627,461 in the same fiscal quarter in the prior year. This represents a loss per share of $0.02 in 2007 compared to a loss per share of $0.01 in 2006 in the second fiscal quarter.
During the current six month period, the Company generated $68,735 in interest income compared with $48,197 in the prior period. The Company’s portion of the loss sustained in Continental Biofuels since inception to December 31, 2007 was $14,740.
General and administrative expenses increased by $445,867 from $1,365,480 to $1,811,347 for the six months ended December 31, 2006 and 2007 respectively. The significant changes to general and administrative expenses are as follows. The Company recorded stock-based compensation expense, relating to management and consulting contracts, of $891,446 for the six months ended December 31, 2007 compared to $118,958 in the six months ended December 31, 2006. During the prior period, the Company amended the terms of certain share purchase warrants outstanding. The Company recorded the fair value of the amended warrants as financing fees, being $112,723 for 2006. There were no warrants amended in the current period. Management fees decreased by $97,459 from $494,071 to $396,612. The decrease is due to the Company paying out bonuses of $270,000 in the prior year in relation to the Bengara disposition. In the current period, the Company paid bonuses of $60,000 to two directors in recognition of valuable service to the Company. Professional fees decreased by $76,137 from $127,569 to $51,432. The prior period consisted of higher legal and accounting costs for various due diligence work and a change in disclosure requirements. Rent decreased by $44,471 from $67,077 to $22,606. The decrease relates to lower costs in Jakarta. Travel decreased by $102,200 from $165,651 to $63,451. Office costs increased by $54,963 from $136,376 to $191,339. Investor relations increased by $59,415 from $48,350 to $107,765. The increase is due to two investor relation contracts, advertising contracts and conferences which Company’s management attended during the period. All other expense groups are consistent with the comparative period and some decreased slightly.
ADDITIONAL DISCLOSURE
Material Contracts & Commitments
During the Past Quarter, no new material contracts or commitments were undertaken and not elsewhere disclosed herein or in the unaudited quarterly consolidated financial statements as filed on SEDAR for the Past Quarter ended December 31, 2007 published herewith.
Related Party Transactions
During the Past Quarter, no new related party agreements, or modifications to existing agreements, of any kind were made by the Company which are not otherwise already disclosed herein or in the unaudited quarterly consolidated financial statements as filed on SEDAR for the Past Quarter ended December 31, 2007 published herewith.
Expenditures made by the Company to related parties during the Past Quarter and six months ended December 31, 2007 together with balances receivable and payable also as at December 31, 2007 are as follows:
Investor Relations, Publicity and Promotion
During the Past Quarter, no new arrangements, or modifications to existing agreements, were made by the Company for investor relations services, publicity, promotion or advertising agreements which are not otherwise already disclosed herein.
Finder's Agreements, Financial Advice & Fund Raising
During the Past Quarter, no new arrangements, or modifications to existing agreements, were made by the Company relating to financial advice, fund raising or finder's agreements which are not otherwise already disclosed herein.
Significant Accounting Policies
The interim consolidated financial statements for the Past Quarter and first six months ended December 31, 2007 followed the same accounting policies and methods of application in the most recent annual financial statements except as follows:
Change in Accounting Policy
| i) | Valuation of warrants |
Effective 1 July 2007, the Company has adopted the following accounting policy with respect to the valuation of warrants issued as part of a private placement unit. The proceeds from the issue of units is allocated between common shares and common share purchase warrants on a pro-rata basis based on relative fair values as follows:
| ii) | Share Capital |
Share capital issued for non-monetary consideration is recorded at an amount based on fair market value. The proceeds from the issue of units is allocated between common shares and common share purchase warrants on a pro-rata basis based on relative fair values as follows:
Evaluation of Disclosure Controls
As required by Multilateral Instrument 52-109, management carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2007. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company to satisfy its continuous disclosure obligations and are effective in ensuring that information required to be disclosed in the reports that the Company files is accumulated and communicated to management as appropriate to allow for timely decisions regarding required disclosure.
Internal Controls and Procedures
Internal controls and procedures are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian generally accepted accounting principles. As at the end of the period covered by this management’s discussion and analysis, management had designed and implemented internal controls and procedures as required by Canadian securities laws. Based on the Chief Executive Officer and the Chief Financial Officer’s review of the design of internal controls over financial reporting, the Chairman and President have concluded that the design of internal controls is adequate for the nature of the Company’s business and size of its operations. As a small organization, and similar to other small organizations, the Company’s management is composed of a small number of key individuals, resulting in a situation where limitations on the segregation of duties as well as expertise in such areas as complex calculations and estimations do not exist, as such these risks are compensated by more effective supervision and monitoring by the Chief Executive Officer and the Chief Financial Officer as well as reliance on third party expertise where appropriate. It is important to note that in order to eliminate the potential risk associated with these issues the Company would be required to hire additional staff in order to provide greater segregation of duties and expertise in certain areas. Currently the Company has chosen to disclose the potential risk in its annual filings and proceed with increased staffing as the Company’s growth supports such overhead expansion.
Approval
The Board of Directors of Continental has approved the disclosure contained in this interim MD&A.
Additional Information
Additional information relating to Continental is available on SEDAR at www.sedar.com.
Claims, Contingencies & Litigation
Except for any contingencies elsewhere disclosed herein, or in the or in the interim financial statements for the Past Quarter published herewith, the Company knows of no material, active or pending claims or legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation that might materially adversely affect the Company or a property interest of the Company except as follows:
CONTINUOUS DISCLOSURE & FILINGS - CANADA
Additional disclosure is made on a continuous basis through periodic filings of Company financial information, significant events, including all press releases and material change reports and disclosure of new or changed circumstances regarding the Company. Unaudited quarterly financial statements are filed by the Company with the British Columbia Securities Commissions (“BCSC”) for each fiscal quarter. Shareholders and interested parties may obtain downloadable copies of mandatory filings made by the Company with Canadian securities regulators on the internet at the “SEDAR” website www.sedar.com which is the “System for Electronic Document Archiving and Retrieval”, employed by Canadian securities regulatory commissions to enable publicly traded companies to electronically file and archive documents and filings in compliance with applicable laws and securities trading regulations. The Company began filing on SEDAR in 1997. All Company filings made on SEDAR during the Past Quarter and up to the date of this filing are incorporated herein by this reference.
CONTINUOUS DISCLOSURE & FILINGS - USA
The Company is also a full reporting issuer and filer of US Securities and Exchange Commission (“US-SEC”) filings. US-SEC filings include Form 20F annual reports and audited financial statements. Interim unaudited quarterly financial reports in this format together with press releases and material contracts and changes are filed under Form-6K. The Company has filed electronically on the US-SEC’s EDGAR database commencing with the Company’s Form 20F annual report and audited financial statements for the fiscal year ended July 31, 2004. See website www.sec.gov/edgar/searchedgar/webusers.htm. Prior to that event the Company filed with the US-SEC in paper form. All Company filings made to US-SEC during the past fiscal year and during the Past Quarter and up to the date of this filing are incorporated herein by this reference.
-- -o0o-- -
Form 52-109F2 Certification of Interim Filings
I Richard L. McAdoo, President and Chief Executive Officer of Continental Energy Corporation, certify that:
| 1. | I have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings) of Continental Energy Corporation, (the issuer) for the interim period ending December 31, 2007; | |
| 2. | Based on my knowledge, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings; | |
| 3. | Based on my knowledge, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date and for the periods presented in the interim filings; | |
| 4. | The issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the issuer, and we have: | |
| (a) | designed such disclosure controls and procedures, or caused them to be designed under our supervision, to provide reasonable assurance that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the interim filings are being prepared; and | |
| (b) | designed such internal control over financial reporting, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP; and | |
| 5. | I have caused the issuer to disclose in the interim MD&A any change in the issuer’s internal control over financial reporting that occurred during the issuer’s most recent interim period that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting. | |
Date: February 29, 2008
(signed) ”Richard L. McAdoo”
Name: Richard L. McAdoo
Title: President and Chief Executive Officer
Form 52-109F2 Certification of Interim Filings
I James D. Eger, Chief Financial Officer of Continental Energy Corporation, certify that:
| 1. | I have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings) of Continental Energy Corporation, (the issuer) for the interim period ending December 31, 2007; | |
| 2. | Based on my knowledge, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings; | |
| 3. | Based on my knowledge, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date and for the periods presented in the interim filings; | |
| 4. | The issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the issuer, and we have: | |
| (a) | designed such disclosure controls and procedures, or caused them to be designed under our supervision, to provide reasonable assurance that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the interim filings are being prepared; and | |
| (b) | designed such internal control over financial reporting, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP; and | |
| 5. | I have caused the issuer to disclose in the interim MD&A any change in the issuer’s internal control over financial reporting that occurred during the issuer’s most recent interim period that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting. | |
| Date: February 29, 2008 | |
| (signed) ”James D. Eger” | |
| Name: James D. Eger | |
| Title: Chief Financial Officer | |