TEXHOMA
ENERGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
March
31,
2006 and September 30, 2005
ASSETS
|
|
March
2006
|
|
|
September
2005
|
|
|
|
(unaudited)
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
107,121
|
|
|
$
|
149,805
|
|
Restricted
cash
|
|
|
2,669,966
|
|
|
|
|
|
Accounts
receivable-miscellaneous
|
|
|
6,566
|
|
|
|
|
|
Accounts
receivable-net oil and gas production
|
|
|
227,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
3,011,317
|
|
|
|
149,805
|
|
|
|
|
|
|
|
|
|
|
Oil
and Gas Properties, net of depletion of $299,444 at March 31,
2006
|
|
|
8,973,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
944,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
12,929,083
|
|
|
$
|
149,805
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
41,497
|
|
|
$
|
27,449
|
|
Accrued
expenses
|
|
|
191,717
|
|
|
|
122,509
|
|
Notes
payable related parties
|
|
|
1,085,000
|
|
|
|
1,045,000
|
|
Notes
payable
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
3,818,214
|
|
|
|
1,194,958
|
|
|
|
|
|
|
|
|
|
|
Long
term notes payable
|
|
|
8,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 9)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 1,000,000 shares authorized, none
issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.001 par value, 300,000,000 shares authorized, 153,812,252
and
106,812,252 shares issued and outstanding at March 2006 and
September 2005, respectively
|
|
|
153,812
|
|
|
|
106,812
|
|
Additional
paid-in capital
|
|
|
8,055,794
|
|
|
|
6,222,794
|
|
Retained
deficit
|
|
|
(7,598,737
|
)
|
|
|
(7,374,759
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
610,869
|
|
|
|
(1,045,153
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
12,929,083
|
|
|
$
|
149,805
|
|
|
|
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
|
(A
Development Stage Company)
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the three and six months ended March 31, 2006 and 2005
|
|
And
for the period from September 28, 1998 (Inception) to March 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
September 28, 1998
|
|
|
|
Three
Months Ended March 31,
|
|
|
Six
Months Ended March 31,
|
|
|
(inception)
to
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
March
31, 2006
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas interests
|
|
$
|
466,137
|
|
|
$
|
-
|
|
|
$
|
466,137
|
|
|
$
|
-
|
|
|
$
|
497,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
466,137
|
|
|
|
-
|
|
|
|
466,137
|
|
|
|
-
|
|
|
|
497,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas exploration
|
|
|
178,599
|
|
|
|
2,432,639
|
|
|
|
178,599
|
|
|
|
2,708,083
|
|
|
|
1,888,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
287,538
|
|
|
|
(2,432,639
|
)
|
|
|
287,538
|
|
|
|
(2,708,083
|
)
|
|
|
(1,390,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depletion
|
|
|
299,444
|
|
|
|
-
|
|
|
|
299,444
|
|
|
|
-
|
|
|
|
299,444
|
|
General
and administrative expenses
|
|
|
129,490
|
|
|
|
(14,890
|
)
|
|
|
200,166
|
|
|
|
994,400
|
|
|
|
5,806,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
(141,396
|
)
|
|
|
(2,417,749
|
)
|
|
|
212,072
|
)
|
|
|
3,702,483
|
)
|
|
|
(7,496,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,843
|
)
|
Interest
income
|
|
|
731
|
|
|
|
-
|
|
|
|
731
|
|
|
|
-
|
|
|
|
731
|
|
Interest
expense
|
|
|
(12,637
|
)
|
|
|
-
|
|
|
|
(12,637
|
)
|
|
|
-
|
|
|
|
(12,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(11,906
|
)
|
|
|
-
|
|
|
|
(11,906
|
)
|
|
|
-
|
|
|
|
(101,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(153,302
|
)
|
|
|
(2,417,749
|
)
|
|
|
(223,978
|
)
|
|
|
(3,702,483
|
)
|
|
|
(7,598,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(153,302
|
)
|
|
$
|
(2,417,749
|
)
|
|
$
|
(223,978
|
)
|
|
$
|
(3,702,483
|
)
|
|
$
|
(7,598,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
115,345,586
|
|
|
|
101,990,029
|
|
|
|
111,032,032
|
|
|
|
90,626,840
|
|
|
|
|
|
Diluted
Weighted average common shares outstanding
|
|
|
115,865,030
|
|
|
|
101,990,029
|
|
|
|
111,288,900
|
|
|
|
90,626,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texhoma
Energy, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
And
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
Development Stage Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the period from September 28, 1998 (Date of Inception) to March
31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
Capital
|
|
|
|
|
|
|
|
|
Deficit
during
|
|
|
Total
Stockholders'
|
|
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Paid-In
|
|
|
Preferred
|
|
|
Contributed
|
|
|
Subscriptions
|
|
|
Development
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Capital
|
|
|
Received
|
|
|
Stage
|
|
|
[Deficit]
|
|
Balance,
at inception
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance,
September 30, 1998
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock at $.1875 per share,
October
5, 1998
|
266,667
|
|
|
|
267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,485
|
)
|
|
|
(50,485
|
)
|
Balance,
September 30, 1999
|
|
|
266,667
|
|
|
|
267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,485
|
)
|
|
|
(485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(485
|
)
|
|
|
(485
|
)
|
Balance,
September 30, 2000
|
|
|
266,667
|
|
|
|
267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,970
|
)
|
|
|
(970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued at $5.625 per share, June 30, 2001:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
compensation
|
|
|
2,667
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,997
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
For
acquisition
|
|
|
53,333
|
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
299,947
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Contributed
capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
193,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
193,328
|
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(218,587
|
)
|
|
|
(218,587
|
)
|
Balance,
September 30, 2001
|
|
|
322,667
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
364,677
|
|
|
|
-
|
|
|
|
193,328
|
|
|
|
(300,000
|
)
|
|
|
(269,557
|
)
|
|
|
(11,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued at $5.625 per share for consulting services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
7, 2002
|
|
|
160
|
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
900
|
|
June
15, 2002
|
|
|
46,176
|
|
|
|
46
|
|
|
|
-
|
|
|
|
-
|
|
|
|
259,694
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
259,740
|
|
July
7, 2002
|
|
|
1,200
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,749
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,750
|
|
Cancellation
of outstanding shares, November 2001
|
|
|
(53,333
|
)
|
|
|
(53
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(299,947
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
Contributed
capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232,418
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232,418
|
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(482,114
|
)
|
|
|
(482,114
|
)
|
Balance,
September 30, 2002
|
|
|
316,869
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
332,073
|
|
|
|
-
|
|
|
|
425,746
|
|
|
|
-
|
|
|
|
(751,671
|
)
|
|
|
6,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for consulting services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/19/2002
at
$18.75 per share
|
|
|
13,333
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
249,987
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
1/1/2003
at
$5.625 per share
|
|
|
3,333
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,747
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,750
|
|
7/1/2003
at
$.9375 per share
|
|
|
20,320
|
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,030
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,050
|
|
9/22/2003
at
$8.625 per share
|
|
|
5,067
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,700
|
|
9/22/2003
at
$.9375 per share
|
|
|
13,333
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,487
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,500
|
|
Contributed
capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
194,258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194,258
|
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(567,865
|
)
|
|
|
(567,865
|
)
|
Balance,
September 30, 2003
|
|
|
372,256
|
|
|
|
372
|
|
|
|
-
|
|
|
|
-
|
|
|
|
676,018
|
|
|
|
-
|
|
|
|
620,004
|
|
|
|
-
|
|
|
|
(1,319,536
|
)
|
|
|
(23,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for consulting services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$7.5
per share, October 10, 2003
|
|
|
336,267
|
|
|
|
336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,521,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,380,000
|
)
|
|
|
-
|
|
|
|
142,000
|
|
at
$.75
per share, October 10, 2003
|
|
|
52,960
|
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,720
|
|
at
$1.5
per share, October 10, 2003
|
|
|
3,333
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,997
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
at
$2.625 per share, October 15, 2003
|
|
|
5,333
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,995
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
at
$1.875 per share, November 26, 2003
|
|
|
4,000
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,496
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,500
|
|
at
$1.875 per share, December 5, 2003
|
|
|
4,000
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,496
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,500
|
|
at
$2.625 per share, December 15, 2003
|
|
|
6,667
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,493
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,500
|
|
Reclassification
of contributed capital to accounts payable shareholder,
net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(217,614
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(217,614
|
)
|
Shares
cancelled that were issued October 10, 2003
|
|
|
(274,533
|
)
|
|
|
(275
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,058,725
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,059,000
|
|
|
|
-
|
|
|
|
-
|
|
Write
off of receivable from shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
321,000
|
|
|
|
-
|
|
|
|
321,000
|
|
Shares
issued for services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$1.5
per share, January 29, 2004
|
|
|
5,333
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,995
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,000
|
|
at
$1.125 per share, January 29, 2004
|
|
|
1,600
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,798
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,800
|
|
at
$4.5
per share, January 29, 2004
|
|
|
22,667
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101,977
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
102,000
|
|
at
$.75
per share, February 29, 2004
|
|
|
112,533
|
|
|
|
113
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,287
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,400
|
|
Issuance
of
1,000,000 preferred stock for option exercised, May 5,
2004
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
19,000
|
|
|
|
180,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,200,000
|
|
Conversion
of
1,000,000 preferred stock into 20,000,000 restricted common shares,
May
17, 2004
|
|
|
533,333
|
|
|
|
533
|
|
|
|
(1,000,000
|
)
|
|
|
(1,000
|
)
|
|
|
467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Restricted
shares issued for services, at $.75 per share, May 17,
2004
|
|
|
35,200
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,400
|
|
Restricted
shares issued for services, at $.75 per share, May 17,
2004
|
|
|
118,991
|
|
|
|
119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,243
|
|
Restricted
shares issued for services, at $.75 per share, May 17,
2004
|
|
|
53,067
|
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,747
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,800
|
|
Restricted
shares issued for services, at $.75 per share, May 17,
2004
|
|
|
86,076
|
|
|
|
86
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,471
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,557
|
|
Restricted
shares issued for acquisition of business, August 16, 2004, Cancelled
for
non-performance, October 13, 2004
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Restricted
shares issued for acquisition of business, August 26, 2004, Cancelled
for
non-compliance, October 13, 2004
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
issued for rounding
|
|
|
(126,895
|
)
|
|
|
(127
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
127
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
issued for services, at $.075 per share, September 9, 2004
|
|
|
10,028,572
|
|
|
|
10,029
|
|
|
|
-
|
|
|
|
-
|
|
|
|
742,114
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
752,143
|
|
Shares
issued for services, at $.075 per share, September 20,
2004
|
|
|
10,028,572
|
|
|
|
10,029
|
|
|
|
-
|
|
|
|
-
|
|
|
|
742,114
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
752,143
|
|
Shares
issued for services, at $.075 per share, September 29,
2004
|
|
|
10,000,000
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
740,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750,000
|
|
Shares
cancelled in consideration of third party asset, November 1,
2004
|
|
|
(533,336
|
)
|
|
|
(533
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(132,801
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(133,334
|
)
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,222,977
|
)
|
|
|
(3,222,977
|
)
|
Balance,
September 30, 2004
|
|
|
30,875,996
|
|
|
|
30,876
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,756,886
|
|
|
|
180,000
|
|
|
|
402,390
|
|
|
|
-
|
|
|
|
(4,542,513
|
)
|
|
|
(172,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
of Paid in Capital Preferred Stock and Contributed Capital to Paid
in
Capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
582,390
|
|
|
|
(180,000
|
)
|
|
|
(402,390
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
issued for services, October 5, 2004 at $.075 per
share
|
|
|
6,336,256
|
|
|
|
6,336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
468,883
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
475,219
|
|
Shares
issued for services, October 5, 2004 at $.075 per
share
|
|
|
7,600,000
|
|
|
|
7,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
562,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
570,000
|
|
Restricted
shares issued for acquisition of business, November 4,
2004
|
|
|
56,000,000
|
|
|
|
56,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
258,441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
314,441
|
|
Shares
issued, on March 7, 2005 at $.10 per share
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
198,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
Shares
issued, on August 20, 2005 at $.10 per share
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
198,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
Shares
issued, on September 18, 2005 at $.10 per Share
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
198,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
Correction
for prior years rounding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(206
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(206
|
)
|
Net
(loss) for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,832,246
|
)
|
|
|
(2,832,246
|
)
|
Balance,
September 30, 2005
|
|
|
106,812,252
|
|
|
|
106,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,222,794
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,374,759
|
)
|
|
|
(1,045,153
|
)
|
Shares
issued on February 6, 2006 at $.04 per share
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
78.,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
Shares
issued on March 15, 2006 at $0.04 per share
|
|
|
37,500,000
|
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
1,462,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
Shares
issued on March 24, 2006 at $0.04 per share
|
|
|
7,500,000
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
292,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Net
(loss) at March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223,978
|
)
|
|
|
(223,978)
|
|
Balance,
March 31, 2006
|
|
|
153,812,252
|
|
|
|
153,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,055,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,598,737)
|
|
|
|
610,869
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements
|
|
(A
Development Stage Company)
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
September 28, 1998
|
|
|
|
Three
months ended March 31,
|
|
|
Six
months ended March 31,
|
|
|
(inception)
to
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
March
31, 2006
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(153,302
|
)
|
|
$
|
(2,417,749
|
)
|
|
$
|
(223,978
|
)
|
|
$
|
(3,702,483
|
)
|
|
$
|
(7,598,737
|
)
|
Adjustments
to reconcile net (loss) to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion
and amortization
|
|
|
302,873
|
|
|
|
-
|
|
|
|
302,873
|
|
|
|
-
|
|
|
|
302,873
|
|
Stock
issued for services
|
|
|
-
|
|
|
|
(275,445
|
)
|
|
|
-
|
|
|
|
1,065,078
|
|
|
|
4,484,395
|
|
Stock
based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
888,042
|
|
Oil
and gas exploration costs
|
|
|
95,000
|
|
|
|
2,708,083
|
|
|
|
95,000
|
|
|
|
2,708,083
|
|
|
|
1,804,441
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(227,664
|
)
|
|
|
|
|
|
|
(227,664
|
)
|
|
|
|
|
|
|
(227,664
|
)
|
Accounts
payable
|
|
|
2,255
|
|
|
|
(55,382
|
)
|
|
|
7,483
|
|
|
|
(89,490
|
)
|
|
|
34,932
|
|
Accrued
liabilities
|
|
|
52,208
|
|
|
|
2,790
|
|
|
|
69,208
|
|
|
|
(18,891
|
)
|
|
|
202,674
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(7,272
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
71,370
|
|
|
|
(37,703
|
)
|
|
|
22,922
|
|
|
|
(37,703
|
)
|
|
|
(116,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in Black Swan
|
|
|
-
|
|
|
|
(1,245,000
|
)
|
|
|
-
|
|
|
|
(1,245,000
|
)
|
|
|
(1,395,000
|
)
|
Oil
and Gas Property Investments
|
|
|
(10,315,639
|
)
|
|
|
-
|
|
|
|
(10,315,639
|
)
|
|
|
-
|
|
|
|
(10,315,639
|
)
|
Other
Assets
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,957
|
)
|
Net
cash (used in) investing activities
|
|
|
(10,315,639
|
)
|
|
|
(1,245,000
|
)
|
|
|
(10,315,639
|
)
|
|
|
(1,245,000
|
)
|
|
|
(11,721,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
from affiliate
|
|
|
140,000
|
|
|
|
945,000
|
|
|
|
140,000
|
|
|
|
945,000
|
|
|
|
1,185,000
|
|
Loan
repayment to affiliate
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
(100,000
|
)
|
|
|
(50,000
|
)
|
|
|
(100,000
|
)
|
Notes
payable
|
|
|
11,000,000
|
|
|
|
|
|
|
|
11,000,000
|
|
|
|
|
|
|
|
11,000,000
|
|
Stock
issued for asset purchase
|
|
|
1,580,000
|
|
|
|
|
|
|
|
1,580,000
|
|
|
|
|
|
|
|
1,580,000
|
|
Proceeds
from issuance of common stock
|
|
|
300,000
|
|
|
|
400,000
|
|
|
|
300,000
|
|
|
|
400,000
|
|
|
|
950,000
|
|
Net
cash provided by financing activities
|
|
|
13,020,000
|
|
|
|
1,295,000
|
|
|
|
12,920,000
|
|
|
|
1,295,000
|
|
|
|
14,615,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
2,775,731
|
|
|
|
12,297
|
|
|
|
2,627,283
|
|
|
|
12,297
|
|
|
|
2,777,088
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,357
|
|
|
|
-
|
|
|
|
149,805
|
|
|
|
-
|
|
|
|
-
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,777,088
|
|
|
$
|
12,297
|
|
|
$
|
2,777,088
|
|
|
$
|
12,297
|
|
|
$
|
2,777,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements
|
|
|
|
|
|
|
|
|
TEXHOMA
ENERGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Three
and
six months ended March 31, 2006
1.
Summary of Significant Accounting Policies
Description
of Business
- Texhoma Energy, Inc. was originally incorporated as Pacific
Sports Enterprises, Inc. in 1998. Texhoma is engaged in the
exploration for and the production of hydrocarbons, more commonly known as
the
exploration and production of crude oil and natural gas.
In
November 2004, Texhoma acquired a 40% interest in Black Swan Petroleum Pty.
Ltd.
and its wholly owned subsidiary, Black Swan Petroleum (Thailand) Ltd.
(“BSP”). BSP held a 100% interest in a large offshore petroleum
concession located in the Gulf of Thailand, adjacent to the Eastern Thai
coastline, in water depths averaging 20 meters. The terms of the
acquisition included issuance of Company stock which resulted in a change
in
control of Texhoma.
The
Company has also entered into a 6% participation agreement for the exploration
and development of an area in Louisiana in December 2004.
At
March
31, 2006 Texhoma was in the development stage as defined by SFAS 7, Accounting
and Reporting for Development Stage Companies. As of year end,
Texhoma had generated nominal revenues, primarily devoting its efforts to
developing its business and raising working capital through equity financing
and
short-term borrowings.
Organization
and Basis of Presentation
– Texhoma’s securities are registered with the
Securities and Exchange Commission in the United States of America and its
securities currently trade under the symbol “TXHE.PC” on the pink
sheets.
The
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.
Use
of Estimates
– Texhoma’s financial statement preparation requires that
management make estimates and assumptions which affect the reporting of assets
and liabilities and the related disclosure of contingent assets and liabilities
in order to report these financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual
results could differ from those estimates.
The
primary estimates made by management included in these financial statements
are
the impairment reserves applied to various long-lived assets and the fair
value
of its stock tendered in various non-monetary transactions.
Cash
and Cash Equivalents -
Cash includes all highly liquid investments that are
readily convertible to known amounts of cash and have original maturities
of
three months or less.
Restricted
Cash –
Texaurus maintains the residual cash from the proceeds of the Laurus
Fund note in a restricted account for as long as Texaurus shall have any
obligations to Laurus. Texaurus may request authorization from Laurus
for access to these funds for the consummation of acquisitions of oil and
gas
assets. In addition, in conjunction with the note repayment
terms of the Laurus funding, providing that 80% of the net oil and gas receipts
shall be used to repay first interest and next principal on the then outstanding
note balance. The Laurus fund is authorized to transfer such funds to
its account, where it is held and applied to the accrued interest and
note payable at the end of each month.
Foreign
Currency Translation -
During the relevant periods, Texhoma’s investment in
the BSP assets and liabilities were translated from Thailand and Australian
currency into U.S. currency by use of exchange rates in effect at the balance
sheet date. Revenues and expenses were translated utilizing the exchange
rates
in effect on the date they were included in income or using weighted-average
exchange rates. Capital accounts were translated using the exchange rates
in
effect when the foreign entity’s capital stock was acquired or
issued. Gains or losses on translating the Thailand currency and
Australian currency into U.S. currency were reported in Minority Interest
in
Exploration Costs. Foreign currency transaction gains and losses were included
in net income in the period the exchange rate changed. Translation or
transaction
gains
or
losses were not material to the financial statements. The currency
translations are in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 52
Foreign Currency Translation
, (FAS
52). Resulting translation adjustments are reflected in the
accumulated other comprehensive items component of shareholders’
equity.
Fair
Value of Financial Instruments -
SFAS No. 107,
Disclosures about Fair
Values of Financial Instruments
(FAS 107), requires disclosing fair values
to the extent practicable for financial instrument, which are recognized
or
unrecognized in the balance sheet. For certain financial instruments, including
cash, accounts payable, and accrued expenses and short term debt, it was
assumed
that the carrying value does not materially differ from fair
value. The fair value of debt was determined based upon current rates
at which Texhoma could borrow funds with similar maturities
remaining.
Property
and Equipment-
Property and equipment are recorded at cost less impairment.
Depreciation is computed using the straight-line basis over the estimated
useful
lives of the assets at the rates in the accompanying table.
Asset
Category
|
Depreciation/
Amortization
Period
|
|
|
Building
|
30
Years
|
|
|
Plant
& Equipment
|
7
Years
|
|
|
Production
Tooling
|
$10
per unit
|
|
|
Automotive
Equipment
|
5
Years
|
|
|
Office
Equipment
|
5
to 3 Years
|
Texhoma’s
subsidiary purchased oil and gas property interests on March 28, 2006 with
ownership of their portion of the oil and gas production from the Barnes
Creek
and Edgerly properties effective January 1, 2006. Depletion is
computed based upon the estimated remaining proved developed reserves as
determined by a third party petroleum and geology consulting
firm. Based upon estimated total proven reserves for the Barnes Creek
leasehold of 73,405 barrels of oil and a remaining 69,701 barrels of oil
at
March 31, 2006, the property was depleted at the rate of 5% for this
quarter. The Edgerly leasehold had total proven reserves
of 63,493 barrels of oil and an estimated remaining 59,596
barrels and depletion of 6.1% was reported for the quarter ended
March 31, 2006. The Little White Lakes leasehold was purchased with
an effective date for the oil and gas production effective April 1,
2006.
Oil
and Natural Gas Exploration and Development -
BSP records its exploration
operations in accordance with SFAS 19,
Financial Accounting and Reporting by
Oil and Gas Producing Companies
(FAS 19). Exploration involves identifying
areas that may warrant inspection and/or examination of specific areas that
indicate they may possess the presence of oil and gas reserves, including
the
drilling of exploration wells and collecting seismic data.
BSP
adopted “Successful Efforts” accounting for exploration costs as defined in FAS
19. Under this method, geological and geophysical costs, the costs of
carrying and retaining undeveloped properties such as delay rentals, ad valorem
taxes on properties, legal costs for the title defense, maintenance of land
and
lease records, and dry and bottom hole contributions are charged to expense
as
incurred. The cost of drilling exploratory wells is capitalized,
pending determination of whether the well can produce
hydrocarbons. If it is determined the well has no commercial
potential, the capitalized costs, net of any salvage value are
expensed.
If
it is
determined subsequent to a financial reporting period and prior to the issuance
of financial statements for that reporting period, that an exploratory well
has
not found commercially exploitable hydrocarbons, any costs incurred through
the
end of that reporting period, net of salvage value, must be written off in
that
prior period under FASB Interpretation No. 36,
Accounting for Exploratory
Wells in Progress at the End of the Period
(FAS 36).
Equity
Method of Accounting for Investments in Common Stock -
The equity method of
accounting for investments in Common Stock when the ownership is 50 percent
or
less of the voting stock of the enterprise is governed by APB Opinion No.
18,
The Equity Method of Accounting for Investments in Common Stock
(APB
18). It states that use of the equity method of accounting for an
investment is required if the investor exercises significant influence over
the
operating and financial policies of the investee. APB 18 includes
presumptions, based on the investor’s percentage of ownership, as to whether the
investor has that ability.
In
accordance with APB No. 18, Texhoma treated its 40% ownership in BSP under
the
equity method of accounting and recorded the investment, adjusted by net
losses
of $1,245,000. In March 2005 Texhoma received a final drilling report
and the Board of Directors voted to agree with recommendations to abandon
and
plug the well. An impairment loss of $464,441 was recorded for the
investment
(see note 2 Concession).
Long-Lived
Assets
- The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including property,
equipment and purchased intangible assets with finite lives, is to review
the
carrying value of the assets if the facts and circumstances suggest that
they
may be impaired. If this review indicates that the carrying value will not
be
recoverable, as determined based on the projected undiscounted future cash
flows, the carrying value is reduced to its estimated fair value.
Intangible
Assets
- The Company adopted Statement of Financial Accounting Standard
(“SFAS”) No. 142,
Goodwill and Other Intangible Assets
(FAS 142),
effective July 1, 2002. As a result, the Company discontinued
amortization of goodwill, and instead annually evaluates the carrying value
of
goodwill for impairment, in accordance with the provisions of FAS
142.
Income
Taxes
- Management evaluates the probability of the realization of its
deferred income tax assets. The Company has estimated a $900,000
deferred income tax asset at March 31, 2006 relating to net operating loss
carryforwards and deductible temporary differences. Of that amount,
$76,000 is related to the net operating loss generated for the six months
ended
March 31, 2006. Management determined that because the Company has
not yet generated taxable income, because of the change in control that has
occurred in the past and the fact that certain losses have been generated
outside of the United States, is more likely than not that a tax
benefit will not be realized from these operating loss carryforwards and
deductible temporary differences. Accordingly, the
deferred income tax asset is offset by a full valuation allowance.
If
the
Company begins to generate taxable income, management may determine that
some or
all of the deferred income tax asset may be recognized. Recognition
of the asset could increase after tax income in the future. The net
operating tax loss carry forward of approximately $2,600,000 expires from
2011
to 2025. The future utilization of the net operating losses is
uncertain.
BSP
is
located in Australia and Thailand, and the Company’s share of those operating
losses may not be subject to United States Federal Income Tax.
Earnings
Per Share
- Basic earnings per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number of
common
shares outstanding during the reporting period. Diluted earnings per share
reflects the potential dilution that could occur if stock options and other
commitments to issue common stock were exercised or if equity awards
vest resulting in the issuance of common stock that could share in the earnings
of the Company. Restricted shares and warrants are included in the
computation of the weighted average number of shares outstanding during the
periods.
Loss
Per Share
- Per SFAS No. 128,
Earnings per Share
(FAS 128),
earnings per share (or loss per share), is computed by dividing the earnings
(loss) for the period by the weighted average number of common stock shares
outstanding for the period. Diluted earnings (loss) per share
reflects the potential dilution of securities by including other potential
common stock, including stock options and warrants, in the weighted average
number of common shares outstanding for the period, if dilutive.
Stock
Based Compensation
- Statements of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation
, (FAS 123) established
accounting and disclosure requirements using a fair-value based method of
accounting for stock-based employee compensation. In accordance with FAS
123,
the Company elected at March 31, 2006 to continue accounting for stock based
compensation using the
intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB
25).
Share-Based
Payment
- In December 2004, the FASB issued SFAS No. 123R,
Accounting for Stock-Based Compensation
(FAS 123(R)), which supersedes
APB 25. Accordingly, Texhoma will be required to measure all stock-based
compensation awards using a fair value method and recognize such expense
in its
financial statements as services are performed. In addition, the adoption
of FAS
No. 123(R) will require additional accounting related to the income tax effects
and additional disclosure regarding the cash flow effects resulting from
share-based payment arrangements. FAS No. 123(R) becomes effective for small
business issuers as of the first interim or annual reporting period that
begins
after December 31, 2005.
The
effects of the adoption of FAS No. 123(R) on Texhoma’s results of operations and
financial position are dependent upon a number of factors, including the
number
of employee stock options outstanding and unvested, the number of stock-based
awards which may be granted in the future, the life and vesting features
of
stock-based awards which may be granted in the future, the future market
value
and volatility of Texhoma’s stock, movements in the risk free rate of interest,
award exercise and forfeiture patterns, and the valuation model used to estimate
the fair value of each award. Texhoma is currently evaluating these variables
in
the design of its stock-based compensation program as well as the accounting
requirements under FAS No. 123(R) and SAB No. 107. In addition,
Texhoma intends to utilize restricted stock units as a key component of its
ongoing employee stock-based compensation plan. These awards generally are
recognized at their fair value, equal to the quoted market price of Texhoma’s
common stock on the date of issuance, and this amount is amortized over the
vesting period of the shares of restricted stock held by the grantee. Texhoma
believes that the adoption of FAS No. 123(R) will have a material impact on
its financial statements.
Non-monetary
Exchange
- In December 2004, the FASB issued SFAS No. 153,
Exchanges of Non-monetary Assets, an amendment of APB Opinion
No. 29
(FAS 153)
,
The amendments made by FAS 153
eliminate the exception for non-monetary exchanges of similar productive
assets
and replace it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of this statement
became effective for non-monetary asset exchanges occurring in Texhoma’s fourth
quarter of 2005. The adoption of FAS 153 did not have a material impact on
Texhoma’s financial statements.
Conditional
Asset Retirement
- In March 2005, the FASB issued FASB Interpretation (FIN)
No. 47,
Accounting for Conditional Asset Retirement Obligations–an
Interpretation of SFAS 143
(FIN 47). FIN 47 clarifies the timing
of liability recognition for legal obligations associated with the retirement
of
a tangible long-lived asset when the timing and/or method of settlement are
conditional on a future event. FIN 47 is effective no later than
December 31, 2005 and did not impact the Company’s financial
statements.
Foreign
Earnings Repatriation Provision within the American Jobs
- In December
2004, the FASB issued FASB Staff Position (“FSP”) No. FAS 109-2,
Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004
(FSP FAS 109-2)
.
The
American Jobs Creation Act (“AJCA”) introduces a special one-time dividend
received deduction on the repatriation of certain foreign earnings to a U.S.
taxpayer (“repatriation provision”), provided certain criteria are met. FSP FAS
109-2 provides accounting and disclosure guidance for the repatriation
provision. Texhoma completed its evaluation of this FSP and decided not to
repatriate foreign earnings under these provisions as it would not be beneficial
to Texhoma.
Accounting
Changes and Error
Corrections - In May 2005, the FASB issued SFAS
No. 154
, Accounting Changes and Error Corrections
(FAS
154)
.
This statement replaces APB Opinion No. 20,
Accounting Changes
, and SFAS No. 3,
Reporting Accounting
Changes in Interim Financial Statements,
and changes the requirements for
the accounting and reporting of a change in accounting principle. This statement
applies to all voluntary changes in accounting principles. It also applies
to
changes required by an accounting pronouncement in the unusual instance that
the
pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should
be followed. FAS 154 requires retrospective application to prior periods’
financial statements of voluntary changes in accounting principles. FAS 154
is effective for accounting changes and corrections of errors made during
2007,
beginning on January 1, 2007. Texhoma does not believe the adoption of FAS
154
will have a material impact on its financial statements.
Inventory
Cost
- In November 2004, the FASB issued SFAS No. 151
,
Inventory Costs—an Amendment of ARB No. 43, Chapter 4
(FAS
151)
.
FAS 151 amends Accounting Research Bulletin (“ARB”) No. 43,
Chapter 4, to clarify that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges. In addition, this statement requires
that
allocation of fixed production overheads to the costs of conversion be based
on
the normal capacity of the production facilities. The provisions of this
statement are effective for inventory costs incurred beginning in Texhoma’s
first quarter of 2006. Texhoma does not believe that the adoption of FAS
151
will have a material impact on its financial statements.
2.
CONCESSION
Texhoma
had a 40% interest in BSP which owned an exploration concession located in
the
Gulf of Thailand. The concession was signed on March 3, 1999 and
allowed for three exploration periods of three years each (the second and
third
periods are optional) followed by a possible twenty-year production period
to
develop commercial hydrocarbons found during the exploration phase.
At
the
time of the acquisition of Black Swan by Texhoma the shareholder of Black
Swan
were then comprised of Texhoma (40%), Dormley Pty. Ltd. (36%), Capersia Pte.
Ltd. (14%) and Nuenco NL (10%), respectively. In January 2005
Capersia and Dormley acquired Nuenco’s interest. Due to the ownership
division, although Texhoma was a minority percentage owner, the Company
controlled the majority of the joint venture and as such reported its interest
on a consolidated basis. As a result of the unsuccessful outcome the
investment was expensed in the third quarter 2005. The acquisition of
Black Swan was recorded by Texhoma at $464,441, based upon its 40% ownership
interest, which amount was included in the June 30, 2005 write
down.
The
work
program for the First Obligation Period included reprocessing seismic data,
acquisition of a 300 sq. km. 3D-seismic program and the drilling of one well.
With Thai Government approval, the commitment well was postponed to the 3
rd
year
of the Second
Obligation Period (ending March 2, 2005). In accordance with
the terms of the Concession, Black Swan Thai was required to drill two wells
and
expend $400,000 on other work-programs prior to March 2, 2005. The
obligations were fulfilled in the first half of 2005 upon the Concession
being
relinquished to the Thai government after it was determined the exploration
efforts and the drilling were unsuccessful.
In
March
2005 the board of directors voted to plug and abandon the concession and
Thailand oil exploration. The Company still owed $1,115,000 in unpaid
past cash calls and contributions to the joint venture. The unpaid
cash contribution was forgiven and paid by the remaining joint venture
members. The Company has no commitment or contingency for those
unpaid cash calls and contributions as represented by prior
management. In August 2005 Texhoma’s Board elected to withdraw its
support for continued exploration with BSP and write off its investment
effective June 30, 2005.
On
January 20, 2006 we divested our shareholding in Black Swan Petroleum Pty.
Ltd.
and Black Swan Petroleum (Thailand) Limited by transferring such shares to
Pacific Spinner Limited. Pacific Spinner had, pursuant to a Letter Agreement,
agreed to use its best efforts to further sell such shares and to pay us
20%
(twenty percent) of any proceeds received from such sale. However, the Company
has learned that Black Swan has deregistered itself as an active company
in
Australia and Black Swan Thai has gone into voluntary receivership with little
chance of the Company receiving any further benefit from the
divestment
3. PROPERTY
AND EQUIPMENT
Texhoma
had no Property and Equipment as of March 31, 2006 and its subsidiary, Texaurus
Energy, Inc. acquired oil and gas leasehold properties at a
cost of $10.228 million effective March 28, 2006.
4. SHARE
CAPITAL
Stock
for Services Compensation Plan
- In accordance with Texhoma’s Stock for
Services Compensation Plan, on August 26, 2004, the Company filed a registration
statement on Form S-8 with the Securities and Exchange Commission, for
registration under the Securities Act of 1933 of Securities to Be Offered
to
Employees Pursuant to Employee Benefit Plans to register the shares of common
stock under Texhoma’s Plan in an amount of up to 11,000,000 pre
forward split shares and 44,000,000 post forward split shares at various
exercise prices. The Board of Directors is authorized, without
further approval; to
issue
shares of common stock under the plan from time to time of up to an aggregate
of
44,000,000 post forward split shares of the Company’s common
stock.
Common
Stock
- On October 5, 2004, Texhoma issued 1,584,064 shares of common stock
(6,336,256 shares subsequent to the forward split) in settlement of
approximately $161,700 in debt with a former director of the
Company. Texhoma recorded $284,500 as an expense. The
Company issued 1,900,000 shares of common stock (7,600,000 shares subsequent
to
the forward split) in settlement of $38,000 in debt with a consultant of
the
Company; Texhoma recorded $504,800 in expenses.
On
November 4, 2004, the Company issued 14,000,000 shares of restricted common
stock (56,000,000 post forward split shares) for the acquisition of a 40%
shareholding interest in the capital of Black Swan. The acquisition
was accounted for using the equity method of accounting, and was the only
operation recorded as an investment in Black Swan.
In
February, March and August 2005, the Company issued 6,000,000 (post forward
split shares) shares of restricted common stock for proceeds of
$600,000. These proceeds were used to fund portions of the cash call
for the oil and gas operation in Thailand.
Forward
Stock Split
- On October 14, 2004, Texhoma approved a 4:1 forward stock
split of its common stock. The forward stock split, which was
effected on November 9, 2004, increased Texhoma’s issued and outstanding shares
from 25,203,063 shares to 100,812,252 shares of common stock. The
Statements of Stockholders’ Equity was reclassified as of September 30, 2004 to
reflect the 4:1 forward stock split.
In
March
2006, our Executive Chairman and Director, Frank Jacobs subscribed for 7,500,000
shares of our common stock at $0.04 per share, for aggregate consideration
of
$300,000, which funds were immediately used by us in connection with the
Closing
of the Kilrush Property (described below).
On
March 28, 2006, Texaurus closed the
purchase of certain interests from Structured Capital in exchange
for a) two million five hundred thousand dollars ($2,500,000) and b)
the issuance of 37,500,000 shares of our common stock at $0.04 per
share.
In
March
2006, the Company issued 1,062,500 warrants to purchase 1,062,500 shares
at
$0.04 cents per share and expiring in five years. The warrants were
issued to Equity Capital Solutions in consideration for raising capital for
the
company. In addition, up to 10,625,000 warrants to purchase Texhoma
common stock at $0.04 per share, expiring in five years, as well as 961 warrants
at $0.001 per share to purchase common shares of Texaurus Energy, Inc., a
wholly
owned subsidiary of Texhoma, at any time following Texhoma’s repayment of all
obligations were issued to Laurus Master Fund Ltd.
5. ACQUISITIONS
On
November 5, 2004, the Board of Directors completed the agreement with Capersia
Pte. Ltd. to acquire a 40% interest of Black Swan Petroleum Pty. Ltd. (“Black
Swan”) for 14,000,000 new investment shares (56,000,000 shares subsequent to the
forward split explained above) of Texhoma common stock. As previously
described above, Texhoma recorded the value of this acquisition at
$464,441.
On
or
about December 10, 2005, the Company entered into a 6% participation agreement
with the "Clovelly Joint Venture,". On February 2, 2006, we executed
a Sale and Purchase Agreement (the “Clovelly SPA”) with Sterling Grant Capital,
Inc. pursuant to which we acquired a further 5% (five percent) working interest
in the Clovelly South prospect located in Lafourche Parish,
Louisiana. We funded Clovelly SPA through a Joint Operating
Agreement, issuance to Sterling Grant of 2 million common shares of Texhoma
and
payment of $15,000.
On March 15, 2006, Texhoma’s
wholly-owned subsidiary, Texaurus Energy, Inc., which was
formed in March 2006
as a Delaware corporation ("Texaurus"), entered into a
Sales and Purchase Agreement with Structured Capital
Corp., a Texas corporation to purchase certain oil and gas leases in Vermillion
Parish, Louisiana, which represent a 10%
working interest (7.3% net revenue interest) in such leases. The
agreed purchase price of the Little White Lake Property was a) two million
five
hundred thousand dollars ($2,500,000) and b) the issuance of 37,500,000 shares
of our common stock. This purchase had an effective date of April 1,
2006.
On
March 28, 2006, with an effective
date of January 1, 2006, Texaurus closed a Sales &
Purchase Agreement to purchase certain interests from Kilrush
Petroleum, Inc. in Allen Parish, Louisiana and Calcasieu Parish,
Louisiana, for
aggregate consideration of $5,225,000. Texaurus
paid the $5,225,000 purchase price with proceeds received from its sale of
the
Secured Term Note with Laurus Master Fund, Ltd. (“Laurus”).
On
March
28, 2006 Texaurus entered into a Securities Purchase Agreement and a
Registration Rights Agreement and issued a Common Stock Purchase Warrant;
entered into a Master Security Agreement with Laurus; and sold Laurus
a Secured Term Note in the amount of
$8,500,000 as well as various
other agreements. Additionally, in connection with the
closing, we issued Laurus Common Stock Purchase Warrants to purchase up to
10,625,000 shares of Texhoma common stock and up to 49% of Texaurus’ common
stock.
In
March
2006, the Company issued 1,062,500 warrants to purchase 1,062,500 shares
at 4
cents per share and expiring in five years. The warrants were issued
to Equity Capital Solutions for raising capital for the company. Up
to 10,625,000 warrants to purchase Texhoma common stock at 4 cents per share,
expiring in five years, as well as 961 warrants at $0.001 per share to purchase
common shares of Texaurus Energy, Inc., a wholly owned subsidiary of Texhoma,
at
any time following Texhoma’s repayment of all obligations were also issued to
Laurus Master Fund Ltd.
6.
RELATED PARTIES
Texhoma,
Black Swan, and Black Swan Thai had management and directors in common with
its
shareholders. At the end of 2004, Mr. Frank Jacobs was a director and the
CEO of
Black Swan and Black Swan Thai and on January 25, 2005 became a director
and the
CEO of Texhoma Energy, Inc. Mr. Brian Alexander was the CFO of Black
Swan and Black Swan Thai as well as a director and the CFO of
Texhoma.
On
October 1, 2003 the Company had approximately $7,300 of outstanding advances
payable to Henry Rolling, a former officer. On September 30, 2004 the
Company received further advances of $431,000 from Mr. Rolling and subsequently
issued 5,177,488 shares of its common stock for the settlement of $350,000
of
advances payable.
During
the three months ended December 31, 2004, $161,700 of debt was settled by
the
issuance of 6,336,256 post split shares of common stock. There was an
$8,000 and $10,000 consulting fee outstanding that is payable to the director
of
Texhoma.
On
December 7, 2004, the Company borrowed $50,000 from a related party, MFS
Technology. The loan is evidenced by a convertible promissory note, see
note 7 for additional information.
On
or
about December 10, 2005, the Company entered into a 6% participation agreement
with the "Clovelly Joint Venture," of which ORX Resources, Inc. is the Operator.
Our former President and Director Max Maxwell served as Vice President of
the
Operator at the time we entered into the participation agreement. On
February 14, 2006 the Company increased its working interest to 11% through
the
purchase of a further 5% working interest in this property from Sterling
Grant. We funded this additional interest through a Joint Operating
Agreement, issuance to Sterling Grant of 2,000,000 common shares of Texhoma
at
$0.04 per share and payment of $15,000.
On March 24,
2006, Mr. Jacobs, the Company’s Chief Executive Officer, subscribed for
7,500,000 shares of the Company's common stock at $0.04 per share,
for an aggregate consideration of $300,000, which funds were immediately
used by
the Company as a portion of the consideration
paid by the Company for the purchase of certain oil and gas interests from
Kilrush Petroleum, Inc., located in Allen
Parish, Louisiana and Calcasieu Parish, Louisiana.
On
April
10, 2006, Texhoma entered into a $735,000 Debt Conversion Agreement with
Lucayan
Oil and Gas Investments, Ltd., a Bahamas corporation ("LOGI"). Texhoma
owed $895,000 to LOGI as of the date of
the Debt Conversion Agreement in
connection with money advanced to the Company
in March 2005 for the fulfillment of a portion of the cash call
commitments for the drilling by Black Swan Thai. Pursuant to the Debt
Conversion Agreement, the Company and LOGI agreed to convert
$160,000 of the $895,000
of which LOGI was owed into an aggregate of 4,000,000
shares (or one (1) share for each
$0.04 of debt converted) of newly issued
shares
of
the Company's restricted common stock. Mr. Max Maxwell, who is President
and was
elected a Director of Texhoma on April 10, 2006, is a 50% owner of
LOGI.
On May 15, 2006,
LOGI provided the Company notice of its desire
to convert its $735,000 Promissory Note, which amount remained from LOGI’s Debt
Conversion Agreement entered into with Texhoma in April 2006, into
18,375,000 shares of the Company's common stock and as a
result of such conversion, LOGI now owns an
aggregate of 22,375,000 shares of Company common stock. Mr. Max
Maxwell, who became a Director of the Company on April 10, 2006, is a 50%
owner
of LOGI.
On June 1, 2006,
the Company's Board of Directors approved the issuance of an
aggregate of 10,000,000 options to the Company's officers, directors
and
employees, pursuant to the Company's
2006 Stock Incentive Plan and an additional 2,000,000 options for a
consultant. All options expire if unexercised on June 1, 2009, or
three (3) months from the date of the termination of employment with the
Company.
All
options were issued at an exercise price of $0.13 per share, which was equal
to
the average of the highest ($0.125) and lowest ($0.111) quoted selling prices
of
the Company’s common stock on June 1, 2006, multiplied by
110%. Options of 4,000,000 were granted to Max Maxwell and Frank
Jacobs, and options of 1,000,000 were granted to Brian Alexander, and Terje
Reiersen. On June 7, 2006, The Board of Directors approved the
issuance of an additional 1,000.000 options to Peter Wilson, which amount
was
later amended to include 2,000,000 options, which expire if unexercised on
June
1, 2009.
On
September 19, 2006, Mr. Brian Alexander decided not to seek re-election as
a
director of the Company due to other business and work
commitments. In connection with monies we owed Mr. Alexander in
director and consulting fees, 300,000 shares of restricted common stock were
issued to Mr. Alexander in lieu of cash. In addition Mr. Alexander’s
vesting was accelerated such that his options were fully vested with a new
expiration date of June 1, 2007. Mr. Alexander and the Company
executed a letter of Mutual Release when Mr. Alexander resigned as an officer
and director of the Company on September 27, 2006. Mr.
Alexander did not exercise his option rights and those options expired on
June
1, 2007.
In
March
2007, Capersia Pte. Ltd. transferred 10,000,000 of its shares of Texhoma
stock
to Pacific Spinner Ltd.
Mr.
Maxwell resigned from the Company May 1, 2007, did not exercise any of his
option rights and as a result all option grants expired on August 1,
2007. Frank Jacobs resigned on June 14, 2007 and his options, if not
exercised by September 14, 2007 will expire.
In
June
2007, Valeska Energy Corp. entered into a management agreement with Texhoma
for
a minimum period of three months. Mr. William Simmons is the Chief
Executive Officer of Valeska. In exchange for these services, Valeska
was issued 15,200,000 shares of Texhoma’s stock as payment and
retainer. On June 8, 2007 a third party transferred 1,000,000 shares
of Texhoma stock to Mr. William Simmons and 1,000,000 shares to Valeska Energy
Corp.
In
July
2007, 500,000 shares were issued to Mr. Ibrohim Nafi Onat in exchange for
his
entry into a consulting agreement with us.
On
or
about August 13, 2007, we entered into a Second Amendment to Management Services
Agreement with Valeska Energy Corp. (“Valeska” and the “Second
Amendment”).
Pursuant
to the Second Amendment, we and Valeska agreed to extend the term of the
Management Services Agreement until September 30, 2008, and to pay Valeska
the
following consideration in connection with agreeing to perform the services
required by the original Management Services Agreement, and in consideration
for
allowing Daniel Vesco and William M. Simmons to serve as Directors of the
Company, bringing on personnel to assist the Company with the day to day
operations of the Company, and helping bring the Company current in its filings
(the “Services”):
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1,000
shares of the Company’s Series A Preferred Stock;
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A
monthly fee of $20,000 per month during the extended term of the
Second
Amendment, plus reasonable and actual costs incurred by Valeska
(or
individuals or designees brought on by Valeska, including lodging,
car
rental and telephone expenses therewith) in connection with such
Services;
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10,000,000
restricted shares of the Company’s common stock; and
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60,000,000
options to purchase shares of the Company’s common stock, which shall have
a cashless exercise provision, shall be valid for a period of three
years
from their grant date, and shall have an exercise price of 110%
of the
trading price of the Company’s common stock on the Pinksheets on the day
of such grant.
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All
of
the above transactions may have been entered into at terms which may not
have
been available to unrelated parties.
7. NOTES
PAYABLE AND CONVERTIBLE LOANS
On
December 7, 2004, the Company borrowed $50,000 from a related
party. The loan is evidenced by a convertible promissory
note. The loan bears interest at 5% per annum calculated 6 months
after the advancement of funds. $25,000 was due on June 7, 2005 and
the remaining balance, plus interest was due on December 7, 2005. The
loan has not been repaid, extended or converted. The lender has the option
during the term of the loan, and any extension, to convert the principle
and
interest into shares of common stock at a conversion price of $0.30 per
shares.
As
discussed earlier, in March 2005, the Company received $895,000 from LOGI
to
fund Black Swan Thailand oil and gas exploration. This loan was later
converted to 22,375,000 in common stock in accordance with the agreement
with
the Company and LOGI (See Related Party).
The
Laurus Master Fund, Ltd note accrues interest at the Prime Rate plus two
percent
(2.0%) as published in The Wall Street Journal, but shall not at any time
be
less than eight percent (8.0%). Payments of accrued interest and
principal shall equal eighty (80%) of the Net Revenue paid to Texaurus in
respect of oil, gas and/or other hydrocarbon production in which Texaurus
has an
interest and such payments shall be applied first to accrued interest due
and
then to the principal balance of the note.
In
conjunction with the purchase of the Little White Lake oil and gas property,
we
executed a short term note payable with Polaris Capital in the amount of
$2,500,000 to be repaid through the funding provided by Laurus. The
note was repaid in April 2006 from those funds.
8. NET
LOSS PER SHARE
Restricted
shares and warrants are included in the computation of the weighted average
number of shares outstanding during the periods. The net loss per
common share is calculated by dividing the consolidated loss by the weighted
average number of shares outstanding during the periods.
9.
COMMITMENTS AND CONTINGENCIES
As
discussed previously, management wound down Black Swan’s operations in Thailand
and Australia after unsuccessful drilling in the Concession. A
determination has not made as to the financial or legal consequence to Texhoma
or its officers or its shareholders, for subsequent obligations, if any,
to
persons or governmental entities which may arise from doing business or owning
or leasing property in Thailand and Australia.
10.
SUBSEQUENT EVENTS
On
April
10, 2006, Texhoma Energy, Inc. (the "Company") entered into a Debt Conversion
Agreement with Lucayan Oil and Gas Investments, Ltd., a Bahamas corporation,
formerly Devon Energy Thai Holdings, Ltd. ("LOGI"). The Company owed $895,000
to
LOGI as of the date of the Debt Conversion Agreement in connection with money
received by the Company for the drilling in Thailand in March 2005, which
debt
was transferred by Fidelio Business, S.A. and Quick Assets and Cash Corp.
(Bank
Sal Oppenheim) to LOGI in November 2005. Pursuant to the Debt Conversion
Agreement, the Company and LOGI agreed to convert $160,000 of the $895,000
which
LOGI was owed into an aggregate of 4,000,000 shares (or one (1) share for
each
$0.04 of debt converted) of newly issued shares of the Company's restricted
common stock. As of the date of this filing, the Company still owes LOGI
$735,000. The Director and 50% owner of LOGI is Max Maxwell, who became a
Director of the Company on April 10,
2006,
President of the Company on April 12, 2006, and Chief Executive Officer of
the
Company on June 5, 2006, and resigned as President, Chief Executive Officer
and
Director on May 1, 2007.
On
April
10, 2006, the Company entered into a convertible note with LOGI evidencing
the
$735,000 of debt which remains outstanding. The convertible note provides
that
LOGI may convert the $735,000 debt into Company common stock at the rate
of one
share of common stock for each $0.04 of outstanding debt.
A
Letter
of Intent was executed by Texhoma on April 28, 2006, agreeing to participate
in
a 25% working interest in the exploration of the Bayou Choctaw oil and gas
project, located in Iberville Parish, Louisiana. In July 2006,
Texhoma executed a new Letter of Intent increasing its agreement of
participation to 41.667% in the project. Texhoma identified
that the exposure was in excess of its corporate guidelines and assigned
its
right to the interest to Morgan Creek Energy Corp. in exchange for $250,000
and
200,000 shares of Morgan Creek Energy.
On
May
15, 2006, Lucayan Oil and Gas Investments, Ltd. ("LOGI") provided the Company
notice of its desire to convert its $735,000 Promissory Note into 18,375,000
shares of the Company's common stock. The Company's Board of Directors approved
such issuance on May 18, 2006.
On
May
31, 2006, Texhoma entered into six (6) participation agreements to purchase
various oil and gas leases from Sunray Operating Company LLC (“Sunray”). In June
and August 2006, Texhoma closed the purchase of three (3) of the participation
agreements, entering into Assignments and Bill of Sales for purchase from
Sunray
the following Leases:
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Leases
covering approximately 196 acres of land in Brazoria County, Texas.
In the
purchase,Texhoma acquired an undivided 37.5% interest, subject
to existing
overriding royalty interests equal to 25% of 8/8.
Additionally, Sunray is entitled to a five-eighth of eight-eighths
(62.5%
of 8/8) working interest, proportionally reduced at payout;
and
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Leases
covering approximately 20 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 35% interest in the leases,
subject to existing overriding royalty interests equal to 25% of
8/8.
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Leases
covering approximately 280 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 72.5% interest in the leases,
subject to existing overriding royalty interests equal to 28% of
8/8.
Texhoma simultaneously promoted a 42.5% interest leaving a 30%
interest.
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Texhoma
declined to participate in the purchase of the leases covering
approximately 80 acres in Brazoria County. In September 2006, this
well
was a dry hole and participation in subsequent wells was
declined. However, Texhoma continues to hold a 12.5% back in
Working Interest.
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Two
leases for another 160 acre site and a 60 acre site which were
declined by
Texhoma and in which we retained a 12.5% back in Working
Interest.
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In
conjunction with the acquisition of three of the Sunray properties, we issued
375,000 of common stock and granted warrants to purchase 375,000 shares at
an
exercise price of 15 cents per share expiring in one year. Subsequent
to the acquisition of the Sunray properties, we executed an agreement to
sell a
percentage of our working interest in the properties to Matrix, thereby reducing
our cash investment and liability for future cash
calls. Additionally, we agreed to pay Sunray $113,161 in cash, of
which $49,184 remained outstanding as of September 7, 2007.
In
September 2006, drilling on the properties acquired in the Sunray agreement
proved to be unsuccessful and the investment was retired.
On
June
1, 2006, the Company's Board of Directors approved the issuance of an aggregate
of 10,000,000 options to the Company's then officers, Directors and employees,
pursuant to the Company's 2006 Stock Incentive Plan (the "Plan"). All the
options were at an exercise price of $0.13 per share, which was equal to
the
average of the highest ($0.125) and lowest ($0.111) quoted selling prices
of the
Company's common stock on June 1, 2006, multiplied by 110%. The options were
granted to the following individuals in the following amounts:
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Max
Maxwell, our former president and Director was granted 750,000
qualified
options and 3,250,000 non-qualified options (for 4,000,000 total
options),
which options were to vest at the rate of 500,000 options every
three
months, with the qualified options to vest first, in consideration
for
services to be rendered to the Company as the Company's president
and
Director. The options were to expire if unexercised on June 1,
2009, or at
the expiration of three months from the date of the termination
of his
employment with the Company. All of Mr. Maxwell’s options have
since expired unexercised;
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Frank
Jacobs, our former Director was granted 4,000,000 non-qualified
options,
which options were to vest at the rate of 500,000 options every
three
months, in consideration for services to be rendered to the Company
as the
Company's Director. The options were to expire if unexercised on
June 1,
2009, or at the expiration of three months from the date of the
termination of his employment with the Company. Mr. Jacobs
resigned from the Company effective June 14, 2007, and as such
all
2,000,000 of his vested options expired unexercised on September
14,
2007;
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Brian
Alexander, our former Chief Financial Officer and Director was
granted
1,000,000 non-qualified options, which options vested upon Mr.
Alexander's
execution of a deed of release and settlement between Mr. Alexander
and
the Company in connection with his resignation from his positions
as the
Company's Chief Financial Officer and Director. The options expired
unexercised on July 1, 2007; and
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Mr.
Terje Reiersen then working as a consultant to the Company was
granted
1,000,000 non-qualified options, which options were to vest at
the rate of
250,000 options every three months, in consideration for consulting
services to be rendered to the Company in connection with corporate
advice
in relation to a secondary listing amongst other things. The options
were
to expire if unexercised on June 1, 2009, or at the expiration
of three
months from the date of the termination of his employment with
the
Company. All of Mr. Reiersen’s options have since expired
unexercised.
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Additionally,
on June 1, 2006, the Board of Directors approved the issuance of 2,000,000
options to another consultant to the Company in consideration for investor
relations services rendered to the Company. The options granted to the
consultant were not granted pursuant to the Plan. The options have an exercise
price of $0.13 per share, vest at a rate of 250,000 options every three months
and expire if unexercised on June 1, 2009.
In
June
2006, the Company accepted subscriptions for 3,175,000 shares of its common
stock at $0.08 share for $254,000 in cash; the Company also issued 3,175,000
warrants at $0.15 per share expiring in one year.
In
July
2006 the Company accepted subscriptions for 1,000,000 shares of our common
stock
at $0.08 per share for $80,000 in cash and the Company also granted warrants
to
purchase 1,000,000 shares with an exercise price of $0.15 per share
expiring in one year.
In
September, 2006 the Company accepted subscriptions for 625,000 shares of
our
common stock at $0.08 per share for $50,000 and the Company also granted
warrants to purchase 625,000 shares with an exercise price of 15 cents per
share expiring in one year.
On
October 10, 2006, ORX Resources, Inc., operator of the Clovelly Prospect
well,
notified Texhoma that the jointly owned well had been plugged and abandoned
on
September 23, 2006.
On
or
about October 19, 2006, we issued a Promissory Note to Mr. Frank Jacobs,
our
then Director of the Company, in the amount of $493,643.77, which amount
represented funds advanced to the Company by Mr. Jacobs during the 2006 calendar
year and management fees owed to Mr. Jacobs for his services to the Company
during the 2006 calendar year (the “Jacobs' Note”). The Jacobs' Note bears
interest at the rate of 6% per annum until paid, and is payable by the Company
at any time on demand. The Jacobs' Note may be pre-paid at any time without
penalty. Any amounts not paid on the Jacobs' Note when due shall bear interest
at the rate of 15% per annum.
On
or
about June 5, 2007, we entered into an Agreement with Jacobs Oil & Gas
Limited (“Jacobs”), pursuant to which Jacobs agreed that no interest would be
due from us and/or accrue on the principal or
accrued
interest to date on his outstanding Promissory Note for the period of one
(1)
year from the date of the Agreement and that he would not try to collect
the
principal and/or accrued interest on such note for a period of one (1)
year.
The
Company also entered into a Security Agreement with Mr. Jacobs under which
Agreement the Board of Directors ratified the assignment of 200,000 shares
of
the common stock of Morgan Creek Energy Corp., which shares were held by
the
Company, to Mr. Jacobs as security for the money that is owed to Mr. Jacobs
under the Jacobs' Note.
In
March
2007, Capersia Pte. Ltd. transferred 10,000,000 of its shares of Texhoma
stock
to Pacific Spinner Ltd.
In
May
2007, 4,800,000 shares of our common stock, at $0.0125, were subscribed for
in
exchange for $60,000.
In
May
2007, Valeska Energy Corp. entered into a management agreement with Texhoma
for
a minimum period of three months. Mr. William Simmons is the Chief
Executive Officer of Valeska. In exchange for these services, Valeska
was issued 15,200,000 of Texhoma’s stock as payment and retainer. On
June 8, 2007 a third party transferred 1,000,000 share of Texhoma stock to
Mr.
William Simmons and 1,000,000 shares to Valeska Energy Corp.
In
June
2007 18,000,000 shares of our common stock, at $0.0125, were subscribed for
by
Hobart Global Ltd., a British Virgin Islands corporation in exchange for
$225,000.
In
July
2007 an additional shares of common stock were sold to Camecc A/S, a Norwegian
company for $12,500 or $0.0125 per share and another 500,000 shares were
issued
to Mr. Ibrahim Nafi Onat in exchange for his entry into a Consulting Agreement
with us.
On
or
about August 13, 2007, we entered into a Second Amendment to Management Services
Agreement with Valeska Energy Corp. (“Valeska” and the “Second
Amendment”).
Pursuant
to the Second Amendment, we and Valeska agreed to extend the term of the
Management Services Agreement until September 30, 2008, and to pay Valeska
the
following consideration in connection with agreeing to perform the services
required by the original Management Services Agreement, and in consideration
for
allowing Daniel Vesco and William M. Simmons to serve as Directors of the
Company, bringing on personnel to assist the Company with the day to day
operations of the Company, and helping bring the Company current in its filings
(the “Services”):
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1,000
shares of the Company’s Series A Preferred Stock;
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A
monthly fee of $20,000 per month during the extended term of the
Second
Amendment, plus reasonable and actual costs incurred by Valeska
(or
individuals or designees brought on by Valeska, including lodging,
car
rental and telephone expenses therewith) in connection with such
Services;
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10,000,000
restricted shares of the Company’s common stock; and
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60,000,000
options to purchase shares of the Company’s common stock, which shall have
a cashless exercise provision, shall be valid for a period of three
years
from their grant date, and shall have an exercise price of 110%
of the
trading price of the Company’s common stock on the Pinksheets on the day
of such grant.
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11.
GOING CONCERN ISSUES
We
cannot
provide any assurances that the Company will be able to secure sufficient
funds
to satisfy the cash requirements for the next 12 months. The inability to
secure
additional funds would have a material adverse effect on the
Company.
These
financial statements are presented on the basis that the Company will continue
as a going concern. Other than the previously disclosed
impairments, no adjustments have been made to these financial statements
to give
effect to valuation adjustments that may be necessary in the event the Company
is not able to continue as a going concern. The effect of those
adjustments, if any, could be substantial.
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
which
contemplate continuation of the Company as a going
concern. For the six months ended March 31,
2006 the Company incurred net losses from operations of $224,000. As
of March 31, 2006 the Company has incurred $7,599,000 in cumulative
losses. Further, the Company has inadequate working capital to
maintain or develop its operations, and is dependent upon funds from its
stockholders and third party financing.
These
factors raise substantial doubt about the ability of the Company to continue
as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties. There is no assurance that the Company will receive
the necessary loans required to funds its exploration plans.
*
* * * *
* * * *
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
FORWARD-LOOKING
STATEMENTS
ALL
STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF
1934, AS AMENDED. STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT OTHERWISE INCLUDE
THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS", "PROJECTS",
"ESTIMATES", "PLANS", "MAY INCREASE", "MAY FLUCTUATE" AND SIMILAR EXPRESSIONS
OR
FUTURE OR CONDITIONAL VERBS SUCH AS "SHOULD", "WOULD", "MAY" AND "COULD"
ARE
GENERALLY FORWARD-LOOKING IN NATURE AND NOT HISTORICAL FACTS. THESE
FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED
UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT
COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING
OUR
FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY, PROJECTED PLANS AND OBJECTIVES.
THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS SET FORTH BELOW UNDER THE
HEADING "RISK FACTORS." ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED
IN
THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOST OF THESE FACTORS
ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL.
WE ARE
UNDER NO OBLIGATION TO PUBLICLY UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS
TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. FOR A MORE
DETAILED DESCRIPTION OF THESE AND OTHER CAUTIONARY FACTORS THAT MAY AFFECT
OUR
FUTURE RESULTS, PLEASE REFER TO OUR ANNUAL REPORT ON FORM 10-KSB FOR OUR
FISCAL
YEAR ENDED SEPTEMBER 30, 2005. AS USED HEREIN, THE “COMPANY,”
“TEXHOMA,” “WE,” “US,” “OUR” AND WORDS OF SIMILAR MEANING REFER TO TEXHOMA
ENERGY, INC. AND ITS WHOLLY OWNED DELAWARE SUBSIDIARY, TEXAURUS ENERGY, INC.,
UNLESS OTHERWISE STATED.
Texhoma
Energy Inc. was originally formed as a Nevada corporation on September 28,
1998.
Effective
May 28, 2004, we affected a 1:150 reverse stock split of our issued and
outstanding shares of common stock. Effective November 9, 2004, we affected
a
4:1 forward split of our issued and outstanding common stock. Unless otherwise
stated all share amounts listed throughout this filing retroactively take
into
account both the May 28, 2004 reverse stock split and the November 9, 2004
forward stock split.
On
November 5, 2004, we entered into a Sale and Purchase Agreement with Capersia
Pte. Ltd., a Singapore company (“Capersia”), to acquire 40% of an oil and gas
exploration license operated by Black Swan Petroleum Pty. Ltd. (“Black Swan”)
and its wholly owned subsidiary Black Swan Petroleum (Thailand) Limited (“Black
Swan Thai”). Black Swan Thai owned the license, permits and title to a petroleum
concession in the Chumphon Basin in the Gulf of Thailand, referred to as
“Block
B7/38” (the “Concession”).
Black
Swan recommenced exploration operations of the Concession and Black Swan
drilled
two exploration wells in February and March 2005, which proved void of
commercially viable hydrocarbons. In June 2005 after completion of the
exploration activities, the venturers decided to discontinue the exploration
efforts in Thailand and relinquished the Concession back to the government
of
Thailand.
On
January 20, 2006 we divested our shareholding in Black Swan and Black Swan
Thai.
After
the
exploration venture in Thailand the Board of Directors of the Company decided
to
shift its focus to domestic oil and gas exploration and production, with
a
particular focus on south Louisiana and east Texas, including near-shore
Gulf of
Mexico.
On
February 2, 2006, we executed a Sale and Purchase Agreement (the “Clovelly SPA”)
with Sterling Grant Capital, Inc. pursuant to which we acquired a 5% (five
percent) working interest in the Clovelly South prospect (bringing our total
working interest to 11%) located in Lafourche Parish, Louisiana.
As
a
result, the Company agreed to fund the work program for the Clovelly South
project in accordance with the Joint Operating Agreement for the property.
The
Allain-Lebreton No. 2 well was drilled and plugged and abandoned in September
2006.
On
March
15, 2006, our wholly-owned subsidiary, Texaurus Energy, Inc., which was formed
in March 2006 as a Delaware corporation ("Texaurus"), entered into a Sales
and
Purchase Agreement with Structured Capital Corp., a Texas corporation to
purchase certain oil and gas leases in Vermillion Parish, Louisiana. The
8%
working interest (5.38167% net revenue interest) in the Intracoastal City
field
was acquired for a) two million five hundred thousand dollars ($2,500,000)
and
b) the issuance of 37,500,000 shares of our common stock.
On
March
28, 2006 Texaurus entered into a Securities Purchase Agreement ("Securities
Purchase Agreement") with Laurus Master Fund, Ltd. ("Laurus"); a Registration
Rights Agreement with Laurus; issued Laurus a Common Stock Purchase Warrant;
entered into a Master Security Agreement with Laurus; sold Laurus a Secured
Term
Note in the amount of $8,500,000, and entered into various other agreements.
Additionally, in connection with the closing, we issued Laurus a Common Stock
Purchase Warrant to purchase up to 10,625,000 shares of our common stock
at an
exercise price of $0.04 per share. These warrants will be valued
using the Black Scholes valuation method.
In
addition Laurus can acquire up to 961 shares of Texaurus’ common stock at an
exercise price of $0.001 per share, representing 49% of Texaurus’ outstanding
common stock. This will be valued at Fair Market Value as of the date
of the transaction.
The
Securities Purchase Agreement and Laurus March 2006 funding is described
in
greater detail in our Annual Report on Form 10-KSB for the period ended
September 31, 2005.
On
March
28, 2006, with an effective date of January 1, 2006, Texaurus closed a Sales
& Purchase Agreement to purchase certain interests in the Barnes Creek gas
field and the Edgerly field from Kilrush Petroleum, Inc. Texaurus paid the
$5,225,000 purchase price with proceeds received from its sale of the Secured
Term Note with Laurus.
Significant
Transactions Affected During 2006 and 2007:
Lucayan
Oil and Gas Investments, Ltd. Transactions
On
April
10, 2006, we entered into a Debt Conversion Agreement with Lucayan Oil and
Gas
Investments, Ltd., a Bahamas corporation, formerly Devon Energy Thai Holdings,
Ltd. ("LOGI"). We had owed $895,000 to LOGI as of the date of the Debt
Conversion Agreement in connection with money received by the Company for
the
drilling in Thailand in February and March 2005. Pursuant to the Debt Conversion
Agreement, the Company and LOGI agreed to convert $160,000 of the $895,000
which
LOGI was owed into an aggregate of 4,000,000 shares (or one (1) share for
each
$0.04 of debt converted) of newly issued shares of the Company's restricted
common stock. The conversion price used in the Debt Conversion Agreement
is
based on 80% of the average market price of the shares for the 30 days preceding
the conversion agreement. This was considered to be the Fair Market
Value at the time of the transaction. The Director and 50% owner of
LOGI is Max Maxwell, who became a Director of the Company on April 10, 2006,
and
President of the Company on April 12, 2006, and resigned as President and
Director on May 1, 2007. Mr. Maxwell obtained his 50% ownership in LOGI on
April
10, 2006 in consideration for joining LOGI as an officer and director and
introducing Texhoma to various oil and gas opportunities.
On
April
10, 2006, the Company entered into a convertible note with LOGI evidencing
the
$735,000 of debt which was still owed to LOGI after the Debt Conversion
Agreement. The terms of the convertible note provided for the same conversion
price as the previously mentioned Debt Conversion Agreement. On May
15, 2006, LOGI provided the Company notice of its desire to convert its $735,000
Promissory Note into 18,375,000 shares of the Company's common stock which
the
Company issued in consideration for the debt conversion. This
conversion rate was considered Fair Market Value at the date of
conversion.
Participation
Agreements
On
May
31, 2006, Texhoma entered into six (6) participation agreements to purchase
various oil and gas leases from Sunray Operating Company LLC.
On
June
8, 2006, we entered into a Promissory Note and Security Agreement (the
"Promissory Note"), with Polaris Holdings, Inc., which held 12,500,000 shares
of
our common stock ("Polaris"). Pursuant to the Promissory Note, Polaris gave
us a
$250,000 loan. The Promissory Note was due and payable on August 10, 2006,
with
interest at 12% per annum. Although the note has not been paid in full to
date,
the note had been paid down to $60,000 as of May 2007, and since that date,
an
additional approximately $35,000 has been repaid leaving a balance of
approximately $25,000 as of the filing of this report. We also gave Polaris
an
Option to participate in our Clovelly Field interests in connection with
the
Promissory Note (described below). We agreed pursuant to the Promissory Note
to
repay the amounts owed to Polaris by way of (a) two-thirds of the net proceeds
we receive from any stock sales while the Promissory Note is outstanding,
and
(b) one-third of our share of the production income we receive from our oil
and
gas interests in Vermillion Parish, Louisiana, which represents a 10% working
interest (7.3% net revenue interest) in such leases and our oil and gas
interests in the Barnes Creek Field, located in Allen Parish, Louisiana and
the
Edgerly Field located in Calcasieu Parish, Louisiana from Kilrush Petroleum,
Inc., which constitutes a 7.42% working interest (a 5.38% net revenue interest)
in the Barnes Creek gas field, and an 11.76% working interest (8.47% net
revenue
interest) in the Edgerly oil field (the "Texaurus Interests").
We
used
the proceeds from the Promissory Note to pay for the cost of drilling the
Allain-LeBreton No. 2 well in the Clovelly prospect of which we own an 11%
working interest. The prospect is located in Lafourche Parish, Louisiana
and
operated by ORX Resources, Inc. ("ORX"). Our former Director,
President and Chief Executive Officer was a Director of ORX at the time of
the
Company’s entry into the Promissory Note.
In
consideration for Polaris agreeing to loan us the money pursuant to and in
connection with the Promissory Note, we agreed to provide Polaris an option
to
participate in Clovelly field for a three percent (3%) working interest,
which
option Polaris can elect after reviewing the logs of the Allain-LeBreton
No. 2
well at target depth, but before the completion of the well (the "Option").
In
the event that Polaris elects to exercise its Option and participate in the
Allain-LeBreton No. 2 well, we will surrender 3/11ths of our 11% working
interest in the well and Polaris will reimburse Texhoma for the drilling
costs
incurred by us for the three percent (3%) working interest from the commencement
of the drilling operations.
In
the
event that we are unable to repay the Promissory Note to Polaris when due,
we
agreed pursuant to the Promissory Note to assign one hundred percent (100%)
of
the cash flow from our portion of the Texaurus Interests to Polaris or its
nominee until the Promissory Note is paid in full. Although as
described above, we have not repaid the note to date, we are currently working
with Polaris to repay the note, and they have not declared an event of
default.
On
October 10, 2006, ORX Resources, Inc., operator of the Clovelly Prospect
well,
notified Texhoma that the jointly owned well had been plugged and abandoned
on
September 23, 2006.
On
June
and August 2006, Texhoma closed the purchase of three (3) of the participation
agreements, entering into Assignments and Bill of Sales for purchase from
Sunray
Operating Company LLC (“Sunray”) the following Leases:
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Leases
covering approximately 196 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 37.5% interest, subject
to
existing overriding royalty interests equal to 25% of 8/8. Additionally,
Sunray is entitled to a five-eighths of eight-eighths (62.5% of
8/8)
working interest, proportionally reduced at payout;
and
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Leases
covering approximately 20 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 35% interest in the leases,
subject to existing overriding royalty interests equal to 25% of
8/8.
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Leases
covering approximately 280 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 72.5% interest in the leases,
subject to existing overriding royalty interests equal to 28% of
8/8.
Texhoma simultaneously promoted a 42.5% interest leaving a 30%
interest.
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Texhoma
declined to participate in the purchase of the leases covering
approximately 80 acres in Brazoria County. In September 2006, this
well
was a dry hole and participation in subsequent wells was
declined. However, Texhoma continues to hold a 12.5% back in
Working Interest.
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Two
leases for another 160 acre site and a 60 acre site which were
declined by
Texhoma and in which we retained a 12.5% back in Working
Interest.
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We
purchased the Leases from Sunray for aggregate consideration of $143,161,
of
which $113,161 was paid in cash and $30,000 was paid in the form of shares
of
our common stock, by the issuance of an aggregate of 375,000 units (each
a
"Unit"), which each includes one (1) share of common stock and one (1) warrant,
which entitles the holder of such warrant to purchase one (1) share of our
common stock at an exercise price of $0.15 per share, prior to the one (1)
year
anniversary of such warrant grant, which Units were valued at $0.08 per
Unit. Approximately $49,184 remained due to Sunray in connection with
the purchase of the Leases outstanding as of September 7, 2007.
Upon
the
closing of the Purchases we and Sunray agreed to enter into an operating
agreement in connection with the development of the leases. Additionally,
both
we and Sunray agreed that should either party be unable or unwilling, for
any
reason, to participate in the drilling of the initial well on any of the
leases
described above, the non-participating party shall, at least 90 days prior
to
any expiration or any rental date under the leases, assign the participating
party all of its right, title and interest in such lease.
Amendment
to Certificate of Incorporation
On
September 20, 2006, with an effective date of filing of September 21, 2006,
we
filed a Certificate of Amendment to our Articles of Incorporation to increase
our authorized shares of common stock to three hundred million (300,000,000)
shares of common stock, $0.001 par value per share, and to re-authorize one
million (1,000,000) shares of preferred stock, $0.001 par value per share
(the
"Amendment").
Additionally,
the Amendment provided that shares of our preferred stock may be issued from
time to time in one or more series, with distinctive designation or title
as
shall be determined by our Board of Directors prior to the issuance of any
shares thereof. The preferred stock shall have such voting powers, full or
limited, or no voting powers, and such preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated in such resolution or resolutions
providing for the issue of such class or series of preferred stock as may
be
adopted from time to time by our Board of Directors prior to the issuance
of any
shares thereof. The number of authorized shares of preferred stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
voting
power of all the then outstanding shares of the capital stock of the corporation
entitled to vote generally in the election of directors, voting together
as a
single class, without a separate vote of the holders of the preferred stock,
or
any series thereof, unless a vote of any such holders is required pursuant
to
any preferred stock designation.
Promissory
Note
On
or
about October 19, 2006, the Company issued a Promissory Note to Jacobs Oil
&
Gas Limited, an entity controlled by Mr. Frank Jacobs, our former Director,
in
the amount of $493,643.77, which amount represented funds advanced to the
Company by Mr. Jacobs and management fees owed to Mr. Jacobs (the “Jacobs'
Note”). The Jacobs' Note bears interest at the rate of 6% per annum until paid,
and is payable by the Company at any time on demand. The Jacobs' Note may
be
pre-paid at any time without penalty. Any amounts not paid on the Jacobs'
Note
when due shall bear interest at the rate of 15% per annum. The Company also
entered into a Security Agreement with Mr. Jacobs under which Agreement the
Board of Directors ratified the transfer of 200,000 shares of the common
stock
of Morgan Creek Energy Corp., which shares are held by the Company, to Mr.
Frank
Jacobs as security for the money that is owed pursuant to the Jacobs'
Note.
On
or
about June 5, 2007, we entered into an Agreement with Jacobs Oil & Gas
Limited (“Jacobs”), pursuant to which Jacobs agreed that no interest would be
due from us and/or accrue on the principal or accrued interest to date on
his
outstanding Promissory Note for the period of one (1) year from the date
of the
Agreement and that he would not try to collect the principal and/or accrued
interest on such note for a period of one (1) year.
Letter
Agreement
On
or
about May 15, 2007, we entered into a Letter Agreement with Matrixx Resource
Holdings Inc. (“Matrixx”) to sell our 11% working interest in the property known
as the Clovelly Prospect (the “Clovelly Prospect”) for $150,000. In connection
with and pursuant to the Letter Agreement, we expected to receive an earnest
money deposit of $25,000 on or about May 25, 2007, with the remainder of
the
purchase price to be paid on or before June 30, 2007; however, we have not
received any funds or any deposit from Matrixx and the Letter Agreement has
been
terminated.
Management
Services Agreement
On
or
about May 15, 2007, we entered into a Management Services Agreement with
Valeska
Energy Corp. (“Valeska”), whose Chief Executive Officer is William M. Simmons,
who became an officer and Director of us on or about June 4, 2007, as described
below, which was subsequently amended on or about June 1, 2007 (collectively
the
“Management Agreement”).
Pursuant
to the Management Agreement,
we agreed to enter into a Joint Venture agreement with Valeska (the “Joint
Venture”), described below; Valeska agreed to provide us management services and
act as a Management Consultant to us, for a monthly fee of $10,000 (plus
expenses), or 15% of any revenue we generate, whichever is greater (excluded
from this definition however are asset sales and/or income of a capital nature,
and included in the definition are 20% of the revenues we receive from our
Joint
Venture with Laurus Master Fund, Ltd.); and we also agreed to issue Valeska
15,200,000 restricted shares of our common stock. We also agreed pursuant
to the
Management Agreement, as amended, that we would issue Valeska an additional
18,200,000 shares of our common stock upon such time as we are able to bring
our
public reporting requirements current with the Commission and seek reinstatement
on the Over-The-Counter Bulletin Board. These shares will be valued at Fair
Market Value using the most appropriate valuation method. The
Management Agreement had a minimum term of three months, beginning on May
1,
2007.
On
or
about August 13, 2007, we entered into a Second Amendment to Management Services
Agreement with Valeska (“Second Amendment”). Pursuant to the Second
Amendment, we and Valeska agreed to extend the term of the Management Services
Agreement until September 30, 2008, and to pay Valeska the following
consideration in connection with agreeing to perform the services required
by
the original Management Services Agreement, and in consideration for allowing
Daniel Vesco and William M. Simmons to serve as Directors of the Company,
bringing on personnel to assist the Company with the day to day operations
of
the Company, and helping bring the Company current in its filings (the
“Services”):
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1,000
shares of the Company’s Series A Preferred Stock;
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A
monthly fee of $20,000 per month during the extended term of the
Second
Amendment, plus reasonable and actual costs incurred by Valeska
(or
individuals or designees brought on by Valeska, including lodging,
car
rental and telephone expenses therewith) in connection with such
Services;
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10,000,000
restricted shares of the Company’s common stock; and
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60,000,000
options to purchase shares of the Company’s common stock, which shall have
a cashless exercise provision, shall be valid for a period of three
years
from their grant date, and shall have an exercise price of 110%
of the
trading price of the Company’s common stock on the Pinksheets on the day
of such grant, $0.02 per share.
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Joint
Venture Agreement
On
or
about May 15, 2007, we entered into a Joint Venture Relationship Agreement
with
Valeska (the “Joint Venture Agreement”), pursuant to which we and Valeska agreed
to form a new Texas limited partnership (the “Joint Venture”), of which Valeska
will serve as general partner. The Joint Venture Agreement contemplates that
Valeska will cause funds to be invested, arrange financial and strategic
partnerships, and that both parties would bring investment opportunities
to the
Joint Venture. Pursuant to the Joint Venture Agreement, Valeska has
co-investment rights in the Joint Venture. Any distributions from the Joint
Venture will be paid first to Valeska and the Company, in an amount equal
to 8%
to Valeska and 2% to the Company, subject to investor approval; then to any
investors as negotiated therewith; and finally Valeska and the Company will
share any remaining distributions, with Valeska receiving 80% of such
distributions and the Company receiving 20% of such distributions.
The
Joint
Venture Agreement also provides that Valeska has the right to require us
to
purchase its interest in the Joint Venture at any time, in exchange for shares
of our common stock. In the event that Valeska exercises this right, the
valuation of the Joint Venture will be valued in a negotiated manner or at
30%
greater than the gross acquisition cost of any property acquired by the Joint
Venture, and the number of shares exchangeable for such interest will be
equal
to the market price of our shares of common stock on the date that such right
is
exercised by Valeska.
Additionally,
we have the right, pursuant to the Joint Venture Agreement, to veto any deal
which Valeska proposes to include in the Joint Venture.
Voting
Agreement
On
or
about June 5, 2007, certain of our largest shareholders, including Capersia
Pte.
Ltd.; Frank A. Jacobs, our former officer and Director; and Valeska Energy
Corp., which is controlled by William M. Simmons, the President and Director
of
the Company, and is majority owned by Daniel Vesco, the Company’s
Chief Executive Officer and a Director of the Company, through an entity
which he controls (“Valeska” and collectively the “Shareholders”) entered into a
Voting Agreement (the “Voting Agreement”). Pursuant to the terms of
the Voting Agreement the Shareholders agreed that for the Term of the Voting
Agreement, as defined below, no Shareholder would vote any of the shares
of
common stock (the “Shares”) which they hold for (i.e. in favor of) the removal
of William M. Simmons or Daniel Vesco, our Directors (the “New
Directors”). The Shareholders also agreed that in the event of any
shareholder vote of the Company (either by Board Meeting, a Consent to Action
with Meeting, or otherwise) relating to the removal of the New Directors;
the
re-election of the New Directors; and/or the increase in the number of directors
of the Company during the Term of the Voting Agreement, that such Shareholders
would vote their Shares against the removal of the New Directors; for the
re-election of such New Directors; and/or vote against the increase in the
number of directors of the Company, without the unanimous consent of the
New
Directors, respectively.
The
Voting Agreement further provided that in the event that either of the New
Directors breaches his fiduciary duty to the Company, including, but not
limited
to such Director’s conviction of an act or acts constituting a felony or other
crime involving moral turpitude, dishonesty, theft or fraud; such Director’s
gross negligence in connection with his service to the Company as a Director
and/or in any executive capacity which he may hold; and/or if any Shareholder
becomes aware of information which would lead a reasonable person to believe
that such Director has committed fraud or theft from the Company, or a violation
of the Securities laws, the Voting Agreement shall not apply, and the
Shareholders may vote their shares as they see fit.
The
Term
of the Voting Agreement is until June 5, 2009 (the “Term”). The
Shareholders agreed to enter into the Voting Agreement in consideration for
the
New Directors agreeing to serve the Company as Directors of the
Company.
On
or
about July 12, 2007, another one of our significant shareholders, Lucayan
Oil
and Gas Investments, Ltd. (“LOGI”), which is 50% owned by Max Maxwell, our
former President and Director, entered into a Voting Agreement with us, which
was amended by a First Amendment to Voting Agreement, which provided that
the
shares of common stock held by LOGI would be subject to the identical terms
of
our June 5, 2007 Voting Agreement with the Shareholders.
Cooperation
Agreement and Mutual Release
On
or
about July 12, 2007, LOGI; Mr. Maxwell; Meredith Maxwell, Mr. Maxwell’s daughter
and our former employee; and A.E. Buzz Jehle, our former consultant
(collectively the “Former Interested Parties”) entered into a Cooperation
Agreement and Mutual Release (the “Release”) with us and Texaurus Energy, Inc.
(“Texaurus”), our wholly owned Delaware subsidiary (for the purposes of the
description of the Release, all references to “we,” “us,” the “Company” or
similar words include Texaurus). In connection with the Release, we
and the Former Interested Parties agreed to release each other (including
employees, officers, directors, representatives, employees and assigns) from
any
and all claims, rights, causes of action and obligations which were known
or
unknown at the time of the entry into the Release, subject only to the
Assignment by the Former Interested Parties of their rights, causes of actions
or demands against any former officers or Directors of us to the Company
and the
New Directors (the “Assignment”) and the Extension. The release we
provided to the Former Interested Parties was against any and all claims,
rights, causes of action and obligations which were known at the time of
the
entry into the Release, or which are not brought to the attention of the
New
Directors or the Company by 5:00 P.M. Central Standard Time, on September
30,
2007 (the “Extension”).
Additionally,
in connection with the Release, Mr. Maxwell personally agreed, to the best
of
his ability, to cooperate with us in connection with an audit of us and
Texaurus; to provide a list of the known liabilities of the Company which
Mr.
Maxwell was aware of; and to personally certify the accuracy and completeness
of
any financial statements which the Company prepares covering the time period
during which Mr. Maxwell was President of the Company, in a form similar
to the
Certification Of Chief Executive Officer and Chief Financial Officer Pursuant
To
Section 302 of The Sarbanes-Oxley Act Of 2002 and Certification of Chief
Executive Officer; and (ii) Certification of Chief Financial Officer Pursuant
To
18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 Of The Sarbanes-Oxley
Act Of 2002, which reporting companies are required to file as attachments
to
each periodic filing with the Commission.
Mr.
Maxwell also agreed pursuant to the terms of the Release that any options
which
he vested pursuant to the June 2006 options which he was granted by us would
expire if unexercised on August 1, 2007; and that we owe him no rights to
contribution or indemnification in connection with his service to the Company.
Mr. Maxwell also certified that the shares of common stock granted to LOGI
were
issued for valid consideration and fully paid and non-assessable (the
“Certification”). Additionally, pursuant to the terms of the Release,
we agreed to indemnify Mr. Maxwell and Mr. Jehle against any dispute regarding
the shares issued to LOGI, provided that such Certification is valid and
correct.
Consulting
Agreement
Effective
July 1, 2007, we entered into a Consulting Agreement with Ibrahim Nafi Onat,
our
Director (the “Consulting Agreement”), pursuant to which Mr. Onat agreed to
serve as our Director and Vice President of Operations for an initial term
of
twelve (12) months, which term is renewable month to month thereafter with
the
mutual consent of the parties. Pursuant to the Consulting Agreement
we agreed to pay Mr. Onat $2,500 per month during the term of the Consulting
Agreement, to issue him 500,000 restricted shares of common stock valued
at the
market price on the date of issuance, in connection with his entry into the
Consulting Agreement and 500,000 restricted shares of common stock assuming
he
is still employed under the Consulting Agreement at the expiration of six
(6)
months from the effective date of the Consulting Agreement (the “Six Month
Issuance”).
Material
Corporate Events
On
July
17, 2007, the Company's Board of Directors unanimously agreed by a written
consent to action without a meeting, to adopt a Certificate of Designations
for
the creation of a Series A preferred stock (the "Series A Preferred
Stock").
The
Series A Preferred Stock has a par value of $0.001 per share. The Series
A
Preferred Stock consists of one thousand (1,000) shares, each having no dividend
rights, no liquidation preference, and no conversion or redemption rights.
However, the one thousand (1,000) shares of Series A Preferred Stock have
the
right, voting in aggregate, to vote on all shareholder matters equal to
fifty-one percent (51%) of the total vote. For example, if there are 10,000,000
shares of the Company's common stock issued and outstanding at the time
of
a
shareholder vote, the holders of Series A Preferred Stock, voting separately
as
a class, will have the right to vote an aggregate of 10,400,000 shares, out
of a
total number of 20,400,000 shares voting.
Additionally,
the Company shall not adopt any amendments to the Company's Bylaws, Articles
of
Incorporation, as amended, make any changes to the Certificate of Designations,
or effect any reclassification of the Series A Preferred Stock, without the
affirmative vote of at least 66-2/3% of the outstanding shares of Series
A
Preferred Stock. However, the Company may, by any means authorized by law
and
without any vote of the holders of shares of Series A Preferred Stock, make
technical, corrective, administrative or similar changes to the Certificate
of
Designations that do not, individually or in the aggregate, adversely affect
the
rights or preferences of the holders of shares of Series A Preferred
Stock.
On
or
about July 26, 2007, with an effective date of July 31, 2007, we entered
into a
Termination of Lease Agreement (the “Termination Agreement”) with our landlord
at 2200 Post Oak Blvd., Suite 340, Houston, Texas 77056 (the “Post Oak
Office”). Pursuant to the terms of the Termination Agreement, we and
the landlord agreed to terminate the lease on the Post Oak Office space,
and we
agreed to pay the landlord approximately $4,090 as a termination fee, $3,331
as
payment of past due rental fees; and we also agreed to forfeit any right
to our
security deposit of approximately $1,578 held by the landlord pursuant to
the
terms of our lease in connection with such Termination Agreement.
PLAN
OF OPERATIONS
The
Company’s current plan of operations for the next twelve (12) months is to bring
the Company current in its filings with the Commission, get the Company’s
accounting and controls and procedures in order and work to decrease the
Company’s current liabilities. Furthermore, funding permitting, of
which there can be no assurance, we plan to seek out and acquire additional
oil
and gas properties.
In
connection with our properties, a deal we had in place to sell the Clovelly
Field interests fell through, and we are relying on the operators of our
other
properties regarding the direction of those prospects. To date, all
of those operators have indicated that they have no plans to expand their
current drilling prospects.
We
currently believe that we can continue our operations for approximately the
next
six months with funds raised in June 2007, and anticipate needing to raise
approximately $300,000 in the next twelve months to pay our current liabilities
and maintain our current rate of monthly expenditures (not including any
amounts
which we would need for future acquisitions), of which there can be no
assurance.
RESULTS
OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2006 COMPARED
TO THE QUARTER ENDED MARCH 31, 2005
We
had
revenues of $466,000 for the quarter ended March 31, 2006 compared with no
revenues for the same quarter in 2005. This revenue was the result of
the acquisition of the Little White Lake, Edgerly and Barnes Creek properties
(the “Properties”) during the first quarter of 2006 compared with the abandoned
Black Swan interest in 2005. The revenue reported for the quarter
ended March 31, 2006, was derived from both oil and gas production in the
Edgerly and Barnes Creek properties. The revenues represent
approximately 2,900 equivalent barrels of gas production and 4,700 barrels
of
oil production from these two properties.
We
had
oil and gas exploration expenses of $179,000 for the three months ended March
31, 2006, compared to $2,400,000 for the three months ended March 31,
2005. The oil and gas expenses in 2006 were in connection with the
Company’s acquisition of oil and gas Properties detailed above and in 2005, the
expenses were related to the Black Swan investment disposition.
Depletion
in the amount of $299,000 was reported for the quarter ended March 31, 2006
as
compared with none for the same period in 2005.
We
had
general and administrative expenses of $129,000 for the quarter ended March
31,
2006, compared to general and administrative income of $15,000 for the quarter
ended March 31, 2005, an increase of $144,000 from the prior
period. The increased general and administrative expenses for the
three months ended March 31, 2006 were mainly in connection with the
expanded efforts of our management to further our mission to obtain viable
production in the southern United States during the three months ended March
31,
2006, and increased salaries of our executive officers for the three months
ended March 31, 2006, compared to the prior period in 2005. General and
administrative income for the quarter ended March 31, 2005, was due to some
expenses being reversed that were included in previous quarter estimates
and
subsequently were not realized.
We
reported net interest expense of $12,000 in connection with the $8,500,000
funding from Laurus Fund Ltd for the purchase of the the Little
White Lake, Edgerly and Barnes Creek properties on March 28, 2006 for the
three
months ended March 31, 2006, compared to no interest expense for the three
months ended March 31, 2005.
We
sustained a net loss of $153,000 for the three months ended March 31, 2006,
compared to a net loss of $2,418,000 for the same period in 2005, a decrease
in
net loss of approximately $2,265,000, which was mainly due to the write off
of
Black Swan during the three months ended March 31, 2005..
RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2006 COMPARED
TO THE SIX MONTHS ENDED MARCH 31, 2005
We
had
revenues of $466,000 for the year to date ended March 31, 2006 compared with
$0for the same period in 2005. This revenue was the result of the
acquisition of the Properties during the first quarter of 2006 compared with
the
abandoned Black Swan interest in 2005.
We
had
oil and gas exploration expenses of $179,000 for the six months ended March
31,
2006, compared to none for the six months ended March 31, 2005. The
oil and gas expenses generated for the period ending March 31, 2006 were
in
connection with the Company’s acquisition of the Properties.
We
reported $299,000 in depletion expense for the newly acquired properties
as of
March 31, 2006 as compared with none in the prior year’s period.
We
had
general and administrative expenses of $200,000 for the six months ended
March
31, 2006, compared to $994,000 for the same period ended March 31, 2005,
a
decrease of $794,000. The six months ended March 31, 2005
reflected expenses relating to the Company’s acquisition of a 40% interest in
Black Swan, while the expenses for the six months ended March 31, 2006 were
in
connection with the Company’s efforts to purchase the Properties and salaries
and expenses associated with the Company’s executive officers.
We
reported net interest expense of $12,000 in connection with the $8,500,000
funding from Laurus Fund Ltd. for the purchase of the the
Little White Lake, Edgerly and Barnes Creek properties on March 28, 2006
during
the six months ended March 31, 2006 compared with no interest expense for
the
same six months ended March 31, 2005.
We
sustained a net loss of $224,000 for the six months ended March 31,
2006, compared to a net loss of $3,702,000 for in the six months ended March
31,
2005, a decrease in net loss of $3,478,000 due in part to the one
time expense of $1,075,000 for the six months ended March 31, 2005, in
connection with the Company’s write off of Black Swan .
LIQUIDITY
AND CAPITAL RESOURCES
As
of
March 31, 2006, we had total assets of approximately $12,929,000 which included
oil and gas properties of approximately $8,973,000, accounts receivable,
net of
oil and gas production expenses of approximately $228,000, cash of approximately
$107,000 and restricted cash received from Laurus to be used solely to pay
expenses associated with the Properties of approximately $2,670,000, and
accounts receivable of $6,566.
Liabilities
totaled $12,318,000 as of March 31, 2006, and were comprised of current
liabilities of approximately $3,818,000 which included accounts payable for
properties of approximately $2,500,000, notes payable due to affiliates of
approximately $1,085,000, which notes were payable to, LOGI, MFS Technology,
Capersia, Clover Capital, Sterling Grant Capital and Buzz Jehle as well as
accrued interest due to Laurus of $9,000.
We
had
total long term liabilities of $8,500,000 as of March 31, 2006, which
represented our note payable to Laurus, as described above.
We
had
negative working capital of approximately $807,000 and a retained deficit
of
approximately $7,599,000 at March 31, 2006.
For
the
quarter ended March 31, 2006, operating activities provided approximately
$71,000.
Cash
used
in investing activities was approximately $10,316,000 for the quarter ended
March 31, 2006 and cash provided by financing activities was approximately
$12,900,000.
We
repaid
$100,000 due Capersia, an affiliate, which amount was the final cash payment
due
for the purchase of our 40% interest in Black Swan during the six months
ended
March 31, 2006. We were also funded $140,000 by various affiliates
and $11,000,000 from Laurus and Polaris Holdings for the purchase of Little
White Lake, Edgerly and Barnes Creek properties during the six months ended
March 31, 2006.
FUNDING
TRANSACTIONS
In
March
2006, our wholly owned Subsidiary Texaurus entered into a Securities Purchase
Agreement with Laurus Master Fund, Ltd. (“Laurus”), whereby Texaurus sold a
Secured Term Note in the amount of $8,500,000 to Laurus.
Texaurus
subsequently used all but approximately $218,000 to fund the acquisition
of
Little White Lake Property and Kilrush Properties, with the remaining amount
going into a restricted account for use only by Texaurus in connection with
further development of the properties held by Texaurus.
In
March
2006, we raised $300,000 from the sale of 7,500,000 shares of our common
stock,
which shares were sold at $0.04 per share, to our former Chief Executive
Officer
and former Director, Frank Jacobs.
We
raised
an aggregate of $384,000 through the sale of 4,800,000 units at a price of
$0.08
per unit during June through December 2006, which units each included one
(1)
share of common stock and one (1) one-year warrant to purchase one (1) share
of
our common stock at an exercise price of $0.15 per share.
We
raised
an aggregate of $297,500 through the sale of 23,800,000 shares of common
stock
at $0.0125 per share between May and July 2007.
We
have
subsequently used the majority of this funding to pay our general and
administrative expenses and certain acquisitions including the purchase of
the
Leases from Sunray and the Management Agreement with Valeska, as described
above.
We
believe that we have sufficient funds to repay the interest and principal
payments on amortizing payment required on the Secured Term Note with Laurus,
through the payment of production payments on the properties owned by Texaurus,
as such amortizing payments do not have any minimum payment amount, and as
such,
the required payment of such amortizing payment on the Secured Term Note
will
not adversely impact our future current assets or cash on
hand. However we will need to repay $8,500,000 (minus any payment of
principal on the Note which we are able to make through our 80% production
payments to Laurus) on March 27, 2009, which funds we do not currently have
and
which we can provide no assurances will be available when such Note is
due.
Additionally,
to continue our planned oil and gas operations the Company remains reliant
on
raising further equity funds and our growth and continued operations could
be
impaired by limitations on our access to the capital markets. In the event
that
we do not generate the amount of revenues from our oil and gas properties
which
we anticipate, and/or we decide to purchase additional oil and gas properties
and are required to raise additional financing, we may have to raise additional
capital and/or scale back our operations which would have a material adverse
impact upon our ability to pursue our business plan. There can be no assurance
that capital from outside sources will be available, or if such financing
is
available, it may involve issuing securities senior to our common stock or
equity financings which are dilutive to holders of our common stock. In
addition, in the event we do not raise additional capital from conventional
sources, it is likely that our growth will be restricted and we may need
to
scale back or curtail implementing our business plan.
We
have
no current commitments from our officers and Directors or any of our
shareholders to supplement our operations or provide us with financing in
the
future. If we are unable to raise additional capital from conventional sources
and/or additional sales of stock in the future, we may be forced to curtail
or
cease our
operations.
Even if we are able to continue our operations, the failure to obtain financing
could have a substantial adverse effect on our business and financial
results.
RISK
FACTORS
You
should carefully consider the following risk factors and other information
in
this annual report on Form 10-QSB before deciding to become a holder of our
Common Stock. If any of the following risks actually occur, our business
and
financial results could be negatively affected to a significant
extent.
WE
WILL NEED ADDITIONAL FINANCING TO CONTINUE OUR BUSINESS PLAN AND DRILL AND
STUDY
ADDITIONAL WELLS, WHICH FINANCING, IF WE ARE UNABLE TO RAISE MAY FORCE US
TO
SCALE BACK OR ABANDON OUR BUSINESS PLAN.
We
raised
$8,500,000 from the sale of a Secured Term Note to Laurus Master Fund, Ltd.
("Laurus") in March 2006. However, approximately $7,894,235 of the amount
borrowed from Laurus was subsequently used to purchase the Intracoastal City
property, the interests in the Barnes Creek gas field and the Edgerly field
and
to pay closing costs and fees in connection with the various funding
transactions, and the remaining amount of such note has since been used for
working capital and general corporate expenses.
We
raised
an aggregate of $384,000 through the sale of 4,800,000 units at a price of
$0.08
per unit during June through December 2006, which units each included one
(1)
share of common stock and one (1) one-year warrant to purchase one (1) share
of
our common stock at an exercise price of $0.15 per share. We raised an aggregate
of $297,500 through the sale of 23,800,000 shares of common stock at $0.0125
per
share between May and July 2007.
We
believe that the funds remaining from the sale of the Note to Laurus, the
funds
raised through the placement of new equity, and revenue received from the
sale
of oil and gas production will allow us to pay our outstanding liabilities
and
continue our business operations for at least the next six months. However,
as
described below, we cannot be sure that we will find any oil and/or gas on
our
properties in the future, our current properties will continue to produce,
nor
can we provide any assurances that if found, that the oil and/or gas will
be in
commercial quantities, that we will be able to extract it from the ground,
that
we will not face liability in connection with our extraction efforts, and/or
that we will be able to generate the revenues we expect from the future sale
of
any oil and gas we may discover in the future.
Additionally,
we may choose to spend additional monies on the purchases of oil and gas
properties in the future. Depending on the decisions of our management, the
volatility of the prices of oil and/or gas, our exploration activities, and/or
potential liability, and the amount of money we receive from the sale of
oil and
gas, if any, we may need to raise additional capital substantially faster
than
six months, which we currently estimate such previously borrowed monies will
last. We do not currently have any additional commitments or identified sources
of additional capital from third parties or from our officers, directors
or
majority shareholders. We can provide no assurance that additional financing
will be available on favorable terms, if at all. If we are not able to raise
the
capital necessary to continue our business operations, we may be forced to
abandon or curtail our business plan and/or suspend our exploration
activities.
WE
OWE LAURUS MASTER FUND, LTD., A SUBSTANTIAL AMOUNT OF MONEY WHICH WE DO NOT
HAVE.
In
connection with the Securities Purchase Agreement, Laurus Master Fund, Ltd.
("Laurus"), purchased a $8,500,000 Secured Term Note from Texaurus, which
we
have guaranteed, and which bears interest at the rate of 9.75% per year (as
of
September 26, 2007), which is due and payable on March 27, 2009, and which
principal is repayable by way of a production payments equal to 80% of the
gross
production revenue received by Texaurus in connection with the Intracoastal
City
Field, the Edgerly and the Barnes Creek Properties.
There
can
be no assurance that we will have sufficient funds to pay any principal or
interest on the Note when due on March 27, 2009, if such repayment amount
is not
sufficiently covered by the payment of production proceeds to Laurus, as
described above, and we do not currently believe that such production payments
will be sufficient to repay such Note as of the date of this filing. If we
do
not have sufficient funds to pay the total remaining amount of the Note (after
taking into account payments of principal, which
we
may
not have sufficient funds to pay) when due, we will be in default and Laurus
may
take control of substantially all of our assets (as described in more detail
under "Risks Relating to the Company's Securities"). As a result, we will
need
to raise or otherwise generate approximately $8,500,000 to repay the Note
(not
including any adjustments for payment of principal in connection with production
payments paid by Texaurus) by March 27, 2009. If we fail to raise this money,
we
could be forced to abandon or curtail our business operations, which could
cause
any investment in the Company to become worthless.
WE
RELY HEAVILY ON WILLIAM M. SIMMONS AND DANIEL VESCO, OUR OFFICERS AND
DIRECTORS, AND IF THEY WERE TO LEAVE, WE COULD FACE SUBSTANTIAL COSTS IN
SECURING SIMILARLY QUALIFIED OFFICERS AND DIRECTORS.
Our
success depends upon the personal efforts and abilities of William M. Simmons,
our President and Director and Daniel Vesco, our Chief Executive Officer
and
Director. Our ability to operate and implement our exploration activities
is
heavily dependent on the continued service of Mr. Simmons and Mr. Vesco and
our
ability to attract qualified contractors and consultants on an as-needed
basis.
We
face
continued competition for such contractors and consultants, and may face
competition for the services of Mr. Simmons and/or Mr. Vesco in the future.
We
do not have any employment contracts with Mr. Simmons or Mr. Vesco, nor do
we
currently have any key man insurance on Mr. Simmons or Mr. Vesco. Mr. Simmons
and Mr. Vesco are our driving forces and are responsible for maintaining
our
relationships and operations. We cannot be certain that we will be able to
retain Mr. Simmons and Mr. Vesco and/or attract and retain such contractors
and
consultants in the future. The loss of either Mr. Simmons and Mr. Vesco,
or both
and/or our inability to attract and retain qualified contractors and consultants
on an as-needed basis could have a material adverse effect on our business
and
operations.
WE
HAVE BECOME AWARE THAT SPAM EMAILS REFERENCING THE COMPANY HAVE BEEN
DISSEMINATED IN THE PAST, WHICH COULD AFFECT THE MARKET FOR AND/OR THE VALUE
OF
OUR COMMON STOCK.
It
has
come to our attention that during the month of October 2006 certain spam-emails,
containing false and misleading information about our company, were disseminated
over the internet. The spam-emails distributed by third parties that are
not
associated with the Company or its Officers or Directors have not been
authorized, sanctioned or paid for by the Company. We caution investors to
review our most recent filings with the Commission, our official press releases
and our periodic filings, which we anticipate filing and amending in the
future,
before making any investment in us.
While
we
are not responsible for the dissemination of the spam-emails and are not
aware
of who was responsible, we were contacted by the Commission and were requested
to voluntarily provide shareholder information and disclosures in connection
with the origins of the dissemination of such spam emails. The Company
cooperated fully with the Commission.
The
fact
that someone disseminated spam emails about our company and the fact that
the
Commission previously looked into such emails may be perceived by potential
investors as a negative factor which could adversely affect the market for
and/or the value of our stock.
BECAUSE
OF THE SPECULATIVE NATURE OF OIL AND GAS EXPLORATION, THERE IS SUBSTANTIAL
RISK
THAT NO ADDITIONAL COMMERCIALLY EXPLOITABLE OIL OR GAS WILL BE FOUND AND
THAT
OUR BUSINESS WILL FAIL.
The
search for commercial quantities of oil as a business is extremely risky.
We
cannot provide investors with any assurance that our properties contain
commercially exploitable quantities of oil and/or gas.
The
exploration expenditures to be made by us may not result in the discovery
of
commercial quantities of oil and/or gas and problems such as unusual or
unexpected formations and other conditions involved in oil and gas exploration,
and often result in unsuccessful exploration efforts. If we are unable to
find
commercially exploitable quantities of oil and gas, and/or we are unable
to
commercially extract such quantities, we may be forced to abandon or curtail
our
business plan, and as a result, any investment in us may become
worthless.
OUR
TOTAL AMOUNT OF ISSUED AND OUTSTANDING SHARE AMOUNTS MAY BE INCORRECT, AND
WE
MAY HAVE OUTSTANDING SHARES WHICH ARE UNACCOUNTED FOR.
We
recently became aware of a subscription agreement relating to the sale of
certain shares of our common stock in February 2005, which shares have not
been
issued to date, and which subscription agreement we have been unable to verify
as of the date of this filing. As a result of the subscription
agreement, and our previous failure to issue shares in connection with such
subscription agreement, we may have potential liability for such shareholders
loss of liquidity and/or the decline in the value of our common
stock. Additionally, there may be other subscription agreements which
we are not aware of relating to the sale of our common stock, which sales
and
issuances are not currently reflected with our Transfer Agent and/or in the
number of outstanding shares of common stock disclosed throughout this report.
As a result, we may have a larger number of shares outstanding than we currently
show on our shareholders list. This difference, if present, may force us
to
revise our filings and/or may mean that the ownership percentage of certain
shares of common stock disclosed throughout this report is
incorrect. If we are required to issue additional shares of common
stock in the future relating to previous subscription agreements which our
current management was and/or is not aware, it could cause substantial dilution
to our existing shareholders and/or we could face potential liability in
connection with our failure to issue such shares when originally
subscribed.
BECAUSE
OF THE INHERENT DANGERS INVOLVED IN OIL AND GAS EXPLORATION, THERE IS A RISK
THAT WE MAY INCUR LIABILITY OR DAMAGES AS WE CONDUCT OUR BUSINESS OPERATIONS,
WHICH COULD FORCE US TO EXPEND A SUBSTANTIAL AMOUNT OF MONEY IN CONNECTION
WITH
LITIGATION AND/OR A SETTLEMENT.
The
oil
and natural gas business involves a variety of operating hazards and risks
such
as well blowouts, pipe failures, casing collapse, explosions, uncontrollable
flows of oil, natural gas or well fluids, fires, spills, pollution, releases
of
toxic gas and other environmental hazards and risks. These hazards and risks
could result in substantial losses to us from, among other things, injury
or
loss of life, severe damage to or destruction of property, natural resources
and
equipment, pollution or other environmental damage, cleanup responsibilities,
regulatory investigation and penalties and suspension of operations. In
addition, we may be liable for environmental damages caused by previous owners
of property purchased and leased by us. As a result, substantial liabilities
to
third parties or governmental entities may be incurred, the payment of which
could reduce or eliminate the funds available for exploration, development
or
acquisitions or result in the loss of our properties and/or force us to expend
substantial monies in connection with litigation or settlements. As such,
there
can be no assurance that any insurance obtained by us will be adequate to
cover
any losses or liabilities. We cannot predict the availability of insurance
or
the availability of insurance at premium levels that justify our purchase.
The
occurrence of a significant event not fully insured or indemnified against
could
materially and adversely affect our financial condition and operations. We
may
elect to self-insure if management believes that the cost of insurance, although
available, is excessive relative to the risks presented. In addition, pollution
and environmental risks generally are not fully insurable. The occurrence
of an
event not fully covered by insurance could have a material adverse effect
on our
financial condition and results of operations, which could lead to any
investment in us becoming worthless.
WE
REQUIRE SUBSTANTIAL ADDITIONAL FINANCING TO CONTINUE OUR EXPLORATION AND
DRILLING ACTIVITIES, WHICH FINANCING IS OFTEN HEAVILY DEPENDENT ON THE CURRENT
MARKET PRICE FOR OIL AND GAS, WHICH WE ARE UNABLE TO
PREDICT.
Our
growth and continued operations could be impaired by limitations on our access
to capital markets. If the market for oil and/or gas were to weaken for an
extended period of time, our ability to raise capital would be substantially
reduced. There can be no assurance that capital from outside sources will
be
available, or that if such financing is available, that it will not involve
issuing securities senior to the common stock or equity financings which
will be
dilutive to holders of common stock. Such issuances, if made, would likely
cause
a decrease in the value of our common stock.
THE
MARKET FOR OIL AND GAS IS INTENSELY COMPETITIVE, AND AS SUCH, COMPETITIVE
PRESSURES COULD FORCE US TO ABANDON OR CURTAIL OUR BUSINESS
PLAN.
The
market for oil and gas exploration services is highly competitive, and we
only
expect competition to intensify in the future. Numerous well-established
companies are focusing significant resources on exploration and are currently
competing with us for oil and gas opportunities. Additionally, there are
numerous companies focusing their resources on creating fuels and/or materials
which serve the same purpose as oil and gas, but are manufactured from renewable
resources. As a result, there can be no assurance that we will be able to
compete successfully or that competitive pressures will not adversely affect
our
business, results of operations and financial condition. If we are not able
to
successfully compete in the marketplace, we could be forced to curtail or
even
abandon our current business plan, which could cause any investment in us
to
become worthless.
WE
MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH, WHICH COULD LEAD TO OUR
INABILITY TO IMPLEMENT OUR BUSINESS PLAN.
Our
growth is expected to place a significant strain on our managerial, operational
and financial resources, especially considering that we currently only have
three (3) Directors and a small number of executive officers and employees.
Further, as we enter into additional contracts, we will be required to manage
multiple relationships with various consultants, businesses and other third
parties. These requirements will be exacerbated in the event of our further
growth or in the event that the number of our drilling and/or extraction
operations increases. There can be no assurance that our systems, procedures
and/or controls will be adequate to support our operations or that our
management will be able to achieve the rapid execution necessary to successfully
implement our business plan. If we are unable to manage our growth effectively,
our business, results of operations and financial condition will be adversely
affected, which could lead to us being forced to abandon or curtail our business
plan and operations.
THE
PRICE OF OIL AND NATURAL GAS HAS HISTORICALLY BEEN VOLATILE AND IF IT WERE
TO
DECREASE SUBSTANTIALLY, OUR PROJECTIONS, BUDGETS, AND REVENUES WOULD BE
ADVERSELY EFFECTED, AND WE WOULD LIKELY BE FORCED TO MAKE MAJOR CHANGES IN
OUR
OPERATIONS.
Our
future financial condition, results of operations and the carrying value
of our
oil and natural gas properties depend primarily upon the prices we receive
for
our oil and natural gas production. Oil and natural gas prices historically
have
been volatile and likely will continue to be volatile in the future, especially
given current world geopolitical conditions. Our cash flows from operations
are
highly dependent on the prices that we receive for oil and natural gas. This
price volatility also affects the amount of our cash flows available for
capital
expenditures and our ability to borrow money or raise additional capital.
The
prices for oil and natural gas are subject to a variety of additional factors
that are beyond our control. These factors include:
o
the level of consumer demand for oil and natural gas;
|
|
o
the domestic and foreign supply of oil and natural gas;
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|
o
the ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree to and maintain oil price and production
controls;
|
|
o
the price of foreign oil and natural gas;
|
|
o
domestic governmental regulations and taxes;
|
|
o
the price and availability of alternative fuel sources;
|
|
o
weather conditions;
|
|
o
market uncertainty due to political conditions in oil and natural
gas
producing regions, including the Middle East; and
|
|
o
worldwide economic conditions.
|
These
factors as well as the volatility
of the energy markets generally make it extremely difficult to predict future
oil and natural gas price movements with any certainty. Declines in oil and
natural gas prices would not only reduce our revenue, but could reduce the
amount of oil and natural gas that we can produce economically and, as a
result,
could have a material adverse effect upon our financial condition, results
of
operations, oil and natural gas reserves and the carrying values of our oil
and
natural gas properties. If the oil and natural gas industry experiences
significant price declines, we may be unable to make planned expenditures,
among
other things. If this were to happen, we may be forced to abandon or curtail
our
business operations, which would cause the value of an investment in us to
decline in value, or become worthless.
OUR
ESTIMATES OF RESERVES COULD HAVE FLAWS, OR MAY NOT ULTIMATELY TURN OUT TO
BE
CORRECT OR COMMERCIALLY EXTRACTABLE AND AS A RESULT, OUR FUTURE REVENUES
AND
PROJECTIONS COULD BE INCORRECT.
Estimates
of reserves and of future net revenues prepared by different petroleum engineers
may vary substantially depending, in part, on the assumptions made and may
be
subject to adjustment either up or down in the future. Our actual amounts
of
production, revenue, taxes, development expenditures, operating expenses,
and
quantities of recoverable oil and gas reserves may vary substantially from
the estimates. Oil and gas reserve estimates are necessarily inexact
and involve matters of subjective engineering judgment. In addition, any
estimates of our future net revenues and the present value thereof are based
on
assumptions derived in part from historical price and cost information, which
may not reflect current and future values, and/or other assumptions made
by us
that only represent our best estimates. If these estimates of quantities,
prices
and costs prove inaccurate, we may be unsuccessful in expanding our oil and
gas
reserves base with our acquisitions. Additionally, if declines in and
instability of oil and gas prices occur, then write downs in the capitalized
costs associated with our oil and gas assets may be required. Because of
the
nature of the estimates of our reserves and estimates in general, we can
provide
no assurance that additional or further reductions to our estimated proved
oil
and gas reserves and estimated future net revenues will not be required in
the
future, and/or that our estimated reserves will be present and/or commercially
extractable. If our reserve estimates are incorrect, the value of our common
stock could decrease and we may be forced to write down the capitalized costs
of
our oil and gas properties.
OUR
OPERATIONS ARE HEAVILY DEPENDENT ON CURRENT ENVIRONMENTAL REGULATIONS, WHICH
WE
ARE UNABLE TO PREDICT, AND WHICH MAY CHANGE IN THE FUTURE, CAUSING US TO
EXPEND
SUBSTANTIAL ADDITIONAL CAPITAL.
Public
interest in the protection of the environment has increased dramatically
in
recent years. Our oil and natural gas production and our processing, handling
and disposal of hazardous materials, such as hydrocarbons and naturally
occurring radioactive materials (if any) are subject to stringent regulation.
We
could incur significant costs, including cleanup costs resulting from a release
of hazardous material, third-party claims for property damage and personal
injuries fines and sanctions, as a result of any violations or liabilities
under
environmental or other laws. Changes in or more stringent enforcement of
environmental laws could force us to expend additional operating costs and
capital expenditures to stay in compliance.
Various
federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, directly impact oil and gas
exploration, development and production operations, and consequently may
impact
our operations and costs. These regulations include, among others, (i)
regulations by the Environmental Protection Agency and various state agencies
regarding approved methods of disposal for certain hazardous and non-hazardous
wastes; (ii) the Comprehensive Environmental Response, Compensation, and
Liability Act, Federal Resource Conservation and Recovery Act and analogous
state laws which regulate the removal or remediation of previously disposed
wastes (including wastes disposed of or released by prior owners or operators),
property contamination (including groundwater contamination), and remedial
plugging operations to prevent future contamination; (iii) the Clean Air
Act and
comparable state and local requirements which may result in the gradual
imposition of certain pollution control requirements with respect to air
emissions from our operations; (iv) the Oil Pollution Act of 1990 which contains
numerous requirements relating to the prevention of and response to oil spills
into waters of the United States; (v) the Resource Conservation and Recovery
Act
which is the principal federal statute governing the treatment, storage and
disposal of hazardous wastes; and (vi) state regulations and statutes governing
the handling, treatment, storage and disposal of naturally occurring radioactive
material.
Management
believes that we are in substantial compliance with applicable environmental
laws and regulations. To date, we have not expended any material amounts
to
comply with such regulations, and management does not currently anticipate
that
future compliance will have a materially adverse effect on our consolidated
financial position, results of operations or cash flows. However, if we are
deemed to not be in compliance with applicable environmental laws, we could
be
forced to expend substantial amounts to be in compliance, which would have
a
materially adverse effect on our financial condition. If this were to happen,
any investment in us could be lost.
THE
COMPANY HAS ESTABLISHED PREFERRED STOCK WHICH CAN BE DESIGNATED BY THE COMPANY'S
BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL AND HAS ESTABLISHED SERIES
A
PREFERRED STOCK, WHICH GIVES THE HOLDERS MAJORITY VOTING POWER OVER THE
COMPANY.
The
Company has 1,000,000 shares of preferred stock authorized, and 1,000 shares
of
Series A Preferred Stock authorized. Shares of preferred stock of the Company
may be issued from time to time in one or more series, each of which shall
have
distinctive designation or title as shall be determined by the Board of
Directors of the Company ("Board of Directors") prior to the issuance of
any
shares thereof. The preferred stock shall have such voting powers, full or
limited, or no voting powers, and such preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof as adopted by the Board of Directors. Because the Board
of
Directors is able to designate the powers and preferences of the preferred
stock
without the vote of a majority of the Company's shareholders, shareholders
of
the Company will have no control over what designations and preferences the
Company's preferred stock will have. As a result of this, the Company's
shareholders may have less control over the designations and preferences
of the
preferred stock and as a result the operations of the Company.
THE
COMPANY HAS ESTABLISHED SERIES A PREFERRED STOCK, WHICH GIVES THE HOLDERS
MAJORITY VOTING POWER OVER THE COMPANY.
The
Company has 1,000 shares of Series A Preferred Stock authorized. All outstanding
shares of Series A Preferred stock, which are all currently held by Valeska
Energy Corp., the beneficial owner of which is
William
M. Simmons, the President and Director of the Company, can vote in aggregate
on
all shareholder matters equal to fifty-one percent (51%) of the total vote.
For
example, if there are 10,000,000 shares of the Company's common stock issued
and
outstanding at the time of a shareholder vote, the holders of Series A Preferred
Stock, voting separately as a class, will have the right to vote an aggregate
of
approximately 10,400,000 shares, out of a total number of approximately
20,400,000 shares voting. Because of the shares of Series A Preferred Stock,
Valeska Energy Corp., will effectively exercise voting control over the Company.
As a result of this, the Company's shareholders will have less control over
the
operations of the Company.
WILLIAM
M. SIMMONS, OUR PRESIDENT CAN EXERCISE VOTING CONTROL OVER CORPORATE
DECISIONS.
William
M. Simmons (through his personal beneficial ownership and through his voting
control over Valeska Energy Corp. (“Valeska”)) beneficially owns 27,200,000
shares of common stock, additionally; Valeska holds all 1,000 shares of our
outstanding shares of Series A Preferred Stock, which vote 239,881,856 voting
shares. As a result, Mr. Simmons is able to vote 275,408,387 voting
shares based on 486,683,111 voting shares outstanding (representing 238,474,724
shares of common stock outstanding and 248,208,387 shares of stock which
the
Series A Preferred Stock are able to vote) representing 56.6% of our outstanding
voting shares. Additionally, Valeska holds options to purchase 60,000,000
shares
of our common stock at an exercise price of $0.02 per share, which if exercised
would give Mr. Simmons voting control over an even greater percentage of
our
voting stock. As a result, Mr. Simmons will exercise control in
determining the outcome of all corporate transactions or other matters,
including the election of directors, mergers, consolidations, the sale of
all or
substantially all of our assets, and also the power to prevent or cause a
change
in control. The interests of Mr. Simmons may differ from the interests of
the
other stockholders and thus result in corporate decisions that are adverse
to
other shareholders.
THE
REMOVAL OF MR. VESCO AND MR. SIMMONS AS DIRECTORS OF THE COMPANY IS PROTECTED
BY
VOTING AGREEMENTS ENTERED INTO WITH THE COMPANY’S MAJORITY
SHAREHOLDERS.
Certain
of the Company’s majority shareholders, including Capersia Pte. Ltd., Lucayan
Oil and Gas Investments, Ltd., Frank A. Jacobs (the Company’s former Chief
Executive Officer and Director) and Valeska Energy Corp. (the “Voting
Shareholders”) entered into Voting Agreements whereby they agreed that they
would not vote the aggregate of 71,874,000 shares of common stock which they
hold for (i.e. in favor of) the removal of Mr. Simmons or Mr. Vesco (the
“New
Directors”) until the expiration of the agreements on June 5,
2009. The Voting Shareholders also agreed that in the event of any
shareholder vote of the Company (either by Board Meeting, a Consent to Action
without Meeting, or otherwise) relating to the removal of the New Directors;
the
re-election of the New Directors; and/or the increase in the number of directors
of the Company during the term of the Voting Agreements, that such Voting
Shareholders would vote their shares against the removal of the New Directors;
for the re-election of such New Directors; and/or vote against the increase
in
the number of directors of the Company, without the unanimous consent of
the New
Directors, respectively. The Voting Agreements also included a
provisions whereby in the event that either of the New Directors breaches
his
fiduciary duty to the Company, including, but not limited to such New Director’s
conviction of an act or acts constituting a felony or other crime involving
moral turpitude, dishonesty, theft or fraud; such New Director’s gross
negligence in connection with his service to the Company as a Director and/or
in
any executive capacity which he may hold; and/or if any Voting Shareholder
becomes aware of information which would lead a reasonable person to believe
that such New Director has committed fraud or theft from the Company, or
a
violation of the Securities laws (each a “Breach of Fiduciary Duty”),
this voting requirement set forth above shall not apply. As a result
of the Voting Agreements, it will likely be impossible for the shareholders
of
the Company to remove Mr. Simmons or Mr. Vesco as Directors of the Company,
unless a Breach of Fiduciary Duty occurs, and even then, due to Valeska’s
ownership of the Series A Preferred Stock (as described above), it will likely
be impossible for such New Directors to be removed as Directors of the
Company.
THE
INTERESTS OF MR. SIMMONS AND MR. VESCO, OUR PRESIDENT AND CHIEF EXECUTIVE
OFFICER, RESPECTIVELY, MAY DIFFER FROM THE INTERESTS OF OUR OTHER SHAREHOLDERS,
AND THEY MAY ALSO COMPETE WITH THE COMPANY OR ENTER INTO TRANSACTIONS SEPARATE
FROM THE COMPANY.
Mr.
Simmons and Mr. Vesco, our President and Chief Executive Officer, respectively,
are involved in business interests separate from their involvement with the
Company, including but not limited to Valeska Energy Corp., which business
and/or companies may also operate in the oil and gas industry similar to
and/or
in competition with the Company. Mr. Simmons and Mr. Vesco are under no
obligation to include us in any transactions which they undertake. As a result,
we may not benefit from connections they make and/or agreements they enter
into
while employed by us, and they, or companies they are associated with,
including, but not limited to Valeska, may profit from transactions which
they
undertake while we do not. As a result, they may find it more
lucrative or beneficial to cease serving as officers or Directors of the
Company
in the future and may resign from the Company at that time. Furthermore,
while
employed by us, shareholders should keep in mind that they are under no
obligation to share their contacts and/or enter into favorable contracts
and/or
agreements they may come across with the Company, and as a result may choose
to
enter into such contracts or agreements through companies which they own,
which
are not affiliated with us, and from which we will receive no
benefit. Finally, certain of the agreements they may enter into
on our behalf may benefit them more than us, including, but not limited to
the
Management Agreement, as amended, which currently pays Valeska $20,000 per
month.
RISKS
RELATING TO THE COMPANY'S SECURITIES
A
DEFAULT BY US UNDER THE SECURED TERM NOTE, TEXHOMA WARRANT OR TEXAURUS WARRANT,
WOULD ENABLE LAURUS MASTER FUND, LTD., TO TAKE CONTROL OF SUBSTANTIALLY ALL
OF
OUR ASSETS.
The
Secured Term Note, Texhoma Warrant and Texaurus Warrant, are secured by Laurus
by a continuing security interest in all of our assets, including without
limitation, our cash, cash equivalents, accounts receivable, deposit accounts,
inventory, equipment, goods, fixtures and other tangible and intangible assets,
which we own or at any time in the future may acquire rights, title or interest
to. As a result, if we default under any provision of the Note, Texhoma Warrant
or Texaurus Warrant or we fail to pay any amounts due to Laurus, Laurus may
take
control of substantially all of our assets. If this were to happen, we could
be
left with no revenue producing assets, and the value of our common stock
could
become worthless.
WE
MAY BE REQUIRED TO PAY PENALTIES TO LAURUS MASTER FUND, LTD. UNDER THE
REGISTRATION RIGHTS AGREEMENT, WHICH COULD FORCE US TO EXPEND A SUBSTANTIAL
AMOUNT OF THE MONEY WE HAVE PREVIOUSLY RAISED.
We
granted Laurus Master Fund, Ltd., registration rights to the shares issuable
to
Laurus in connection with the Texhoma Warrant, pursuant to a Registration
Rights
Agreement, and we plan to register such shares pursuant to a Form SB-2
Registration Statement, once we become current in our filings with the
Commission. We agreed pursuant to the Registration Rights Agreement to use
our
best efforts to file the Registration Statement by May 29, 2006 (60 days
after
the Closing) and to obtain effectiveness of such registration statement by
September 25, 2006 (180 days after the Closing), neither of which deadlines
we
have met. To date, Laurus has not contacted us regarding any potential defaults
under the Registration Rights Agreement, but if they contact us in the future,
and our failure to file and obtain effectiveness of the registration statement
is found to create a default under the Note, we could be forced to pay penalties
to Laurus. As a result, we could be forced to abandon or scale back our current
planned operations and/or raise additional capital, which could cause
substantial dilution to our existing shareholders.
THE
TEXHOMA WARRANT CONTAINS PROVISIONS WHEREBY LAURUS MASTER FUND, LTD. MAY
HOLD
MORE THAN 4.99% OF OUR COMMON STOCK, PROVIDED THEY PROVIDE US SEVENTY-FIVE
(75)
DAYS NOTICE OR AN EVENT OF DEFAULT OCCURS.
Although
Laurus may not exercise its Texhoma Warrant if such exercise would cause
it to
own more than 4.99% of our outstanding common stock, the Texhoma Warrant
also
contains provisions which provide for the 4.99% limit to be waived provided
that
Laurus provides us with 75 days notice of its intent to hold more than 4.99%
of
our common stock or upon the occurrence of an event of default (as defined
under
the Note). As a result, if we receive 75 days notice from Laurus and/or an
event
of default occurs, Laurus may fully exercise the Texhoma Warrant and fully
convert the Texhoma Warrant into shares of our common stock. If this were
to
happen, it would cause immediate and substantial dilution to our existing
shareholders and if it were to happen when our Registration Statement covering
Laurus' securities has been declared effective,
the
subsequent sale of such shares in the marketplace, if affected, could cause
the
trading value of our common stock, if any, to decrease
substantially.
IF
AN EVENT OF DEFAULT OCCURS UNDER THE NOTE, TEXHOMA WARRANT OR TEXAURUS WARRANT
OR ANY OF THE RELATED AGREEMENTS, WE COULD BE FORCED TO IMMEDIATELY PAY THE
AMOUNTS DUE UNDER THE NOTE.
The
Secured Term Note, Texhoma Warrant and Texaurus Warrant include provisions
whereby Laurus Master Fund, Ltd., may make the amounts outstanding under
the
Note due and payable if an event of default occurs under the Note, which
events
of default include:
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o
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our
failure to pay amounts due under the
Note;
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o
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breach
of any covenants under the Note, if not cured in the time periods
provided;
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o
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breach
of any warranties found in the
Note;
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o
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the
occurrence of any default under any agreement, which causes any
contingent
obligation to become due prior to its stated maturity or to become
payable;
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o
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any
change or occurrence likely to have a material adverse effect on
the
business, assets, liabilities, financial condition, our operations
or
prospects;
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o
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an
indictment or other proceedings against us or any executive officer;
or
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o
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a
breach by us of any provision of the Securities Purchase Agreement,
or any
other Related Agreement entered into in connection with the sale
of the
Notes.
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If
any
event of default were to occur under the Note and Laurus was to make the
entire
amount of the Note immediately due and payable, and we did not have sufficient
funds on hand to pay such amounts, we could be forced to sell some or all
of our
assets at less than fair market value, and/or abandon or curtail our business
plan and operations.
THE
ISSUANCE OF COMMON STOCK IN CONNECTION WITH THE EXERCISE OF THE TEXHOMA WARRANT
WILL CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION.
Once
we
are able to file a registration statement covering the shares of common stock
issuable in connection with the exercise of the Texhoma Warrant, which we
do not
anticipate being able to file until such time as we are current in our filings,
the issuance of common stock upon exercise of the Texhoma Warrant will result
in
immediate and substantial dilution to the interests of other stockholders
since
Laurus Master Fund, Ltd., may ultimately receive and sell the full amount
issuable on exercise of the Texhoma Warrant, which has an exercise price
of
$0.04 per share, currently more than the average trading value of our common
stock during the past thirty days. Although Laurus may not exercise its warrant
if such conversion or exercise would cause it to own more than 4.99% of our
outstanding common stock (unless Laurus provides us 75 days notice and/or
an
event of default occurs, this restriction does not prevent Laurus from
exercising some of its holdings, selling those shares, and then converting
the
rest of its holdings, while still staying below the 4.99% limit. In this
way,
Laurus could sell more than this limit while never actually holding more
shares
than this limit prohibits. If Laurus chooses to do this, it will likely cause
the value of our common stock to decline in value (if such common stock is
trading at more than $0.04 per share prior to such sales) and will likely
also
cause substantial dilution to our common stock.
THE
MARKET FOR OUR COMMON STOCK MAY CONTINUE TO BE VOLATILE, ILLIQUID AND SPORADIC,
IF WE HAVE A MARKET AT ALL.
The
market for our common stock on the Pinksheets has historically been volatile,
illiquid and sporadic and we anticipate that such market, and the market
for our
common stock on the Over-The-Counter Bulletin Board (which we plan to trade
our
shares once we become current in our filings, of which there can be no
assurance)
will continue to be subject to wide fluctuations in response to several factors,
including, but not limited to:
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(1)
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actual
or anticipated variations in our results of operations;
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(2)
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our
ability or inability to generate new revenues;
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(3)
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increased
competition; and
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(4)
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conditions
and trends in the oil and gas exploration industry and the market
for oil
and gas and petroleum based
products.
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Our
common stock is traded on the Pinksheets under the symbol "TXHE." In recent
years, the stock market in general has experienced extreme price fluctuations
that have oftentimes been unrelated to the operating performance of the affected
companies. Similarly, the market price of our common stock may fluctuate
significantly based upon factors unrelated or disproportionate to our operating
performance. These market fluctuations, as well as general economic, political
and market conditions, such as recessions, interest rates or international
currency fluctuations may adversely affect the market price of our common
stock.
INVESTORS
MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO
FEDERAL REGULATIONS OF PENNY STOCKS.
Our
common stock will be subject to the requirements of Rule 15(g)9, promulgated
under the Securities Exchange Act as long as the price of our common stock
is
below $4.00 per share. Under such rule, broker-dealers who recommend low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements, including a requirement
that
they make an individualized written suitability determination for the purchaser
and receive the purchaser's consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990, also requires
additional disclosure in connection with any trades involving a stock defined
as
a penny stock. Generally, the Commission defines a penny stock as any equity
security not traded on an exchange or quoted on NASDAQ that has a market
price
of less than $4.00 per share. The required penny stock disclosures include
the
delivery, prior to any transaction, of a disclosure schedule explaining the
penny stock market and the risks associated with it. Such requirements could
severely limit the market liquidity of the securities and the ability of
purchasers to sell their securities in the secondary market. In addition,
various state securities laws impose restrictions on transferring "penny
stocks"
and as a result, investors in the common stock may have their ability to
sell
their shares of the common stock impaired.
Other
Considerations
There
are
numerous factors that affect our business and the results of its operations.
Sources of these factors include general economic and business conditions,
federal and state regulation of business activities, the level of demand
for the
Company’s product or services, the level and intensity of competition in the
industry and the pricing pressures that may result, the Company’s ability to
develop new services based on new or evolving technology and the market’s
acceptance of those new services, the Company’s ability to timely and
effectively manage periodic product transitions, and geographic sales mix
of any
particular period, and the ability to continue to improve infrastructure
including personnel and systems, to keep pace with the growth in its overall
business activities.