NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY
Organization
Index
Oil
and Gas, Inc. (“Index Inc.”, “the Company”) is the parent company with four
group subsidiaries: Index Oil & Gas Ltd. comprises a United Kingdom holding
company, which provides management services to the Company, and United States
operating subsidiaries; Index Oil & Gas (USA) LLC (“Index USA”), an
operating company; Index Investments North America Inc. (“Index Investments”);
and Index Offshore LLC (“Index Offshore”), a wholly owned subsidiary of Index
Investments and also an operating company. Index Inc., through its subsidiaries,
is engaged in exploration, appraisal, development, production and sale of oil
and natural gas. The Company does not currently operate any of its properties
and sells its oil and gas production to domestic purchasers.
Operations
The
Company’s initial exploration project is located in Kansas, and is a very low
risk, low cost, low working interest, and limited upside project and which
is
not expected to be a significant contributor to future
growth. Seven wells were drilled in Kansas during the fiscal
year 2007. Five wells were successful and became oil
producers. They are Witt 1-14 (carry-in from Fiscal Year 2006),
Rogers Unit 1-1, Schartz 1-18, Hay Witt Unit 1-11, and Hayden
1-14. Two wells were unsuccessful. They are Pan-John
Unit 1-11 and Hull-Witt Unit 1-11. Our working interest (“(WI”) in the Kansas
wells is either 5% for wells drilled in Stafford County or 3.25% for wells
drilled in Barton County and the net revenue interest (“NRI”) is either 4.155%
or 2.64%, respectively.
The
Company has made progress with its onshore drilling program in Texas and
Louisiana with the Walker 1 discovery well (WI 12.5%, NRI 9.36%) drilled in
Louisiana in Fiscal Year 2006 and which began producing in August 2006 and
its
interest in Vieman 1 (19.5% WI, 14.56%) in Brazoria County Texas which began
production in February 2007. The Hawkins 1 well (WI 12.5%, NRI
10.01%), also in Texas, but in Matagorda County, is now estimated to begin
production into the local pipeline grid during the third quarter of calendar
year 2007. The Ruse and Dark wells, also in Matagorda County, were
dry holes.
The
Company also drilled two successful wells in south Texas. The Serrano well,
renamed Friedrich Gas Unit 1 (WI 37.5%, NRI 28.125%) , in Victoria County,
found
13 feet of net gas pay and produced with average gross daily production in
May
and June 2007 of approximately 280 MCF (47 BOE). The Habanero well, renamed
Schroeder Gas Unit 1 (WI 37.5%, NRI 28.125%), in Goliad County, found 10 feet
of
net gas pay with initial daily production expected at 197 MCF of gas (33 BOE)
per day. The Schroeder Gas Unit 1 is awaiting hook-up to the local
pipeline grid, currently estimated for third quarter of calendar year
2007.
The
Ilse
1 well (WI 10% Before Project Payout and WI 8% After Project Payout, NRI 6%),
the first well to be drilled in the New Taiton Project in Wharton County, Texas,
has been drilled to total depth of approximately 17,000 feet and logged.
Analysis of the logs revealed two zones of interest in the Wilcox C and Wilcox
A, respectively. The lowest zone, the Wilcox C, has been perforated and
stimulated by a “frac” process. Gas flow from the formation to surface has not
been achieved. The preliminary decision is that this interval will not be
productive and will not have any proved reserves. The well is
currently suspended, while a decision making process is currently underway
within the joint venture as to whether to perform work to attempt to achieve
gas
flows from the upper zone of interest, the Wilcox A. As part of this
decision making process, joint venture participants are awaiting a formal
analysis and recommendation from the operator. Since July 26, 2007,
the Company, as a joint interest owner, has been served with two Texas Property
Code Notices of Intent to File Lien Against Property with regard to
materials/equipment sold and/or leased and amounts owed to third parties by
the
operator of the Ilse property. The gross amount of the claims is
$92,930, with our 10% working interest share being $9,293. The
Company, along with other joint interest participants, is in the data gathering
stage and is assessing the implications and magnitude of these Notices and
the
potential financial impact to the Company. The Company was billed for
these services by the operator on their June 2007 operating statement and these
costs have been accrued in our condensed consolidated financial statements
as
costs related to the Ilse well. It is the Company’s position that no
other contingency accrual is currently required.
Capital
costs associated with the Ilse 1 well have been held outside the full cost
pool,
because a determination as to whether the well has found proved reserves has
not
been completed. At the future point when a determination is made, the costs
associated with Ilse 1 will be included in the full cost pool. To the extent
that Ilse 1 does not find any proved reserves, ignoring all other unrelated
factors, this will lead to higher unit depletion charges in future periods
and
makes it highly likely Index will suffer a ceiling test impairment charge.
Index
is carrying approximately $1.2mm of costs at June 30, 2007 related to the Ilse
1
well.
The
George Cason 1 well (18% WI, NRI 13.77%), drilled on the Fern Lake prospect
in
Nacogdoches County, Texas, spudded on June 22, 2007 and reached a total depth
of
11,147 feet on July 14, 2007. Following logging operations to obtain down hole
data, a decision was made to complete and test two intervals. The
first flow test is planned to occur in August 2007. This is the first
well resulting from the agreements executed with Advanced Drilling Concepts
Petroleum, L.P to reprocess seismic data and develop prospects to drill in
up to
four areas in Texas, Mississippi, and Alabama.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
In
December 2006, the Company announced that it has signed an exploration agreement
to participate at 15% WI, subsequently increased to 20%, in
the Supple Jack Creek lease area (formerly described as West). The
first well, as yet unnamed, will target gas in the Edwards Limestone in Lavaca
County, Texas. The proposed total depth of the first well is approximately
14,700 feet. The company announced in January 23, 2007 that it had increased
its
WI in the first well to 20% (NRI 14.71%). The well is planned to spud during
the
second half of calendar year 2007.
In
April
2007, the Company signed agreements to participate in the Shadyside prospect,
located in St. Mary Parish, Louisiana. Index has an initial 15% WI in the
prospect, which will reduce to 13.5% after prospect payout. The
Shadyside 1 well (NRI 9.52%) has a planned total depth of
approximately 16,500 feet and commenced drilling in July 2007.
In
June
2007, the Company announced that it had entered into Participation and Joint
Operating Agreements for the drilling of the Cow Trap project ("Cow Trap")
to be
located in Brazoria County, Texas. The Cow Trap well, named Ducroz 1 (WI 7.5%,
NRI 5.25%), targets gas in stacked Miocene objectives at depths ranging from
4,900 feet to 6,400 feet. The well has a planned total depth of approximately
6,800 feet. Ducroz 1 is to be drilled into a gas-bearing four-way dip structure
defined by 2D seismic and offset well data. Two down-dip wells drilled into
the
same structure have produced 24.4 BCF of gas from stacked Miocene reservoirs
(13.1 BCF and 11.3 BCF, respectively). This equates to approximately 4.1 million
barrels of oil equivalent gross. The Cow Trap structure has Proved Undeveloped
Reserves ("PUDs") estimated by a third party at 4.1 BCF gross, equating to
0.213
BCF at Index's NRI. Ducroz 1 is expected to be spudded during the second half
of
2007.
The
Company announced in April 2007 that it has signed a Participation Agreement
to
explore for gas in the West Wharton prospect. This project could consist of
up
to four exploration wells within the area of mutual interest in Wharton County,
Texas. Index has a 12.5% working interest in the project that will reduce to
9.38% after prospect payout. The first well, Outlar 1 (NRI 6.99%), is planned
to
spud during the third calendar quarter of 2007 and has a planned total depth
of
around 12,000 feet.
In
July
2007 the Company announced that it has signed a Purchase and Sale Agreement
to
acquire a 5% WI and 3.5% NRI in the Alligator Bayou exploration prospect located
beneath onshore portions of Brazoria and Matagorda Counties, Texas. The prospect
covers up to several thousand acres. The first well is planned to spud in late
calendar year 2007 or early 2008.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation/Basis of Presentation
The
unaudited condensed consolidated financial statements as of June 30, 2007 and
March 31, 2007 and for the three months ended June 30, 2007 and 2006 include
the
accounts of the Company and its wholly owned subsidiaries, Index USA, Index
Investments, Index Offshore, Index Inc. and Index Limited, after eliminating
all
significant intercompany accounts and transactions. Results of operations are
included from the date of incorporation. For the reverse merger between the
Company and Index Ltd. at January 20, 2006 the stockholder’s equity section and
earnings per share in the Condensed Consolidated balance sheet at June 30,
2006
were restated to reflect the exchange of shares using a conversion ratio of
approximately 2.857 shares of the Company to 1 share of Index
Ltd. Certain reclassifications of prior year balances have been made
to conform such amounts to corresponding 2007 classifications. These
reclassifications have no impact on net income.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Certain accounting policies involve
judgments and uncertainties to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under
different conditions, or if different assumptions had been used. We evaluate
our
estimates and assumptions on a regular basis. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates and assumptions used in preparation of our financial statements.
The
most significant estimates with regard to these financial statements relate
to
the provision for income taxes, dismantlement and abandonment costs, estimates
to certain oil and gas revenues and expenses and estimates of proved oil and
natural gas reserve quantities used to calculate depletion, depreciation and
impairment of proved oil and natural gas properties and equipment.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Interim
Financial Statements
The
accompanying unaudited condensed consolidated financial statements have been
prepared without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been
condensed or omitted, although we believe that the disclosures contained herein
are adequate to make the information presented not misleading. In the opinion
of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the entire year. These unaudited condensed consolidated financial
statements included herein should be read in conjunction with the Financial
Statements and Notes included in the Company’s Annual Report on Form 10-KSB for
the year ended March 31, 2007.
Cash
and Cash Equivalents, and Concentrations of Credit Risk
Cash
and
cash equivalents represent cash in banks. The Company considers any highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents. The Company’s accounts receivable are concentrated among
entities engaged in the energy industry, within the United States. Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents
and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may
be
in excess of the FDIC insurance limit. Allowance for doubtful accounts was
$0 at
June 30, 2007 and March 31, 2007.
Oil
and Gas Properties
The
Company follows the full cost method of accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of properties within a relatively large geopolitical cost center are capitalized
when incurred and are amortized as mineral reserves in the cost center are
produced, subject to a limitation that the capitalized costs not exceed the
value of those reserves. In some cases, however, certain significant costs,
such
as those associated with offshore U.S. operations, are deferred separately
without amortization until the specific property to which they relate is found
to be either productive or nonproductive, at which time those deferred costs
and
any reserves attributable to the property are included in the computation of
amortization in the cost center. All costs incurred in oil and gas producing
activities are regarded as integral to the acquisition, discovery, and
development of whatever reserves ultimately result from the efforts as a whole,
and are thus associated with the Company’s reserves. The Company capitalizes
internal costs directly identified with performing or managing acquisition,
exploration and development activities. The Company has not capitalized any
internal costs or interest at June 30, 2007 and 2006. Unevaluated costs are
excluded from the full cost pool and are periodically evaluated for impairment
rather than amortized. Upon evaluation, costs associated with productive
properties are transferred to the full cost pool and amortized. Gains or losses
on the sale of oil and natural gas properties are generally included in the
full
cost pool unless the entire pool is sold.
Capitalized
costs and estimated future development costs are amortized on a
unit-of-production method based on proved reserves associated with the
applicable cost center. The Company has assessed the impairment for oil and
natural gas properties for the full cost pool at June 30, 2007 and will assess
quarterly thereafter using a ceiling test to determine if impairment is
necessary. Specifically, the net unamortized costs for each full cost pool
less
related deferred income taxes should not exceed the following: (a) the present
value, discounted at 10%, of future net cash flows from estimated production
of
proved oil and gas reserves plus (b) all costs being excluded from the
amortization base plus (c) the lower of cost or estimated fair value of unproved
properties included in the amortization base less (d) the income tax effects
related to differences between the book and tax basis of the properties
involved. The present value of future net revenues should be based on current
prices, with consideration of price changes only to the extent provided by
contractual arrangements, as of the latest balance sheet presented. The full
cost ceiling test must take into account the prices of qualifying cash flow
hedges in calculating the current price of the quantities of the future
production of oil and gas reserves covered by the hedges as of the balance
sheet
date. In addition, the use of the hedge-adjusted price should be consistently
applied in all reporting periods and the effects of using cash flow hedges
in
calculating the ceiling test, the portion of future oil and gas production
being
hedged, and the dollar amount that would have been charged to income had the
effects of the cash flow hedges not been considered in calculating the ceiling
limitation should be disclosed. Any excess is charged to expense during the
period that the excess occurs. The Company did not have any hedging activities
during the three months ended June 30, 2007 and 2006. Application of the ceiling
test is required for quarterly reporting purposes, and any write-downs cannot
be
reinstated even if the cost ceiling subsequently increases by year-end. No
ceiling test write-down was recorded for the three months ended June 30, 2007
and 2006. Sales of proved and unproved properties are accounted for as
adjustments of capitalized costs with no gain or loss recognized, unless such
adjustments would significantly alter the relationship between capitalized
costs
and proved reserves of oil and gas, in which case the gain or loss is recognized
in income.
Abandonment of properties is accounted for as
adjustments of capitalized costs with no loss recognized.
Other
Property, Plant and Equipment
Other
property, plant and equipment primarily includes computer equipment, which
is
recorded at cost and depreciated on a straight-line basis useful lives of five
years. Repair and maintenance costs are charged to expense as incurred while
acquisitions are capitalized as additions to the related assets in the period
incurred. Gains or losses from the disposal of property,
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
plant
and
equipment are recorded in the period incurred. The net book value of the
property, plant and equipment that is retired or sold is charged to accumulated
depreciation and amortization, and the difference is recognized as a gain or
loss in the results of operations in the period the retirement or sale
transpires.
Segment
Information
The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information”.
Foreign
Currency Translation
The
Company translates the foreign currency financial statements in accordance
with
the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
functional currency is not the U.S. dollar are translated into U.S. dollars
at
fiscal year-end exchange rates. Revenue and expense items are translated at
average exchange rates prevailing during the fiscal year. Translation
adjustments are included in Accumulated other comprehensive gain /(loss) in
the
equity section of the balance sheet, with a total of $11,278 and $15,399 at
June
30, and March 31, 2007, respectively, and foreign currency transaction
gains/(losses) are included in the statement of operations
Stock
Based Compensation
On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004)
“Share-Based Payments” (“SFAS-123R”). This statement applies to all awards
granted, modified, repurchased or cancelled after January 1, 2006 and to
the unvested portion of all awards granted prior to that date. The Company
adopted this statement using the modified version of the prospective application
(modified prospective application). Under the modified prospective application,
compensation cost for the portion of awards for which the employee’s requisite
service has not been rendered that are outstanding as of January 1, 2006
must be recognized as the requisite service is rendered on or after that date.
The compensation cost for that portion of awards shall be based on the original
fair market value of those awards on the date of grant as calculated for
recognition under SFAS 123. The compensation cost for these earlier awards
shall
be attributed to periods beginning on or after January 1, 2006 using the
attribution method that was used under SFAS 123. The impact of adoption of
SFAS-123R decreased income from operations and income before income taxes and
net income by $170,331 for the three months ended June 30, 2006 and there was
no
impact on the Condensed Consolidated Statement of Cash Flows. The effect on
net
income per share for basic and diluted is $0.01. See Note 9 of the notes to
the
Condensed Consolidated Financial Statements for additional
disclosure.
Correction
of Errors
The
Company adopted SFAS 154, “Accounting Changes and Error Corrections—a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”)” in
April 1, 2007, in which it changed the requirements for the accounting for
and
the reporting of a change in accounting principle. The Company requires that
a
new accounting principle be applied to the balances of assets and liabilities
as
of the beginning of the earliest period for which retrospective application
is
practicable and that a corresponding adjustment is made to the opening balance
of retained earnings (or other appropriate components of equity or net assets
in
the balance sheet) for that period rather than being reported in the statement
of operations. When it is impracticable to determine the cumulative effect
of
applying a change in accounting principle to all prior periods, The Company
applies the new accounting principle as if it were adopted prospectively from
the earliest date practicable. The Company will also revise previously issued
financial statements to reflect the correction of an error, should one occur,
and limit the application to the direct effects of the change. Indirect effects
of a change in accounting principle will be recognized in the period of the
accounting change. The Company will continue to account for a change in
accounting estimate in accordance with APB 20. The adoption of this
pronouncement had no impact to the Company’s consolidated financial position or
results of operations.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Certain
Hybrid Instruments
. On February 16, 2006 the FASB issued SFAS 155,
“Accounting for Certain Hybrid Instruments,” which amends SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities,” and SFAS 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.” SFAS 155 allows financial instruments that have embedded
derivatives to be accounted for as a whole (eliminating the need to bifurcate
the derivative from its host) if the holder elects to account for the whole
instrument on a fair value basis. SFAS 155 also clarifies and amends certain
other provisions of SFAS 133 and SFAS 140. This statement is effective for
all
financial instruments acquired or issued in fiscal years beginning after
September 15, 2006. The Company adopted this new standard, effective April
1, 2007, with no impact on its financial position, results of operations or
cash
flows as it currently does not have any hybrid instruments outstanding at June
30, 2007 and March 31, 2007, respectively.
Accounting
for Servicing of Financial Assets
. In March 2006, the FASB issued SFAS No.
156, “
Accounting for Servicing of Financial Assets—an amendment of FASB
Statement No. 140”(“
SFAS No. 156”), which amends FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
with respect to the accounting for
separately recognized servicing assets and servicing liabilities. This Statement
requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. The Board
concluded that fair value is the most relevant measurement attribute for the
initial recognition of all servicing assets and servicing liabilities, because
it represents the best measure of future cash flows. This Statement permits,
but
does not require, the subsequent measurement of servicing assets and servicing
liabilities at fair value. An entity that uses derivative instruments to
mitigate the risks inherent in servicing assets and servicing liabilities is
required to account for those derivative instruments at fair value. Under this
Statement, an entity can elect subsequent fair value measurement of its
servicing assets and servicing liabilities by class, thus simplifying its
accounting and providing for income statement recognition of the potential
offsetting changes in fair value of the servicing assets, servicing liabilities,
and related derivative instruments. An entity that elects to subsequently
measure servicing assets and servicing liabilities at fair value is expected
to
recognize declines in fair value of the servicing assets and servicing
liabilities more consistently than by reporting other-than-temporary
impairments. The Company adopted this new standard effective April 1,
2007, with no impact the Company’s Condensed Consolidated financial position or
results of operations As the Company does not have an derivative or hedging
instruments.
Income
Taxes.
In June 2006, the FASB issued FASB Interpretation No 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109”, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB 109.
The Interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition. The Company adopted the new standard
effective April 1, 2007 with no material impact on the Company’s consolidated
financial position or results of operations.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-19-2 specifies that the contingent obligation
to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as
a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with FASB Statement No. 5, Accounting
for
Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject
to a registration payment arrangement should be accounted for in accordance
with
other applicable generally accepted accounting principles without regard to
the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement. For registration payment arrangements and financial
instruments subject to those arrangements that were entered into prior to the
issuance of EITF 00-19-2, this guidance shall be effective for financial
statements issued for fiscal years beginning after December 15, 2006 and interim
periods within those fiscal years. The Company adopted the new pronouncement
effective April 1, 2007 with no impact Company’s consolidated financial position
or results of operations.
New
Accounting Pronouncements Not Yet Adopted
Fair
Value Measurements.
In September 2006, the FASB issued SFAS 157, “Fair
Value Measurements”, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”), and
expands disclosures about fair value measurements. Prior to this Statement,
there were different definitions of fair value and limited guidance for applying
those definitions in GAAP. This Statement provides the definition to increase
consistency and comparability in fair value measurements and for expanded
disclosures about fair value measurements. The Statement emphasizes that fair
value is a market-based measurement, not an entity-specific measurement. The
Statement clarifies that market participant assumptions include assumptions
about risk, i.e. the risk inherent in a particular valuation technique used
to
measure fair value and/or the risk inherent in the inputs to the valuation
technique. The Statement expands disclosures about the use of fair vale to
measure assets and liabilities in interim and annual periods subsequent to
initial recognition. The disclosures focus on the inputs used to measure fair
value and for recurring fair value measurements using significant unobservable
inputs, the effect of the measurements on earnings for the period. The Statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including the financial statements
for an interim period within that fiscal year. The Company does not expect
adoption of this standard will have a material impact on its financial position,
operations or cash flows.
The
Fair Value Option for Financial Assets and Financial Liabilities.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115”, permitting entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting measurement. The statement
applies to all entities, including not-for profit organizations. Most of the
provisions of this Statement apply only to entities that elect the fair value
option. However, the amendment to FASB Statement No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”, applies to all entities with
available-for-sale and trading securities. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST
Oil
and Gas Properties
Major
classes of oil and gas properties under the full cost method of accounting
at
June 30, 2007 and March 31, 2007 consist of the following:
|
|
June
30, 2007
|
|
|
March
31, 2007
|
|
Proved
properties
|
|
$
|
3,781,782
|
|
|
$
|
3,254,211
|
|
Unevaluated
and unproved properties
|
|
|
2,717,136
|
|
|
|
1,927,776
|
|
Gross
oil and gas properties-onshore
|
|
|
6,498,918
|
|
|
|
5,181,987
|
|
Less: accumulated
depletion
|
|
|
(388,584
|
)
|
|
|
(315,937
|
)
|
Net
oil and gas properties-onshore
|
|
$
|
6,110,334
|
|
|
$
|
4,866,050
|
|
Included
in the Company's oil and gas properties are asset retirement obligations of
$41,552 as of June 30, 2007 and March 31, 2007, respectively.
Depletion
expense was $72,684 and $21,385 or $25.75 and $19.04 per barrel of production
for the three months ended June 30, 2007 and 2006, respectively.
At
June
30, 2007 and March 31, 2007, the Company excluded the following capitalized
costs from depletion, depreciation and amortization:
|
|
June
30, 2007
|
|
|
March
31, 2007
|
|
Not
subject to depletion-onshore:
|
|
|
|
|
|
|
Exploration
costs
|
|
$
|
2,150,683
|
|
|
$
|
1,669,478
|
|
Cost
of undeveloped acreage
|
|
|
566,452
|
|
|
|
258,298
|
|
Total
not subject to depletion
|
|
$
|
2,717,136
|
|
|
$
|
1,927,776
|
|
It
is
anticipated that the cost of undeveloped acreage of $0.6 million and exploration
costs of $2.2 million will be included in depreciation, depletion and
amortization when the related projects are planned and drilled and completed.
Included in exploration cost and undeveloped acreage costs at June 30, 2007
are
approximately: $1.2 million related to the Ilse 1 well that has been drilled,
but not tested or completed (see Note 1), $0.3 million related to undeveloped
leasehold for the Supple Jack Creek project area, $0.3 million related to the
ADC exploration agreements, $0.4 million related to the George Cason well,
$1.0
million related to the West Wharton prospect and $0.2 million related to the
Shadyside well.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST (continued)
Acquisitions
and Dispositions
In
the 3
months to June 30, 2007 the Company acquired the following oil and gas property
interests, under agreements to participate in:
The
Shadyside prospect, located in St. Mary Parish, Louisiana. Index has an initial
15% WI in the prospect, which will reduce to 13.5% after prospect
payout. The Shadyside 1 well (NRI 9.52%) has a planned total depth of
approximately 16,500 feet and commenced drilling in July 2007.
The
Cow
Trap project ("Cow Trap") to be located in Brazoria County, Texas. The Cow
Trap
well, named Ducroz 1 (WI 7.5%, NRI 5.25%), targets gas in stacked Miocene
objectives at depths ranging from 4,900 feet to 6,400 feet. The well has a
planned total depth of approximately 6,800 feet. Ducroz 1 is to be drilled
into
a gas-bearing four-way dip structure defined by 2D seismic and offset well
data.
Two down-dip wells drilled into the same structure have produced 24.4 BCF of
gas
from stacked Miocene reservoirs (13.1 BCF and 11.3 BCF, respectively). This
equates to approximately 4.1 million barrels of oil equivalent gross. The Cow
Trap structure has Proved Undeveloped Reserves ("PUDs") estimated by a third
party at 4.1 BCF gross, equating to 0.213 BCF at Index's NRI. Ducroz 1 is
expected to be spudded during the second half of 2007.
The
West
Wharton prospect. This project could consist of up to four exploration wells
within the area of mutual interest in Wharton County, Texas. Index has a 12.5%
working interest in the project that will reduce to 9.38% after prospect payout.
The first well, Outlar 1 (NRI 6.99%), is planned to spud during the third
calendar quarter of 2007 and has a planned total depth of around 12,000
feet.
Subsequent
to June 30, 2007, the Company announced that it has signed a Purchase and Sale
Agreement to acquire a 5% working interest and 3.5% Net Revenue Interest ("NRI")
in the Alligator Bayou exploration prospect located beneath onshore portions
of
Brazoria and Matagorda Counties, Texas ("Alligator Bayou"). Alligator
Bayou is the largest prospect the Company has signed to date and covers up
to
several thousand acres. The first well is planned to spud in approximately
six
to nine months.
Other
Property and Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over
their
estimated useful lives of the assets. Maintenance, repairs, and minor renewals
are charged against earnings when incurred. Additions and major renewals are
capitalized. Major assets at June 30, 2007 and March 31, 2007 were as
follows:
|
|
June
30, 2007
|
|
|
March
31, 2007
|
|
Computer
costs, including foreign translation adjustment
|
|
$
|
24,060
|
|
|
$
|
23,858
|
|
Less:
accumulated depreciation
|
|
|
(12,320
|
)
|
|
|
(11,365
|
)
|
Total
other property and equipment
|
|
$
|
11,740
|
|
|
$
|
12,493
|
|
Depreciation
expenses from continuing operations amounted to $753 and $163 for the three
months ended June 30, 2007 and 2006, respectively. There was no interest
capitalized in property, plant and equipment at June 30, 2007 and
2006.
NOTE
4 - COMPREHESIVE LOSS
For
the
three months ended June 30, 2007 and 2006, comprehensive income (loss) consisted
of the amounts listed below.
|
|
For
the Three Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
Net
loss
|
|
$
|
(436,837
|
)
|
|
$
|
(319,401
|
)
|
Foreign
currency translation gain / (loss)
|
|
|
(4,121
|
)
|
|
|
1,876
|
|
Comprehensive
Loss
|
|
$
|
(440,958
|
)
|
|
$
|
(317,525
|
)
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
5 - NOTES PAYABLE
Index
Ltd. had incurred debt and raised capital through a series of rounds of
fundraising from inception through June 30, 2006. The entire Index Ltd.
convertible debt stockholder funding has been converted to common stock at
par
and additional paid in capital. After all conversion of stock, notes payable
at
June 30, 2007 and March 31, 2007 were $0.There was no debt issue cost incurred
during the three months ended June 30, 2007 and 2006 and no debt issue
amortization expense in the three months ended June 30, 2007 and
2006. There was no unamortized debt issue cost at June 30, 2007 and
March 31, 2007. There were no outstanding bank loans at June 30, 2007 and March
31, 2007. A bank loan was repaid during the three months ended June 30,
2006.
NOTE
6 - ASSET RETIREMENT OBLIGATION
Activity
related to the Company’s Asset Retirement Obligation (“ARO”) during the three
months ended June 30, 2007 is as follows:
|
|
For
the Three Months Ended June 30, 2007
|
|
ARO
as of beginning of period
|
|
$
|
41,552
|
|
Liabilities
incurred during period
|
|
|
-
|
|
Liabilities
settled during period
|
|
|
-
|
|
Accretion
expense
|
|
|
-
|
|
Balance
of ARO as of end of period
|
|
$
|
41,552
|
|
Of
the
total ARO, $41,552 is classified as a long-term liability at June 30, 2007.
For
each of the three months ended June 30, 2007 and 2006, the Company recognized
no
accretion expense related to its ARO, due to the assumption of a full offset
of
salvage values.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
7 - COMMITMENTS AND CONTINGENCIES
The
Company has various commitments to oil and gas exploration and production
capital expenditures with ongoing expenditures on the Kansas properties, and
expenditures and commitments relating to wells in Texas and Louisiana arising
out of the normal course of business.
Lease
Commitments
The
Company does not have any capital lease commitments. The Company rents its
main
operating office in Houston on a month-to-month basis for which payments began
in November 2005. The Company also has a nine month lease, committed to in
April
2007, related to corporate housing for UK based officers while periodically
working at the corporate office.
Consulting
Agreements
The
Company has held consulting agreements with outside contractors, certain of
whom
are also Company stockholders. The Agreements are generally for a fixed term
from inception and renewable from time to time unless either the Company or
Consultant terminates such engagement by written notice.
Stockholder
Matters
There
were no stockholder matters during the quarter ended June 30, 2007.
Litigation
The
Company is subject to various legal proceedings and claims, which arise in
the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity. Consequently, the Company has not recorded any
reserve for legal matters.
Since
July 26, 2007, the Company, as a joint interest owner, has been served with
two
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties
by
the operator of the Ilse 1 property. The gross amount of the claims
is $92,930 with our 10% working interest share before project payout being
$9,293. The Company, along with other joint interest participants, is
in the data gathering stage and is assessing the implications and magnitude
of
these Notices and the potential financial impact to the Company. The
Company was billed for these services by the operator on their June 2007
operating statement and these costs have been accrued in our condensed
consolidated financial statements as costs related to the Ilse
well. It is the Company’s position that no other contingency accrual
is currently required.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
8 - CAPITAL STOCK
During
the quarter ended June 30, 2007:
Balance
at March 31, 2007
|
|
|
65,737,036
|
|
Issuance
of stock upon exercise of warrants
|
|
|
66,662
|
|
Total
|
|
|
65,803,698
|
|
In
June
2007, a total of 66,662 warrants were exercised at a price of $0.14 for a total
of $9,333 and a total of 66,662 shares of common stock, $0.001 par value, were
issued to a director.
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
The
Board
of Directors of Index Inc. agreed to the adoption of the 2006 Incentive Stock
Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006,
effective as of January 20, 2006, providing for the issuance of up to 5,225,000
shares of Common Stock of Index Inc. to officers, directors, employees and
consultants of Index Inc. and/or its subsidiaries. Pursuant to the Stock Option
Plan, Index Inc. has allowed for the issuance of options to purchase 5,077,526
shares of Common Stock. Total compensation expense recorded for the issuance
of
these options in the first quarter of fiscal 2008 was $96,823.
The
principal terms and conditions of the share options granted under the Stock
Option Plan are that vesting of the options granted occurs in three stages:
(1)
50% on grant; (2) 25% one year after grant; and (3) 25% two years after grant.
Furthermore, the share options granted under the Share Option Plan are generally
non-transferable other than to a legal or beneficial holder of the options
upon
the option holder’s death. The rights to vested but unexercised options cease to
be effective: (1) 18 months after death of the stock options holder; (2) 6
months after Change of Control of Index Inc.; (3) 12 months after loss
of
office due to health related incapacity or redundancy;
or (4) 12 months after the retirement of the options holder from a position
with
Index Inc. All options have a 5 year expiring term.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
The
remaining compensation expense associated with total unvested awards as of
June
30, 2007 was approximately $253,000, and will be recognized over the remaining
weighted average vesting period. $96,823 and $170,331 was recorded as
compensation expense for the three months ended June 30, 2007 and 2006,
respectively.
Effective
January 1, 2006, the Company began accounting for stock-based compensation
under SFAS-123R, whereby the Company records compensation expense based on
the
fair value of awards described below. The Company did not issue any stock
options during the three months ended June 30, 2007 and 2006 and therefore
had
no compensation expense for these periods for new option issuances.
Stock
Options
The
following tables summarize the changes in options outstanding and exercised
and
the related exercise prices for the shares of the Company's common stock issued
to certain directors and stockholders at June 30, 2007:
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
Outstanding
at March 31, 2007
|
|
|
5,077,526
|
|
|
$
|
0.46
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at June 30, 2007
|
|
|
5,077,526
|
|
|
$
|
0.46
|
|
The
Company has assumed an annual forfeiture rate of 0 % for the awards granted
based on the Company’s history for this type of award to various employee
groups. Compensation expense is recognized ratably over the requisite service
period and immediately for retirement-eligible employees.
Options
Outstanding
|
|
Options
Exercisable
|
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
$
0.35
|
|
4,577,526
|
|
3.56
|
|
$
0.35
|
|
3,433,145
|
|
$0.35
|
$1.42
|
|
500,000
|
|
4.72
|
|
$1.42
|
|
250,000
|
|
$1.42
|
|
|
5,077,526
|
|
|
|
$0.46
|
|
3,683,145
|
|
$0.42
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
unaudited)
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
Warrants
The
following tables summarize the changes in warrants outstanding and exercised
and
the related exercise prices for the shares of the Company's common stock issued
as follows:
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
Outstanding
and Exercisable March 31, 2007
|
|
|
968,083
|
|
|
$
|
0.13
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exchanged
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(66,662
|
)
|
|
|
(0.14
|
)-
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
and Exercisable at June 30, 2007
|
|
|
901,421
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
$
|
0.07
|
|
|
|
138,655
|
|
|
|
3.25
|
|
|
$
|
0.07
|
|
|
|
138,655
|
|
|
$
|
0.07
|
|
$
|
0.14
|
|
|
|
143,037
|
|
|
|
3.25
|
|
|
$
|
0.14
|
|
|
|
143,037
|
|
|
$
|
0.14
|
|
$
|
0.14
|
|
|
|
253,961
|
|
|
|
3.25
|
|
|
$
|
0.14
|
|
|
|
253,961
|
|
|
$
|
0.14
|
|
$
|
0.14
|
|
|
|
339,033
|
|
|
|
3.25
|
|
|
$
|
0.14
|
|
|
|
339,033
|
|
|
$
|
0.14
|
|
$
|
0.14
|
|
|
|
26,735
|
|
|
|
3.25
|
|
|
$
|
0.14
|
|
|
|
26,735
|
|
|
$
|
0.14
|
|
|
|
|
|
|
901,421
|
|
|
|
3.25
|
|
|
$
|
0.13
|
|
|
|
901,421
|
|
|
$
|
0.13
|
|
In
June
2007, a total of 66,662 warrants were exercised at a price of $0.14 for a total
of $9,333 and a total of 66,662 shares of common stock, $0.001 par value, were
issued to a director.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
10 - EARNINGS PER SHARE
Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock and related stock options were exercised at
the
end of the period. For the periods ended June 30, 2007 and 2006, excluded from
diluted earnings per share are 901,421 and 1,092,676, respectively of warrants
to acquire common stock. As of both June 30, 2007 and 2006, there are 4,577,526
of options to acquire the Company’s common stock that were excluded from the
computation of diluted earnings per share, and which excluded 500,000 of out
of
the money options at June 30, 2007. As of March 31, 2007, 25,000 shares yet
to
vest under a performance bonus award have been excluded from the computation
of
diluted earnings per share.
The
following is a calculation of basic and diluted weighted average shares and/or
options and warrants outstanding:
|
|
For
The Three Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
Shares—basic
|
|
|
65,739,234
|
|
|
|
54,544,345
|
|
Dilution
effect of stock option and awards at end of period
|
|
|
-
|
|
|
|
-
|
|
Shares—diluted
|
|
|
65,739,234
|
|
|
|
54,544,345
|
|
Stock
awards and shares excluded from diluted earnings per share due to
anti-dilutive effect
|
|
|
5,503,947
|
|
|
|
5,670,202
|
|
NOTE
11 - RELATED PARTY TRANSACTIONS
During
the three months ended June 30, 2006, the Company repaid various directors
$1,007 for the refund of payroll taxes.
During
the three months ended June 30, 2006, the Company repaid a bank loan Lyndon
West
and Michael Scrutton, jointly and severally, guaranteed this bank
loan.
NOTE
12 - OPERATING SEGMENTS
The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information.” See below for
information by geographic location.
Geographic
Area Information
During
the three months ended June 30, 2007 and as of June 30, 2007, the Company owned
oil and natural gas interests in three main geographic areas in the United
States. Geographic revenue and oil and gas property information below is based
on physical location of the assets at the end of each period.
|
|
June
30, 2007
|
|
|
|
Total Oil & Gas
Revenue
|
|
|
Total Oil
and Gas Assets (1)
|
|
Kansas
|
|
$
|
40,974
|
|
|
$
|
787,431
|
|
Louisiana
|
|
|
66,727
|
|
|
|
452,313
|
|
Texas
|
|
|
43,672
|
|
|
|
5,346,722
|
|
Total
|
|
$
|
151,373
|
|
|
$
|
6,586,466
|
|
(1)
|
Total
oil and gas property assets at June 30, 2007 are reported gross.
Under the
full cost method of accounting for oil and gas properties, depreciation,
depletion and amortization and impairment is not allocated to
properties.
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
13 - SUBSEQUENT EVENTS
In
July
2007, the Company announced that it has signed a Purchase and Sale Agreement
to
acquire a 5% working interest and 3.5% Net Revenue Interest ("NRI") in the
Alligator Bayou exploration prospect. located beneath onshore portions of
Brazoria and Matagorda Counties, Texas.
The
Shadyside 1 well commenced drilling in July 2007.
Since
July 26, 2007, the Company, as a joint interest owner, has been served with
two
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties
by
the operator of our Ilse 1 property. See Notes 1 and 7 for more
information.
On
August
13, 2007, Mr. John G. Williams informed the Company that he was resigning from
his position as Executive Vice President Exploration and Production effective
as
of November 1, 2007, and that he was also resigning from his position as a
member of the board of directors of the Company effective immediately. Pursuant
to the terms of Mr. Williams’ Employment Agreement entered into with the
Company, dated August 29, 2006 (the “Agreement”), which was filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September
9, 2006, Mr. Williams complied with the terms of the Agreement by giving the
Company proper notice of his resignation. Mr. Williams will continue to serve
as
Executive Vice President Exploration and Production until November 1,
2007. The Company’s Board of Directors has no immediate plans to appoint a
replacement director to fill the vacancy created.
RBSM
LLP
CERTIFIED
PUBLIC ACCOUNTANTS
REPORT
OF
INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Index
Oil
and Gas, Inc.
Houston,
USA
We
have
audited the accompanying consolidated balance sheets of Index Oil and Gas,
Inc.
(and subsidiaries) (the “Company”) as of March 31, 2007 and 2006 and the related
consolidated statements of losses, stockholders’ equity, and cash flows for each
of the two years in the period ended March 31, 2007. These financial statements
are the responsibility of the company’s management. Our responsibility is to
express an opinion on the financial statements based upon our
audits.
We
have
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Index Oil and Gas, Inc. at March
31, 2007 and 2006 and the results of its operations and its cash flows for
each
of the two years in the period ended March 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
|
|
|
New
York, New York
|
|
/s/ RBSM
LLP
|
June
13, 2007
|
RBSM
LLP
|
|
Certified
Public Accountants
|
INDEX
OIL AND GAS, INC.
CONSOLIDATED
BALANCE SHEETS
MARCH
31, 2007 AND 2006
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents (Note 3)
|
|
$
|
10,141,125
|
|
|
$
|
5,536,006
|
|
Trade
receivables (Note 4)
|
|
|
80,342
|
|
|
|
12,501
|
|
Other
receivables (Note 3)
|
|
|
6,688
|
|
|
|
6,254
|
|
Other
current assets (Note 3)
|
|
|
72,936
|
|
|
|
8,600
|
|
Total
Current Assets
|
|
|
10,301,091
|
|
|
|
5,563,361
|
|
|
|
|
|
|
|
|
|
|
Oil
& Gas Properties, full cost, net of accumulated depletion (Notes 3,
5,
7 and 15)
|
|
|
4,866,050
|
|
|
|
951,199
|
|
Property
and Equipment, net of accumulated depreciation (Note 3 and
5)
|
|
|
12,493
|
|
|
|
1,727
|
|
Total
Oil & Gas Properties and Property and Equipment
|
|
|
4,878,543
|
|
|
|
952,926
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
15,179,634
|
|
|
$
|
6,516,287
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses (Note 3)
|
|
$
|
814,449
|
|
|
$
|
555,452
|
|
Bank
loan (Note 6)
|
|
|
-
|
|
|
|
48,569
|
|
Other
current liability (Note 14 )
|
|
|
-
|
|
|
|
1,007
|
|
Total
Current Liabilities
|
|
|
814,449
|
|
|
|
605,028
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities:
|
|
|
|
|
|
|
|
|
Asset
Retirement Obligation (Notes 3 and 7)
|
|
|
41,552
|
|
|
|
25,300
|
|
Total
Liabilities
|
|
|
856,001
|
|
|
|
630,328
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 9)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity: (Note 6 and 11)
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.001, 10 million shares authorized, no shares
issued
and outstanding at March 31, 2007 and 2006 (see Note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.001, 500 million shares authorized,
65,737,036
and 54,544,346 issued and outstanding at March 31, 2007 and 2006,
respectively (see Note 10)
|
|
|
65,737
|
|
|
|
54,544
|
|
Additional
paid in capital
|
|
|
19,043,734
|
|
|
|
8,387,306
|
|
Accumulated
deficit
|
|
|
(4,801,237
|
)
|
|
|
(2,575,581
|
)
|
Other
comprehensive income (Note 3)
|
|
|
15,399
|
|
|
|
19,690
|
|
Total
Stockholders’ Equity
|
|
|
14,323,633
|
|
|
|
5,885,959
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
15,179,634
|
|
|
$
|
6,516,287
|
|
See
accompanying notes to consolidated financial statements
INDEX
OIL AND GAS, INC.
CONSOLIDATED
STATEMENT OF LOSSES
FOR
THE YEARS ENDED MARCH 31, 2007 AND 2006
|
|
2007
|
|
|
2006
|
|
Revenue:
|
|
|
|
|
|
|
Oil
& gas sales
|
|
$
|
457,046
|
|
|
$
|
191,114
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
|
114,735
|
|
|
|
41,953
|
|
Depreciation
and amortization (Note 5)
|
|
|
189,379
|
|
|
|
71,571
|
|
Impairment
|
|
|
-
|
|
|
|
10,000
|
|
General
and administrative expenses
|
|
|
2,723,235
|
|
|
|
1,746,101
|
|
Total
Operating Expenses
|
|
|
3,027,349
|
|
|
|
1,869,625
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(2,570,303
|
)
|
|
|
(1,678,511
|
)
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses)
|
|
|
-
|
|
|
|
(43,234
|
)
|
Interest
income
|
|
|
344,646
|
|
|
|
30,939
|
|
Total
Other Income (Expense)
|
|
|
344,646
|
|
|
|
(12,295
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before Income Taxes
|
|
|
(2,225,656
|
)
|
|
|
(1,690,806
|
)
|
|
|
|
|
|
|
|
|
|
Income
Taxes Benefit (Note 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,225,656
|
)
|
|
$
|
(1,690,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share (Note 12):
|
|
|
|
|
|
|
|
|
Basic
and assuming dilution
|
|
$
|
(0.03
|
)
|
|
$
|
(0.08
|
)
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and assuming dilution
|
|
|
65,623,189
|
|
|
|
22,391,357
|
|
See
accompanying notes to consolidated financial statements
INDEX
OIL AND GAS, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED MARCH 31, 2007 AND 2006
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid in Capital
|
|
|
(Accumulated
Deficit)
|
|
|
Other
Comprehensive Income/(Loss)
|
|
|
Total
Stockholders’ Equity
|
|
Balance
at March 31, 2005
|
|
|
12,303,674
|
|
|
$
|
12,304
|
|
|
$
|
944,140
|
|
|
$
|
(884,775
|
)
|
|
$
|
3,571
|
|
|
$
|
75,240
|
|
Issuance
of common stocks
|
|
|
9,596,735
|
|
|
|
9,597
|
|
|
|
1,176,449
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,186,046
|
|
Stock
issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,219
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,219
|
)
|
Issuance
of common stock on conversion of stockholder loan
|
|
|
715,143
|
|
|
|
715
|
|
|
|
86,043
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86,758
|
|
Shares
relating to Index Ltd cancelled in relation to reverse merger in
January
2006 (Note 2)
|
|
|
(22,615,552
|
)
|
|
|
(22,616
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(22,616
|
)
|
Shares
issued to Index Ltd shareholders relating to reverse merger in January
2006 (Note 2)
|
|
|
22,615,552
|
|
|
|
22,616
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,616
|
|
Stock
compensation, net of tax of $0
|
|
|
-
|
|
|
|
-
|
|
|
|
1,043,823
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,043,823
|
|
Stock
compensation, net of tax of $0
|
|
|
303,793
|
|
|
|
303
|
|
|
|
37,274
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,577
|
|
Shares
issued to Index Inc shareholders in relation to merger with Index
Ltd in
January 2006 (Note 2)
|
|
|
23,091,667
|
|
|
|
23,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,092
|
|
Issuance
of common stock on private offering
|
|
|
8,533,333
|
|
|
|
8,533
|
|
|
|
5,111,467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,120,000
|
|
Issuance
of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
11,329
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,329
|
|
Other
comprehensive income foreign currency
translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,119
|
|
|
|
16,119
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,690,806
|
)
|
|
|
-
|
|
|
|
(1,690,806
|
)
|
Balance
at March 31, 2006
|
|
|
54,544,345
|
|
|
$
|
54,544
|
|
|
$
|
8,387,306
|
|
|
$
|
(2,575,581
|
)
|
|
$
|
19,690
|
|
|
$
|
5,885,959
|
|
Issuance
of common stock on private offerings
|
|
|
10,965,598
|
|
|
|
10,966
|
|
|
|
10,954,632
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,965,598
|
|
Stock
issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,190,512
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,190,512
|
)
|
Stock
compensation, net of tax of $0
|
|
|
-
|
|
|
|
-
|
|
|
|
792,342
|
|
|
|
-
|
|
|
|
-
|
|
|
|
792,342
|
|
Issuance
of stock upon vesting of stock award
|
|
|
50,000
|
|
|
|
50
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance
of stock for services, net of tax of $0
|
|
|
40,000
|
|
|
|
40
|
|
|
|
63,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,000
|
|
Issuance
of stock upon exercise of warrants
|
|
|
124,593
|
|
|
|
125
|
|
|
|
17,318
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,443
|
|
Issuance
of stock for performance bonuses
|
|
|
12,500
|
|
|
|
12
|
|
|
|
18,738
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,750
|
|
Other
comprehensive income foreign currency
translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,291
|
)
|
|
|
(4,291
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,225,656
|
)
|
|
|
-
|
|
|
|
(2,225,656
|
)
|
Balance
at March 31, 2007
|
|
|
65,737,036
|
|
|
$
|
65,737
|
|
|
$
|
19,043,734
|
|
|
$
|
(4,801,237
|
)
|
|
$
|
15,399
|
|
|
$
|
14,323,633
|
|
See
accompanying notes to consolidated financial statements
INDEX
OIL AND GAS, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR
THE YEARS ENDED MARCH 31, 2007 AND 2006
|
|
2007
|
|
|
2006
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,225,656
|
)
|
|
$
|
(1,690,806
|
)
|
Adjustments
to reconcile net loss to net cash (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Organization
costs arising from acquisition
|
|
|
-
|
|
|
|
1,578
|
|
Non
cash stock based compensation cost
|
|
|
875,092
|
|
|
|
1,043,823
|
|
Amortization
of debt issue costs-current year
|
|
|
-
|
|
|
|
43,234
|
|
Non-cash
interest expense on warrant issuance on loan conversion
|
|
|
-
|
|
|
|
1,476
|
|
Depreciation
and amortization
|
|
|
189,379
|
|
|
|
71,571
|
|
Impairment
|
|
|
-
|
|
|
|
10,000
|
|
(Increase)
in receivables
|
|
|
(131,908
|
)
|
|
|
(14,104
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
251,342
|
|
|
|
342,267
|
|
Net
Cash (Used In) Operating Activities
|
|
|
(1,041,751
|
)
|
|
|
(190,961
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Cash
received in reverse merger
|
|
|
-
|
|
|
|
10,018
|
|
Payments
for property and equipment
|
|
|
(11,794
|
)
|
|
|
-
|
|
Payments
for oil and gas properties
|
|
|
(4,086,949
|
)
|
|
|
(659,376
|
)
|
Net
Cash (Used In) Investing Activities
|
|
|
(4,098,743
|
)
|
|
|
(649,358
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of shares
|
|
|
10,983,039
|
|
|
|
5,681,229
|
|
Proceeds
from issue of warrants
|
|
|
-
|
|
|
|
8,377
|
|
Proceeds
from convertible notes payable
|
|
|
-
|
|
|
|
676,664
|
|
(Payments
for) Proceeds from bank term debt
|
|
|
(51,797
|
)
|
|
|
51,374
|
|
Payment
for share issue costs
|
|
|
(1,190,513
|
)
|
|
|
(23,219
|
)
|
Payment
for debt issue costs
|
|
|
-
|
|
|
|
(43,234
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
9,740,729
|
|
|
|
6,351,191
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents
|
|
|
4,884
|
|
|
|
16,461
|
|
|
|
|
|
|
|
|
|
|
Net
Increase/(Decrease) in Cash And Cash Equivalents
|
|
|
4,605,119
|
|
|
|
5,527,333
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
$
|
5,536,006
|
|
|
$
|
8,673
|
|
Cash
and cash equivalents at the end of period
|
|
$
|
10,141,125
|
|
|
$
|
5,536,006
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid (received) during the year for interest
|
|
$
|
(344,646
|
)
|
|
$
|
(32,415
|
)
|
Cash
paid during the year for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash
Financing and Investing Transactions:
|
|
|
|
|
|
|
|
|
Conversion
of loan capital into share capital
|
|
$
|
-
|
|
|
$
|
750,630
|
|
Non-cash
stock based compensation cost
|
|
$
|
875,092
|
|
|
$
|
1,043,823
|
|
Non-cash
interest expense on warrant issuance on loan conversion
|
|
$
|
-
|
|
|
$
|
1,476
|
|
Acquisitions
:
|
|
|
|
|
|
|
|
|
Common
stock retained by Index Inc.
|
|
$
|
-
|
|
|
$
|
23,092
|
|
Assets
acquired
|
|
$
|
-
|
|
|
$
|
(23,500
|
)
|
Liabilities
acquired
|
|
$
|
-
|
|
|
$
|
1,986
|
|
Total
consideration paid
|
|
$
|
-
|
|
|
$
|
1,578
|
|
See
accompanying notes to consolidated financial statements
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY
Organization
In
March
2004, a company named Thai One On, Inc. (“Thai”) was incorporated under the laws
of the State of Nevada. Thai subsequently acquired a wholly owned subsidiary,
Thai Pasta Enterprise Sdn. Bhd., a privately held Malaysian company (“Thai
Pasta”). In December of 2005, Thai changed its name from Thai One On Inc. to
Index Oil and Gas, Inc (the “Company” or “Index Inc.”).
On
January 20, 2006, the stockholders of Index Oil & Gas Ltd., a company formed
under the laws of United Kingdom (“Index Ltd.”), entered into Acquisition and
Share Exchange Agreements (“Acquisition Agreements”, the “Transaction” or
“Merger”) with the Company. Effective with the Acquisition Agreements, all
previously outstanding equity stock of Index Ltd. owned by Index Ltd.’s
stockholders was exchanged for an aggregate of 22,615,552 shares of the
Company’s common stock and all issued warrants to purchase shares of equity
stock in Index Ltd. were exchanged for 1,092,676 warrants to purchase shares
of
common stock of the Company.
Prior
to
the Merger, the Company’s year-end for accounting purposes was December 31,
2005. As a result of the Merger, there was a change in control of the public
entity. In accordance with Statement of Financial Accounting Standards 141,
Index Ltd. was deemed to be the acquiring entity. While the transaction is
accounted for using the purchase method of accounting, in substance the Merger
was a recapitalization of Index Ltd.’s capital structure. For accounting
purposes, the Company accounted for the transaction as a reverse acquisition
and
Index Inc. was the surviving entity. The total purchase price and carrying
value
of net assets acquired was $1,578. The Company did not recognize goodwill or
any
intangible assets in connection with the transaction.
Index,
Inc. is the parent company with four group subsidiaries: Index Ltd. comprises
a
United Kingdom holding company, which provides management services to the
Company, and United States operating subsidiaries; Index Oil & Gas (USA),
LLC, an operating company; Index Investments North America Inc. (“Index
Investments”) and Index Offshore LLC (“Index Offshore”), a wholly owned
subsidiary of Index Investments and also an operating company. Index Inc.,
through its subsidiaries, is engaged in the exploration for, development,
production and sale of oil and natural gas. The Company does not currently
operate any of its properties and sells its oil and gas production to domestic
purchasers.
During
the year ending March 31, 2007 the Company transferred the ordinary shares
of
Thai Pasta to a third party as part of a voluntary process to liquidate the
entity and Thai Pasta ceased to be a subsidiary of the Company. This resulted
in
no impact to the financial position, results of operations or cash flows of
the
Company for the year ended March 31, 2007 as there was no value assigned to
the
assets, liabilities or equity of Thai Pasta following the reverse merger
transaction.
INDEX
OIL AND GAS, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)
Funding
On
January 20, 2006, the Company completed a private placement for 8,533,333 shares
of the Company’s common stock at a price of $0.60 per share for aggregate
proceeds of approximately $5.1 million.
On
September 9, 2006, the Company announced the completion of a private placement
for 7,097,898 shares of $0.001 par value common stock of the Company at a price
of $1.00 per share for aggregate gross proceeds of approximately $7.1
million.
On
October 11, 2006, the Company announced the completion of a private placement
for 3,867,700 shares of $0.001 par value common stock of the Company at a price
of $1.00 per share for aggregate proceeds of approximately $3.9
million.
The
net
proceeds of these two placements will be applied to the expansion of the
Company’s operations in the United States per Phases 2 and 3 of the Company’s
Growth Strategies.
The
Company filed a registration statement on Form SB-2 (the “Registration
Statement”), which was declared effective on February 9, 2007, to register a
total of 43,510,952 shares of the Company’s common stock, including the shares
included in the units of common stock described above, of which 1,092,676 shares
are issuable upon the exercise of warrants.
Operations
The
Company has a three phased approach to its growth strategy. Phase 1, largely
completed, consists of exploration projects with very low risk, low cost, low
working interest, and limited upside. Phase 2, largely completed, consists
of
projects with low risk, low to medium cost, low to medium working interests
commensurate with funding capability and risk. These projects have increased
upside. Phase 3, recently commenced, consists of projects with low to medium
risk, medium to high costs, and working interests commensurate with the funding
capability and risk.
PHASE
1
GROWTH STRATEGY: DRILLING PROGRAM IN KANSAS
On
August
21, 2006, the Company announced an update to its Kansas drilling program that
consisted of up to eight-wells. On January 9, 2007, the Company announced that
six of the eight wells had been drilled, three in Barton County and three in
Stafford County. All well locations are supported by modern 3D seismic
data.
On
January 9, 2007, the company announced that in Barton County where the Company
has a 3.25% working interest, two of the wells drilled were completed as oil
producers. Schartz 1-18 and Rogers Unit 1-1 wells began producing in October
2006 with gross daily oil production of seven barrels and eight barrels,
respectively. Pan John 1-11 was a dry hole. Panning 1-1 is unlikely to be
drilled.
In
Stafford County where the Company has a 5% working interest, two wells were
completed as oil producers. The Hay Witt 1-11 and the Hayden 1-14 wells began
producing in November 2006 and
INDEX
OIL AND GAS, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)
December
2006, respectively, with a gross daily oil production of forty-two barrels
and
eight barrels, respectively. The Hull Witt 1-11 was a dry hole. No further
wells
were drilled.
PHASES
2
& 3 GROWTH STRATEGIES: DRILLING PROGRAMS IN TEXAS AND LOUISIANA
Phase
2
Growth Strategy
The
Company has made progress with its onshore Phase 2 drilling program and
announced on August 21, 2006 that the Walker 1 discovery well drilled in
Louisiana began producing on August 18, 2006. Initial gross production of the
well, in which Index has a 12.5% working interest, was approximately 200 barrels
of oil per day with associated gross gas production of approximately 175
thousand cubic feet per day. Walker 1 is the first productive well from the
Company's initial Phase 2 "Four Well Portfolio.”
The
remaining seven wells in the current Phases 2 and 3 eight-well program are
in
Texas. Vieman 1 in Brazoria County was spudded October 15, 2006. Index built
its
working interest from an original 12.5% WI to a final 19.5% prior to spudding.
On December 20, 2006, the Company announced that the deviated well had been
drilled to a total depth of 10,383 feet true vertical depth, 11,340 feet
measured depth. Electric logs indicated two potential pay zones below 10,000
feet true vertical depth totaling approximately 15 feet of net gas bearing
reservoir. The well took longer than anticipated to drill due to unplanned
sidetrack operations and pressure control requirements in the lower of the
two
pay sections, and has incurred costs significantly in excess of pre-drill
estimate. Vieman 1 came on production in February 2007, as part of an initial,
extended flow test, and after the completion of this flow test has recently
come
back on production following further completion operations.
The
three-well Taffy drilling program was announced on December 5, 2006. Originally
planned as a two-well program, a third well was added prior to drilling. The
Company originally agreed to a 7.5% working interest in the two Taffy wells.
The
Company increased its working interest to 12.5% in Taffy 1, renamed Hawkins
1,
and to 30% in Taffy 2, renamed Dark 1. The company took a 30% working interest
in a third Taffy well named Ruse 1. The three wells target relatively shallow
Miocene gas reservoirs between 5,000 and 7,000 feet in Matagorda
County.
On
January 25, 2007, the Company announced the Hawkins 1 commercial discovery.
A
completion test confirmed gas flow at a measured rate of approximately 1.04
million cubic feet per day through a choke of 9/64th inch with a flowing tubing
pressure of 1,850 pounds per square inch. The well is scheduled to begin
production into the local pipeline grid during the second quarter of calendar
year 2007.
Ruse
1
was non-commercial and Dark 1 was a dry hole and both have been plugged and
abandoned.
As
announced on May 2, 2006 and July 12, 2006, the Company entered into two Phases,
I and II of an exploration agreement executed with ADC to reprocess seismic
data
and develop prospects to drill in four areas in Texas, Mississippi, and Alabama.
This project is capable of delivering projects having Phase 2 and 3 growth
characteristics. The first drillable prospect generated as a result of these
agreements that the Company has committed to drill is an exploration well in
the
Fern Lake area of Nacogdoches County.
INDEX
OIL AND GAS, INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)
Phase
3
Growth Strategy
On
September 10, 2006, the Company signed an agreement to participate in the New
Taiton Project in Wharton County. The first well, Ilse 1, spudded on December
1,
2006. It targets stacked Wilcox sands on trend with large nearby gas fields
producing gas from the same Wilcox reservoirs. The prospect is defined by modern
3D seismic data. If Ilse 1 proves successful, the Company may participate in
further wells to develop the potential of the New Taiton Project. The Company
has a 10% working interest before payout and an 8% working interest after payout
in the New Taiton Project.
The
Ilse
1 well has been drilled to total depth of 17,000 feet and logged. Analysis
of
the logs revealed two zones of interest in the Wilcox C and Wilcox A,
respectively. The lowest zone, the Wilcox C, has been perforated and stimulated
by a “frac” process. Gas flow from the formation to surface has not been
achieved. The preliminary decision is that this interval will not be productive
and will not have any proved reserves.
A
decision making process is currently underway within the joint venture as to
whether to perform work to attempt to achieve gas flows from the upper zone
of
interest, the Wilcox A. As part of this decision making process, joint venture
participants are awaiting a formal analysis and recommendation from the
operator.
Capital
costs associated with the Ilse 1 well have been held outside the full cost
pool,
because a determination as to whether the well has found proved reserves has
not
been completed. At the future point when a determination is made, the costs
associated with Ilse 1 will be included in the full cost pool. To the extent
that Ilse 1 does not find any proved reserves, ignoring all other unrelated
factors, this will lead to higher unit depletion charges in future periods
and
makes it highly likely Index will suffer a ceiling test impairment charge.
Index
is carrying approximately $1.3mm of costs at March 31, 2007 related to the
Ilse
1 well, and has also incurred further costs subsequent to fiscal year
end.
On
December 4, 2006, the Company announced that it has signed an exploration
agreement to participate at 15% working interest in the West 1 exploration
well
targeting the high-potential Edwards Limestone in Lavaca County, Texas. The
proposed total depth of the well is approximately 14,700 feet. The company
announced on January 23, 2007 that it had increased its working interest in
the
West 1 well to 20%. The well is planned to spud during the remainder of calendar
year 2007.
On
February 16, 2007, the Company announced the signing of a letter of intent
to
participate in the first exploration well in the Shadyside prospect, located
in
St. Mary Parish, Louisiana. Index will have an initial 15% working interest
in
the first exploration well, reduced to a 13.5% working interest, after payout.
The first well will be drilled during the first half of calendar year 2007
with
a planned depth of approximately 16,500 feet.
On
March
5, 2007, the Company announced a commitment to drill two wells in south Texas.
The wells are located in Victoria and Goliad Counties and target shallow Frio
and Vicksburg reservoirs. Both wells were successful. The Serrano well, renamed
Friedrich Gas Unit 1, in Victoria County, found 13 feet of net gas pay with
daily production expected at 275 MCF of gas (46 Boe) per day. The Habanero
well,
renamed Schroeder Gas Unit 1, in Goliad County, found 10 feet of net gas pay
with daily production expected at 197 MCF of gas (33 Boe) per day.
NOTE
2 - MERGER AND CORPORATE RESTRUCTURE
In
March
2004, a company named Thai One On, Inc. (“Thai”) was incorporated under the laws
of the State of Nevada. Thai then acquired a wholly-owned subsidiary, Thai
Pasta
Enterprise Sdn. Bhd., a privately-held Malaysian company (“Thai Pasta”), from an
officer and director of Thai. Thai Pasta commenced operations as a restaurant
operator in June 2004, but subsequently ceased operations in the fourth quarter
of 2005 calendar year. Thai Pasta then sold a portion of its surplus assets,
leaving it with no significant assets. In November 2005, a Letter of Intent
agreement was entered into for the proposed acquisition (“the Letter of Intent”)
of all outstanding shares of Index Ltd.’s common stock by Thai. Subsequently,
Thai changed its name from Thai One On Inc. to Index Inc.
INDEX
OIL AND GAS, INC.
NOTES
TO
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
2 - MERGER AND CORPORATE RESTRUCTURE (continued)
At
December 31, 2005, Thai had 33,220,000 shares outstanding. In January 2006,
the
Company retired 10,128,333 shares of stock leaving 23,091,667 shares
outstanding.
On
January 20, 2006, the stockholders of Index Ltd. entered into Acquisition and
Share Exchange Agreements (“Acquisition Agreements”, “the Transaction”, or
“Merger”) with the Company. The Company had a total of 75,000,000 authorized
shares with a par value of $0.001 per share and 33,220,000 shares issued and
outstanding as of December 31, 2005.
The
Company’s year end for accounting purposes was December 31, 2005. As a result of
the Merger, there was a change in control of the public entity. In accordance
with Statement of Financial Accounting Standards 141, Index Ltd. was deemed
to
be the acquiring entity. While the transaction is accounted for using the
purchase method of accounting, in substance the Merger was a recapitalization
of
Index Ltd.’s capital structure.
For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition and Index is the surviving entity. The total purchase price and
carrying value of net assets acquired was $ 1,578. The Company did not recognize
goodwill or any intangible assets in connection with the transaction. As of
the
date of the Agreement, Thai was an inactive corporation with no significant
assets and liabilities.
Effective
with the Acquisition Agreements, all previously outstanding common stock owned
by Index Ltd.’s stockholders were exchanged for an aggregate of 22,615,552
shares of the Company’s common stock, $0.001 par value (“the Common Stock”) and
all issued warrants to purchase common shares of Index Ltd. were exchanged
for
1,092,676 warrants to purchase shares of Common Stock of the Company. As part
of
the Transaction, subsequent to the Transaction 10,128,333 shares of common
stock
held by the former directors and officers of the Company were retired and
subsequently canceled by the transfer agent for the Company. The effect of
the
Transaction was that 23,091,667 shares of Common Stock were retained (see Note
9).
The
value
of the stock issued was the historical cost of the Company's net tangible assets
of $1,578, which did not differ materially from their fair value. The total
consideration paid of $1,578 is summarized further below.
|
|
January
20, 2006
|
|
Common
stock retained by Index Inc.
|
|
$
|
23,092
|
|
Assets
acquired
|
|
|
(23,500
|
)
|
Liabilities
assumed
|
|
|
1,986
|
|
Total
consideration paid
|
|
$
|
1,578
|
|
In
accordance with Statement of Position 98-5 (“SOP 98-5”), the Company will
expense as organization costs the $1,578.
Concurrent
with the Transaction was a private placement totaling $5.12 million for
8,533,333 shares of the Common Stock of the Company at a price of $0.60 per
share.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows:
Principles
of Consolidation
The
consolidated financial statements as of March 31, 2007 and 2006 and for the
years ended March 31, 2007 and 2006 include the accounts of the Company and
its
wholly owned subsidiaries after eliminating all significant intercompany
accounts and transactions. As described in Note 2, Merger and Corporate
Restructure these consolidated financial statements are presented as a
recapitalization of Index Ltd. For the reverse merger between the Company and
Index Ltd. at January 20, 2006 the stockholder’s equity section and earnings per
share in the consolidated balance sheet at March 31, 2006 was restated to
reflect the exchange of shares using a conversion ratio of approximately 2.857
shares of the Company to 1 share of Index Ltd.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Certain accounting policies involve
judgments and uncertainties to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under
different conditions, or if different assumptions had been used. We evaluate
our
estimates and assumptions on a regular basis. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates and assumptions used in preparation of our financial statements.
The
most significant estimates with regard to these financial statements relate
to
the provision for income taxes, dismantlement and abandonment costs, estimates
to certain oil and gas revenues and expenses and estimates of proved oil and
natural gas reserve quantities used to calculate depletion, depreciation and
impairment of proved oil and natural gas properties and equipment.
Correction
of Errors
The
Company adopted SFAS 154, “Accounting Changes and Error Corrections—a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”)” in
April 1, 2007, in which it changed the requirements for the accounting for
and
the reporting of a change in accounting principle. The Company requires that
a
new accounting principle be applied to the balances of assets and liabilities
as
of the beginning of the earliest period for which retrospective application
is
practicable and that a corresponding adjustment is made to the opening balance
of retained earnings (or other appropriate components of equity or net assets
in
the balance sheet) for that period rather than being reported in the statement
of operations. When it is impracticable to determine the cumulative effect
of
applying a change in accounting principle to all prior periods, The Company
applies the new accounting principle as if it were adopted prospectively from
the earliest date practicable. The Company will also revise previously issued
financial statements to reflect the correction of an error, should one occur,
and limit the application to the direct effects of the change. Indirect effects
of a change in accounting principle will be recognized in the period of the
accounting change. The Company will continue to account for a change in
accounting estimate in accordance with APB 20. The adoption of this
pronouncement had no impact to the Company’s consolidated financial position or
results of operations.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents, and Concentrations of Credit Risk
Cash
and
cash equivalents represent cash in banks. The Company considers any highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents. The Company’s accounts receivable are concentrated among
entities engaged in the energy industry, within the United States. Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents
and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may
be
in excess of the FDIC insurance limit.
Accounting
for Bad Debts and Allowances
Bad
debts
and allowances are provided based on historical experience and management's
evaluation of outstanding accounts receivable. The management periodically
evaluates past due or delinquency of accounts receivable in evaluating its
allowance for doubtful accounts. There was no allowance for doubtful accounts
at
March 31, 2007 and 2006.
Other
Current Assets
Other
receivables at March 31, 2007 and 2006, of $6,688 and $6,254, respectively
consist primarily of value added tax recoverable in the United Kingdom by the
Company. Other current assets of $72,936 and $8,600 at March 31, 2007 and 2006
consist of accrued interest income from cash in banks and prepaid
expenses.
Oil
and Gas Properties
The
Company follows the full cost method of accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of properties within a relatively large geopolitical cost center are capitalized
when incurred and are amortized as mineral reserves in the cost center are
produced, subject to a limitation that the capitalized costs not exceed the
value of those reserves. In some cases, however, certain significant costs,
such
as those associated with offshore U.S. operations, are deferred separately
without amortization until the specific property to which they relate is found
to be either productive or nonproductive, at which time those deferred costs
and
any reserves attributable to the property are included in the computation of
amortization in the cost center. All costs incurred in oil and gas producing
activities are regarded as integral to the acquisition, discovery, and
development of whatever reserves ultimately result from the efforts as a whole,
and are thus associated with the Company’s reserves. The Company capitalizes
internal costs directly identified with performing or managing acquisition,
exploration and development activities. The Company has not capitalized any
internal costs or interest at March 31, 2007 and 2006. Unevaluated costs are
excluded from the full cost pool and are periodically evaluated for impairment
rather than amortized. Upon evaluation, costs associated with productive
properties are transferred to the full cost pool and amortized. Gains or losses
on the sale of oil and natural gas properties are generally included in the
full
cost pool unless the entire pool is sold.
Capitalized
costs and estimated future development costs are amortized on a
unit-of-production method based on proved reserves associated with the
applicable cost center. The Company has assessed the impairment for oil and
natural gas properties for the full cost pool at March 31, 2007 and 2006 and
will assess quarterly thereafter using a ceiling test to determine if impairment
is necessary. Specifically, the net unamortized costs for each full cost pool
less related deferred income taxes should not exceed the
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil
and Gas Properties (continued)
following:
(a) the present value, discounted at 10%, of future net cash flows from
estimated production of proved oil and gas reserves plus (b) all costs being
excluded from the amortization base plus (c) the lower of cost or estimated
fair
value of unproved properties included in the amortization base less (d) the
income tax effects related to differences between the book and tax basis of
the
properties involved. The present value of future net revenues should be based
on
current prices, with consideration of price changes only to the extent provided
by contractual arrangements, as of the latest balance sheet presented. The
full
cost ceiling test must take into account the prices of qualifying cash flow
hedges in calculating the current price of the quantities of the future
production of oil and gas reserves covered by the hedges as of the balance
sheet
date. In addition, the use of the hedge-adjusted price should be consistently
applied in all reporting periods and the effects of using cash flow hedges
in
calculating the ceiling test, the portion of future oil and gas production
being
hedged, and the dollar amount that would have been charged to income had the
effects of the cash flow hedges not been considered in calculating the ceiling
limitation should be disclosed. Any excess is charged to expense during the
period that the excess occurs. The Company did not have any hedging activities
during the three year period ended March 31, 2007. Application of the ceiling
test is required for quarterly reporting purposes, and any write-downs cannot
be
reinstated even if the cost ceiling subsequently increases by year-end. Sales
of
proved and unproved properties are accounted for as adjustments of capitalized
costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves of oil and gas, in which case the gain or loss is recognized in
income.
Abandonment of properties is accounted for as
adjustments of capitalized costs with no loss recognized.
Other
Property, Plant and Equipment
Other
property, plant and equipment primarily includes computer equipment, which
is
recorded at cost and depreciated on a straight-line basis over useful lives
of
five years. Repair and maintenance costs are charged to expense as incurred
while acquisitions are capitalized as additions to the related assets in the
period incurred. Gains or losses from the disposal of property, plant and
equipment are recorded in the period incurred. The net book value of the
property, plant and equipment that is retired or sold is charged to accumulated
depreciation and amortization, and the difference is recognized as a gain or
loss in the results of operations in the period the retirement or sale
transpires.
Comprehensive
Income
Statement
of Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive
Income,” establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive
Income (continued)
of
comprehensive income be reported in a financial statement that is displayed
with
the same prominence as other financial statements. The Company reports foreign
currency translation adjustments within other comprehensive income in the
periods presented.
Net
Earnings (Losses) Per Common Share
The
Company computes earnings (losses) per share under Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (“SFAS 128”). Net earnings
(losses) per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding during the year. Dilutive common stock equivalents
consist of shares issuable upon conversion of convertible notes payable and
the
exercise of the Company's stock options and warrants (calculated using the
treasury stock method). During the year ended March 31, 2007 and 2006, common
stock equivalents are not considered in the calculation of the weighted average
number of common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per common share. For the reverse merger between the
Company and Index Ltd. at January 20, 2006, the stockholder’s equity section and
earnings per share in the consolidated balance sheet at March 31, 2006 was
restated (recapitalization) to reflect the exchange of shares using a conversion
ratio of approximately 2.857 shares of the Company to 1 share of Index
Ltd.
Revenue
Recognition
The
Company uses the sales method of accounting for the recognition of natural
gas
and oil revenues. The Company has an agreement with the operator of its
properties to sell, on its behalf, production from the properties for which
it
has working interest ownership. Since there is a ready market for natural gas,
crude oil and natural gas liquids (“NGLs”), production is sold at various
locations at which time title and risk of loss pass to the buyer. Revenue is
recorded when title passes based on the Company’s net interest or nominated
deliveries of production volumes. The Company records its share of revenues
based on sales volumes and contracted sales prices. The sales price for natural
gas, natural gas liquids and crude oil are adjusted for transportation cost
and
other related deductions. The transportation costs and other deductions are
based on contractual or historical data and do not require significant judgment.
Subsequently, these deductions and transportation costs are adjusted to reflect
actual charges based on third party documents once received by the Company.
Historically, these adjustments have been insignificant. In addition, natural
gas and crude oil volumes sold are not significantly different from the
Company’s share of production.
The
Company receives its share of revenue after all calculated royalties are paid
on
natural gas, crude oil and NGLs in accordance with the particular contractual
provisions of the lease, license or concession agreements and the laws and
regulations applicable to those agreements. Therefore, there is no Royalties
Payable on the Company’s Consolidated/Combined Balance Sheet.
Imbalances.
When actual natural gas sales volumes exceed delivered share of sales volumes,
an over-produced imbalance could occur. To the extent an over-produced imbalance
exceeds the remaining estimated proved natural gas reserves for a given
property, the Company would record a liability. At and during the years ended
March 31, 2007 and 2006, the Company had no imbalances.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative
and Hedging
The
Company has also not entered into any derivative contracts for any purpose
from
the period of inception through March 31, 2007.
Foreign
Currency Translation
The
Company translates the foreign currency financial statements in accordance
with
the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
functional currency is not the U.S. dollar are translated into U.S. dollars
at
fiscal year-end exchange rates. Revenue and expense items are translated at
average exchange rates prevailing during the fiscal year. Translation
adjustments are included in Accumulated other comprehensive loss in the equity
section of the balance sheet totaled $(4,292) and $16,119 for the years ended
March 31, 2007 and 2006, respectively, and foreign currency transaction
(losses)/gains are included in the statement of operations
Income
Taxes
Deferred
income taxes are provided using the asset and liability method for financial
reporting purposes in accordance with the provisions of Statements of Financial
Standards No. 109, “Accounting for Income Taxes”. Under this method, deferred
tax assets and liabilities are recognized for temporary differences between
the
tax bases of assets and liabilities and their carrying values for financial
reporting purposes and for operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date. A valuation
allowance is established to reduce deferred tax assets if it is more likely
than
not that the related tax benefits will not be realized.
Segment
Information
Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (“SFAS 131”) establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by
the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company’s principal operating segment.
Stock
Based Compensation
In
determining our accounting policies prior to January 1, 2006, the Company chose
to apply the intrinsic value method pursuant to Accounting Standards Board
(“APB”) APB No. 25, “Stock Issued to Employees” (“APB No. 25”),
effective February 2003. Under APB No. 25, no compensation cost was
recognized when the exercise price for options granted equaled the fair value
of
the Company’s common stock on the date of the grant. Accordingly, the provisions
of SFAS No. 123, “Accounting for Stock-Based Compensation,” permitted the
continued use of the method prescribed by APB No. 25 but required
additional disclosure, including pro forma calculations of net income (loss)
per
share as if the fair value method of accounting prescribed by SFAS No. 123
had been applied. Although the Company applied the intrinsic method in
accounting for stock issued to employees, it did record compensation expense
for
the difference between the fair market value and the exercise price at the
date
of the grant using the Black Scholes valuation model. Therefore, there was
no
pro forma impact for the fiscal years ended March 31, 2006 as shown below.
See
Notes 10 and 13 for further discussion of these transactions.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
For
the year ended March 31, 2006
|
|
Net
loss, as reported
|
|
$
|
(1,690,806
|
)
|
Add:
Total stock based employee compensation expense as reported under
intrinsic value method, net of tax of $0
|
|
|
-
|
|
Deduct:
Total stock based employee compensation expense as reported under
fair
value based method, net of tax of $0
|
|
|
-
|
|
Net
loss , pro forma
|
|
$
|
(1,690,806
|
)
|
|
|
|
|
|
Basic
and fully diluted loss per share, as reported
|
|
$
|
(0.08
|
)
|
Basic
and fully diluted loss per share, pro forma
|
|
$
|
(0.08
|
)
|
In
December 2003, the FASB issued SFAS No.148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value
based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about
the
method of accounting for stock-based employee compensation and the effect of
the
method used on reported results.
In
December 16, 2004, the Financial Accounting Standards Board ("FASB") published
Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
Payment ("SFAS 123-R"). SFAS 123-R requires that compensation cost related
to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123-R include stock
warrants, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans. Prior to January 1 2006, the Company
accounted for its share-based payment transactions under the provisions of
APB
25, whereby compensation expense is recognized using the intrinsic value of
the
options at the date of the grant.
On
April
14, 2005, the SEC amended the effective date of the provisions of SFAS 123-R.
Accordingly, the Company adopted the revised standard on January 1, 2006. Since
there were no outstanding options at March 31, 2005 and the Company had no
stock
forfeitures since date of inception, there was no impact upon adoption of SFAS
123-R to the company’s financial position, results of operations or cash
flows.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Asset
Retirement Obligations
Our
financial statements reflect the provisions of Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations. SFAS No.143
provides that, if the fair value for an asset retirement obligation can be
reasonably estimated, the liability should be recognized in the period when
it
is incurred. Oil and gas producing companies incur this liability upon acquiring
or drilling a well. Under the method prescribed by SFAS No.143, the retirement
obligation is recorded as a liability at its estimated present value at the
asset’s inception, with an offsetting increase to producing properties on the
balance sheet. Periodic accretion of discount of the estimated liability is
recorded as an expense in the statement of operations. The Company’s asset
retirement obligations relate to the abandonment of oil producing wells. The
Company has recognized an asset retirement liability of $41,552 and $25,300
at
March 31, 2007 and 2006, respectively. It is estimated that salvage values
of
well equipment will be equal, in aggregate, to the cost of plugging and
abandoning these wells at that point, and this estimate has been taken into
account in the calculation of accretion expense.
Long-Lived
Assets
The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or
a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based
upon
forecasted undiscounted cash flows. Should any impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates
of
future discounted cash flows resulting from the use and ultimate disposition
of
the asset. SFAS No. 144 also requires assets to be disposed of be reported
at
the lower of the carrying amount or the fair value less costs to sell. In the
year to March 31, 2006, the Company recorded an impairment of $10,000 related
to
restaurant equipment acquired during the reverse merger with Index Inc. These
assets were deemed to be impaired as there is no future cash flow associated
with these assets.
Conditional
Asset Retirement Obligations
.
In
March
2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for
Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143,” which requires an entity to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred if the liability's
fair value can be reasonably estimated. The Company is required to adopt the
provisions of FIN 47 no later than the first quarter of fiscal 2006. There
was
no impact to adoption of this Interpretation on its consolidated financial
position, results of operations or cash flows since it currently does not have
any conditional asset retirement obligations outstanding at March 31, 2007
and
2006.
Employers’
Defined Benefit Pension and Other Postretirement Plans.
In
September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined
Benefit Pension and Other postretirement Plans”, which improves financial
reporting by requiring an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan as an asset or liability in
its
statement of financial position and to recognize changes in that funded status
in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net asset of a net-for-profit
organization. This Statement also improves financial reporting by requiring
an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position with limited exceptions. The required date
of
adoption of the recognition and disclosure provisions of this Statement is
as of
the end of the fiscal year ending after December 15, 2006. The adoption of
this
statement did not impact the Company as the Company does not currently have
a
defined benefit pension plan.
New
Accounting Pronouncements Not Yet Adopted
Certain
Hybrid Instrument
s
. On February 16, 2006 the FASB
issued SFAS 155, “Accounting for Certain Hybrid Instruments,” which amends SFAS
133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.” SFAS 155 allows financial instruments that have
embedded derivatives to be accounted for as a whole (eliminating the need to
bifurcate the derivative from its host) if the holder elects to account for
the
whole instrument on a fair value basis. SFAS 155 also clarifies and amends
certain other provisions of SFAS 133 and SFAS 140. This statement is effective
for all financial instruments acquired or issued in fiscal years beginning
after
September 15, 2006. The Company does not expect its adoption of this new
standard to have a material impact on its financial position, results of
operations or cash flows as it currently does not have any hybrid instruments
outstanding at March 31, 2007.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New
Accounting Pronouncements Not Yet Adopted (continued)
Accounting
for Servicing of Financial Assets
. In March 2006, the FASB issued SFAS No.
156, “
Accounting for Servicing of Financial Assets—an amendment of FASB
Statement No. 140”(“
SFAS No. 156”), which amends FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
with respect to the accounting for
separately recognized servicing assets and servicing liabilities.
This
Statement:
|
1.
|
Requires
an entity to recognize a servicing asset or servicing liability each
time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract in any of the following
situations:
|
|
a.
|
A
transfer of the servicer’s financial assets that meets the requirements
for sale accounting
|
|
b.
|
A
transfer of the servicer’s financial assets to a qualifying
special-purpose entity in a guaranteed mortgage securitization in
which
the transferor retains all of the resulting securities and classifies
them
as either available-for-sale securities or trading securities in
accordance with FASB Statement No. 115,
Accounting for Certain
Investments in Debt and Equity
Securities
|
|
c.
|
An
acquisition or assumption of an obligation to service a financial
asset
that does not relate to financial assets of the servicer or its
consolidated affiliates.
|
|
2.
|
Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if
practicable.
|
|
3.
|
Permits
an entity to choose either of the following subsequent measurement
methods
for each class of separately recognized servicing assets and servicing
liabilities:
|
|
a.
|
Amortization
method
—Amortize servicing assets or servicing liabilities in
proportion to and over the period of estimated net servicing income
or net
servicing loss and assess servicing assets or servicing liabilities
for
impairment or increased obligation based on fair value at each reporting
date.
|
|
b.
|
Fair
value measurement method
—Measure servicing assets or servicing
liabilities at fair value at each reporting date and report changes
in
fair value in earnings in the period in which the changes
occur.
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting
for Servicing of Financial Assets (continued).
|
4.
|
At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
|
|
5.
|
Requires
separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial
position
and additional disclosures for all separately recognized servicing
assets
and servicing liabilities.
|
This
Statement requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. The Board
concluded that fair value is the most relevant measurement attribute for the
initial recognition of all servicing assets and servicing liabilities, because
it represents the best measure of future cash flows. This Statement permits,
but
does not require, the subsequent measurement of servicing assets and servicing
liabilities at fair value. An entity that uses derivative instruments to
mitigate the risks inherent in servicing assets and servicing liabilities is
required to account for those derivative instruments at fair value. Under this
Statement, an entity can elect subsequent fair value measurement of its
servicing assets and servicing liabilities by class, thus simplifying its
accounting and providing for income statement recognition of the potential
offsetting changes in fair value of the servicing assets, servicing liabilities,
and related derivative instruments. An entity that elects to subsequently
measure servicing assets and servicing liabilities at fair value is expected
to
recognize declines in fair value of the servicing assets and servicing
liabilities more consistently than by reporting other-than-temporary
impairments.
The
Board
decided to require additional disclosures and separate presentation in the
statement of financial position of the carrying amounts of servicing assets
and
servicing liabilities that an entity elects to subsequently measure at fair
value to address concerns about comparability that may result from the use
of
elective measurement methods.
An
entity
should adopt this Statement as of the beginning of its first fiscal year that
begins after September 15, 2006. Earlier adoption is permitted as of the
beginning of an entity’s fiscal year, provided the entity has not yet issued
financial statements, including interim financial statements, for any period
of
that fiscal year. The effective date of this Statement is the date an entity
adopts the requirements of this Statement. The Company does not expect
adoption of this standard will have a material impact on its financial position,
operations or cash flows.
Income
Taxes.
In June 2006, the FASB issued FASB Interpretation No 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109”, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB 109.
The Interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition. The Interpretation is effective
for
fiscal years beginning after December 15, 2006. The Company has not yet
determined the impact on the Company’s consolidated financial position or
results of operations.
Fair
Value Measurements.
In September 2006, the FASB issued SFAS 157, “Fair
Value Measurements”, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”), and
expands disclosures about fair value measurements. Prior to this Statement,
there were different definitions of fair value and limited guidance for applying
those definitions in GAAP. This Statement provides the definition to increase
consistency and comparability in fair value measurements and for expanded
disclosures about fair value measurements. The Statement emphasizes that fair
value is a market-based measurement, not an entity-specific measurement. The
Statement clarifies that market participant assumptions include assumptions
about risk, i.e. the risk inherent in a particular
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
Value Measurements (continued)
valuation
technique used to measure fair value and/or the risk inherent in the inputs
to
the valuation technique. The Statement expands disclosures about the use of
fair
vale to measure assets and liabilities in interim and annual periods subsequent
to initial recognition. The disclosures focus on the inputs used to measure
fair
value and for recurring fair value measurements using significant unobservable
inputs, the effect of the measurements on earnings for the period. The Statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including the financial statements
for an interim period within that fiscal year. The Company does not expect
adoption of this standard will have a material impact on its financial position,
operations or cash flows.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-19-2 specifies that the contingent obligation
to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as
a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with FASB Statement No. 5, Accounting
for
Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject
to a registration payment arrangement should be accounted for in accordance
with
other applicable generally accepted accounting principles without regard to
the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement. For registration payment arrangements and financial
instruments subject to those arrangements that were entered into prior to the
issuance of EITF 00-19-2, this guidance shall be effective for financial
statements issued for fiscal years beginning after December 15, 2006 and interim
periods within those fiscal years. The Company has not yet determined the impact
that the adoption of FSP 00-19-2 will have on its financial
statements.
The
Fair Value Option for Financial Assets and Financial Liabilities.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115”, permitting entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting measurement. The statement
applies to all entities, including not-for profit organizations. Most of the
provisions of this Statement apply only to entities that elect the fair value
option. However, the amendment to FASB Statement No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”, applies to all entities with
available-for-sale and trading securities. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
4 - TRADE RECEIVABLES
Historically,
through March 31, 2007, all of the Company’s trade receivables related to its
working interest share of oil and gas sales have been collected. No allowance
for doubtful accounts has been recorded at March 31, 2007 and 2006.
NOTE
5 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST
Oil
and Gas Properties
Major
classes of oil and gas properties under the full cost method of accounting
at
March 31, 2007 and 2006 consist of the following:
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
Proved
properties
|
|
$
|
3,254,211
|
|
|
$
|
722,056
|
|
Unevaluated
and unproved properties
|
|
|
1,927,776
|
|
|
|
356,729
|
|
Gross
oil and gas properties-onshore
|
|
|
5,181,987
|
|
|
|
1,078,785
|
|
Less:
accumulated depletion
|
|
|
(315,937
|
)
|
|
|
(127,586
|
)
|
Net
oil and gas properties-onshore
|
|
$
|
4,866,050
|
|
|
$
|
951,199
|
|
Included
in the Company's oil and gas properties are asset retirement obligations of
$41,552 and $25,300 as of March 31, 2007 and 2006, respectively.
Depletion
expense was $188,351 and $65,311 or $23.33 and $19.10 per barrel of production
for the years ended March 31, 2007 and 2006, respectively.
It
is
anticipated that the cost of undeveloped acreage of $258,298 and exploration
costs of $1,669,478 will be included in depreciation, depletion and amortization
when the related projects are planned and drilled and completed. Included in
exploration cost and undeveloped acreage are costs of approximately $1.3 million
related to costs of drilling the Ilse 1 well that has been drilled, but not
tested or completed (see Note 1), approximately $0.2 million related to
undeveloped leasehold for the West 1 that will be drilled in fiscal year 2008,
and approximately $0.3 million related to the ADC exploration
agreements.
At
March
31, 2007 and 2006, the Company excluded the following capitalized costs from
depletion, depreciation and amortization:
|
|
March
31, 2007
|
|
|
March
31, 2006
|
|
Not
subject to depletion-onshore:
|
|
|
|
|
|
|
Exploration
costs
|
|
$
|
1,669,478
|
|
|
$
|
236,806
|
|
Cost
of undeveloped acreage
|
|
|
258,298
|
|
|
|
119,923
|
|
Total
not subject to depletion
|
|
$
|
1,927,776
|
|
|
$
|
356,729
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
Acquisitions
and Dispositions
During
the fiscal year, the Company entered into Seismic Reprocessing and Exploration
Agreements with ADC Petroleum, L.P. (“ADC”) covering prospective areas in the US
Gulf Coast. The Agreements enable Index Inc to participate in the reprocessing
of certain existing 3 Dimensional (“3D”) land seismic data already available to
ADC as a result of its participation in an agreement signed between ADC and
two
of its other industry partners (the "ADC Agreements"). This seismic data covers
prospective areas in the Gulf Coast U.S., throughout Texas, Alabama and
Mississippi. The ADC Agreements set forth the rights of the parties in their
joint participation of generating drilling prospects from such reprocessed
data
and allow the parties to jointly exploit the prospects generated. A total of
$337,344 has not been ascribed to specific wells and is included in exploration
costs and excluded from the depletion base at March 31, 2007.
In
September 2006, the Company signed an agreement to participate in the New Taiton
Project in Wharton County. A total of $60,000 for unproved property acquisition
costs is excluded from the depletion base. The first well, Ilse 1 with a planned
total depth of over 17,000 feet, targeted stacked Wilcox sands on trend with
large nearby gas fields producing gas from the same Wilcox reservoirs. The
prospect is defined by modern 3D seismic data. Ilse 1 spudded in December 2006.
Total well costs of $1,216,864 are excluded from the depletion base as the
well
is still under evaluation (see Note #1).
In
December 2006, the Company announced that it signed an exploration agreement
to
participate at 15% working interest in the West 1 exploration well targeting
the
high-potential Edwards Limestone in Lavaca County, Texas. The well is planned
to
spud during the remainder of calendar year 2007. Leasehold and exploration
costs
of $206,175 are excluded from the depletion base.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
5 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST (continued)
Other
Property and Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over
their
estimated useful lives of the assets. Maintenance, repairs, and minor renewals
are charged against earnings when incurred. Additions and major renewals are
capitalized. Major assets at March 31, 2007 and 2006 were as
follows:
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
Computer
Costs, including foreign translation
|
|
$
|
23,858
|
|
|
$
|
11,217
|
|
Less:
accumulated depreciation
|
|
|
(11,365
|
)
|
|
|
(9,490
|
)
|
Total
other property and equipment
|
|
$
|
12,493
|
|
|
$
|
1,727
|
|
Depreciation
expenses from continuing operations amounted to $1,028 and $6,260 for the years
ended March 31, 2007 and 2006, respectively.
Capitalized
Interest
There
was
no interest capitalized in property, plant and equipment at March 31, 2007
and
2006.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
6 - NOTES PAYABLE
Index
Ltd
incurred debt and raised capital through a series of rounds of fundraising
from
inception through March 31, 2006. All of the Index Ltd stockholder funding
was
later converted to common stock at par and additional paid in capital. There
were no fundraising in fiscal year 2007 that involved convertible debt. The
transactions involving debt or convertible debt are summarized below by period
for Index Ltd.:
|
|
Equity
Issuances
|
|
|
Debt
& Subsequent Equity Conversions (1)
|
|
|
|
Total
Proceeds
|
|
|
Common
Stock
|
|
|
Additional
Paid
In
Capital
|
|
|
Convertible
Debt
|
|
|
Debt
Converted
To
Stock
|
|
|
Common
Stock
Converted
From Debt
|
|
|
Additional
Paid
In
Capital
Converted
From
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended March 31, 2005
|
|
$
|
1,003,503
|
|
|
$
|
268,840
|
|
|
$
|
71,445
|
|
|
$
|
669,048
|
|
|
$
|
(574,445
|
)
|
|
$
|
451,088
|
|
|
$
|
117,527
|
|
Round
4
|
|
|
676,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
676,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Round
4 conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(663,872
|
)
|
|
|
331,936
|
|
|
|
331,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of 2005 Stockholder loan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(86,758
|
)
|
|
|
43,379
|
|
|
|
43,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(20,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended March 31, 2006
|
|
$
|
676,664
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
676,664
|
|
|
$
|
771,267
|
|
|
$
|
375,315
|
|
|
$
|
375,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
through March 31, 2006
|
|
$
|
1,680,167
|
|
|
$
|
268,840
|
|
|
$
|
71,445
|
|
|
$
|
1,345,712
|
|
|
$
|
(1,345,712
|
)
|
|
$
|
826,403
|
|
|
$
|
492,842
|
|
(1)
The
debt for Round 4 financing was convertible at a price per share which averaged
$0.36 per share and conversion of 2005 stockholder loan averaged $0.35 per
share. After all conversion of stock, there was no note payable-long term at
March 31, 2007 and 2006.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
6 - NOTES PAYABLE (continued)
In
addition, in the year to March 31, 2006 Index Ltd entered into a one-year term
note for additional finance for operations. The amount borrowed was $51,374
in
April 2005 at the ruling transaction rate. The term loan is financed at a rate
of 2% over the bank’s prime interest rate. At expiration date in April 2006, the
bank renewed the loan for up to an additional year. This is shown on the balance
sheet at March 31, 2006 in current liabilities as “Bank Loan”. The Company
repaid the total amount of the loan in the first quarter of fiscal year 2007.
As
at March 31, 2006, Bank Loans of $48,569 was outstanding at the closing exchange
rate. The bank held the following security: a secured debenture including fixed
equitable charge over all present and future freehold and leasehold property
of
Index Ltd; first fixed charge over, among other things, book and other debts,
chattels, goodwill and uncalled capital; first floating charge over all assets
and undertakings both present and future of Index Ltd.; joint and severable
guarantee given by Lyndon West and Michael Scrutton.
The
fund
raising activities of Index Ltd during the year ended March 31, 2006 were
generally offered to investors with minimum and maximum capital achievements
and
structured to be a range of one-third to one-half for common stock in the
Company with the corresponding two-thirds to one-half for debt payable to
investors. In each case the capital requirements were achieved with equity
and
debt summarized in the tables discussed above. Total loans to Index Ltd during
the year ended March 31, 2006 totaled $676,664 ($663,872 at the transaction
date
foreign currency rate of $1.8088 to ₤1.0) in loans which converted into
1,835,117 shares of common stock, and of which $94,603 ($91,303 at the original
transaction date foreign currency rate, and $86,758 at the conversion date
foreign currency rate) in loans converted to 250,325 shares of common stock
(converted to 715,143 shares of Company stock) in the year ended March 31,
2006.
There
was
$43,234 in debt issue costs incurred during the year ended March 31, 2006.
Total
amortization expense in these same periods was $43,234. The debt issue costs
were capitalized and were amortized up to the point of conversion to common
stock. There was no unamortized debt issue cost at March 31, 2006.
NOTE
7 - ASSET RETIREMENT OBLIGATION
Activity
related to the Company’s ARO during the years ended March 31, 2006 is as
follows:
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
ARO
as of beginning of period
|
|
$
|
25,300
|
|
|
$
|
16,500
|
|
Liabilities
incurred during period
|
|
|
16,252
|
|
|
|
8,800
|
|
Liabilities
settled during period
|
|
|
-
|
|
|
|
-
|
|
Accretion
expense
|
|
|
-
|
|
|
|
-
|
|
Balance
of ARO as of end of period
|
|
$
|
41,552
|
|
|
$
|
25,300
|
|
Of
the
total ARO, $41,552 and $25,300 are classified as a long-term liability at
March 31, 2007 and 2006, respectively. For each of the years ended
March 31, 2007 and 2006, the Company recognized depreciation expense
related to its ARO of $0, due to the assumption of a full offset of salvage
values.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
8 - INCOME TAXES
Financial
Accounting Standard No. 109 requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statement or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between
financial statements and tax bases of assets and liabilities using enacted
tax
rates in effect for the year in which the differences are expected to
reverse.
At
March
31, 2007 and 2006, the Company generated for federal income tax purposes a
net
operating loss carry forward of approximately $6,900,000 and $2,700,000
respectively, both inclusive of basis differences for net intangible drilling
costs which are deductible for tax purposes but capitalized and depreciated
for
book purposes. The latest expiry date within the net operating loss carry
forward at March 31, 2007 is in 2027, and this loss can be used to offset future
taxable income. However, a valuation allowance of $1,411,719 and $912,038 was
recorded for the years ended March 31, 2007 and 2006, respectively on the total
tax provision as the Company believes it is more likely than not that the asset
will not be utilized during the next year. Of the total net operating loss
carryforward, the United Kingdom (“UK”) total net operating loss of
approximately $850,000 and $700,000 for the years ended March 31, 2007 and
2006,
respectively, are not expected to be utilized. The United States federal and
state net operating loss carryforwards are generally subject to limitations
on
their annual usage. Realization of the deferred tax assets and net operating
loss carryforwards is dependent, in part, on generating sufficient taxable
income prior to expiration of the loss carryforwards. The amount of the deferred
tax asset considered realizable, however, might be adjusted if estimates of
future taxable income during a future period are expected.
The
Company’s income tax expense (benefit) from continuing operations consists of
the following:
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
Current
|
|
|
|
|
|
|
UK
|
|
$
|
-
|
|
|
$
|
-
|
|
US
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Total
current tax expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
UK
|
|
|
(256,247
|
)
|
|
|
(210,174
|
)
|
US
|
|
|
(1,004,758
|
)
|
|
|
(610,317
|
)
|
State
|
|
|
(150,714
|
)
|
|
|
(91,548
|
)
|
Total
deferred tax expense (benefit)
|
|
|
(1,411,719
|
)
|
|
|
(912,038
|
)
|
Less
valuation allowance
|
|
|
1,411,719
|
|
|
|
912,038
|
|
Total
deferred tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
tax provision-continuing operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
8 - INCOME TAXES (continued)
The
following tax rates have been used in the calculation of income taxes: US
federal taxation 30%, US state taxation 4.5% and UK taxation 30%.
Components
of deferred tax amounts are as follows:
|
|
|
|
|
|
|
Deferred
Tax Components
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Restricted
stock compensation accrual
|
|
$
|
-
|
|
|
$
|
-
|
|
Share
issue basis difference
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
Oil
& Gas basis differences
|
|
|
-
|
|
|
|
66,791
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
Net
operating loss carryforward
|
|
|
2,358,427
|
|
|
|
857,049
|
|
Total
gross deferred tax assets
|
|
|
2,358,427
|
|
|
|
923,840
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Amortization
of share issue costs
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
Oil
& Gas basis differences
|
|
|
843,573
|
|
|
|
-
|
|
Depreciation
|
|
|
103,135
|
|
|
|
11,802
|
|
State
taxes
|
|
|
-
|
|
|
|
-
|
|
Total
gross deferred tax liabilities
|
|
|
946,708
|
|
|
|
11,802
|
|
|
|
|
|
|
|
|
|
|
Less
valuation allowance
|
|
|
(1,411,719
|
)
|
|
|
(912,038
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
9 - COMMITMENTS AND CONTINGENCIES
The
Company has various commitments to oil and gas exploration and production
capital expenditure with ongoing planned expenditures on the Kansas properties,
and commitments relating to new wells in Texas and Louisiana arising out of
the
normal course of business. The Company is currently not involved in any
litigation matters arising from our oil and gas exploration and production
activities and as such has accrued no liability or legal fees with respect
to
litigation.
At
March
31, 2007, the Company has entered into an Exploration Agreement on the West
1
well which had not commenced drilling and for which drilling expenditures have
not been incurred.
Lease
Commitments
The
Company does not have any capital lease commitments. The Company rents its
main
operating office in Houston on a month-to-month basis for which payments began
in November 2005. The Company also has a nine month lease, committed to in
April
2007, related to corporate housing for UK based officers while periodically
working at the corporate office.
Consulting
Agreements
The
Company has held consulting agreements with outside contractors, certain of
whom
are also Company stockholders. The Agreements are generally for a fixed term
from inception and renewable from time to time unless either the Company or
Consultant terminates such engagement by written notice. See Note 14 for Related
Party Transactions.
Stockholder
Matters
As
our
Common Stock is a security registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), we must solicit proxies
or obtain consent or authorizations by or on behalf of our management from
the
holders of record of our common stock in accordance with the rules and
regulations of the Exchange Act, including those prescribed in Section 14 of
the
Act. On November 25, 2005, prior management of the Company obtained the approval
of the majority of its stockholders ratifying the increase of authorized common
stock of the Company from 25,000,000 to 75,000,000 which occurred in November
2005 pursuant to stockholder approval under Nevada Revised Statutes. On
September 15, 2006, the stockholders of the Company holding the majority of
issued and outstanding common stock of the Company ratified the increase in
the
authorized common stock of the Company from 25,000,000 shares to 75,000,000
shares
In
addition, on September 15, 2006, the stockholders of the Company holding the
majority of issued and outstanding common stock of the Company approved the
increase in authorized common stock of the Company from 75,000,000 shares to
500,000,000 shares and approved for the Company to create 10,000,000 shares
of
“blank check” preferred stock, $0.001 par value per share (the “Approvals”).
Subsequently, the Company filed a Certificate of Amendment to its Articles
of
Incorporation, as amended, with the Secretary of State of the State of Nevada
that was effective as of September 21, 2006. The Amendment was filed to effect
the Approvals.
Additionally,
on equal date, the stockholders of the Company holding the majority of issued
and outstanding common stock of the Company approved the adoption of the 2006
Incentive Stock Option Plan and ratified the selection of RBSM LLP (formerly
Russell Bedford Stefanou Mirchandani LLP) (“RBSM”) as the Company’s independent
auditors for the fiscal years ending March 31, 2007 and 2006.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
9 - COMMITMENTS AND CONTINGENCIES (continued)
Registration
Statement
On
August
29, 2006, the Company completed a private placement offering in which the
Company sold 1419.58 units of its securities at a price of $5,000 per unit
to
certain accredited investors (“Investors #1”), each unit consisting of 5,000
shares of common stock of the Company for a total of 7,097,898 shares of $0.001
par value common stock of the Company at a price of $1.00 per share for
aggregate proceeds of approximately $7.1 million. Furthermore on October 4,
2006, the company completed a second closing of the private placement offering
in which the Company sold an additional 693.54 units of its securities at a
price of $5,000 per unit to certain accredited investors (“Investors #2”,
Investors #1 and Investors #2 shall collectively be referred to as the
“Investors”), each unit consisting of 5000 shares of common stock of the Company
for gross proceeds of approximately $3.5 million and subsequently sold another
80 units on October 5, 2006, also to the group of Investors #2, for an overall
total of 3,867,700 shares of $0.001 par value common stock of the Company at
a
price of $1.00 per share for overall aggregate proceeds of approximately $3.9
million.
Subsequently,
on October 11, 2006 pursuant to the requirements of the Registration Rights
Agreement entered into by and among the Company and the Investors, the Company
filed a Registration Statement with the SEC on Form SB-2 to register, among
other securities, the units of common stock sold in the private placement
offering. The Company had agreed to have the Registration Statement declared
effective by the SEC no later than 180 days from August 29, 2006. If the Company
should fail to have the Registration Statement declared effective on or before
them time frame described, the Investors will entitled to the liquidated damages
from the Company in an amount equal to 2% of the aggregate subscription amounts
per month for each month that the Company is delinquent in failing to obtain
the
effectiveness of the Registration Statement, subject to an overall limit of
up
to 15 months of partial liquidated damages. The Company obtained effectiveness
in the time frame described. The Company has therefore, not incurred any
contingent liability associated with the liquidated damages.
Litigation
The
Company is subject to various legal proceedings and claims, which arise in
the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity. Consequently, the Company has not recorded any
reserve for legal matters.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
10 - CAPITAL STOCK
During
the fiscal year ended March 31, 2006:
The
breakdown of stock issuances of 3,609,517 shares (converted into 10,311,898
shares of the Company’s stock) and the breakdown of the related warrants issued
of 333,923 (converted into 954,021 of Company warrants) by Index Ltd. and the
related conversion to Company stock and warrants in the year to March 31, 2006
were as follows:
|
|
#
of Index Ltd. Shares
|
|
|
#
of Index Shares
|
|
|
#
of Index Ltd.
Warrants
|
|
|
#
of Index Warrants
|
|
Conversion
of stockholder loan of $94,603
|
|
|
250,325
|
|
|
|
715,143
|
|
|
|
50,065
|
|
|
|
143,037
|
|
Equity
fundraising of $238,591
|
|
|
687,500
|
|
|
|
1,964,090
|
|
|
|
137,500
|
|
|
|
392,839
|
|
Subscription
of compensation of $274,517
|
|
|
783,500
|
|
|
|
2,238,349
|
|
|
|
137,000
|
|
|
|
391,410
|
|
Private
placement equity offering
|
|
|
1,835,117
|
|
|
|
5,242,669
|
|
|
|
-
|
|
|
|
-
|
|
Subscription
of Professional fees of $9,021
|
|
|
25,000
|
|
|
|
71,421
|
|
|
|
-
|
|
|
|
-
|
|
Subscription
of Professional fees of $9,900
|
|
|
28,075
|
|
|
|
80,206
|
|
|
|
9,358
|
|
|
|
26,735
|
|
Totals
during fiscal year 2006
|
|
|
3,609,517
|
|
|
|
10,311,878
|
|
|
|
333,923
|
|
|
|
954,021
|
|
The
warrants totaling 333,923 (converted to 954,021 of Company warrants at the
recapitalization (reverse merger) transaction date were issued as part of
various fundraising and equity transactions.
The
convertible stockholder loan described in Note 6 of $94,603 ($91,302 at the
original transaction date foreign currency rate and $86,758 at the conversion
date foreign currency rate) in loans converted to 250,325 shares of common
stock
(converted to 715,143 shares of Company stock) in November 2005 and 50,065
of
warrants to purchase shares of Index Ltd.’s common stock (converted to 143,037
of Company warrants).
An
equity
fundraising for 687,500 shares (converted to 1,964,090 shares of Company stock)
totaling $238,591 also included 137,500 of warrants to purchase shares of Index
Ltd.’s common stock (converted to 392,839 of Company warrants).
Additionally,
management compensation with a fair value of $274,517 for 783,500 shares of
common stock (converted to 2,238,349 shares of Company stock) also included
warrants of 137,000 to purchase shares of Index Ltd.’s common stock (converted
to 391,410 of Company warrants).
As
discussed in Note 6, total convertible stockholder loans to Index Ltd. during
the year ended March 31, 2006 totaled $676,664 of which $676,664 ($663,872
at
the transaction date foreign currency rate of $1.8088 to ₤1.0) were converted
into 1,835,117 shares of common stock (converted into 5,249,669 shares of the
Company stock). Of this amount, 50,000 shares of common stock (converted into
142,843 shares of Company stock) related to directors of Index Ltd. with
the remaining shares for outside investors.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
10 - CAPITAL STOCK (continued)
Professional
fees with a fair value totaling approximately $9,021 for 25,000 shares
(converted to 71,421 shares of Company stock).
Professional
fees, issued to the same stockholder, with a fair value totaling approximately
$9,900 for 28,075 shares (converted to 80,206 shares of Company stock) included
warrants of 9,358 to purchase shares of Index Ltd.’s common stock (converted to
26,735 of Company warrants).
Additionally,
during fiscal year ended March 31, 2006, the Company issued 303,793 shares
of
common stock to management as compensation expense which was valued at
$37,578.
On
January 20, 2006, the stockholders of Index Ltd. entered into Acquisition and
Share Exchange Agreements (“Acquisition Agreements”, “the Transaction”) with the
Company. The Company had a total of 75,000,000 authorized shares with a par
value of $0.001 per share and 33,220,000 shares issued and outstanding as of
December 31, 2005. As part of the Transaction it was agreed that, subsequent
to
the Transaction, 10,128,333 shares of common stock held by the former directors
and officers of the Company were retired and subsequently canceled by the
transfer agent for the Company. The effect of the Transaction was that
23,091,667 shares of Common Stock would be retained.
As
part
of the Transaction, a total of 7,916,232 Index Ltd. shares of common stock
in
issue were exchanged for a total of 22,615,552 shares of common stock of the
Company.
Concurrent
with the Transaction was a private placement totaling $5.12 million for
8,533,333 shares of $0.001 par value common stock of the Company at a price
of
$0.60 per share.
The
Company has reserved 455,655 shares of common stock for potential issuance
related to compensation of directors and officers contingent upon meeting
certain performance criteria.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
10 - CAPITAL STOCK (continued)
During
the fiscal year ended March 31, 2007:
The
breakdown of stock issuances of 11,192,691 shares of the Company’s common stock,
$0.001 par value, during the year ended March 31, 2007 was as
follows:
Issuance
of common stock on private offerings
|
|
|
10,965,598
|
|
Issuance
of stock upon vesting of stock award
|
|
|
50,000
|
|
Issuance
of stock for services
|
|
|
40,000
|
|
Issuance
of stock upon exercise of warrants
|
|
|
124,593
|
|
Issuance
of stock for performance bonuses
|
|
|
12,500
|
|
Total
|
|
|
11,192,691
|
|
As
our
Common Stock is a security registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), we must solicit proxies
or obtain consent or authorizations by or on behalf of our management from
the
holders of record of our common stock in accordance with the rules and
regulations of the Exchange Act, including those prescribed in Section 14.
On
November 25, 2005, prior management of the Company obtained the approval of
the
majority of stockholders of the Company authorizing it to increase the
authorized common stock of the Company from 25,000,000 to 75,000,000 (the
“Increase”).
In
September 2006, the stockholders of the Company holding the majority of issued
and outstanding common stock of the Company approved the increase in authorized
common stock of the Company from 75,000,000 shares to 500,000,000 shares and
to
create 10,000,000 shares of “blank check” preferred stock, $0.001 par value per
share (the “Approvals”). Subsequently, the Company filed a Certificate of
Amendment to its Articles of Incorporation, as amended, with the Secretary
of
State of the State of Nevada that was effective as of September 21, 2006. The
Amendment was filed to effect the Approvals.
On
August
29, 2006, the Company completed the first closing under a private placement
offering in which the Company sold 1419.58 units of its securities at a price
of
$5,000 per unit to certain accredited investors, each unit consisting of 5,000
shares of common stock of the Company for a total of 7,097,898 shares of $0.001
par value common stock of the Company at a price of $1.00 per share for
aggregate gross proceeds of approximately $7.1 million. Total fees paid on
the
first closing of the private placement were approximately $730,000.
Furthermore
on October 4, 2006, the Company completed a second closing of the private
placement offering in which the Company sold an additional 693.54 units of
its
securities at a price of $5,000 per unit to certain accredited investors, each
unit consisting of 5000 shares of common stock of the Company for gross proceeds
of approximately $3.5 million and it subsequently sold another 80 units on
October 5, 2006, for a total of 3,867,700 shares of common stock of the Company
at a price of $1.00 per share for overall aggregate proceeds of approximately
$3.9 million. Total fees paid on the second closing were approximately $316,000.
The combined net proceeds of this placement are being applied to the expansion
of Company's operations in the U.S.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
10 - CAPITAL STOCK (continued)
The
purchasers agreed not to sell the Common stock included in the units for a
period of six months from the date of their purchase, unless permitted earlier
by the Company. Notwithstanding the foregoing, the purchasers further agreed
to
be bound by any lock-up period required by state or federal regulation. The
shares of common stock are restricted securities under Securities Act of 1933,
as amended and applicable state securities laws and, therefore, may only be
transferred pursuant to the registration requirements of federal and state
securities laws or pursuant to an exemption from such registration
requirements.
Subsequently,
on October 11, 2006 pursuant to the requirements of the Registration Rights
Agreement entered into by and among the Company and the Investors, the Company
filed a Registration Statement with the SEC on Form SB-2 to register, among
other securities, the units of common stock sold in the private placement
offering. The Company agreed to have the Registration Statement declared
effective by the SEC no later than 180 days from August 29, 2006. If the Company
had failed to have the Registration Statement declared effective on or before
them time frame described, the Investors would have been entitled to the
liquidated damages from the Company in an amount equal to 2% of the aggregate
subscription amounts per month for each month that the Company was delinquent
in
failing to obtain the effectiveness of the Registration Statement, subject
to an
overall limit of up to 15 months of partial liquidated damages. The Company
obtained effectiveness on February 9, 2007, within the time frame prescribed.
The Company has therefore, not incurred any liability associated with the
liquidated damages.
On
August
29, 2006, the Board of Directors appointed John Williams as Executive Vice
President of Exploration and Production and a director of the Company effective
August 1, 2006. In addition to Mr. Williams’ salary, he was awarded a restricted
bonus stock award of 50,000 shares of the Company’s common stock contingent on
183 days of continuous service to the Company. Total compensation expense over
the vesting period of $60,000 was recorded on the award at the market price
of
$1.20 per share, the market price at the date of the grant. The terms of the
award were satisfied in January 2007 and Mr. Williams was issued 50,000 shares
of restricted common stock of the Company. Additionally, Mr. Williams was
awarded a performance bonus of 37,500 shares of restricted common stock per
the
terms of his bonus program. The shares vest one-third at the date of the grant,
March 31, 2007, with the remaining shares vesting at one-third in each of the
next two consecutive years. The shares were valued at $1.50 per share of the
date of the first vesting award or March 31, 2007 for compensation expense
of
$18,750.
In
February 2007, 40,000 shares of common stock of the Company were issued for
legal services related to the filing of the Registration Statement and other
services at a value of $1.60 per share for a total cost of $64,000.
In
February 2007, 124,593 warrants were exercised into 124,593 shares of common
stock at an exercise price of $0.14 per share or $17,443 by a
stockholder.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
11 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
Warrants
The
following tables summarize the changes in warrants outstanding and exercised
and
the related exercise prices for the shares of the Company's common stock issued
as follows (See Note 10):
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
Outstanding
and Exercisable March 31, 2005
(333,923
of Index Ltd.)
|
|
|
138,655
|
|
|
$
|
0.07
|
|
Granted
|
|
|
954,021
|
|
|
|
0.14
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
and Exercisable at March 31, 2006
|
|
|
1,092,676
|
|
|
$
|
0.13
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exchanged
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(124,593
|
)
|
|
|
0.14
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
and Exercisable at March 31, 2007
|
|
|
968,083
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
11 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
Warrants
Outstanding
|
|
Warrants
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual Life (Years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average Exercise Price
Exercise
Price
|
$0.07
|
|
138,655
|
|
3.5
|
|
$0.07
|
|
138,655
|
|
$0.07
|
$0.14
|
|
143,037
|
|
3.5
|
|
$0.14
|
|
143,037
|
|
$0.14
|
$0.14
|
|
268,246
|
|
3.5
|
|
$0.14
|
|
268,246
|
|
$0.14
|
$0.14
|
|
391,410
|
|
3.5
|
|
$0.14
|
|
391,410
|
|
$0.14
|
$0.14
|
|
26,735
|
|
3.5
|
|
$0.14
|
|
26,735
|
|
$0.14
|
|
|
968,083
|
|
3.5
|
|
$0.13
|
|
968,083
|
|
$0.13
|
In
February 2003 and July 2003, 45,882 warrants (converted into 131,078 of Company
warrants) and 2,653 warrants (converted into 7,577 of Company warrants),
respectively to acquire Index Ltd.’s common stock were issued to a third party
advisor for services incurred.
The
warrants totaling 333,923 (converted to 954,021 of Company warrants) were issued
as part of various fundraising and equity transactions. The convertible
stockholder loan described in Note 6 of $94,603 ($91,302 at the original
transaction date foreign currency rate and $86,758 at the conversion date
foreign currency rate) in loans converted to 250,325 shares of common stock
(converted to 715,143 shares of Company stock) in November 2005 and 50,065
of
warrants to purchase shares of Index Ltd.’s common stock (converted to 143,037
of Company warrants). An equity fundraising for 687,500 shares (converted to
1,964,090 shares of Company stock) totaling $238,591 also included 137,500
of
warrants to purchase shares of Index Ltd.’s common stock (converted to 392,839
of Company warrants, of which 124,593 were exercised in February 2007).
Additionally, management compensation with a fair value of $274,517 for 783,500
shares of common stock (converted to 2,238,349 shares of Company stock) also
included warrants of 137,000 to purchase shares of Index Ltd.’s common stock
(converted to 391,410 of Company warrants). Professional fees with a fair value
totaling approximately $9,900 for 28,075 shares (converted to 80,206 shares
of
Company stock) included warrants of 9,358 to purchase shares of Index Ltd.’s
common stock (converted to 26,735 of Company warrants). All transactions were
valued at fair market value in accordance with SFAS 123-R.
Since
there was no public market for Index Ltd.’s stock and operations were not
comparable to a peer group, the latest stock issuance price of ₤0.20, or $0.35
at a foreign currency rate of 1.7329, used in previous fundraising was used
as
the share market price and an exercise price of ₤0.20 or $0.35 at a foreign
currency rate of 1.7329. The weighted-average fair value of warrants under
the
fair valued based method of $0.03, using the Black Scholes model, was determined
using the following assumptions: (1) a risk free rate of 4.56%; (2) a volatility
rate of 0% under the minimum value method allowed for non-public companies
under
SFAS 123; (3) a zero dividend rate; (4) a zero percent forfeiture rate; (5)
the
latest stock issuance price used as the share market price; and (6) 2 year
life.
On
January 20, 2006, these total warrants of 382,458 were exchanged as part of
the
transaction described in Note 2, Merger and Corporate Restructure,
at a ratio of approximately 2.857 to 1 or a total of 1,092,676. The total
warrants of 48,535 issued in fiscal year 2005 were exchanged for 138,655
warrants. The warrants issued in fiscal year 2006 of 333,923 were also exchanged
as part of the transaction described in Note 2, Merger and Corporate
Restructure, at a ratio of approximately 2.857 to 1 or a total of 954,021
warrants.
In
February 2007, a total of 124,593 warrants were exercised at a price of $0.14
for a total of $17,443 and a total of 124,593 shares of common stock, $0.001
par
value, were issued to the stockholder.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
11 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
There
was
no compensation expense recorded for the exchange of these warrants since there
was no modification of terms upon exchange.
Stock
Options
The
following tables summarize the changes in options outstanding and exercised
and
the related exercise prices for the shares of the Company's common stock issued
to certain directors and stockholders at March 31, 2007 and 2006 restated for
the recapitalization which occurred on January 20, 2006 at an exchange rate
of
one Index Ltd. share or warrant for approximately 2.857 shares or warrants
of
the Company’s (See Note 10).
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
Outstanding
at March 31, 2005
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
4,577,526
|
|
|
|
0.35
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at March 31, 2006
|
|
|
4,577,526
|
|
|
$
|
0.35
|
|
Granted
|
|
|
500,000
|
|
|
$
|
1.42
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at March 31, 2007
|
|
|
5,077,526
|
|
|
$
|
0.46
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
11 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
Options
Outstanding
|
|
Options
Exercisable
|
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
$
0.35
|
|
4,577,526
|
|
3.81
|
|
$
0.35
|
|
3,433,145
|
|
$
0.35
|
$1.42
|
|
500,000
|
|
1.97
|
|
$1.42
|
|
250,000
|
|
$1.42
|
|
|
5,077,526
|
|
|
|
$0.46
|
|
3,683,145
|
|
$0.42
|
Prior
to
the reverse merger with Index Inc., Index Ltd. adopted a Stock Option Plan
to
grant options to various officers, directors and others. As contemplated by
the
Acquisition Agreements, following the completion of the acquisition the Board
of
Directors of Index Inc. agreed to the adoption of the Stock Option Plan and
ratified it on March 14, 2006 effective as of January 20, 2006, providing for
the issuance of up to 5,225,000 shares of Common Stock of Index Inc. to
officers, directors, employees and consultants of Index Inc. and/or its
subsidiaries. Pursuant to the Stock Option Plan, Index Inc. allowed for the
issuance of options to purchase 4,577,526 shares of Common Stock at $0.35 per
share to newly appointed directors and officers of Index Inc. that had held
options to purchase ordinary shares of Index Ltd. prior to the completion of
the
acquisition. Total compensation expense recorded for the issuance of these
options in the fourth quarter and the twelve months ended March 31, 2007 was
$79,862 and $594,599, respectively. At March 31, 2007, John Williams, an officer
and director was awarded options to purchase 500,000 shares of Common Stock
at
$1.42 per share under the Stock Option Plan.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
11 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
The
principal terms and conditions of the share options granted under the Share
Option Plan are that vesting of the options granted occurs in three stages:
(1)
50% on grant; (2) 25% one year after grant; and (3) 25% two years after grant.
The 2006 options granted are exercisable at $0.35 per share. Furthermore, the
share options granted under the Share Option Plan are generally non-transferable
other than to a legal or beneficial holder of the options upon the option
holder’s death. The rights to vested but unexercised options cease to be
effective: (1) 18 months after death of the stock options holder; (2) 6 months
after Change of Control of Index Inc.; (3) 12 months after loss
of
office due to health related incapacity or redundancy;
or (4) 12 months after the retirement of the options holder from a position
with
Index Inc. All options have a 5 years expiring term.
Since
there was no public market for the Company’s stock and operations were not
comparable to a peer group prior to the acquisition, the stock issuance price
for the private placement equity raising at the date of acquisition of $0.60
was
used as the share market price for the 2006 options with an exercise price
of
$0.35. The weighted-average fair value of options granted under the fair valued
based method or $0.398, using the Black Scholes model, was determined using
the
following assumptions: (1) a risk free rate of 4.38%; (2) a volatility rate
of
100%; (3) a zero dividend rate; (4) a zero percent forfeiture rate; (5) the
latest stock issuance price used as the share market price; and (6) 2 year
life.
The weighted-average fair value of the 2007 options granted to John Williams
under the fair valued based method or $0.53, using the Black Scholes model,
was
determined using the following assumptions: (1) a risk free rate of 4.60%;
(2) a
volatility rate of 66%; (3) a zero dividend rate; (4) a zero percent forfeiture
rate; (5) the latest stock issuance price used as the share market price or
$1.42; and (6) 2 year life.
NOTE
12 - EARNINGS PER SHARE
Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock and related stock options were exercised at
the
end of the period. For the years ended March 31, 2007 and 2006, excluded from
diluted earnings per share are 968,083 and 1,092,676, respectively of warrants
to acquire common stock. As of both March 31, 2007 and 2006, there are 4,577,
526 of options to acquire the Company’s common stock that were excluded from the
computation of diluted earnings per share, and which excluded 500,000 of out
of
the money options at March 31, 2007. As of March 31, 2007 25,000 shares yet
to
vest under a performance bonus award have been excluded from the computation
of
diluted earnings per share.
The
following is a calculation of basic and diluted weighted average shares
outstanding:
|
|
For
the year ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
Shares—basic
|
|
|
65,623,365
|
|
|
|
22,391,357
|
|
Dilution
effect of stock option and awards at end of period
|
|
|
-
|
|
|
|
-
|
|
Shares—diluted
|
|
|
65,623,365
|
|
|
|
22,391,357
|
|
Stock
awards and shares excluded from diluted earnings per share due to
anti-dilutive effect
|
|
|
5,570,609
|
|
|
|
5,670,202
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
13 - MAJOR CUSTOMERS
For
the
fiscal year 2007, approximately 100% of revenues from the Company’s share of oil
production were sold to two independent crude oil purchasers, together with
low
levels of gas sales, and for the fiscal year 2006, approximately 91%, of oil
sales were sold to a single independent crude oil purchaser.
NOTE
14 - RELATED PARTY TRANSACTIONS
As
discussed in Note 6, total stockholder loans to Index Ltd. during the year
ended
March 31, 2006 totaled $676,664 of which $676,664 ($663,872 at the transaction
date foreign currency rate of $1.8088 to ₤1.0) were converted into 1,835,117
shares of common stock in the year ended March 31, 2006. Of this amount, 50,000
shares of common stock related to directors of Index Ltd. with the remaining
shares for outside investors. The $94,603 ($91,302 at the original transaction
date foreign currency rate and $86,758 at the conversion date foreign currency
rate) stockholder loans converted to 250,325 shares of common stock (converted
to 715,143 shares of Company stock) in November 2005, together with the issue
of
50,065 warrants (converted to 143,029 of Company warrants). Of these totals
119,585 shares (converted to 341,637 of Company stock) and 23,917 warrants
(converted to 68,327 of Company warrants) were issued to directors of Index
Ltd.
At
March
31, 2006, the Company owes various directors $1,007 for refunds of payroll
taxes.
Lyndon
West and Michael Scrutton, jointly and severally, guaranteed the bank loan
until
it was paid off in June 2006.
During
fiscal year 2007, the Company incurred a fee of $750 for real estate location
services from a firm in
Which,
a
principal partner is related to an officer of the Company. The fee was paid
in
May 2007.
INDEX
OIL AND GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
NOTE
15 - SUBSEQUENT EVENTS
In
April,
2007, the Company announced success on two exploration wells in Goliad and
Victoria Counties, Texas. The Serrano well commenced producing in May 2007
and
the Habanero well is expected to be connected to local pipeline infrastructure
and to be brought on-line during the second calendar quarter 2007. Index has
a
37.5% working interest and a 28.125% net revenue interest in each
well.
The
Company announced in April 2007 that it has signed a Participation Agreement
to
explore for gas in the West Wharton prospect. This could consist of up to four
exploration wells within the area of mutual interest in Wharton County, Texas.
Index has a 12.5% working interest in the project that will reduce to 9.375%
after payout. The first well is planned to spud during the third calendar
quarter of 2007.
The
Company announced in May 2007 that it had signed a participation agreement
for
exploration of the Fern Lake prospect in Nacogdoches County, Texas, through
the
Cason 1 well (a first well resulting from the ADC Agreements). The well is
expected to spud in the second calendar quarter 2007.
In
April
2007, the Company committed to a nine month lease, related to corporate housing
for UK based officers while periodically working at the corporate
office.
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Oil
and Natural gas Producing Activities
The
following disclosures for the Company are made in accordance with Statement
of
Financial Accounting Standards (“SFAS”) No. 69, “Disclosures About Oil and
Natural gas Producing Activities (an amendment of FASB Statements 19, 25, 33
and
39)” (“SFAS No. 69”). Users of this information should be aware that the
process of estimating quantities of proved, proved developed and proved
undeveloped crude oil and natural gas reserves is very complex, requiring
significant subjective decisions in the evaluation of all available geological,
engineering and economic data for each reservoir. The data for a given reservoir
may also change substantially over time as a result of numerous factors
including, but not limited to, additional development activity, evolving
production history and continual reassessment of the viability of production
under varying economic conditions. Consequently, material revisions to existing
reserve estimates occur from time to time. Although every reasonable effort
is
made to ensure that reserve estimates reported represent the most accurate
assessments possible, the significance of the subjective decisions required
and
variances in available data for various reservoirs make these estimates
generally less precise than other estimates presented in connection with
financial statement disclosures.
Proved
reserves represent estimated quantities of natural gas and crude oil that
geological and engineering data demonstrate, with reasonable certainty, to
be
recoverable in future years from known reservoirs under economic and operating
conditions existing at the time the estimates were made.
Proved
developed reserves are proved reserves expected to be recovered, through wells
and equipment in place and under operating methods being utilized at the time
the estimates were made.
Proved
undeveloped reserves are reserves that are expected to be recovered from new
wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage are
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled units
can be claimed only where it can be demonstrated with certainty that there
is
continuity of production from the existing productive formation. Estimates
for
proved undeveloped reserves are not attributed to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
Estimates
of proved developed and proved undeveloped reserves as of March 31, 2007,
2006 and 2005 were based on estimates made by Ancell Energy Consulting, Inc,
independent petroleum engineers. Our independent engineers, Ancell Energy
Consulting, Inc. are engaged by and provide their reports to our senior
management team. We make representations to the independent engineers that
we
have provided all relevant operating data and documents, and in turn, we review
these reserve reports provided by the independent engineers to ensure
completeness and accuracy. Our Vice President, Exploration and Production,
and
Managing Director make the final decision on booked proved reserves by
incorporating the proved reserves from the independent engineers’
reports.
Our
relevant management controls over proved reserve attribution, estimation and
evaluation include:
|
•
|
|
controls
over and processes for the collection and processing of all pertinent
operating data and documents needed by our independent reservoir
engineers
to estimate our proved reserves;
|
|
•
|
|
engagement
of well qualified and independent reservoir engineers for review
of our
operating data and documents and preparation of reserve reports annually
in accordance with all SEC reserve estimation guidelines;
and
|
|
•
|
|
review
by our Vice President, Exploration and Production, of the independent
reservoir engineers’ reserves reports for completion and
accuracy.
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Market
prices as of each year-end were used for future sales of natural gas, crude
oil
and natural gas liquids. Future operating costs, production and ad valorem
taxes
and capital costs were based on current costs as of each year-end, with no
escalation. There are numerous uncertainties inherent in estimating quantities
of proved reserves and in projecting the future rates of production and timing
of development expenditures. Reserve data represent estimates only and should
not be construed as being exact. Moreover, the standardized measure should
not
be construed as the current market value of the proved oil and natural gas
reserves or the costs that would be incurred to obtain equivalent reserves.
A
market value determination would include many additional factors including
(a) anticipated future changes in natural gas and crude oil prices,
production and development costs, (b) an allowance for return on
investment, (c) the value of additional reserves, not considered proved at
present, which may be recovered as a result of further exploration and
development activities, and (d) other business risk.
Capitalized
Costs Relating to Oil and Gas Producing Activities
The
following table sets forth the capitalized costs relating to the Company’s
natural gas and crude oil producing activities at March 31, 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Evaluated
properties
|
|
$
|
3,254,211
|
|
|
$
|
722,056
|
|
|
$
|
334,080
|
|
Unevaluated
properties
|
|
|
1,927,776
|
|
|
|
356,729
|
|
|
|
76,529
|
|
Total
|
|
|
5,181,987
|
|
|
|
1,078,785
|
|
|
|
410,609
|
|
Less:
accumulated depreciation, depletion, amortization
|
|
|
315,937
|
|
|
|
127,586
|
|
|
|
62,275
|
|
Net
capitalized costs
|
|
$
|
4,866,050
|
|
|
$
|
951,199
|
|
|
$
|
348,334
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Costs
Incurred in Oil and Natural Gas Property Acquisition, Exploration and
Development Activities
The
following table sets forth costs incurred related to the Company’s oil and
natural gas activities for the twelve months ended March 31, 2007, 2006 and
2005:
The
following estimates of proved and proved developed reserve quantities are
estimates only. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those
of
producing oil and gas properties. Accordingly, these estimates are expected
to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved
reserves are estimated reserves of crude oil (including condensate and natural
gas liquids) that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those expected
to be recovered through existing wells, equipment, and operating
methods.
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
|
Discontinued
Operations
|
|
Year
Ended March 31, 2005:
|
|
$
|
415,516
|
|
|
$
|
-
|
|
Acquisition
costs of properties
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
-
|
|
|
$
|
-
|
|
Unproved
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
|
-
|
|
|
|
-
|
|
Exploration
and development costs
|
|
|
70,540
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
486,056
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Year
Ended March 31, 2006:
|
|
|
|
|
|
|
|
|
Acquisition
costs of properties
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
-
|
|
|
$
|
-
|
|
Unproved
|
|
|
-
|
|
|
|
|
|
Subtotal
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and development costs
|
|
|
659,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,145,432
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Year
Ended March 31, 2007:
|
|
|
|
|
|
|
|
|
Acquisition
costs of properties
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
-
|
|
|
$
|
-
|
|
Unproved
|
|
|
355,641
|
|
|
|
|
|
Subtotal
|
|
|
355,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and development costs
|
|
|
3,731,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,086,949
|
|
|
$
|
-
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Results
of Operations for Oil and Natural Gas Producing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
March 31,
2007
|
|
|
Year
Ended
March 31,
2006
|
|
|
Year
Ended
March 31,
2005
|
|
Oil
and natural gas production revenues
|
|
|
|
|
|
|
|
|
|
Third-party
|
|
$
|
457,046
|
|
|
$
|
191,114
|
|
|
$
|
88,176
|
|
Affiliate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
457,046
|
|
|
|
191,114
|
|
|
|
88,176
|
|
Exploration
expenses, including dry hole
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Production
costs
|
|
|
(114,735
|
)
|
|
|
(41,953
|
)
|
|
|
(23,584
|
)
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation,
depletion and amortization
|
|
|
(188,351
|
)
|
|
|
(65,311
|
)
|
|
|
(36,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
153,960
|
|
|
|
83,850
|
|
|
|
28,438
|
|
Income
tax provision (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of continuing operations
|
|
$
|
153,960
|
|
|
$
|
83,850
|
|
|
$
|
28,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of discontinued operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
results of operations for oil and natural gas producing activities excludes
interest charges and general and administrative expenses. Sales are based on
market prices.
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Net
Proved and Proved Developed Reserve Summary
The
following table sets forth the Company’s net proved and proved developed
reserves (all within the United States) at March 31, 2007, 2006 and 2005,
and the changes in the net proved reserves for each of the two years in the
period then ended as estimated by the independent petroleum consultants. See
Note 3.
|
|
Continuing
Operations
|
|
|
Discontinued
Operations
|
|
Natural
gas (Bcf)(1):
|
|
|
|
|
|
|
Net
proved reserves at March 31, 2004
|
|
|
-
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
-
|
|
|
|
-
|
|
Purchases
in place
|
|
|
-
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
-
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
proved reserves at March 31, 2005
|
|
|
-
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
-
|
|
|
|
-
|
|
Purchases
in place
|
|
|
0.144
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
-
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
proved reserves at March 31, 2006
|
|
|
0.144
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
0.157
|
|
|
|
-
|
|
Purchases
in place
|
|
|
0.008
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
0.240
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(0.008
|
)
|
|
|
-
|
|
Net
proved reserves at March 31, 2007
|
|
|
0.541
|
|
|
|
-
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Natural
gas liquids and crude oil (MBbls)(2)(3):
|
|
|
|
|
|
|
Net
proved reserves at March 31, 2004
|
|
|
11.069
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
4.832
|
|
|
|
-
|
|
Purchases
in place
|
|
|
-
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
6.758
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(2.068
|
)
|
|
|
-
|
|
Net
proved reserves at March 31, 2005
|
|
|
20.591
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
1.566
|
|
|
|
-
|
|
Purchases
in place
|
|
|
11.565
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
5.060
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(3.381
|
)
|
|
|
-
|
|
Net
proved reserves at March 31, 2006
|
|
|
35.401
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
(5.349
|
)
|
|
|
-
|
|
Purchases
in place
|
|
|
0.066
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
0.875
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(6.660
|
)
|
|
|
-
|
|
Net
proved reserves at March 31, 2007
|
|
|
24.333
|
|
|
|
-
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
(MBO)(2)
equivalents(4):
|
|
|
|
|
|
|
Net
proved reserves at March 31, 2004
|
|
|
11.069
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
4.832
|
|
|
|
-
|
|
Purchases
in place
|
|
|
-
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
6.758
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(2.068
|
)
|
|
|
-
|
|
Net
proved reserves at March 31, 2005
|
|
|
20.591
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
1.566
|
|
|
|
-
|
|
Purchases
in place
|
|
|
35.635
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
5.060
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(3.381
|
)
|
|
|
-
|
|
Net
proved reserves at March 31, 2006
|
|
|
59.471
|
|
|
|
-
|
|
Revisions
of previous estimates
|
|
|
20.748
|
|
|
|
-
|
|
Purchases
in place
|
|
|
1.478
|
|
|
|
-
|
|
Extensions,
discoveries and other additions
|
|
|
40.956
|
|
|
|
-
|
|
Sales
in place
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(8.075
|
)
|
|
|
-
|
|
Net
proved reserves at March 31, 2007
|
|
|
114.578
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Net
proved developed reserves:
|
|
|
|
|
|
|
Natural
gas (Bcf)(1)
|
|
|
|
|
|
|
March
31, 2005
|
|
|
-
|
|
|
|
-
|
|
March
31, 2006
|
|
|
0.090
|
|
|
|
-
|
|
March
31, 2007
|
|
|
0.541
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Natural
gas liquids and crude oil (MBbls)(2)(3)
|
|
|
|
|
|
|
|
|
March
31, 2005
|
|
|
12.354
|
|
|
|
-
|
|
March
31, 2006
|
|
|
28.942
|
|
|
|
-
|
|
March
31, 2007
|
|
|
22.953
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
MBO(2)
equivalents(4)
|
|
|
|
|
|
|
|
|
March
31, 2005
|
|
|
12.354
|
|
|
|
-
|
|
March
31, 2006
|
|
|
30.518
|
|
|
|
-
|
|
March
31, 2007
|
|
|
113.198
|
|
|
|
-
|
|
_______________
(1)
|
Billion
cubic feet or billion cubic feet equivalent, as
applicable.
|
(3)
|
Includes
crude oil, condensate and natural gas
liquids.
|
(4)
|
Natural
gas volumes have been converted to equivalent natural gas liquids
and
crude oil volumes using a conversion factor of six thousand cubic
feet of
natural gas to one barrel of natural gas liquids or crude
oil.
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural
Gas Reserves
The
following information has been developed utilizing procedures prescribed by
SFAS
No. 69 and based on natural gas and crude oil reserve and production
volumes estimated by the independent petroleum reservoir engineers. This
information may be useful for certain comparison purposes but should not be
solely relied upon in evaluating the Company or its performance. Further,
information contained in the following table should not be considered as
representative of realistic assessments of future cash flows, nor should the
standardized measure of discounted future net cash flows be viewed as
representative of the current value of the Company’s oil and natural gas
assets.
The
future cash flows presented below are based on sales prices, cost rates and
statutory income tax rates in existence as of the date of the projections.
It is
expected that material revisions to some estimates of natural gas and crude
oil
reserves may occur in the future, development and production of the reserves
may
occur in periods other than those assumed, and actual prices realized and costs
incurred may vary significantly from those used. Income tax expense has been
computed using expected future tax rates and giving effect to tax deductions
and
credits available, under current laws, and which relate to oil and natural
gas
producing activities.
Management
does not rely upon the following information in making investment and operating
decisions. Such decisions are based upon a wide range of factors, including
estimates of probable as well as proved reserves and varying price and cost
assumptions considered more representative of a range of possible economic
conditions that may be anticipated.
The
following table sets forth the standardized measure of discounted future net
cash flows from projected production of the Company’s natural gas and crude oil
reserves for the years ended March 31, 2007, 2006 and 2005:
|
|
Continuing
Operations
|
|
|
Discontinued
Operations
|
|
|
|
(in
$’000)
|
|
March
31, 2005:
|
|
|
|
|
|
|
Future
cash inflows
|
|
$
|
1,088.787
|
|
|
$
|
-
|
|
Future
production costs
|
|
|
(474.193
|
)
|
|
|
-
|
|
Future
development costs
|
|
|
(131.248
|
)
|
|
|
-
|
|
Future
income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Future
net cash flows
|
|
|
483.346
|
|
|
|
-
|
|
Discount
to present value at 10% annual rate
|
|
|
(131.571
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Standardized
measure of discounted future net cash flows relating to proved natural
gas, natural gas liquids and crude oil reserves
|
|
$
|
351.775
|
|
|
$
|
-
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
Operations
|
|
|
Operations
|
|
March 31,
2006:
|
|
|
|
|
|
|
Future
cash inflows
|
|
$
|
3,080.376
|
|
|
$
|
-
|
|
Future
production costs
|
|
|
(855.120
|
)
|
|
|
-
|
|
Future
development costs
|
|
|
(515.632
|
)
|
|
|
-
|
|
Future
income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Future
net cash flows
|
|
|
1,709.624
|
|
|
|
-
|
|
Discount
to present value at 10% annual rate
|
|
|
(362.391
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Standardized
measure of discounted future net cash flows relating to proved natural
gas, natural gas liquids and crude oil reserves
|
|
$
|
1,347.233
|
|
|
$
|
-
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
Operations
|
|
|
Operations
|
|
March 31,
2007:
|
|
|
|
|
|
|
Future
cash inflows
|
|
$
|
5,049.821
|
|
|
$
|
-
|
|
Future
production costs
|
|
|
(1,055.600
|
)
|
|
|
-
|
|
Future
development costs
|
|
|
(53.403
|
)
|
|
|
-
|
|
Future
income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Future
net cash flows
|
|
|
3,940.818
|
|
|
|
-
|
|
Discount
to present value at 10% annual rate
|
|
|
(841.922
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Standardized
measure of discounted future net cash flows relating to proved natural
gas, natural gas liquids and crude oil reserves
|
|
$
|
3,098.896
|
|
|
$
|
-
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
Changes
in Standardized Measure of Discounted Future Net Cash
Flows
The
following table sets forth the changes in the standardized measure of discounted
future net cash flows at March 31, 2007, 2006 and 2005:
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
Operations
|
|
|
Operations
|
|
|
|
(in
$’000)
|
|
Balance,
April 1, 2004
|
|
$
|
113.318
|
|
|
$
|
-
|
|
Sales
and transfers of natural gas, natural gas liquids and crude oil produced,
net of production costs
|
|
|
(64.592
|
)
|
|
|
-
|
|
Net
changes in prices and production costs
|
|
|
155.685
|
|
|
|
-
|
|
Extensions,
discoveries, additions and improved recovery, net of related
costs
|
|
|
81.085
|
|
|
|
-
|
|
Development
costs incurred
|
|
|
70.540
|
|
|
|
-
|
|
Revisions
of previous quantity estimates and development costs
|
|
|
(3.657
|
)
|
|
|
-
|
|
Accretion
of discount
|
|
|
(2.291
|
)
|
|
|
-
|
|
Net
change in income taxes
|
|
|
-
|
|
|
|
-
|
|
Purchases
of reserves in place
|
|
|
-
|
|
|
|
-
|
|
Sales
of reserves in place
|
|
|
-
|
|
|
|
-
|
|
Changes
in timing and other
|
|
|
1.687
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2005
|
|
$
|
351.775
|
|
|
$
|
-
|
|
INDEX
OIL AND GAS, INC.
SUPPLEMENTAL
INFORMATION (UNAUDITED)
FOR
THE YEARS ENDED MARCH 31, 2007, 2006 AND 2005
|
|
|
|
|
|
|
Sales
and transfers of natural gas, natural gas liquids and crude oil produced,
net of production costs
|
|
$
|
(149.200
|
)
|
|
$
|
-
|
|
Net
changes in prices and production costs
|
|
|
92.288
|
|
|
|
-
|
|
Extensions,
discoveries, additions and improved recovery, net of related
costs
|
|
|
86.546
|
|
|
|
-
|
|
Development
costs incurred
|
|
|
659.376
|
|
|
|
-
|
|
Revisions
of previous quantity estimates and development costs
|
|
|
(412.504
|
)
|
|
|
-
|
|
Accretion
of discount
|
|
|
(97.672
|
)
|
|
|
-
|
|
Net
change in income taxes
|
|
|
-
|
|
|
|
-
|
|
Purchases
of reserves in place
|
|
|
813.43
|
|
|
|
-
|
|
Sales
of reserves in place
|
|
|
-
|
|
|
|
-
|
|
Changes
in timing and other
|
|
|
3.194
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2006
|
|
$
|
1,347.233
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Sales
and transfers of natural gas, natural gas liquids and crude oil produced,
net of production costs
|
|
$
|
(342.311
|
)
|
|
$
|
-
|
|
Net
changes in prices and production costs
|
|
|
(46.758
|
)
|
|
|
-
|
|
Extensions,
discoveries, additions and improved recovery, net of related
costs
|
|
|
1,180.549
|
|
|
|
-
|
|
Development
costs incurred
|
|
|
1,320.745
|
|
|
|
-
|
|
Revisions
of previous quantity estimates and development costs
|
|
|
(820.626
|
)
|
|
|
-
|
|
Accretion
of discount
|
|
|
134.723
|
|
|
|
-
|
|
Net
change in income taxes
|
|
|
-
|
|
|
|
-
|
|
Purchases
of reserves in place
|
|
|
486.467
|
|
|
|
-
|
|
Sales
of reserves in place
|
|
|
-
|
|
|
|
-
|
|
Changes
in timing and other
|
|
|
(161.126
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2007
|
|
$
|
3,098.896
|
|
|
$
|
-
|
|
Prospective
investors may rely only on the information contained in this prospectus. Neither
Index Oil and Gas Inc. nor the selling stockholders have authorized anyone
to
provide prospective investors with information different from that contained
in
this prospectus. This prospectus is not an offer to sell nor is it seeking
an offer to buy the shares in any jurisdiction where the offer or sale is not
permitted. The information contained in this prospectus is correct only as
of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of the shares.
INDEX
OIL AND GAS INC.
40,686,978
Shares of
Common
Stock
__________________________
PROSPECTUS
__________________________
November
8, 2007