UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON
,
D.C.
20549
FORM 10-Q/A
AMENDMENT NO. 2
[X] QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,
2008
[ ] TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the
transition period from _________________ to _______________
Commission File Number
2-73389
STRIKER OIL & GAS,
INC.
(Exact name of small business issuer as
specified in its charter)
|
Nevada
|
|
75-1764386
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer Identification
No.)
|
5075 Westheimer Rd., Suite
975
,
Houston
,
Texas
77056
(Address of principal executive
offices)
(713) 402-6700
(Issuer’s telephone
number)
Check whether the issuer has (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes
[X] No
[_]
As of May 19, 2008, there were
outstanding 20,451,816 shares of common stock, $.001 par value per
share.
Transitional Small Business Disclosure
Format (Check one): Yes [ ] No
[X]
STRIKER OIL & GAS,
INC.
INDEX TO FORM 10-Q
March 31, 2008
|
|
|
|
Part
I
|
Financial
Information
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|
Page No.
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Item 1.
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Financial
Statements
|
|
|
|
|
|
|
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Consolidated Balance Sheets March
31, 2008 (unaudited) and December 31, 2007
|
1-2
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|
|
Consolidated Statements of
Operations (unaudited) Three Months Ended March 31, 2008 and
2007
|
3
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash
Flow (unaudited) Three Months Ended March 31, 2008 and
2007
|
4-5
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|
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|
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|
|
Notes to Unaudited Consolidated
Financial Statements
|
6-10
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|
Item 2.
|
Management’s Discussion and
Analysis of Results of Operations and Financial
Condition
|
11-14
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|
|
|
|
Item 3.
|
Controls and
Procedures
|
15
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Part II
|
Other
Information
|
|
|
|
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Item 1.
|
Legal
Proceedings
|
16
|
|
|
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|
Item 2.
|
Unregistered Sales of Equity
Securities and Use of Proceeds
|
17
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|
Item 3.
|
Exhibits
|
18
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EXPLANATORY
NOTE
Striker Oil and Gas, Inc. (the
“Company”) is filing this Amendment No. 2 on Form 10-Q/A (this “Amendment”) to
the Company’s Form 10-Q for the quarter ended March 31, 2008, to revise the
conclusion related to disclosure controls and procedures on Page 18 of the
Company's Form 10-Q/A filed with the Securities and Exchange Commission on July
2, 2008.
The change set forth above is the only
portion of the Form 10-Q being amended herein. This Amendment No. 2
does not change any other information set forth in the
Form 10-Q.
PART
I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
STRIKER OIL & GAS,
INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(Unaudited)
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
640,216
|
|
|
$
|
608,944
|
|
|
Oil and
gas receivable, net of allowance of $166,789 at March 31, 2008 and
December 31, 2007
|
|
|
453,713
|
|
|
|
1,574,097
|
|
|
Prepaid
expenses
|
|
|
93,810
|
|
|
|
333,164
|
|
|
Deferred
financing costs, net
|
|
|
66,371
|
|
|
|
59,131
|
|
|
Total
current assets
|
|
|
1,254,110
|
|
|
|
2,575,336
|
|
|
Property and
equipment:
|
|
|
|
|
|
|
|
|
|
Oil and
gas properties, full-cost method:
|
|
|
|
|
|
|
|
|
|
Subject
to depletion
|
|
|
12,165,420
|
|
|
|
11,913,806
|
|
|
Unevaluated
costs
|
|
|
1,083,264
|
|
|
|
711,521
|
|
|
Other
fixed assets
|
|
|
264,679
|
|
|
|
263,059
|
|
|
Accumulated
depletion, depreciation and impairment
|
|
|
(3,490,525
|
)
|
|
|
(3,165,108
|
)
|
|
Property and equipment,
net
|
|
|
10,022,838
|
|
|
|
9,723,278
|
|
|
Other
assets
|
|
|
129,867
|
|
|
|
128,146
|
|
|
Total
assets
|
|
$
|
11,406,815
|
|
|
$
|
12,426,760
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited
consolidated financial statements.
STRIKER OIL & GAS,
INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(Unaudited)
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
$
|
503,889
|
|
$
|
797,502
|
|
|
|
|
Accrued
interest
|
|
175,342
|
|
|
61,035
|
|
|
|
|
Oil and gas royalties
payables
|
|
59,678
|
|
|
167,917
|
|
|
|
|
Accrued
liabilities
|
|
1,617
|
|
|
1,005
|
|
|
|
|
Notes
payable
|
|
89,538
|
|
|
100,111
|
|
|
|
|
Drilling contract
liability
|
|
101,187
|
|
|
326,187
|
|
|
|
|
Current portion – secured
convertible note payable net of
unamortized discount of
$353,133 and
$1,064,419,
respectively
|
|
120,468
|
|
|
2,166,341
|
|
|
|
|
Derivative
liabilities
|
|
1,351,513
|
|
|
1,479,268
|
|
|
|
|
Total current
liabilities
|
|
2,403,232
|
|
|
5,099,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term
liabilities:
|
|
|
|
|
|
|
|
|
|
Secured convertible note payable
net of unamortized discount of
$4,232,519 and $2,797,247,
respectively
|
|
1,443,882
|
|
|
221,995
|
|
|
|
|
Asset retirement
obligation
|
|
761,747
|
|
|
748,757
|
|
|
|
|
Total long term
liabilities
|
|
2,205,629
|
|
|
970,752
|
|
|
|
|
Total current and long term
liabilities
|
|
4,608,861
|
|
|
6,070,118
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value,
25,000,000 shares authorized, none issued
|
|
--
|
|
|
--
|
|
|
|
|
Common stock, $.001 par value,
1,500,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
20,373,051 and 20,212,968 issued
and outstanding, respectively
|
|
20,373
|
|
|
20,213
|
|
|
|
|
Treasury stock, at cost; 1,237,839
shares
|
|
(331,014
|
|
|
(331,014
|
)
|
|
|
|
Additional paid-in
capital
|
|
21,791,922
|
|
|
21,767,652
|
|
|
|
|
Accumulated
deficit
|
|
(14,683,398
|
|
|
(15,100,209
|
)
|
|
|
|
Total shareholders’
equity
|
|
6,797,954
|
|
|
6,356,642
|
|
|
|
|
Total liabilities and
shareholders' equity
|
$
|
11,406,815
|
|
$
|
12,426,760
|
|
|
|
See accompanying notes to unaudited
consolidated financial statements.
STRIKER OIL & GAS,
INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008 AND
2007
Unaudited
|
|
|
Three Months Ended March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
revenue
|
|
$
|
1,179,135
|
|
|
$
|
322,348
|
|
|
Oil and gas production
costs
|
|
|
478,268
|
|
|
|
147,880
|
|
|
Depletion
expense
|
|
|
325,703
|
|
|
|
184,933
|
|
|
Gross profit
(loss)
|
|
|
375,164
|
|
|
|
(10,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
General and
administrative
|
|
|
528,430
|
|
|
|
1,035,760
|
|
|
Drilling rig
contract
|
|
|
--
|
|
|
|
396,998
|
|
|
Depreciation
|
|
|
12,704
|
|
|
|
11,093
|
|
|
Other
|
|
|
58,033
|
|
|
|
45,392
|
|
|
Total
operating expenses
|
|
|
599,167
|
|
|
|
1,489,243
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations
|
|
|
(224,003
|
)
|
|
|
(1,499,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
7,106
|
|
|
|
3,298
|
|
|
Interest
expense
|
|
|
(502,199
|
)
|
|
|
(7,474
|
)
|
|
Change in
fair value of derivatives
|
|
|
1,135,903
|
|
|
|
--
|
|
|
Total
other
|
|
|
640,810
|
|
|
|
(4,176
|
)
|
|
Net income
(loss)
|
|
$
|
416,807
|
|
|
$
|
(1,503,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.08
|
)
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common
shares
outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,303,857
|
|
|
|
19,229,906
|
|
|
Diluted
|
|
|
20,480,858
|
|
|
|
19,229,906
|
|
See accompanying notes to unaudited
consolidated financial statements.
STRIKER OIL & GAS,
INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
THREE MONTHS ENDED MARCH 31, 2008 AND
2007
(Unaudited)
|
|
|
Three Months Ended March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Restated)
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
416,807
|
|
|
$
|
(1,503,884
|
)
|
|
Adjustments to reconcile net loss
to cash used in operating activities:
|
|
|
|
|
|
|
Depletion and
depreciation
|
|
|
325,417
|
|
|
|
196,026
|
|
|
Impairment of oil and gas
properties
|
|
|
12,990
|
|
|
|
--
|
|
|
Stock and stock options issued for
services
|
|
|
160
|
|
|
|
33,516
|
|
|
Stock option
expense
|
|
|
--
|
|
|
|
459,813
|
|
|
Amortization of debt
discounts
|
|
|
284,162
|
|
|
|
5,625
|
|
|
Fair value stock
options
|
|
|
17,850
|
|
|
|
--
|
|
|
Other
assets
|
|
|
(1,721
|
)
|
|
|
(3,296
|
)
|
|
Change in fair value of
derivatives
|
|
|
(1,135,903
|
)
|
|
|
--
|
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,120,384
|
|
|
|
158,139
|
|
|
Prepaid drilling
contract
|
|
|
--
|
|
|
|
958,898
|
|
|
Deferred financing
costs
|
|
|
(7,240
|
)
|
|
|
--
|
|
|
Prepaid
expenses
|
|
|
239,355
|
|
|
|
(66,277
|
)
|
|
Accounts payable and accrued
liabilities
|
|
|
(286,938
|
)
|
|
|
23,121
|
|
|
Drilling contract
liability
|
|
|
(225,000
|
)
|
|
|
(741,975
|
)
|
|
Net cash generated by (used) in
operating activities
|
|
|
760,323
|
|
|
|
(414,427
|
)
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
Investment in oil and gas
properties and other fixed assets
|
|
|
(624,978
|
)
|
|
|
(929,247
|
)
|
|
Net cash used in investing
activities
|
|
|
(624,978
|
)
|
|
|
(929,247
|
)
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
Repayment of notes
payable
|
|
|
(110,573
|
)
|
|
|
--
|
|
|
Stock issued for
cash
|
|
|
--
|
|
|
|
965,000
|
|
|
Exercise of stock
options
|
|
|
6,500
|
|
|
|
5,000
|
|
|
Net cash (used) provided by
financing activities
|
|
|
(104,073
|
)
|
|
|
970,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash
|
|
|
31,272
|
|
|
|
(373,674
|
)
|
|
Cash and cash equivalents,
beginning of period
|
|
|
608,944
|
|
|
|
417,884
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
640,216
|
|
|
$
|
44,210
|
|
See accompanying notes to unaudited
consolidated financial statements.
STRIKER OIL & GAS,
INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
THREE MONTHS ENDED MARCH 31, 2008 AND
2007
(Unaudited)
(Continued)
|
Supplemental cash flow
disclosures:
|
|
Three Months Ended March
31,
2008
2007
(restated)
|
|
|
Interest
paid
|
|
$
|
92,466
|
|
|
$
|
--
|
|
|
Taxes
paid
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash
disclosures:
|
|
|
|
|
|
|
|
|
|
Stock
issued for prepaid expenses
|
|
$
|
18,000
|
|
|
$
|
16,719
|
|
|
Purchase
of treasury stock for note receivable – related
party
|
|
|
--
|
|
|
$
|
211,014
|
|
|
Transfer to oil and gas properties
from prepaid expenses
|
|
$
|
254,101
|
|
|
$
|
1,702,780
|
|
See accompanying notes to unaudited
consolidated financial statements.
STRIKER OIL & GAS,
INC.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2008
Note
1. Organization
and Nature of Business
The accompanying unaudited consolidated
financial statements of Striker Oil & Gas, Inc. (formerly Unicorp, Inc.)
(the "Company" or "Striker") have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and the rules of the Securities and Exchange
Commission (“SEC”). In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation, have been included in the accompanying unaudited consolidated
financial statements. Operating results for the periods presented are
not necessarily indicative of the results that may be expected for the full
year. Notes to the consolidated financial statements that would
substantially duplicate the disclosures contained in the audited financial
statements for the fiscal year ended December 31, 2007, as reported in the Form
10-KSB, have been omitted.
These consolidated financial statements
should be read in conjunction with the financial statements and footnotes, which
are included as part of the Company's Form 10-KSB for the year ended December
31, 2007.
Striker was originally incorporated in
May 1981 in the State of
Nevada
under the name of Texoil, Inc., changed
its name to Unicorp, Inc. in March 1999, and subsequently changed its name to
Striker Oil & Gas, Inc. in April 2008. Striker is a natural
resource company engaged in the exploration, exploitation, acquisition,
development and production and sale of natural gas, crude oil and natural gas
liquids from conventional reservoirs within the
United States
. Substantial portions of the
Striker’s operations are conducted in
Louisiana
,
Mississippi
and
Texas
.
On July 29, 2004, the Company closed on
a transaction acquiring all of the common stock of Affiliated Holdings, Inc., a
Texas corporation (“AHI”), pursuant to a stock agreement by and among the
Company, AHI and the stockholders of AHI (the “Stock
Transaction”). As a result of the Stock Transaction, AHI became a
wholly-owned subsidiary of the Company, through which oil and gas operations are
being conducted. References herein to the Company include
AHI.
New Accounting
Pronouncements
In March 2008, the Financial Accounting
Standards Board issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”), and an amendment of FASB
Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS 133”). SFAS 161 requires entities to provide qualitative
disclosures about the objectives and strategies for using derivatives,
quantitative data about the fair value of and gains and losses on derivative
contracts, and details of credit-risk-related contingent features in their
hedged positions. The standard is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged but not required. SFAS 161 also requires entities
to disclose more information about the location and amounts of derivative
instruments in financial statements, how derivatives and related hedges are
accounted for under SFAS 133, and how the hedges affect the entity’s financial
position, financial performance, and cash flows. The Company is currently
evaluating whether the adoption of SFAS 161 will have an impact on its
financial position or results of operations.
In December 2007, the FASB issued SFAS
No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces
SFAS 141, “Business Combinations”; however it retains the fundamental
requirements that the acquisition method of accounting be used for all business
combinations and for an acquirer to be identified for each business combination.
SFAS 141(R) requires an acquirer to recognize the assets acquired, liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, be measured at their fair values as of that date, with specified limited
exceptions. Changes subsequent to that date are to be recognized in earnings,
not goodwill. Additionally, SFAS 141 (R) requires costs incurred in
connection with an acquisition be expensed as incurred. Restructuring costs, if
any, are to be recognized separately from the acquisition. The acquirer in a
business combination achieved in stages must also recognize the identifiable
assets and liabilities, as well as the noncontrolling interests in the acquiree,
at the full amounts of their fair values. SFAS 141(R) is effective for business
combinations occurring in fiscal years beginning on or after December 15,
2008. The Company will apply the requirements of SFAS 141(R) upon its adoption
on January 1, 2009 and is currently evaluating whether SFAS 141(R) will
have an impact on its financial position and results of
operations.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS 159”). SFAS 159 permits companies to elect to measure many
financial instruments and certain other items at fair value. Upon adoption of
SFAS 159, a company may elect the fair value option for eligible items that
exist at the adoption date. Subsequent to the initial adoption, the election of
the fair value option should only be made at initial recognition of the asset or
liability or upon a remeasurement event that gives rise to new-basis accounting.
The decision about whether to elect the fair value option is applied on an
instrument-by-instrument basis is irrevocable and is applied only to an entire
instrument and not only to specified risks, cash flows or portions of that
instrument. SFAS No. 159 does not affect any existing accounting standards
that require certain assets and liabilities to be carried at fair value nor does
it eliminate disclosure requirements included in other accounting standards.
Baseline adopted SFAS No. 159 effective January 1, 2008 and did not
elect the fair value option for any existing eligible items.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not impose
fair value measurements on items not already accounted for at fair value; rather
it applies, with certain exceptions, to other accounting pronouncements that
either require or permit fair value measurements. Under SFAS No. 157, fair
value refers to the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants in
the principal or most advantageous market. The standard clarifies that fair
value should be based on the assumptions market participants would use when
pricing the asset or liability. In February 2008, the FASB issued FASB Staff
Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS
157-2”), which delays the effective date of SFAS 157 for all non-financial
assets and liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis, until fiscal years
beginning after November 15, 2008. These non-financial items include assets
and liabilities such as non-financial assets and liabilities assumed in a
business combination, reporting units measured at fair value in a goodwill
impairment test and asset retirement obligations initially measured at fair
value. Effective January 1, 2008, the Company adopted SFAS 157 for fair
value measurements not delayed by FSP FAS No. 157-2. The adoption resulted
in additional disclosures as required by the pronouncement (See Note
5 – Notes Payable) related to our fair value measurements for oil and
gas derivatives and marketable securities but no change in our fair value
calculation methodologies. Accordingly, the adoption had no impact on our
financial condition or results of operations.
Note
2. Going
Concern
The accompanying consolidated financial
statements have been prepared on a going concern basis, which anticipates the
realization of assets and the liquidation of liabilities during the normal
course of operations. However, as shown in these consolidated
financial statements, the Company, as of March 31, 2008, had a working capital
deficit of $1,149,122. In addition, the Company has an accumulated
deficit of $14, 683,398. These factors raise doubt about the
Company’s ability to continue as a going concern if changes in operations are
not forthcoming.
The Company’s ability to continue as a
going concern will depend on management’s ability to successfully obtain
additional forms of debt and/or equity financing to execute its drilling and
exploration program. The Company believes it can obtain additional
funding to execute its drilling and exploration program, but it cannot give any
assurances that it will be successful in obtaining additional funding on terms
acceptable to it, if at all. These financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note
3. Stock-Based
Compensation
On July 2004, the Board of Directors
adopted the 2004 Stock Option Plan (the “2004 Plan”), which allows for the
issuance of up to 1,200,000 stock options to directors, executive officers,
employees and consultants of the Company who are contributing to the Company’s
success. As of March 31, 2008, there were 275,067 non-qualified stock
options outstanding at exercise prices ranging from $0.05 to $15.00 per share
and 20,000 incentive stock options outstanding at an exercise price of $17.50
per share pursuant to the 2004 Plan. As of March 31, 2008, there were
1,110,993 shares available for issuance pursuant to the 2004
Plan. The 2004 Plan was approved by the shareholders on September 20,
2004.
On September 4, 2007, the Board of
Directors adopted the 2007 Stock Option Plan (the “2007 Plan”), which allows for
the issuance of up to 1,600,000 stock options to directors, executive officers,
employees and consultants of the Company who are contributing to the Company’s
success. In March 2008, the Company issued an option to purchase
100,000 shares of the company’s common stock under the 2007 Plan at a price of
$0.50 per share to its CFO. The option vests over three years and has
7 years life. The fair market value of the option was $40,026 on the
date of grant. As of March 31, 2008, there were 1,300,000
non-qualified stock options outstanding at exercise prices ranging from $0.50 to
$1.05 per share pursuant to the 2007 Plan. As of March 31, 2008,
there were 300, 000 shares available for issuance pursuant to the 2007
Plan.
In February 2008, an option to purchase
130,000 shares of the Company’s common stock was exercised by the former CEO for
gross proceeds of $6,500.
At March 31, 2008, the range of exercise
prices and weighted average remaining contractual life of outstanding options
was $0.01 to $3.50 and six years, respectively. The intrinsic value
of all stock options which are in the money at March 31, 2008 is
$3,333.
Note
4. Accounts
Receivable
Accounts receivable consists of the
following:
|
|
|
March 31,
2008
|
|
December 31,
2007
|
|
|
Accrued production
receivable
|
|
$
|
442,117
|
|
$
|
1,476,182
|
|
|
Joint interest
receivables
|
|
|
178,385
|
|
|
264,704
|
|
|
Allowance for bad
debts
|
|
|
(166,789
|
)
|
|
(166,789
|
)
|
|
|
|
$
|
453,713
|
|
$
|
1,574,097
|
|
Note
5. Notes
Payable
Secured Convertible
Notes
To obtain funding for the Company’s
ongoing operations, the Company entered into a securities purchase agreement
with YA Global Investments, L.P. (formerly, Cornell Capital Partners L.P.), an
accredited investor, on May 17, 2007, for the sale of $7,000,000 in secured
convertible debentures. YA Global Investments provided the Company
with an aggregate of $7,000,000 as follows:
|
·
|
$3,500,000 was disbursed on May
17, 2007;
|
|
·
|
$2,000,000 was disbursed on June
29, 2007; and
|
|
·
|
$1,500,000 was disbursed on
October 24, 2007.
|
Accordingly, during 2007 the Company
received a total of $7,000,000, less a 10% commitment fee of $700,000 and a
$15,000 structuring fee for net proceeds of $6,285,000 pursuant to the
securities purchase agreement. The Company had previously paid an
additional $15,000 to Yorkville Advisors as a structuring fee. The
Company incurred debt issuance costs of $78,500 associated with the issuance of
the secured convertible notes. These costs were capitalized as
deferred financing costs and are being amortized over the life of the secured
convertible notes using the effective interest method. Amortization
expense related to the deferred financing costs was $7,760 for the three months
ended March 31, 2008.
In connection with the securities
purchase agreement, the Company issued YA Global Investors warrants to purchase
an aggregate of 1,624,300 shares of common stock. All of the warrants
expire five years from the date of issuance.
In connection with the securities
purchase agreement, the Company also entered into
|
·
|
a registration rights agreement;
and
|
|
·
|
A security agreement in favor of
YA Global Investments.
|
The registration rights agreement
provided for the filing, by July 2, 2007, of a registration statement with the
Securities and Exchange Commission registering the common stock issuable upon
conversion of the secured convertible debentures and warrants. The
registration statement was declared effective by the SEC on October 12,
2007.
The Company executed a security
agreement in favor of YA Global Investments granting them a first priority
security interest in certain of the Company’s goods, inventory, contractual
rights and general intangibles, receivables, documents, instruments, chattel
paper and intellectual property. The security agreement states that
if an event of default occurs under the secured convertible debentures or
security agreements, YA Global Investments has the right to take possession of
the collateral, to operate the Company’s business using the collateral, and have
the right to assign, sell, lease or otherwise dispose of and deliver all or any
part of the collateral, at public or private sale or otherwise to satisfy the
Company’s obligations under these agreements.
On February 20, 2008, the Company
entered into an Amendment Agreement with YA Global Investments, amending certain
notes and warrants entered into in connection with the Securities Purchase
Agreement dated May 17, 2007. The amendment agreement includes the
following changes:
|
·
|
the interest rate was increased
from 9% to 14%;
|
|
·
|
the maturity date was changed from
November 17, 2009 to December 31,
2010;
|
|
·
|
the conversion price was changed
from $2.50 per share to $0.75 per share;
and
|
|
·
|
The Company agreed to make monthly
payments of principal and interest of $100,000 beginning March 1, 2008 and
a one-time balloon payment of $1,300,000 due and payable on December 31,
2009.
|
The amendment agreement modified
warrants as follows:
|
Warrant
|
Description
|
Original Exercise Price per
Share
|
Amended
Exercise Price per
Share
|
|
A-1
|
Warrant to purchase 509,000 shares
of common stock
|
$2.75
|
$0.75
|
|
B-1
|
Warrant to purchase430,800 shares
of common stock
|
$3.25
|
$1.25
|
|
C-1
|
Warrant to purchase 373,400 shares
of common stock
|
$3.75
|
$1.35
|
|
D-1
|
Warrant to purchase 311,100 shares
of common stock
|
$4.50
|
$2.50
|
In addition, in connection with the
Amendment, the Company issued the following four warrants:
|
Warrant
|
Description
|
Exercise Price
Per
Share
|
|
A-2
|
Warrant to purchase 1,357,334
shares of common stock
|
$0.75
|
|
B-2
|
Warrant to purchase 689,280 shares
of common stock
|
$1.25
|
|
C-2
|
Warrant to purchase 426,743 shares
of common stock
|
$1.75
|
|
D-2
|
Warrant to purchase 248,880 shares
of common stock
|
$2.50
|
All of the warrants expire five years
from the date of issuance.
The Company analyzed the convertible
notes and the warrants for derivative financial instruments, in accordance with
SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
and
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock.
The convertible
notes are hybrid instruments which contain more than one embedded derivative
feature which would individually warrant separate accounting as derivative
instruments under SFAS 133. The various embedded derivative features
have been bundled together as a single, compound embedded derivative instrument
that has been bifurcated from the debt host contract. The single
compound embedded derivative features include the conversion feature with the
convertible notes, the interest rate adjustment, maximum ownership and default
provisions. The Company valued the compound embedded derivatives
based on a probability weighted discounted cash flow model. The value
at inception of the single compound embedded derivative liability was $1,958,285
and was bifurcated from the debt host contract and recorded as a derivative
liability. The discount for the derivative will be accreted to
interest expense using the effective interest method over the life of the
convertible notes.
Probability - Weighted Expected Cash
Flow Methodology
Assumptions: Single
Compound Embedded Derivative within Convertible Note
|
|
Inception
May 17,
2007
|
As of
March 31,
2008
|
|
Risk free interest
rate
|
4.86%
|
1.79%
|
|
Timely
registration
|
95.00%
|
95.00%
|
|
Default
status
|
5.00%
|
5.00%
|
|
Alternative financing available
and exercised
|
0.00%
|
0.00%
|
|
Trading volume, gross monthly
dollars monthly rate
increase
|
1.00%
|
1.00%
|
|
Annual growth rate stock
price
|
29.7%
|
29.2%
|
|
Future projected
volatility
|
211%
|
90%
|
The stock purchase
warrants are freestanding derivative financial instruments which were valued
using the Black-Scholes method. The fair value of the derivative
liability of the warrants was recorded at $2,723,239 at inception on May 17,
2007. The unamortized discount of the warrant derivative liability of
$2,539,093 will be accreted to interest expense using the effective interest
method over the life of the convertible notes, or 37 months. The
total accretion expense was $284,162 for the three months ended March 31, 2008.
The remaining value of $955,739 was expensed at inception to change in fair
value of derivative financial instruments since the total fair value of the
derivative at inception exceeded the note proceeds.
Variables used in the
Black-Scholes option-pricing model include (1) 5.11% to 4.89% risk-free interest
rate, (2) expected warrant life is the actual remaining life of the warrant as
of each period end, (3) expected volatility is from 211% to 156%; and (4) zero
expected dividends.
Both the embedded and
freestanding derivative financial instruments were recorded as liabilities in
the consolidated balance sheet and measured at fair value. These
derivative liabilities will be marked-to-market each quarter with the change in
fair value recorded as either a gain or loss in the income
statement.
To determine the
appropriate accounting for the February 2008 Modifications noted above, the
Company applied the provisions of EITF 96-19. Under EITF 96-19, a substantial
modification of loan terms results in accounting for the modification as a debt
extinguishment. EITF 96-19 specifies that a modification should be considered
substantial if the present value of the cash flows under the new terms is at
least 10% different from the present value of the remaining cash flows under the
original loan terms. EITF 96-19 requires the use of the original effective
interest rate for calculating the present value of the cash flows under the
modified loan.
In order to apply
EITF 96-19, the Company determined the annual payments (principal and interest)
under the new loan terms. If either debt instrument is callable or
putable, EITF 96-19 requires that the present value calculation should be made
assuming the instrument is called (put) and assuming the instrument is not
called (put). The cash flow assumptions that generate the smaller change are to
be used in the 10% test. In this case, both instruments had a call
options.
Using the original
effective interest rate as the discount factor for each set of cash flows, the
Company computed the present values under the various scenarios. In completing
the analysis, the change in value based on the modification and issuance of
additional warrants was treated as a current period cash flow. Based
on this analysis, the Company determined that the difference between the cash
flows under the original terms and the modified terms was not in excess of 10%
which suggested that the February 2008 Modifications were not substantial and
the notes were not extinguished. The value of the additional warrants
issued are accounted for as a derivative liability and treated as an
additional debt discount of $1,030,193 to the note and that is amortized over
the remaining life of the note. The embedded derivatives and warrants
continue to be reported at fair with the change in fair value recorded
in current earnings.
The impact of the
application of SFAS No. 133 and EITF 00-19 in regards to the derivative
liabilities on the balance sheet and statements of operations as of and through
March 31, 2008 are as follows:
|
|
|
Liability as of December 31,
2007
|
|
|
Liability as
of
March 31,
2008
|
|
|
Derivative liability – single
compound embedded
derivatives
within the convertible notes
|
|
$
|
2,301,306
|
|
|
$
|
1,211,199
|
|
|
Derivative liability –
warrants
|
|
|
2,723,239
|
|
|
|
1,235,725
|
|
|
Derivative liability –
options
|
|
|
40,492
|
|
|
|
40,492
|
|
|
Total
|
|
$
|
5,024,545
|
|
|
$
|
2,487,416
|
|
|
Net change in fair value of
derivatives
|
|
|
(3,437,780
|
)
|
|
|
(1,135,903
|
)
|
|
Derivative
liability
|
|
|
1,479,268
|
|
|
$
|
1,351,513
|
|
The following
summarizes the financial presentation of the convertible notes at inception and
March 31, 2008:
|
|
|
At Inception
May 17,
2007
|
|
|
As of
March 31,
2008
|
|
|
Notional amount of convertible
notes
|
|
$
|
3,500,000
|
|
|
$
|
6,150,002
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Discount
for single compound embedded derivatives
within
convertible notes
|
|
|
(3,500,000
|
)
|
|
|
(4,305,785
|
)
|
|
Amortized
discount on notes payable
|
|
|
--
|
|
|
|
1,129,865
|
|
|
Convertible notes balance,
net
|
|
$
|
--
|
|
|
$
|
1,485,735
|
|
Existing Non-Employee Stock
Options
The secured
convertible notes are potentially convertible into an unlimited number of common
shares, resulting in the Company no longer having the control too physically or
net share settle existing non-employee stock options. Thus under EITF
00-19, all non-employee stock options that are exercisable during the period
that the notes are outstanding are required to be treated as derivative
liabilities and recorded at fair value until the provisions requiring this
treatment have been settled.
As of the date of
issuance of the notes on May 17, 2007, the fair value of options to purchase
717,000 shares totaling $107,766 was reclassified to the liability caption
“Derivative liability” from additional paid-in capital. The fair
value of $40,492 as of March 31, 2008, was determined using the closing price of
$0.21, the respective exercise price ($1.75 to $17.50), the remaining term on
each contract (.85 to 4.6 years), the relevant risk free interest rate (4.23%)
as well as the relevant volatility (174.79%).
The determination of
fair value for the non-employee stock options includes significant estimates by
management including volatility of the Company’s common stock and interest
rates, among other items. The recorded value of the non-employee
stock options can fluctuate significantly based on fluctuations in the fair
value of the Company’s common stock, as well as in the volatility of the stock
price during the term used for observation and the term remaining for exercise
of the stock options. The fluctuation in estimated fair value may be
significant from period-to-period which, in turn, may have a significant impact
on the Company’s reported financial condition and results of
operations.
Convertible Notes
During March 2006,
the Company issued $75,000 principal amount in the form of a two-year, 10%
convertible unsecured note to La Mesa Partners, L.C. The note became
due on March 9, 2008 and the funds were used to pay for lease bonus costs on the
Company’s
Ohio
and
Logan County
,
Kentucky
prospects. At the option of
the note holder, the note is convertible into common stock of the Company at a
conversion price of $1.00 per share anytime after March 9,
2007. Interest on the 10% convertible note is payable quarterly out
of available cash flow from operations as determined by the Company’s Board of
Directors, or if not paid but accrued, will be paid at the next fiscal quarter
or at maturity. The conversion price of the note was calculated based
on a discount to the bid price on the date of funding. As the
conversion price was below the fair value of the common stock on the date
issued, the Company has recorded the beneficial conversion feature of the note
in accordance with the provisions found in EITF 98-5 by recording a $22,500
discount on the note. The discount was being amortized over a twelve
month period beginning April 1, 2006, and the Company has charged $22,500 to
interest expense during the twelve month period ended March 31,
2007.
The convertible notes
payable at March 31, 2008 and December 31, 2007, are as
follows:
|
|
|
Short-term
|
|
|
Long-term
|
|
|
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
|
Note due to
La Mesa
Partners,
L.C.
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
Total
convertible notes payable
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
Note
6. Accounts
Payable and Accrued Liabilities
Accrued liabilities
include the following:
|
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
|
Accounts
payable
|
|
$
|
505,506
|
|
|
$
|
797,500
|
|
|
Accrued interest on convertible
debentures
|
|
|
159,849
|
|
|
|
48,439
|
|
|
Accrued interest on short-term
note payable
|
|
|
15,493
|
|
|
|
13,603
|
|
|
Oil and gas
payable
|
|
|
59,678
|
|
|
|
167,917
|
|
|
|
|
$
|
740,526
|
|
|
$
|
1,027,459
|
|
Oil and gas payable
represents the amount due to the working interest owners in the Company’s
Greene County
,
Mississippi
property for the sale of
oil. The Company records a receivable from the purchaser of the oil
for 100% of the working interest sale of oil and an offsetting amount for the
working interest owners’ share of production to be paid upon receipt of revenue
from the purchaser.
Note
7. Common
Stock
During the three
months ended March 31, 2008, the Company issued 20,000 shares of its common
stock to an individual for legal services which were valued at $12,000 ($0.60
per share), 10,000 shares of its common stock to an individual for consulting
services valued at $6,000 ($0.60 per share), and 130,000 shares of its common
stock upon the exercise of an option for gross proceeds of
$6,500.
Note
8. Subsequent
Events
On April 4, 2008, the
board of directors of the Company authorized a 1 for 5 reverse stock split of
the common stock. The reverse stock split became effective for
trading in the Company’s securities on April 24, 2008. Accordingly,
all references to number of shares (except shares authorized), options, warrants
and to per share information in these financial statements have been adjusted to
reflect the reverse stock split on a retroactive basis.
In April 2008, the
Company issued an option to purchase 800,000 shares of its common stock to its
COO at an exercise price of $0.735 per share. The option vests over
four years and has a life of 7 years. The fair market value of the
option was $383,466 on the date of grant.
In April 2008, the
Company issued an option to purchase 150,000 shares of its common stock to its
VP of Land and Business Development at an exercise price of $0.735 per
share. The option vests over three years and has a life of 7
years. The fair market value of the option was $57,238 on the date of
grant.
Note
9. Restatement
The Company has
restated its consolidated financial statements for the year ended December 31,
2007. Subsequent to the issuance of the 2007 consolidated financial
statements, the Company determined that certain errors were made in the
accounting for derivatives related to the Company’s YA Global financing as
follows:
|
·
|
Change in fair value of derivative
liability was incorrectly classified as a gain on settlement of
derivatives. The amount has been reclassified to Change in fair
value of derivatives.
|
|
·
|
The discount associated with the
YA Global debt paid off in cash during the period should not have been
recorded as a reduction in Additional paid in capital, but as additional
interest expense.
|
|
·
|
The mark to market adjustment for
the derivative liability associated with the Company’s nonemployee stock
options should not have been recorded as a reduction in Additional paid in
capital. Pursuant to paragraph 9 of EITF 00-19, the adjustment
should have been reported in earnings as a Change in fair value of
derivatives
|
Additionally, the
Company has changed the presentation of stock compensation expense to comply
with the provisions of SAB 14 and accordingly, this expense has been included in
Payroll and related costs.
The accompanying
financial statements for the three months ended March 31, 2008 have been
restated to effect the changes described above. The following tables present the
impact of the errors on previously reported amounts for the year ended December
31, 2007 and the three months ended March 31, 2008:
As of December 31,
2007:
|
|
|
As Originally
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in
capital
|
|
|
21,163,395
|
|
|
|
604,257
|
|
|
|
21,646,308
|
|
|
Accumulated
deficit
|
|
|
(14,576,804
|
)
|
|
|
(375,426
|
)
|
|
|
(14,952,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three month
period ended March 31, 2008:
|
|
|
As Originally
Reported
|
|
|
Adjustment
|
|
|
|
Restated
|
|
|
Total
Revenues
|
|
$
|
1,179,135
|
|
|
|
--
|
|
|
|
$
|
1,179,135
|
|
|
Total Operating
expenses
|
|
|
1,403,005
|
|
|
|
--
|
|
|
|
|
1,403,005
|
|
|
Interest expense -
other
|
|
|
(524,244
|
)
|
|
|
22,045
|
|
(a)
|
|
|
(502,199
|
)
|
|
Total other income
(expense)
|
|
|
618,765
|
|
|
|
22,045
|
|
|
|
|
640,810
|
|
|
Net income
|
|
|
394,762
|
|
|
|
22,045
|
|
|
|
|
416,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share –
basis
|
|
|
0.02
|
|
|
|
0.00
|
|
|
|
|
0.2
|
|
|
Net income per share -
diluted
|
|
|
0.02
|
|
|
|
0.00
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in
capital
|
|
|
21,290,632
|
|
|
|
501,290
|
|
|
|
|
21,791,922
|
|
|
Accumulated
deficit
|
|
|
(14,182,037
|
)
|
|
|
(501,361
|
)
|
|
|
|
(14,683,398
|
)
|
(a) To adjust interest expense for
derivative activity originally credited to APIC.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following
discussion and analysis of the Company’s financial condition as of March 31,
2008, and its results of operations for the three months ended March 31, 2008
and 2007, should be read in conjunction with the audited consolidated financial
statements and notes included in Striker’s Form 10-KSB for the year ended
December 31, 2007, filed with the Securities and Exchange
Commission.
Overview
Striker is a natural
resource company engaged in the exploration, acquisition, development,
production and sale of natural gas, crude oil and natural gas liquids from
conventional reservoirs within the
United States
. A majority of the Company’s
operations are in the states of
Louisiana
,
Mississippi
and
Texas
.
Property and
Equipment
Following is a
description of the properties to which the Company is participating as of March
31, 2008, or intends to participate during fiscal 2008.
Abbeville Field – Vermillion Parish,
Louisiana
The Company has a
95.4% and 72.7% working interest, respectively, in two producing oil wells and a
saltwater disposal well with production facilities in the Abbeville Field
located in Vermillion Parish,
Louisiana
. The two wells are currently
producing approximately 16 gross barrels of oil per day.
The Company is the
designated operator of the field and has contracted with a contract operator to
operate the field on its behalf. The Company intends to perform a
full reservoir engineering analysis to determine if there are opportunities to
expand production within the field and will utilize a 3-D seismic survey it
acquired in the 2005 acquisition of an additional working interest to search for
additional exploration and/or development prospects.
North Edna Field – Jefferson Davis
Parish,
Louisiana
The Company has a 40%
before payout working interest (29.6% net revenue interest) and a 35% after
payout working interest in the LeJuene Well No. 1. The well is
currently producing approximately 128gross barrels of oil per
day.
North Sand Hill Field –
Greene County
,
Mississippi
The Company completed
an approximately 6,800 foot well to test the Upper Tuscaloosa formation in
Greene County
,
Mississippi
. The Lee Walley Estate Well
No. 2 was drilled to a total depth of approximately 6,925 feet and encountered
approximately six feet net of oil sands. The well has been completed
and is producing approximately 5 gross barrels of oil per day. In
addition to the producing well, the Company has acquired an “orphan well” from
the State of
Mississippi
which it intends to convert into a
saltwater disposal well. The Company has a 60% working interest and
an approximate 47.55% net revenue interest. An additional proven
undeveloped well location has been identified by the Company’s independent
reservoir engineer in this field which the Company anticipates will be drilled
during fiscal 2008.
South Creole Prospect – Cameron Parish,
Louisiana
On
September 2006, the Company entered into a farmout agreement to participate
in the South Creole prospect located in Cameron Parish,
Louisiana
. The South Creole prospect
was drilled to a depth of approximately 11,300 feet to test the Planulina A
sand. The Company has a 28.33% before payout working interest and an
approximate 20% net revenue interest in the well. Electric logs
indicated approximately 35 feet of pay sand in the Planulina A
sand. Production equipment was installed and the well was tied into a
pipeline and began producing to sales on May 2007. As of the end of
the reporting quarter, the well was producing approximately 3,200 gross Mcf of
gas and 7 gross barrels of condensate per day.
North Cayuga Prospect –
Henderson County
,
Texas
On January 2007, the
Company entered into an agreement to participate in the North Cayuga prospect
located in
Henderson
County
,
Texas
. The Easter Seals Well No.
1-R has been drilled to a depth of approximately 9,000 feet and initially tested
approximately 50 barrels of oil per day from the Rodessa Bacon Lime sand but did
not sustain production and, accordingly, the acreage will be farmed
out.
Catfish Creek Prospect –
Henderson
and
Anderson Counties
,
Texas
In April 2007, the
Company entered into a participation agreement to participate in the Catfish
Creek prospect located in
Henderson
and
Anderson Counties
,
Texas
. The operator of this
prospect recently recompleted the previously drilled Catfish Creek Well No. 1
which flow tested 87 barrels of oil and 266 gross Mcf of gas per
day. Production is from the Rodessa Bacon Lime formation which is
located between 9,651 to 9,658 feet deep. The Catfish Creek prospect
consists of over 8,200 gross acres in which the Company, along with its
partners, has mineral rights to a depth of 10,600 feet, and the option to
participate in wells below 10,600 feet. This option is important as
it will allow the Company to test both the deeper
Cotton
Valley
and Bossier formations which are
present throughout the acreage at depths below 10,600 feet. These
formations are prolific hydrocarbon producers in other fields in the
region. The Company has a 33% before payout and 25% after payout
working interest in each well drilled and an approximate 24.8% before payout and
18.75% after payout net revenue interest in each producing
well.
Welsh Field – Jefferson Davis Parish,
Louisiana
Effective June 2007,
the Company closed on a transaction and acquired a 100% working interest (75%
net revenue interest) in the Welsh Field located in Jefferson Davis Parish,
Louisiana
from two separate
sellers. On June 2007, the Welsh Field had two wells producing
approximately 45 gross barrels of oil per day, two salt water disposal wells and
an additional ten wells which were not producing. Upon closing of the
purchase, the Company immediately began operations to repair one saltwater
disposal well and two shut-in wells which were not producing due to mechanical
problems. All work was successful and resulting production had
increased to approximately 70 gross barrels of oil per day, since then
mechanical issues with one of the salt water disposal wells has caused the
Company to shut in two production wells due to insufficient disposal
capacity. Current gross production is 33 barrels of oil per
day. The Company intends to perform well repairs and/or recomplete
into new formations the remaining seven wells. The purchase price was
$1,300,000 and was funded from funds from the Company’s secured convertible
notes. In addition to the Welsh Field, the Company obtained
additional acreage in the North, Northeast and Northwest Welsh prospects and is
evaluating two proven undeveloped well locations for possible drilling in
2008
Clemens Dome Prospect –
Brazoria County
,
Texas
Effective July 2005,
the Company entered into a letter agreement to obtain an 18.75% before casing
point working interest and a 15% after casing point working interest in a
prospect to drill a Frio formation test well in
Brazoria County
,
Texas
. During March 2006, the
Company increased its working interest to 29.412% before casing point and 25%
after casing point and agreed to pay additional amounts for land and geological
and geophysical costs for its increased working interest. During
September 2007, the Company sold its participating interest in the Clemens Dome
prospect for its original investment of approximately $750,000 with the intent
of using the proceeds for further development of its Catfish Creek
prospect.
West Abbeville Prospect – Vermillion
Parish,
Louisiana
The Company has
identified a new prospect located in West Abbeville in Vermillion Parish,
Louisiana
utilizing its previously purchased 60
square miles of 3-D seismic data it acquired with the Abbeville Field
purchase. The Company’s consulting geophysicist utilized the seismic
data to map and identify this prospect. In addition, the Company has
received satellite technology data over the area to further delineate the
prospect. The Company intends to begin reviewing lease records to
determine the availability of the leasehold acreage in order to prepare to drill
this prospect. There can be no assurance that the Company will be
successful in acquiring rights to drill this prospect.
Critical Accounting
Policies
General
The Unaudited
Consolidated Financial Statements and Notes to Unaudited Consolidated Financial
Statements contain information that is pertinent to this management’s discussion
and analysis. The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America
requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of any contingent assets and liabilities. Management
believes these accounting policies involve judgment due to the sensitivity of
the methods, assumptions and estimates necessary in determining the related
asset and liability amounts. Management believes it has exercised
proper judgment in determining these estimates based on the facts and
circumstances available to its management at the time the estimates were
made. The significant accounting policies are described in more
detail in Note 2 to the Company’s audited consolidated financial statements
included in its Form 10-KSB filed with the SEC.
Oil and Gas
Properties
The Company follows
the full cost method of accounting for its oil and gas
properties. Accordingly, all costs associated with the acquisition,
exploration and development of oil and gas properties, including costs of
undeveloped leasehold, geological and geophysical expenses, dry holes, leasehold
equipment and overhead charges directly related to acquisition, exploration and
development activities are capitalized. Proceeds received from
disposals are credited against accumulated cost except when the sale represents
a significant disposal of reserves, in which case a gain or loss is
recognized. The sum of net capitalized costs and estimated future
development and dismantlement costs for each cost center is depleted on the
equivalent unit-of-production method, based on proved oil and gas reserves as
determined by independent petroleum engineers. Excluded from amounts
subject to depletion are costs associated with unevaluated
properties. Natural gas and crude oil are converted to equivalent
units based upon the relative energy content, which is six thousand cubic feet
of natural gas to one barrel of crude oil. Net capitalized costs are limited to
the lower of unamortized costs net of deferred tax or the cost center
ceiling. The cost center ceiling is defined as the sum of (i)
estimated future net revenues, discounted at 10% per annum, from proved
reserves, based on unescalated year-end prices and costs, adjusted for contract
provisions and financial derivatives, if any, that hedge its oil and gas
reserves; (ii) the cost of properties not being amortized; (iii) the lower of
cost or market value of unproved properties included in the cost center being
amortized and; (iv) income tax effects related to differences between the book
and tax basis of the natural gas and crude oil properties.
Revenue
Recognition
Revenue is recognized
when title to the products transfer to the purchaser. The Company
follows the “sales method” of accounting for its natural gas and crude oil
revenue, so that it recognizes sales revenue on all natural gas or crude oil
sold to its purchasers, regardless of whether the sales are proportionate to its
ownership in the property. A receivable or liability is recognized
only to the extent that it has an imbalance on a specific property greater than
the expected remaining proved reserves.
Accounting For
Stock-Based Compensation
In December 2004, the
Financial Accounting Standards Boards (“FASB”) issued SFAS No. 123 (revised
2004),
Share-Based Payment
(“SFAS
No. 123(R)”)
.
This statement requires the
cost resulting from all share-based payment transactions be recognized in the
financial statements at their fair value on the grant date. SFAS No.
123(R) was adopted by the Company on January 1, 2006. The Company
previously accounted for stock awards under the recognition and measurement
principles of APB No. 25,
Accounting for
Stock Issued to Employees
,
and related interpretations. The Company adopted SFAS No. 123(R)
using the modified prospective application method described in the
statement. Under the modified prospective application method, the
Company applied the standard to new awards and to awards modified, repurchased,
or cancelled after January 1, 2006.
Results of Operations for the Three
Months Ended March 31, 2008 Compared to the Three Months Ended March 31,
2007
Revenue
For the three months
ended March 31, 2008, the Company generated revenue from the sale of oil and
natural gas of $1,179,135, an increase of $856,787 (266%) over the prior year
period amount of $322,348. Revenue from the sale of oil was $862,279 for
the 2008 period compared to $322,348 for the 2007 period. The price
received per barrel was $97.71 for the 2008 period compared to $50.60 for the
2007 period. Oil and gas revenues are as follows:
|
|
2008
|
|
2007
|
|
|
Volume
|
|
$
|
|
Volume
|
|
$
|
|
Oil
(barrels)
|
8,825
|
|
862,279
|
|
6,370
|
|
322,348
|
|
Gas
(mcf)
|
38,032
|
|
316,856
|
|
-
|
|
-
|
|
|
|
|
1,179,135
|
|
|
|
322,348
|
Oil and Gas
Production Costs and Depletion Expense
Oil and gas
production costs are comprised of the cost of operations, maintenance and
repairs and severance taxes of the Company’s interests in its producing oil and
gas properties. Oil and gas production costs were $478,268 for the
three months ended March 31, 2008, compared to $147,880 for the three months
ended March 31, 2007. The Company experienced an increase in lease
operating expenses of $330,388 (excluding severance taxes) over the prior year
period. The increase was attributable to an increase in the number of
producing properties over the prior year period and well repair
expenses. Lease operating expenses per barrel oil equivalent (“BOE”)
increased from $23.21 per BOE for the 2007 period to $31.54 per BOE for the 2008
period. The Company anticipates that lease operating expenses will
continue to increase as a result of the well repair program the Company has
initiated at its recently acquired Welsh Field as it strives to increase
production. Severance taxes increased from $30,852 for the 2007
period to $93,482 for the 2008 period, which increase was a result of increased
production and revenue.
Depletion expense was
$325,703 for the three months ended March 31, 2008, which was an increase
of $140, 770 over the prior year period of $184,933. The Company
follows the full cost method of accounting for its oil and gas
properties. As the oil and gas properties are evaluated, they are
transferred to the full cost pool, either as successful with associated oil and
gas reserves, or as unsuccessful with no oil and gas reserves. For
the three months ended March 31, 2007, the depletion rate per BOE was $29.03 and
for the three months ended March 31, 2008, this rate had declined to $21.47 per
BOE. The decrease in the rate per BOE was attributable to the
addition of reserves for the North Sand Hill, North Edna, South Creole and Welsh
Fields.
Gross Profit
(Loss)
For the three months
ended March 31, 2008, the Company experienced a gross profit from oil and gas
operations of $394,762 compared to a gross loss of $(10,465) for the 2007
period. The Company has experienced a significant increase in revenue
due to the successful completion of the Lejuene Well No.1, the Lee Walley Estate
Well No. 1, the South Creole Field and the acquisition of Welsh
Field. As discussed above, the Company experienced an increase in oil
and gas production costs due to the addition of these producing properties, well
repairs at Abbeville and North Edna Fields and increased severance taxes as a
result of increased revenue.
Operating
Expenses
Operating expenses
for the three months ended March 31, 2008 were $599,167 which was a decrease of
$890,076 when compared to the prior year period of $1,489,243. The
major components of operating expenses are as follows:
|
·
|
Office
administration
–
Office administration expenses are comprised primarily of office rent,
office supplies, postage, telephone and communications and
Internet. Office administration increased from $59,226 for the
2007 period to $68,764 for the 2008 period, an increase of
15%. The increase was due to office administration
expenses increase in telephone and communications and general
liability insurance
expenses.
|
|
·
|
Payroll and
related
– Payroll and
related expenses increased from $155,308 for the 2007 period to $212,106
for the 2008 period, an increase of 37%. Payroll expenses
increased as the Company added technical and administrative personnel to
fully implement its business
plan.
|
|
·
|
Investor
relations
- The
Company continued to invest in its investor relations program during the
period to inform current and potential investors of its projects and
results of operations. For the three months ended March 31,
2008, the Company incurred expenses from its investor relations program of
$92,215 compared to $179,650 for the 2007 period. The Company
intends to continue to incur these costs in the future to keep its
investors apprised of the progress of the
Company.
|
|
·
|
Professional
services
–
Professional services are comprised of accounting and audit fees, legal
fees, engineering fees, directors’ fees and other outside consulting
fees. Professional services increased from $181,763 for the
2007 period to $155,345 for the 2008 period, a decrease of
17%.
|
|
·
|
Drilling rig
contract
– The
Company had an agreement with the operator of the St. Martinville
prospect, the second well drilled with the rig, that the operator would
pay a flat fee of $200,000 to truck the rig to the operator’s well and rig
up in preparation for drilling. The Company was obligated to
pay the excess cost which amounted to $345,414 and was charged to
expense. Additionally, pursuant to its rig sharing agreement
with a third party, the Company reimbursed the third party 50% of the cost
to move the drilling rig from the St. Martinville prospect to the third
party’s location. This resulted in a charge to expense of
$396,998 for the period ending March 31, 2007. The Company has
fulfilled its obligation pursuant to the drilling rig contract and does
not anticipate any charges in the
future.
|
|
·
|
Stock option
expense
– For the three months
ended March 31, 2008, the Company performed a Black-Scholes valuation of
stock options issued to its employees and, noting that no vesting
occurred during the period, recorded no additional expense for the
period. For the three months ended March 31, 2007, the Company
performed a Black-Scholes valuation of the stock options issued to its
CEO, CFO and COO and incurred expense for the fair value of those options
of $459,813.
|
|
·
|
Depreciation
– The Company has recorded
$12,704 of depreciation expense associated with its computer and office
equipment, furniture and fixtures and leasehold improvements for the three
months ended March 31, 2008. The Company is depreciating these
assets using the straight-line method over useful lives from three to
seven years. The Company had depreciation expense of $11,093
during the 2007 period. The difference of $1,611 or 15% is due
to depreciation on prior year asset
additions.
|
|
·
|
Other
operating expenses
–
Other operating expenses are comprised primarily of travel and
entertainment, financing costs, geological and geophysical costs of maps,
logs and log library memberships and licenses and fees. Other
operating expenses increased from $45,392 for the 2007 period to $58,034
for the 2008 period.
|
Other Income
(Expense)
During the three
months ended March 31, 2008, the Company received interest income of $7,106 on
its interest bearing checking accounts, and certificates of
deposits.
During the three
months ended March 31, 2008, the Company incurred interest expense of $502,199
related to its convertible debt. This compares with $7,474 for the
three months ended March 31, 2007. The increase of $494,725, or
6,619%, is due to the interest and related discount amortization of convertible
notes placed in May 2007.
The Company is
required to measure the fair value of the warrants and the embedded conversion
features related to its secured convertible notes on the date of each reporting
period. The effect of this re-measurement is to adjust the carrying
value of the liabilities related to the warrants and the embedded conversion
features. Accordingly, the Company recorded non-cash other income of
$1, 135,903 during the three months ended March 31, 2008, related to the change
in the fair market value of the warrants and embedded derivative
liabilities. The Company did not have any derivative liabilities
during the 2007 period.
Net Income (Loss)
The Company recorded
net income for the three months ended March 31, 2008, of $416,807, or $0.02 per
share (basic and diluted), and a net loss of $1,503,884 or $0.02 per share
(basic and diluted), for the three months ended March 31,
2007.
Liquidity and Capital
Resources
As of March 31, 2008,
the Company has a working capital balance of $202,391 (excluding the derivative
liability of $1,351,513) and cash balances in non-restrictive accounts of
$640,216. The Company is required to obtain additional funding to fully
implement its development drilling program at its Catfish Creek and North Cayuga
prospects and development of its Welsh Field acquisition and to continue to seek
new acquisitions and drilling opportunities. The funding the Company
will be seeking will be either through debt and/or equity financings and there
can be no assurance that the Company will be successful in raising such
financing. The failure to raise such financing would require the
Company to scale back its current operations and possibly forego future
opportunities.
Net cash generated by
operating activities for the three months ended March 31, 2008, was
$760,323. The Company recorded net income of $416,807 which was
partially reduced by non-cash charges totaling $475,010.
The Company’s ability
to continue as a going concern will depend on management’s ability to
successfully obtain additional forms of debt and/or equity financing to execute
its drilling and exploration program. The Company is required in the
future to obtain additional funding to fully develop its current and future
projects for which it intends to participate and there can be no assurance that
the Company will be able to obtain funding on terms acceptable to it, or at
all.
The Company believes it can obtain
additional funding to execute its drilling and exploration program, but it
cannot give any assurances that it will be successful in obtaining additional
funding on terms acceptable to it, if at all. These financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
Recent Accounting
Pronouncements
In February 2007, the
FASB issued FASB Statement No. 159,
Establishing the
Fair Value Option for Financial Assets and Liabilities
("SFAS 159"), to permit all
entities to choose to elect to measure eligible financial instruments at fair
value. SFAS 159 applies to fiscal years beginning after November 15,
2007, with early adoption permitted for an entity that has also elected to apply
the provisions of SFAS 157,
Fair Value
Measurements
. An entity is
prohibited from retrospectively applying SFAS 159, unless it chooses early
adoption. Management is currently evaluating the impact of SFAS 159
on the consolidated financial statements. In March 2008, the Financial
Accounting Standards Board issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities” (“SFAS 161”), and an amendment of
FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS 133”). SFAS 161 requires entities to provide qualitative
disclosures about the objectives and strategies for using derivatives,
quantitative data about the fair value of and gains and losses on derivative
contracts, and details of credit-risk-related contingent features in their
hedged positions. The standard is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged but not required. SFAS 161 also requires entities
to disclose more information about the location and amounts of derivative
instruments in financial statements, how derivatives and related hedges are
accounted for under SFAS 133, and how the hedges affect the entity’s financial
position, financial performance, and cash flows. The Company is currently
evaluating whether the adoption of SFAS 161 will have an impact on its financial
position or results of operations.
In December 2007, the
FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS
141(R) replaces SFAS 141, “Business Combinations”; however it retains the
fundamental requirements that the acquisition method of accounting be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141(R) requires an acquirer to recognize the assets acquired,
liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, be measured at their fair values as of that date, with
specified limited exceptions. Changes subsequent to that date are to be
recognized in earnings, not goodwill. Additionally, SFAS 141 (R) requires
costs incurred in connection with an acquisition be expensed as incurred.
Restructuring costs, if any, are to be recognized separately from the
acquisition. The acquirer in a business combination achieved in stages must also
recognize the identifiable assets and liabilities, as well as the noncontrolling
interests in the acquiree, at the full amounts of their fair values. SFAS 141(R)
is effective for business combinations occurring in fiscal years beginning on or
after December 15, 2008. The Company will apply the requirements of SFAS
141(R) upon its adoption on January 1, 2009 and is currently evaluating
whether SFAS 141(R) will have an impact on its financial position and results of
operations.
In February 2007, the
FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS 159”). SFAS 159 permits companies to elect to
measure many financial instruments and certain other items at fair value. Upon
adoption of SFAS 159, a company may elect the fair value option for eligible
items that exist at the adoption date. Subsequent to the initial adoption, the
election of the fair value option should only be made at initial recognition of
the asset or liability or upon a remeasurement event that gives rise to
new-basis accounting. The decision about whether to elect the fair value option
is applied on an instrument-by-instrument basis is irrevocable and is applied
only to an entire instrument and not only to specified risks, cash flows or
portions of that instrument. SFAS No. 159 does not affect any existing
accounting standards that require certain assets and liabilities to be carried
at fair value nor does it eliminate disclosure requirements included in other
accounting standards. Baseline adopted SFAS No. 159 effective
January 1, 2008 and did not elect the fair value option for any existing
eligible items.
In September 2006,
the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS No. 157
does not impose fair value measurements on items not already accounted for at
fair value; rather it applies, with certain exceptions, to other accounting
pronouncements that either require or permit fair value measurements. Under SFAS
No. 157, fair value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants in the principal or most advantageous market. The standard
clarifies that fair value should be based on the assumptions market participants
would use when pricing the asset or liability. In February 2008, the FASB issued
FASB Staff Position No. 157-2, Effective Date of FASB Statement
No. 157 (“FSP FAS 157-2”), which delays the effective date of SFAS 157 for
all non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis, until
fiscal years beginning after November 15, 2008. These non-financial items
include assets and liabilities such as non-financial assets and liabilities
assumed in a business combination, reporting units measured at fair value in a
goodwill impairment test and asset retirement obligations initially measured at
fair value. Effective January 1, 2008, the Company adopted SFAS 157 for
fair value measurements not delayed by FSP FAS No. 157-2. The adoption
resulted in additional disclosures as required by the pronouncement (See Note 5
– Notes Payable) related to our fair value measurements for oil and gas
derivatives and marketable securities but no change in our fair value
calculation methodologies. Accordingly, the adoption had no impact on our
financial condition or results of operations.
Off-Balance Sheet
Arrangements
The Company does not
have any off-balance sheet arrangements.
ITEM
3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls
and procedures
The Company's management evaluated, with
the participation of its Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), the effectiveness of the design/operation of its disclosure
controls and procedures (as defined in Rules 13a-15(c) and 15d-15(c) under the
Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31,
2008.
Disclosure controls and procedures refer
to controls and other procedures designed to ensure that information required to
be disclosed in the reports we file or submit under the Exchange Act, is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC and that such information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating and implementing possible controls and
procedures.
Management conducted its evaluation of
disclosure controls and procedures under the supervision of our principal
executive officer and our principal financial officer. Based on that evaluation,
management concluded that our financial disclosure controls and procedures were
not effective related to the preparation of the Form 10-QSB/A filing as of March
31, 2008
In June 2008, the Company determined
that certain errors were made in the accounting for derivatives related to its
YA Global financing as follows:
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·
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The payment of principal due under
the YA Global financing during the fourth quarter of 2007 resulted in a
change in the fair value of associated derivative. The change
should not have been presented as a Gain on settlement of derivatives but
included in the Change in fair value of derivatives
caption.
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·
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The discount associated with the
YA Global debt paid off in cash during the period should not have been
recorded as a reduction in Additional paid in capital, but as additional
interest expense.
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·
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The mark to market adjustment for
the derivative liability associated with the Company’s nonemployee stock
options should not have been recorded as a reduction in Additional paid in
capital. Pursuant to paragraph 9 of EITF 00-19, the adjustment
should have been reported in earnings as a Change in fair value of
derivatives
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These errors required the Company to
restate its consolidated financial statements for the year ended December 31,
2007 included in its 2007 Annual Report on Form 10-KSB and its condensed
consolidated financial statements for the three months ended March 31, 2008. The
decision to restate the consolidated financial statements was made by the
Company’s Audit Committee. The disclosure of the restatement and its
impact on the originally reported amounts is disclosed in Note 9 of the
Consolidated Financial Statements found in Part I, Item 1 of Form
10-QSB/A.
As a result of the errors noted above,
the Company identified a material weakness in internal control related to the
accounting for derivative instruments. The Company has engaged
outside accounting experts to advise it regarding the accounting for derivative
instruments to ensure accounting entries are properly recorded. The Company
believes this change to our system of disclosure and procedure controls will be
adequate to provide reasonable assurance that the information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and
reported correctly.
(b) Changes in internal control over
financial reporting
There have been no changes in internal
control over financial reporting during the three months ended March 31, 2008,
that has materially affected or is reasonably likely to materially affect the
Company’s internal control over financial reporting. As noted in 3(a)
above, we noted a material weakness in our financial disclosure controls at
March 31, 2008. We are in the process of updating our remediation process as
noted in Item 3(a).
PART
II OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
Michael, Annette,
Christopher, and Travis Tripkovich v. Affiliated Holdings, Inc.,
No. 72217-F, 16th Judicial District
Court, St. Martin Parish,
Louisiana
was filed July 6, 2007, and served on
Affiliated Holdings, Inc. on July 26, 2007. The Petition alleges that
Michael Tripkovich was employed as a natural gas compression technician land
supervisor with American Warrior, when he was diagnosed with chronic myelogenous
leukemia in January of 2006. Prior to his employment with American
Warrior, Mr. Tripkovich was employed by Hanover Corporation, Energy Industries,
Fusion Plus, Inc., PMSI, Inc., and Southern Maintenance, Inc., and others for
approximately nineteen (19) years. At all of these places of
employment, his job duties included maintaining natural gas compressors at
onshore and offshore oil and gas production and collection facilities located
throughout Louisiana, Texas, Mississippi and Alabama. According to
the Petition, almost all of the sites inspected by Mr. Tripkovich housed glycol
units, which separated water from oil and which dried natural
gas.
The plaintiff
contends that during the course of his employment as a natural gas compression
technician land supervisor, he was exposed to radon, radon-emitting matter,
benzene and benzene-containing substances, including but not limited to, glycol,
condensate, toluene, xylene, natural gas, and crude
oil. Specifically, he contends that he worked at and/or near natural
gas production sites and glycol units, which emitted radon, radon-emitting
matter, and benzene and benzene-containing substances. Further, he
alleges that he became overwhelmed by radon and/or benzene fumes and was forced
to inhale toxic fumes emitted from the glycol units on a daily
basis. In fact, the plaintiff provides an extensive list of the
glycol units on which he worked, including serial number and location, one of
which he contends was owned by Affiliated Holdings, Inc. in
Abbeville
,
Louisiana
.
Mr. Tripkovich, his
wife, and children are suing for past, present, and future medical bills; past,
present and future physical pain and suffering; mental anguish and distress;
past, present, and future lost wages and loss of earning capacity; loss of
enjoyment of life; possibility and fear of death; loss of consortium and
punitive damages.
At the present time,
the Company is filing a formal motion for extension of time to file responsive
pleadings. The Company anticipates responding to the Petition by
filing Exceptions on a number of bases, including the dilatory exception
vagueness and ambiguity of the Petition, the peremptory exception of
prescription, and the peremptory exception of no cause of action on the issue of
punitive damages (or one that will seek to limit the time frame during which
punitive damages were available), among others. Additionally, the
Company will file a Motion for Summary Judgment on the basis that the
plaintiff’s sole remedy against Affiliated Holdings, Inc. is worker’s
compensation, if the appropriate facts are elicited during the Company’s
investigation of this matter. The Company was one of 113 companies
identified in the suit.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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Recent Sales of Unregistered
Securities
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There were no sales of unregistered
securities during the quarter ended March 31, 2008.
ITEM
3. EXHIBITS
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Exhibit No.
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Description
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3.1
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Articles of Incorporation of
Registrant, filed as an exhibit to the registration statement on Form S-2,
filed with the Securities and Exchange Commission on October 13, 1981 and
incorporated herein by reference.
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3.2
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Certificate of Amendment to
Articles of Incorporation of Registrant, filed as an exhibit to the annual
report on Form 10-KSB, filed with the Securities and Exchange Commission
on March 6, 1998 and incorporated herein by
reference.
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3.3
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Bylaws, as amended, filed as an
exhibit to the annual report on Form 10-KSB, filed with the Securities and
Exchange Commission on March 6, 1998 and incorporated herein by
reference.
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4.1
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Securities Purchase Agreement,
dated May 17, 2007, by and between Unicorp, Inc. and Cornell Capital
Partners L.P., filed as an exhibit to the Current Report on Form 8-K,
filed with the Commission on May 21, 2007 and incorporated herein by
reference.
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4.2
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Secured Convertible Debenture
issued to Cornell Capital Partners L.P., dated May 17, 2007, filed as an
exhibit to the Current Report on Form 8-K, filed with the Commission on
May 21, 2007 and incorporated herein by
reference.
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4.3
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Registration Rights Agreement,
dated May 17, 2007, by and between Unicorp, Inc. and Cornell Capital
Partners L.P., filed as an exhibit to the Current Report on Form 8-K,
filed with the Commission on May 21, 2007 and incorporated herein by
reference.
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4.4
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Form of Warrant, dated May 17,
2007, issued by Unicorp, Inc. to Cornell Capital Partners L.P., filed as
an exhibit to the Current Report on Form 8-K, filed with the Commission on
May 21, 2007 and incorporated herein by
reference.
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4.5
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Security Agreement, dated May 17,
2007, by and between Unicorp, Inc. and Cornell Capital Partners L.P.,
filed as an exhibit to the Current Report on Form 8-K, filed with the
Commission on May 21, 2007 and incorporated herein by
reference.
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10.1
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Agreement and Plan of
Reorganization dated December 15, 1997 by and between Unicorp, Inc., The
Laissez-Faire Group, Inc., and L. Mychal Jefferson II with respect to the
exchange of all of the shares owned by L. Mychal Jefferson II in The
Laissez-Faire Group, Inc. for an amount of shares of Unicorp, Inc. equal
to 94 percent of the issued and outstanding shares of its capital stock,
filed as an exhibit to the current report on Form 8-K, filed with the
Securities and Exchange Commission on February 18, 1998 and incorporated
herein by reference.
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10.2
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Agreement of Purchase and Sale of
Assets effective as of January 1, 1998 by and between Unicorp, Inc. and
Equitable Assets Incorporated with respect to purchase of 58,285.71 tons
of Zeolite, filed as an exhibit to the current report on Form 8-K, filed
with the Securities and Exchange Commission on April 9, 1998 and
incorporated herein by reference.
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10.3
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Option to Acquire the Outstanding
Stock of Whitsitt Oil Company, Inc. effective as of January 1, 1998 by and
between Unicorp, Inc. and AZ Capital, Inc., filed as an exhibit to the
current report on Form 8-K, filed with the Securities and Exchange
Commission on April 9, 1998 and incorporated herein by
reference.
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10.4
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Agreement and Plan of
Reorganization dated March 1, 1999 by and between Unicorp, Inc., The Auto
Axzpt.com Group, Inc. and R. Noel Rodriguez with respect to the exchange
of all of ‘the shares owned by the shareholders in The Auto Axzpt.com,
Inc. for shares of Unicorp, Inc., filed as an exhibit to the current
report on Form 8-K, filed with the Securities and Exchange Commission on
April 7, 1999 and incorporated herein by
reference.
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10.5
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Agreement dated as of March 23,
2001, between Unicorp, Inc., Equitable Assets, Incorporated, Texas Nevada
Oil & Gas Co. and Opportunity Acquisition Company, filed as an exhibit
to the quarterly report on Form 10-QSB, filed with the Securities and
Exchange Commission on April 16, 2002 and incorporated herein by
reference.
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10.6
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July 31, 2001 First Amendment of
Agreement dated March 23, 2001, between Unicorp, Inc., Equitable Assets,
Incorporated, Texas Nevada Oil & Gas Co. and Houston American Energy
Corp., filed as an exhibit to the quarterly report on Form 10-QSB, filed
with the Securities and Exchange Commission on April 16, 2002 and
incorporated herein by reference.
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10.7
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Exchange Agreement dated July 29,
2004, between Unicorp, Inc. and Affiliated Holdings, Inc., filed as an
exhibit to the quarterly report on Form 10-QSB, filed with the Securities
and Exchange Commission on August 5, 2004 and incorporated herein by
reference.
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10.8
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2004 Stock Option Plan, filed as
an exhibit to the definitive information statement on Schedule 14C, filed
with the Securities and Exchange Commission on September 1, 2004 and
incorporated herein by reference.
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10.9
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Employment Agreement with Kevan
Casey, filed as an exhibit to the current report on Form 8-K, filed with
the Securities and Exchange Commission on January 26, 2007 and
incorporated herein by reference.
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10.10
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Employment Agreement with Carl A.
Chase, filed as an exhibit to the current report on Form 8-K, filed with
the Securities and Exchange Commission on January 26, 2007 and
incorporated herein by reference.
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10.11
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Standby Equity Agreement dated as
of February 3, 2006, by and between Unicorp, Inc. and Cornell Capital
Partners, L.P., filed as an exhibit to the registration statement on Form
SB-2, filed with the Securities and Exchange Commission on November 16,
2005 and incorporated herein by reference.
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10.12
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Registration Rights Agreement
dated as of February 3, 2006, by and between Unicorp, Inc. and Cornell
Capital Partners, LP, filed as an exhibit to the registration statement on
Form SB-2, filed with the Securities and Exchange Commission on November
16, 2005 and incorporated herein by reference.
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10.13
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Assignment and Bill of Sale
effective June 1, 2005 between Affiliated Holdings, Inc. and Jordan Oil
Company, Inc., filed as an exhibit to the registration statement on Form
SB-2, filed with the Securities and Exchange Commission on November 16,
2005 and incorporated herein by reference.
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10.14
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Assignment and Bill of Sale
effective August 1, 2005 between Affiliated Holdings, Inc. and Walter
Johnson, filed as an exhibit to the registration statement on Form SB-2,
filed with the Securities and Exchange Commission on November 16, 2005 and
incorporated herein by reference.
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10.15
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Participation Letter Agreement
dated June 2, 2005 between Affiliated Holdings, Inc. and Jordan Oil
Company, Inc., filed as an exhibit to the registration statement on Form
SB-2, filed with the Securities and Exchange Commission on November 16,
2005 and incorporated herein by reference.
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10.16
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Participation Letter Agreement
dated July 21, 2005 between Affiliated Holdings, Inc. and Jordan Oil
Company, Inc., filed as an exhibit to the registration statement on Form
SB-2, filed with the Securities and Exchange Commission on November 16,
2005 and incorporated herein by reference.
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10.17
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Farmout Agreement dated April 12,
2005 between Affiliated Holdings, Inc. and La Mesa Partners, L.C, filed as
an exhibit to the registration statement on Form SB-2, filed with the
Securities and Exchange Commission on November 16, 2005 and incorporated
herein by reference.
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14.1
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Code of Ethics, filed as an
exhibit to the annual report on Form 10-KSB, filed with the Securities and
Exchange Commission on April 15, 2005 and incorporated herein by
reference.
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21.1
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List of subsidiaries, filed as an
exhibit to the quarterly report on Form 10-QSB, filed with the Securities
and Exchange Commission on November 22, 2004 and incorporated herein by
reference.
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31.1
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Certification of Kevan
Casey
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31.2
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Certification of Steven M.
Plumb
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32.1
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Certification for Sarbanes-Oxley
Act of Kevan Casey
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32.2
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Certification for Sarbanes-Oxley
Act of Steven Plumb
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* Indicates management contract or
compensatory plan or arrangement.
SIGNATURES
In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
Signature Title
Date
/S/ Kevan
Casey Chief
Executive
Officer September
29, 2008
Kevan
Casey and
Director
/S/ Steven M.
Plumb Principal
Financial
and September
29, 2008
Steven M.
Plumb Accounting
Officer and Director
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