UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2011March 31, 2012
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 333-138806
MOGUL ENERGY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 98-0461623 | |
| State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
| 2500 Wilcrest Drive, Suite 405, Houston, Texas | 77042 | |
| (Address of principal executive offices) | (Zip Code) | |
| Registrant’s telephone number, including area code: | (713) 784-2446 |
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesAct. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§Sec.229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting Company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ | Accelerated filer o |
Non-accelerated filer £ | Smaller reporting company x |
| (Do not check if a smaller reporting Company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.As of October 30, 2011,May 11, 2012, there were 57,505,98711,513,203 common shares outstanding.
Page 2 of 39
Mogul Energy International, Inc.
DECEMBER 31, 2011
| PART I | Page | |
| Item 1 | ||
| Item 1A | 8 | |
| Item 1B | 18 | |
| Item 2 | 18 | |
| Item 3 | 19 | |
| Item 4 | 19 | |
| PART II | ||
| Item 5 | ||
| Item 6 | 21 | |
| Item 7 | 21 | |
| Item 8 | 26 | |
| Item 9A | 36 | |
| PART IV | ||
| Item 15 | 37 |
GLOSSARY OF SELECTED OIL AND GAS TERMS
All defined terms under Rule 4-10(a) of Regulation S-X shall have their statutorily prescribed meanings when used in this report. As used in this document:
After payout – With respect to an oil or natural gas interest in a property, refers to the time period after which the costs to drill and equip a well have been recovered.
BOE. Means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of 6.0 Mcf of gas to 1.0 Bbl of oil or natural gas liquid.
Bbl. One barrel, or 42 U.S. gallons of liquid volume.
Before payout – With respect to an oil and natural gas interest in a property, refers to the time period before which the costs to drill and equip a well have been recovered.
Completion. The installation of permanent equipment for the production of oil or gas.
Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.
Dry hole. A well found to be incapable of producing hydrocarbons in sufficient quantities to justify completion as an oil or gas well.
Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.
Gross acres or wells. Refers to the total acres or wells in which the Company has a working interest.
Horizontal drilling. A drilling technique that permits the operator to contact and intersect a larger portion of the producing horizon than conventional vertical drilling techniques and may, depending on the horizon, result in increased production rates and greater ultimate recoveries of hydrocarbons.
MBbls. One thousand barrels.
MBOE. One thousand BOEs.
Mcf. One thousand cubic feet.
MMcf. One million cubic feet.
NGLs. Natural gas liquids.
Net acres or wells. Refers to gross the sum of fractional ownership working interest in gross acres or wells.
Oil. Crude oil or condensate.
Operator. The individual or company responsible for the exploration, development and production of an oil or gas well or lease.
Present value of proved reserves (“PV-10”). The present value of estimated future revenues, discounted at 10% annually, to be generated from the production of proved reserves determined in accordance with Securities and Exchange Commission guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation, without giving effect to (i) estimated future abandonment costs, net of the estimated salvage value of related equipment, (ii) non-property related expenses such as general and administrative expenses, debt service and future income tax expense, or (iii) depreciation, depletion and amortization.
Blowout: An uncontrolled flow of formation fluids at the surface. This will occur when the formation pressures exceed the pressure exerted by the column of drilling fluid and a failure of the safety systems in the borehole and at the surface.
Surface Cratering: The physical result of a blowout in and around the borehole, either by the explosive effect of the hydrocarbons or the liquefaction of the near surface sediments causing the sediments and/or rig to sink into the ground.
Embedded Oilfield Drilling and Service Tools: The result of subsurface oilfield tools (drillpipe, casing, logging sondes, etc.) becoming lodged or stuck in the borehole and unable to be moved or removed from the borehole.
Carried Interest: A fractional interest in an oil and gas property conveyed or assigned to another party by the other working interest owners. It is exempt from all costs of development and operation of the property, generally up to a specific point in the well (e.g. “to casing point”, “to well completion” or to payout of the well costs).
Cased Hole (CH) Logs: Wireline-run sondes run in the borehole after casing has been set and cemented. These tools are used as post-drilling evaluation of wellbore integrity, monitoring of formation fluid contacts and to assist in reservoir management.
Open Hole (OH) Logs: Wireline-run sodes run in the borehole before casing is set and cemented. These tools are used to evaluate the subsurface formations for hydrocarbon–bearing intervals, and to provide formation parameters (porosity, fluid saturations, etc.) to assist in production activities.
Productive Zones: Intervals in the subsurface that contain hydrocarbons which can be produced at a rate which is deemed commercial.
Successful Completion: The initiation of production activities following the; 1) evaluation of the formation of interest, 2) preparation of the borehole for production, 3) running of the required production equipment into the borehole, and 4) installation of the surface production facilities.
Proportionate Cost: That percentage of the total cost of a well, generally up to a specific point in the well (e.g. “to casing point”, “to well completion”), which one interest owner is not responsible for, based on the contractual agreement of all the interest owners.
Prospective: Subsurface formations have unique parameters (porosity, thickness, hydrocarbon saturation, areal extent, etc.) which delineate it from other subsurface formations. Such formations would be under consideration for possible hydrocarbon production.
Oil and Gas Shows: Surface and/or subsurface indications of potential hydrocarbon-bearing intervals.
PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events and/or our future financial performance. Generally, you can identify forward-looking statements by terminology such as “intends,” "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", or "potential" or the negative of these terms or other comparable terminology. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. These statements reflect only our current expectations and involve known and unknown risks, uncertainties and other factors, many of which are unforeseen, including the risks in Item 1A entitled "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. Except as required by applicable law, including, but not limited to, the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
In this Annual Report, unless otherwise specified, all references to "common shares" refer to common shares in the capital of Mogul Energy International, Inc., and the terms “Company,” Registrant,” "we" "us" and "our" mean Mogul Energy International, Inc.
ITEM 1. |
September 30, 2011 (Unaudited) | December 31, 2010 | |||||||
| Assets: | ||||||||
| Current | ||||||||
| Cash | $ | 69,333 | $ | 65,085 | ||||
| Investments held for sale | 11,765 | 102,052 | ||||||
| Prepaid and deposits | 74,666 | 100,477 | ||||||
| Other receivables | 192,009 | 72,611 | ||||||
| Restricted funds | 430,929 | - | ||||||
| Total current assets | 778,703 | 340,225 | ||||||
| Non-current | ||||||||
| Oil and gas properties | 93,533 | 36,342 | ||||||
| Other property and equipment – net | 15,477 | - | ||||||
| Total Assets | $ | 887,713 | $ | 376,567 | ||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 150,613 | $ | 31,537 | ||||
| Accrued expenses and other payables | 45,870 | 38,106 | ||||||
| Drilling advances | 457,321 | - | ||||||
| Due to related parties | 818,281 | - | ||||||
| Total current liabilities | 1,472,085 | 69,643 | ||||||
| Contingencies and commitments | 115,280 | 300,000 | ||||||
| Total Liabilities | 1,587,365 | 369,643 | ||||||
| Shareholders’ Equity: | ||||||||
| Accumulated deficit | $ | (8,411,640 | ) | $ | (7,656,718 | ) | ||
Common stock (Authorized: 100,000,000 shares, $0.0001 par value. Outstanding: 57,505,987 shares at 09/30/11 and 57,445,987 at 12/31/10) | 5,804 | 5,744 | ||||||
| Additional paid-in capital | 7,639,981 | 7,638,241 | ||||||
| Warrants & Options: | 114,000 | 144,000 | ||||||
| Preferred: 10,000,000 shares authorized, none issued | - | - | ||||||
| Foreign exchange adjustment | (39,242 | ) | (151,187 | ) | ||||
| Other comprehensive income (loss) | (8,552 | ) | 56,844 | |||||
| Total Shareholders’ Equity | (699,652 | ) | 6,924 | |||||
| Total Shareholders’ Equity and Liabilities | 887,713 | $ | 376,567 | |||||
Three Months Ended September 30, 2011 | Three Months Ended September 30, 2010 | Nine Months Ended September 30, 2011 | Nine Months Ended September 30, 2010 | |||||||||||||
| Revenue: | ||||||||||||||||
| Oil and gas sales | 3,220 | - | 10,918 | - | ||||||||||||
| Management fees | 3,668 | - | 8,885 | - | ||||||||||||
| Total revenue | 6,887 | 19,802 | - | |||||||||||||
| Expenses: | ||||||||||||||||
| Lease operating expense | 150 | - | 194 | - | ||||||||||||
| Production tax | 148 | - | 503 | - | ||||||||||||
| Depreciation, depletion and amortization | 4,089 | - | 8,405 | - | ||||||||||||
| General and administrative | 127,389 | 574,920 | 334,782 | 816,745 | ||||||||||||
| Salaries and wages | 129,901 | 29,296 | 366,002 | 222,544 | ||||||||||||
| Stock based compensation | 1,800 | - | 1,800 | - | ||||||||||||
| Taxes, other | - | - | 83,357 | - | ||||||||||||
| Total expenses | (263,477 | ) | (599,216 | ) | (795,043 | ) | (1,039,299 | ) | ||||||||
| Other income and expenses | ||||||||||||||||
| Gain on sale of oil and gas properties | - | - | - | 575,000 | ||||||||||||
| Gain on sale of investment held for sale | - | - | 20,319 | 310,931 | ||||||||||||
| Net income (loss) for the periods | $ | (256,590 | ) | $ | (599,216 | ) | $ | (754,922 | ) | $ | (153,368 | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Net unrealized gain (loss) on investments held for sale for periods | $ | (7,585 | ) | $ | 349,238 | $ | (65,400 | ) | $ | 85,026 | ||||||
| Foreign exchange adjustment | 43,537 | 15,771 | 111,945 | (16,749 | ) | |||||||||||
| Total other comprehensive gain (loss) for the periods | $ | 35,952 | $ | 365,009 | $ | 46,545 | $ | 68,277 | ||||||||
| Total comprehensive net gain (loss) for the periods | $ | (220,638 | ) | $ | 158,667 | $ | (708,377 | ) | $ | (85,091 | ) | |||||
| Basic earnings (loss) per share | $ | (0.00 | ) | $ | 0.00 | $ | (0.01 | ) | $ | (0.00 | ) | |||||
| Weighted average common shares outstanding | 57,460,987 | 57,445,987 | 57,460,987 | 57,445,987 | ||||||||||||
Nine Months Ended September 30, 2011 | Nine Months Ended September 30, 2010 | |||||||
| Operating Activities | ||||||||
| Net income (loss) for periods | $ | (754,922 | ) | $ | (153,368 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation, depletion, amortization | 8,405 | - | ||||||
| Gain on disposition of exploration Property | - | (575,000 | ) | |||||
| Gain on investment held for sale | (20,319 | ) | (310,931 | ) | ||||
| Stock based compensation | 1,800 | |||||||
| Changes in non-cash working capital | ||||||||
| Accounts payables (decrease) increase | 119,076 | (179,767 | ) | |||||
| Accrued expenses and other payables | 7,764 | - | ||||||
| Drilling advances | 457321 | - | ||||||
| Other receivables (decrease) increase | (119,398 | ) | (4,150 | ) | ||||
| Prepaid and deposits | 25,811 | (37,054 | ) | |||||
| Restricted cash | (430,929 | ) | - | |||||
| Contingency decrease | (184,720 | ) | 303,457 | |||||
| Cash used in operating activities | $ | (890,112 | ) | $ | (955,677 | ) | ||
| Investing Activities | ||||||||
| Purchases of other property and equipment | (23,881 | ) | - | |||||
| Proceeds - sale of investments held for sale | 45,206 | 448,804 | ||||||
| Proceeds from the disposition of exploration property | - | 1,000,000 | ||||||
| Oil and gas properties | (57,191 | ) | 5,389 | |||||
| Cash used for investing activities | $ | (35,866 | ) | $ | (1,454,191 | ) | ||
| Financing Activities | ||||||||
| Due to related parties | 818,281 | (145,320 | ) | |||||
| Bank indebtedness | - | (43,143 | ) | |||||
| Cash from financing activities | $ | 818,281 | $ | (188,463 | ) | |||
| Foreign exchange adjustment | 111,945 | (16,740 | ) | |||||
| Increase (decrease) in cash during periods | 4,248 | 310,052 | ||||||
| Cash beginning of periods | 65,085 | 7,481 | ||||||
| Cash at end of periods | $ | 69,333 | $ | 299,648 | ||||
| Interest paid during period | - | 32,972 | ||||||
| Taxes paid during period | - | - | ||||||
| Schedule of Non-cash Transactions | ||||||||
| Expiration of shareholder warrants | - | 132,738 | ||||||
The NotesCompany
We are a Delaware corporation formed on July 25, 2005. Our principal place of business is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas. We also maintain offices in Vancouver, British Columbia and Toronto, Ontario, Canada.
We are an integralindependent oil and gas exploration Company established to take advantage of low cost acquisition opportunities near other producing and proven oil fields. Since our formation, we have engaged in activities related to financing of our operations, the acquisition of our property rights and the drilling of both development and exploratory wells. The address of our website is www.mogulenergy.com. Information on our website is not part of the Financial Statements
Description of Texas. The Company’sBusiness
Our business strategy is focused on building a portfolio of prospectiveto acquire interest in, and/or to operate oil and gas properties that are close in proximity to areas containing knownhave existing or the high potential of oil and or natural gas reserves. Existing well bores with proven oil and gas reserves. By securing industry partnersreserves can usually be purchased for a fraction of the original cost to drill and complete a new well. Property purchased with proven reserves reduce the risk of not finding hydrocarbons and are economically viable to develop due to the elimination of the associated cost of finding the hydrocarbons. After the property has been purchased, the primary cost for establishing new production is the re-completion cost.
We currently use third-party providers to engage in most if not all of any oil and gas producing activities in which we may engage if our properties reveal the potential for such activity in the future.
Core Properties
Texas, United States
Stafford Prospect, Jackson County, Texas
On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect). The agreement provided for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect. As operator, we participated in the drilling of the initial well with an 8.89% working interest and acquired a 6.11% promoted interest resulting in our having a 15.00% net working interest upon the successful completion of the initial well drilled on the property. Each participant would also pay the same percentage costs for the next well as was paid on the first well.
North Pasture Prospect – San Patricio County, Texas
On December 8, 2010 we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Assoc., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas. Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.
Mud Flats – Aransas County, Texas
On December 22, 2011 we commenced drilling operations of our third well, Werland Heirs #1 in the Mud Flats Field, Aransas County Texas in which we have a 25% carried interest.
See also “ITEM 8B. OTHER INFORMATION” below.
We presently continue to seek out property acquisitions in the United States and to dispose of property interests in which we no longer have any exploratory or development interest.
Employees
As of March 31, 2012, we had 4 full time employees. We hire part-time employees and/or independent consultants as required. We will continue to rely on independent contractors as needed. If we are successful in any future drilling programs, we may retain additional employees or consultants or convert existing consultants into full time employees as may be required.
ITEM 1A. |
You should carefully consider the risks described below, and the other information contained in this Annual Report, before purchasing shares of our common stock. Some of the risks and uncertainties we face are described below; however, the risks and uncertainties described below are not the only risks and uncertainties we face, and risks and uncertainties not listed herein may materially adversely affect our business. If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the price of our common stock could decline, and you may lose all or part of your investment therein. You should acquire shares of our common stock only if you can afford to lose your entire investment.
Risks Associated With Our Business
We have incurred losses in recent periods for start-up efforts and may incur losses in the future.
We were organized on July 25, 2005; since inception we have a history of operating losses, and a $8,952,616 accumulated deficit through March 31, 2012. We expect to incur substantial operating losses for the foreseeable future, as well.
We may not be able to continue without additional capital to fund our operations.
Our consolidated financial statements have been prepared on a promotedgoing concern basis, where practical,which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a history of operating losses that are likely to continue in the future.
If we are unable to become profitable and cannot generate cash flow from our operating activities, we may be required to raise additional capital or debt to fund our operations. Such financing may be unavailable when needed or may not be available on acceptable terms. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our current stockholders will be reduced, and these securities may have rights superior to those of our common stock.
We have a limited operating history which makes your evaluation of our business difficult.
We are in the exploration and development stage of our business. We have engaged in preliminary exploratory activities, review of data pertaining to our properties, the establishment of initial exploration plans, and the drilling of five (5) wells. Our preliminary exploratory activities have, to date, resulted in one “dry-hole” drilled on the Fairlight Prospect, and two dry holes in our Freehold properties and one non-commercial hole drilled on the EWA Concession, Egypt. We have discontinued our efforts in Saskatchewan, Canada and Egypt. Our current focus has been on the Upper Gulf Coast of Texas and initial activities have met with the successful drilling and preliminary testing of the first three of our four wells drilled in the program and we anticipate we will continue to be successful. We have a very limited operating history upon which you can evaluate our business and prospects. Accordingly, you should consider and evaluate our business prospects by considering the risks associated with our early stage status and lack of operational experience.
We will require additional financing to sustain our operations and without it we will not be able to continue operations. Our ability to obtain such additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
There is substantial doubt about our ability to continue as a going concern due to the losses incurred since inception, our accumulated deficit, and lack of revenues. Our Company has a limited operating history and is considered in the development stage. The success of our company is significantly dependent on a successful drilling, completion and production program. Our Company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. No assurance can be given that we may be able to operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. There can be no assurance that our business plan will prove successful, and no assurance that we may be able to operate profitably, if at all.
There is no assurance that actual cash requirements will not exceed our estimates, in which case we will require additional financing to further explore and if warranted bring our properties into commercial operation, finance working capital, and pay for operating expenses and capital requirements until we achieve a positive cash flow. There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. If we are unable to obtain additional financing in a sufficient amount when needed, and upon terms and conditions acceptable to us our operations and activities will be materially adversely affected. We will need funds sufficient to meet our immediate needs and will require further funds to finance the development of our company. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future shareholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or eliminate the development of our Company. All or a portion of our interest in our properties may be lost if we are unable to obtain significant additional financing, as we are required to make significant expenditures on the exploration and development of our properties. Inadequate funding could also impair our ability to compete in the marketplace, which may result in the dissolution of our company.
The oil and gas exploration business involves many operating risks that can cause substantial losses.
Numerous risks affect our drilling activities, including the risk of drilling non-productive wells or dry holes. The cost of drilling, completing and operating wells, and of installing production facilities and pipelines is often uncertain. Also, our drilling operations could diminish or cease due to a number of factors, including any of the following:
| ● | title problems; |
| ● | weather conditions; |
| ● | fires; |
| ● | explosions; |
| ● | blow-outs and surface cratering; |
| ● | uncontrollable flows of underground natural gas, oil and formation water; |
| ● | natural disasters; |
| ● | pipe or cement failures; |
| ● | casing collapses; |
| ● | embedded oilfield drilling and service tools; |
| ● | abnormally pressured formations; |
| ● | environmental hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases; |
| ● | noncompliance with governmental requirements; and/or new unanticipated governmental requirements |
| ● | shortages or delays in the delivery or availability of material, equipment or fabrication yards. |
As a result, we could incur substantial liabilities that could reduce or eliminate the funds available for exploration, development or leasehold acquisitions, or result in loss of equipment and properties. Given our limited financial resources, the occurrence of any one or more of the foregoing events would have a material adverse affect on our operations and the market price of our common stock.
We may not be able to obtain sufficient drilling equipment and experienced personnel to conduct our operations.
In periods of increased drilling activity resulting from high commodity prices, demand exceeds availability for drilling rigs, and personnel experienced in the oil and gas industry in general. This may lead to difficulty and delays, especially in light of our limited resources and operations, in consistently obtaining services and equipment from vendors, obtaining drilling rigs and other equipment at favorable rates, and scheduling equipment fabrication at factories and fabrication yards. This, in turn, may lead to projects being delayed or experiencing increased costs.
Third party operators of the properties in which we have an interest may act in ways that are not in our best interests.
Other companies may operate all or a portion of the oil and natural gas properties in which we have an interest. As a result, we have limited influence over operations on some of those properties or their associated costs. Our limited influence on non-operated properties could result in the following:
| ● | the operator may initiate exploration or development projects on a different schedule than we prefer; |
| ● | the operator may propose to drill more wells or build more facilities on a project than we have funds for, which may mean that we cannot participate in those projects or share in a substantial share of the revenues from those projects; and |
| ● | if the operator refuses to initiate an exploration or development project, we may not be able to pursue the project. |
Any of these events could significantly affect our anticipated exploration and development activities and the economic value of those properties to us as well as the market price, if any, of our common stock.
The success of our business depends upon our ability to find, develop and acquire oil and gas reserves.
To date we have not established reserves on any of our properties. While our strategy is to acquire interests and operate oil and gas properties that have existing reserves in the Upper Gulf coast region of Texas, we have drilled four wells in which three have proven economical. However, there is no guarantee that such activities will lead to the identification of additional drill sites or, if identified and wells are drilled, that we will find reserves that we can economically produce. Future drilling activities will subject us to many risks, including the risk that we will not find commercially productive reservoirs. Drilling for oil and natural gas can be unprofitable, not only as a result of dry holes, which we have experienced, but also from productive wells that do not produce sufficient oil to return a profit. Also, title problems, weather conditions, governmental requirements and shortages or delays in the delivery of equipment and services can delay our drilling operations or result in their cancellation. The cost of drilling, completing and operating wells is often uncertain, and not all wells produce oil and gas. As a result, we may not recover all or any portion of our investment.
If we do not establish reserves and or obtain additional financing, we may not be able to satisfy our substantial capital requirements and may be required to cease or curtail our operations.
If we identify additional drilling targets, we will require substantial capital to continue our exploration efforts and to acquire oil and gas interests; we currently need to fund our 2012 capital and exploration budget;
If we cannot generate sufficient cash flow from operations or raise funds externally in the amounts and at the times needed, we may not be able to discover reserves or meet our financial obligations. If we are unable to obtain such financing when needed, on commercially reasonable terms, we may be required to cease or curtail our operations, which could have a materially adverse impact on the market price of our stock.
The potential profitability of oil and gas ventures depends upon factors beyond the control of our Company. A decline in oil and gas prices will adversely affect our ability to obtain additional financing we will require in order to undertake our future drilling activities.
To date we have funded our capital requirements primarily from the offer and sale of our equity securities through the offer and sale of our common stock. We will need to raise additional capital to fund any future drilling activities. Our ability to do so may be adversely affected by any decrease of prices of, and demand for, natural gas and oil. Historically, the markets for natural gas and oil have been volatile and this volatility is likely to continue in the future. The potential profitability of oil and gas properties is dependent upon many factors beyond our control. Prices for natural gas and oil may fluctuate widely in response to relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and a variety of additional factors that are beyond our control, such as:
| ● | the price of foreign imports; |
| ● | overall domestic and global economic conditions; |
| ● | political and economic conditions or hostilities in oil producing regions |
| ● | the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; |
| ● | weather conditions; |
| ● | domestic and foreign governmental regulations; |
| ● | development of alternate technologies; and |
| ● | the price and availability of alternative fuels. |
If we are unable to obtain such financing when needed, on commercially reasonable terms, we may be required to cease or curtail our operations, which could have a materially adverse impact on the market price of our stock. Additionally, due to world-wide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance. Moreover, the marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted but the combination of these factors may result in our company not receiving an adequate return on invested capital.
We will continue to pursue acquisitions and dispositions which if consummated could adversely affect our cash flow and liquidity.
We will continue to seek opportunities to generate value through the purchase and sale of properties. We examine potential transactions on a regular basis, depending on market conditions, available opportunities and other factors. Dispositions of portions of our existing business or properties would be intended to result in the realization of immediate value but would consequently result in lower cash flows over the longer term unless the proceeds are reinvested in more productive assets.
We face competition from a large number of companies many of which have resources far in excess of ours.
The oil and gas industry is highly competitive. We compete with major and independent oil and natural gas companies as well as smaller companies who are better financed than we are, for property acquisitions. We also compete for equipment and labor required for us to develop and exploit our properties. Many of our competitors have substantially greater financial and other resources than we do. As a result, those competitors may be better able to withstand sustained periods of unsuccessful drilling. In addition, larger competitors may be able to absorb the burden of any changes in applicable laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for exploratory prospects and productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to explore for oil and natural gas prospects and to acquire additional properties in the future will depend on our ability to conduct operations and to evaluate and select suitable properties and transactions in this highly competitive environment. Moreover, the oil and natural gas industry itself competes with other industries in supplying the energy and fuel needs of industrial, commercial and other consumers. Increased competition causing oversupply or depressed prices could greatly affect our operational revenues.
Oil and gas operations, including our contemplated drilling activities, are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our Company.
Our oil and gas operations in United States are subject to local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to local laws and regulations, which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.
If we do not adequately manage the risks associated with conducting business in foreign countries our business operations will suffer.
A smaller part of our business strategy is to seek to acquire and develop leases and operations in foreign countries if such opportunities provide a significant return on investment. If we are able to implement such strategy, we may experience difficulty in managing international operations as a result of technical problems, distance, language and cultural differences. There are significant risks inherent in doing business on an international level, such as, political and economic instability, civil unrest, crime, unexpected changes in regulatory requirements, trade barriers, difficulties in staffing and managing foreign operations, fluctuations in foreign currency exchange rates, longer payment cycles, problems in collecting amounts due, difficulty in enforcing contracts, seasonal fluctuation in business activity and potential adverse tax consequences. If any of such risks materialize we may have little or no ability to manage them or avert any consequences there from and our business may suffer as a result.
We have not established any reserves on any of our properties. As our properties are in the exploration stage there can be no assurance that we will establish commercial discoveries on our properties.
Although we have drilled three successful wells in which we have interests, we have not yet established official reserve estimates. Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few of the properties that are explored are ultimately developed into producing oil and/or gas wells.
Although we currently maintain insurance against potential losses and unexpected liabilities, the amount of such insurance coverage may not be sufficient to cover all such losses and liabilities.
Our operations are subject to inherent casualty risks such as blowouts, fires and explosions.. If any such event occurred, we could be subject to substantial financial losses due to personal injury, property damage, environmental discharge, or suspension of operations. The impact on us of one of these events could be significant. Although we currently maintain insurance against potential losses and unexpected liabilities, there is no assurance that the amount of such coverage will be adequate to protect us against all operational risks.
For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could adversely affect our operations and financial condition.
We are dependent on retaining our senior management and key personnel and the loss of any of our key management personnel would have an adverse impact on future development and could impair our ability to succeed.
To a large extent, we depend on the services of the founders of the Company, is alsoand other senior management, advisors, joint partners and personnel. These individuals have critical and unique knowledge of our operations that facilitate the evaluation and acquisitions of existing and potential properties in Canada and the United States. We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to minimizeattract and retain qualified personnel on acceptable terms. We do not have key man insurance on any of our employees. The loss of these experienced personnel could have a material adverse impact on our financial condition or operations.
We will be required to rely upon services provided to us by third parties.
We expect to be totally dependent upon third-party providers to enable us to engage in all of our business activities. Such parties may include, but may not be limited to, consultants engaged to provide reserve calculations, seismic interpretation and, to the extent required, third party drilling contractors. Accordingly, we will be required to establish and maintain strategic relationships with a wide array of third party providers in order to engage in any meaningful business activity. If we are unable to establish and maintain relationships with such third party providers our business prospects will be impaired.
Our write-downs of the carrying values of oil and natural gas properties may adversely affect our earnings.
We have adopted the “full cost method” of accounting for acquisition, exploration risk contained within itsand assessment of exploration properties. Early exploration and the costs including rights to explore, geological and geophysical studies, exploratory drilling and activities in relation to evaluating the technical and feasibility and commercial viability of extracting the oil and gas from the target properties are reasonably viewed necessary to evaluate and determine probable and proven reserves on the properties.
We currently have one full-cost pool in the United States. Depletion and amortization of the full-cost pools will be computed using the units of production method based on proven reserves, if any, as determined by the aforementioned activities.
In accordance with the full cost method of accounting, all costs associated with oil and gas property portfolio.development and investment are capitalized on a project-by-project basis pending determination of the feasibility of the project. Costs incurred include appropriate technical and administrative expenses but not general overheads. Investments in unproven properties and major development projects are not amortized until proven reserves associated with the projects can be determined. If an oil and gas property development project is successful, the related expenditures will be transferred to tangible assets and amortized over the estimated life of the reserves on a unit of production method. Where a project is abandoned or considered to be of no further commercial value to the Company, the related costs will be written off.
Unevaluated oil and gas costs are assessed at each period end and where there are indications of impairment the related costs will be written off. The recoverability of unevaluated oil and gas costs is dependent upon the discovery of economically recoverable reserves, our ability to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the disposition of recoverable reserves.
Terrorist attacks and threats or actual war may negatively affect our business, financial condition and results of operations.
Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts of war. Recent terrorist attacks in the United States of America, as well as events occurring in response to or in connection with them, including future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States of America or its allies, or military or trade disruptions impacting our suppliers or our customers, may adversely impact our operations. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in the United States of America. These occurrences could have an adverse impact on energy prices, including prices for our natural gas and crude oil production. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any or a combination of these occurrences could have a material adverse effect on our business, financial condition and results of operations.
Because of the early stage of development and the nature of our business, our securities are considered highly speculative.
Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas, and there can be no assurance that we will establish commercial discoveries on our properties. We have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.
Our management team does not have extensive experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.
Our management team (consisting of our officers and directors) has had limited U.S. public Company management experience or responsibilities, which could impair our ability to comply with legal and regulatory requirements, such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing on a timely basis required reports and other required information. Our management may not be able to implement and affect programs and policies in an effective and timely manner that adequately respond to increased legal or regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.
Our compliance with changing laws and rules regarding corporate governance and public disclosure may result in additional expenses to us, which, in turn, may adversely affect our ability to continue our operations.
Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event we are ever approved for listing on either NASDAQ or a registered exchange, NASDAQ and stock exchange rules, will require an increased amount of management attention and external resources. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. This could have an adverse impact on our ongoing operations.
Our proposed business raises potential conflicts of interests between certain of our officers and directors and us.
Certain of our directors are or may become directors of other oil and gas companies and, to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation by us and such other companies. In addition, directors may present potential prospects to such other companies rather than presenting the opportunities to us. We have not established any mechanisms regarding the resolution of any such conflict if it were to arise; accordingly, there is no assurance that any such conflict will be resolved in a manner that would not be adverse to our interest.
Moreover, since our inception, we have acquired our property interests from entities controlled by or in which certain of our shareholders and directors have or may have an interest. We did not seek to obtain an independent evaluation of the fairness of the terms and conditions related to our acquisition of these properties. Such terms and conditions may prove to be financially more onerous than if we had acquired such properties from unrelated third parties; and, ultimately may result in the loss of our interests in such properties.
We have agreements in respect of our properties, but our properties may be subject to prior unregistered agreements, or transfers which have not been recorded or detected through title searches, and are subject to a governmental right of participation, resulting in a possible claim against any future revenues generated by such properties.
We have agreements with respect to our oil and gas properties and we believe our interests are valid and enforceable, although we have not obtained an opinion of counsel or any similar form of title opinion to that effect. These agreements do not guarantee title against all possible claims. The properties may be subject to prior unregistered agreements, or transfers that have not been recorded or detected through title research. If the interests in our properties are challenged, we may have to expend funds defending any such claims and may ultimately lose some or all of any revenues generated from the properties if we lose our interest in such properties.
One of our directors is located outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.
A minority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under United States federal securities laws against our directors or officers.
Risks Related to our Common Stock
Our stock price historically has been volatile and may continue to be volatile.
The market price of our common stock has been and is expected to continue to be highly volatile. Factors, many of which are beyond our control, include, in addition to other risk factors described in this section, the announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, and general economic, industry and market conditions may have a significant impact on the market price of our stock. In addition, the Company strivesfuture sales of shares of our common stock by our shareholders, the holders of our outstanding warrants and options, could have an adverse dilutive effect on our outstanding shares and the market price of such shares.
The trading price of our common stock has, from time to time, fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the risk factors set forth herein, as well as our operating results, financial condition, general economic conditions, market demand for our common stock, and various other events or factors both in and out of our control. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock. These fluctuations may have a negative effect on the market price of our common stock. To the extent our stock price fluctuates and/or remains low, it could cause you to lose some or all of your investment and impair our ability to raise capital through the offering of additional equity securities.
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain future earnings, if any, to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase the Company’s shares.
We may conduct further offerings in the future in which case your shareholdings will be diluted.
Our certificate of incorporation authorizes the issuance of 100,000,000 shares of common stock, each with a par value of $0.01. Since our inception, we have relied on such equity sales of our common stock to fund our operations. We may conduct further equity offerings in the future to finance our current projects or to finance subsequent projects that we decide to undertake. If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders. We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. If we issue additional stock, your percentage interest in us will be diluted. The result of this could reduce the value of your stock.
We may issue preferred stock, which may have greater rights than our common stock.
Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock. Currently no preferred shares are issued and outstanding; however, we can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from our common shareholders. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing them to be converted into shares of common stock, which could dilute the operator, sovalue of common stock to current shareholders and could adversely affect the market price, if any, of our common stock.
Our common stock is a "penny stock," and because "penny stock” rules will apply, you may find it can controldifficult to sell the shares of our common stock you acquired in this offering.
Our common stock is a “penny stock,” as that term is defined under Rule 3a51-1 of the Securities Exchange Act of 1934. Generally, a "penny stock" is a common stock that is not listed on a securities exchange and trades on the OTCBB for less than $5.00 a share. Prices in our stock often are not available to buyers and sellers and the market may be very limited. Penny stocks in start-up companies are among the riskiest equity investments. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the U.S. Securities & Exchange Commission. The document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser's written agreement to the purchase. Many brokers choose not to participate in penny stock transactions. Because of the penny stock rules, there is less trading activity in penny stocks and you are likely to have difficulty selling your shares.
Our Common Stock is quoted on the Over-The-Counter Bulletin Board and, accordingly, it may be difficult for you to sell your shares or you may not be able to sell your shares for an optimum trading price.
Our common stock is quoted on the Financial Industry Regulatory Authority’s Over-The-Counter Bulletin Board (the “OTCBB”) under the symbol “<MGUY.PK>.” The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and trade volumes in over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our Common Stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price quoted by the OTCBB at the time of the order entry.
Orders for OTCBB securities may not be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of common stock at the optimum trading prices.
The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the common stock must be sold immediately. Further, purchasers of securities on the OTCBB may not have an ask price for securities sold through the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.
Sales practice requirements of the Financial Industry Regulatory Authority (“FINRA”) may also limit a shareholder’s ability to buy and sell our stock.
In addition to the penny stock rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
ITEM 1B. |
None.
ITEM 2. |
Our Offices
Our principal office is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas, 77042. This is an 18 month sub lease agreement, at a cost of $1,497.08 per month, until June 30, 2012.
We also have administrative offices located at 207 West Hastings Street, Suite 1111, Vancouver, British Columbia, Canada V6B 1H7. We sublet office space from a related party for $1,313 per month, renewable annually.
Additionally, we have an office at Suite 201, 47 Colborne St., Toronto, Ontario, Canada M5E 1P8. This is a five year lease at a monthly cost of $9,500.
Our premises are adequate for our current operations, timing, scope and financial obligationswe do not anticipate that we will acquire or lease additional premises in the foreseeable future. See Note 11 to Financial Statements.
Our Oil and Gas Properties
Texas, United States
Stafford Prospect, Jackson County, Texas
On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with respectC. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to itsdevelop an extension to the La Ward NE Field in Jackson County (Stafford Prospect). The agreement provided for the shared costs in the acquisition of oil and gas exploration,leases in the Stafford Prospect. As operator, we participated in the drilling of the initial well with an 8.89% working interest and acquired a 6.11% promoted interest resulting in our having a 15.00% net working interest upon the successful completion of the initial well drilled on the property. Each participant would also pay the same percentage costs for the next well as was paid on the first well.
On March 6th, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas. The well was drilled to a total depth of 7,400 feet. Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows. The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation.
On November 28, 2011 we completed the Stafford #2 an offset well 600 feet west of Stafford #1, The well initially flowed at a rate of 50 to 70 barrels of oil per day and 40,000 to 60,000 cubic feet of gas on a 8/64” at approximately 650 psi. The well subsequently lost pressure and artificial lift equipment was installed in February of 2012 and production flow levels are being optimized at the present time.
North Pasture Prospect – San Patricio County, Texas
On December 8, 2010 we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Assoc., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas. Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.
Drilling of the Kunitz #1 Well on our North Pasture property was commenced on January 31, 2012. Drilling was successfully completed on February 17, 2012. The open-hole log indicated potentially productive zones. Casing has been run and we are currently analyzing all prospective zones as additional cased hole logs are run and surface completion efforts are coordinated.
Mud Flats – Aransas County, Texas
On December 22, 2011 we commenced drilling operations of our third well, Werland Heirs #1 in the Mud Flats Field, Aransas County Texas in which we had a 25% carried interest. While the well proved structurally accurate, hydrocarbon volumes in the prospective zones were calculated too low, thus making the well uneconomical to complete. The adjoining acreage within the Mud Flats Prospect is still considered prospective and is currently being studied by us for alternative drilling locations based on the information gained from the Werland Heirs #1well.
ITEM 3. |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
None during the period of this report.
PART II
Market Information
On February 27, 2012, pursuant to approval granted by a majority of the shares voted at a special meeting held on February 15, 2012, we filed a Restated Certificate of Incorporation with the Secretary of the State of Delaware to effect a one-for-five reverse stock split, with the fractional shares being rounded up to the nearest whole share. The effect reduced the number of shares from 57,565,987 common shares outstanding to 11,513,198 common shares outstanding.
Our common stock currently trades on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “MGUY,” and on the Frankfort Stock Exchange under the symbol BKX. As of March 24, 2012, there were 11,513,203 common shares issued and outstanding.
Our stock began trading on the OTCBB on July 11, 2007. The following table sets forth the range of high and low bid information for our Common Stock for the periods indicated below. The price information available reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions
| OTC Bulletin Board Sales Prices for MGUY | ||||||||
| Quarter Ended | High | Low | ||||||
| June 30, 2010 | 0.04 | 0.02 | ||||||
| September 30, 2010 | 0.04 | 0.02 | ||||||
| December 30, 2010 | 0.05 | 0.02 | ||||||
| March 31, 2011 | 0.08 | 0.02 | ||||||
| June 30, 2011 | 0.05 | 0.02 | ||||||
| September 30, 2011 | 0.04 | 0.03 | ||||||
| December 30, 2011 | 0.05 | 0.01 | ||||||
| March 31, 2012 | 0.15 | 0.02 | ||||||
The closing price of our stock on March 24, 2012was $0.10.
Holders
| December 31, 2011 | ||||||||||||
| Options | Weighted Average Exercise Price | Weighted Average Remaining Life (years) | ||||||||||
| Options outstanding at beginning of period | 570,000 | $ | 0.250 | 3.56 | ||||||||
| Options issued during the period | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Expired | - | - | - | |||||||||
| Outstanding at the end of period | 570,000 | 0.25 | 3.56 | |||||||||
As of March 31, 2012, there were at least 36 shareholders of record of the Company’s common stock. The number of shareholders of record was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent and registrar for our common stock is Holladay Stock Transfer, Inc., located at 2939 North 67th Place, Scottsdale, Arizona 85251 [Tel: (480) 481-3940, Fax: (480) 481-3941].
Dividends
To date the Company has not declared or paid cash dividends on our capital stock and does not anticipate paying any cash dividends in the foreseeable future, but intends to retain its capital resources for reinvestment in its business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors as the Board of Directors deems relevant. Our Board of Directors has the right to authorize the issuance of preferred stock, without further stockholder approval, the holders of which may have preferences over the holders of the common stock as to payment of dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company’s Board of Directors approved a 2007 Stock Incentive Plan on or about August 8, 2007, which authorized the issuance to management and employees of up to 4,000,000 shares of the Company’s common stock. To date, the Board has approved the issuance of options to purchase 2,250,000 of the Company’s common stock at a price of $0.30 per share, expiring August 7, 2012. The options vest sequentially over a one-year period that commenced on August 8, 2007.
On October 22, 2010, the 2,250,000 previously granted options were cancelled, and 2,850,000 fully vested stock options were granted to directors, officers, employees and contractors of the Company. These options will expire on October 22, 2015. The fair value of the options is $0.04 calculated using the Black-Scholes method: risk free rate 1.1%, share price $0.04, strike price $0.05, volatility 215%, and dividend yield 0.00.
On February 27, 2012 in accordance with the one-for-five reverse stock split the number of options outstanding was reduced to 570,000 and the exercise price increased to $0.25.
Recent Sales of Unregistered Securities
There have been no recent sales of unregistered securities since the Company’s last report of such sales in the Current Report on Form 8-K filed on June 16, 2008.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during the three months ended March 31, 2012
ITEM 6. |
The Company is a “smaller reporting Company,” as defined by Rule 229.10(f)(1) (Regulation S-K), and is not required to provide information under this item.
Overview
Our strategy is to acquire interest in, and/or to operate oil and gas properties that have existing or the high potential of oil and or natural gas reserves. Existing well bores with proven oil and gas reserves can usually be purchased for a fraction of the original cost to drill and complete a new well. Property purchased with proven reserves reduce the risk of not finding hydrocarbons and are economically viable to develop due to the elimination of the associated cost of finding the hydrocarbons. After the property has been purchased, the primary cost for establishing new production is the re-completion cost.
Cash Requirements
Further cash requirements may be necessary should we wish to participate in further development of our prospects in Texas. These funds may be raised through equity financing, debt financing, the sale of assets, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock. Further, we may continue to be unprofitable.
Selected Quaterly Financial Information
Three months ended March 31, 2012 | Three months ended March 31, 2011 | |||||||
| Cash | 15,852 | 27,987 | ||||||
| Securities available for sale | - | 32,472 | ||||||
| Working capital | (1,353,052 | ) | (18,803 | ) | ||||
| Total assets | 732,795 | 523,713 | ||||||
| Shareholders' equity | (1,293,212 | ) | (237,731 | ) | ||||
| Share capital | 7,647,675 | 7,643,985 | ||||||
| Weighted average common shares outstanding | 11,501,203 | 11,489,197 | ||||||
| Accumulated deficit | (8,952,616 | ) | (7,865,563 | ) | ||||
| Cash flow from operations | (626,361 | ) | (200,747 | ) | ||||
| Net loss | (272,364 | ) | (208,845 | ) | ||||
| Loss per share | (0.02 | ) | (0.02 | ) | ||||
As at March 31, 2012 our total assets increased to $732,795 compared to $523,713 in the comparable period in 2011. A large portion of this increase is attributable to an almost 200% increase in our capitalized oil and productiongas properties account which has increased to $185,424 at March 31, 2012 compared to $59,358 at March 31, 2011. Over the past twelve months our 15% working interest in the two wells drilled on our Stafford field accounts for this increase.
As of the three months ended March 31, 2021, we had current liabilities of $1,889,314 and relative to current liabilities of $478,729 at March 31, 2011. We have promissory notes outstanding repayable on demand in cash or in common stock of the Company amounting to $1,257,059. It is more likely than not that this amount will be repaid in common stock of the Company and have a dilutive effect.
Loss per share has remained the same at $0.02 per share for March 31, 2012 and 2011.
The Statement of Cash Flows shows that cash outflows from operations for the three months ended March 31, 2012 were $626.37 compared to $191,254 in the prior year. During the current period we had an increase in receivables from our joint interest partners of $448,211 related to property acquisitions, drilling and operating costs incurred
Investing activities on the Statement of Cash Flow for the three months ended March 31, 2012 amounted to a cash outflow of $15,087 compared to an inflow for the comparable period in 2011 ($17,397). This difference was attributable to the proceeds of the sale of our held for sale investment. The Company sold its remaining shares of Sea Dragon Energy for a loss during the period of $8,735 for total proceeds of $11,585. During the corresponding period in 2011 Sea Dragon shares were sold for gross proceeds of $45,134
Financing activities in the three months ended March 31, 2012 inflowed $618,399 as loans from a related party have increase by $397,845 since the 2011 year end.
| Three months ended March 31, 2012 | Three months ended March 31, 2011 | |||||||
| Revenue | ||||||||
| Oil and gas sales | $ | 16,581 | - | |||||
| Management fees | 5,219 | - | ||||||
| Total revenue | $ | 21,800 | - | |||||
| -Expenses | ||||||||
| General & Administration: | ||||||||
| Depreciation, depletion & amortization | $ | 10,440 | 6,451 | |||||
| Communications | 4,815 | 3,847 | ||||||
| Insurance | 12,023 | - | ||||||
| Production tax | 764 | - | ||||||
| Professional fees | 37,586 | 64,677 | ||||||
| Rent | 22,304 | 11,651 | ||||||
| Travel & Promotion | 10,081 | 17,392 | ||||||
| Realized foreign exchange loss | 1,366 | 75 | ||||||
| Wages | 164,028 | 109,520 | ||||||
| Other | 22,022 | 15,551 | ||||||
| Total general and administrative expense | $ | (284,429 | ) | - | ||||
| Loss on securities sold | (8,735 | ) | - | |||||
| Gain on sale of securities available for sale | - | 20,319 | ||||||
| Net loss | $ | (272,364 | ) | (208,845 | ) | |||
The Company generated revenue for the three months ended March 31, 2012 $16,581 in oil sales and $5,219 in management fees as operator. There were no revenues for the comparable period in 2011.
Wages have increased 56% to $164,028 for the three months ended March 31, 2012 to $109,520 in the comparable period. The increase is attributable to the addition of technical staff to assist in our operations.
Insurance costs for the three months ended March 31, 2012 amounted to $12,023 for an umbrella policy ( 2011 – nil).
We sold our remaining 135,000 shares of Sea Dragon Energy, a Canadian company during the adjustments necessarythree months ended March 31, 2012. The securities were sold for a fair statementloss of $8.735.
Material Asset Purchases and Sales
See Item I, under Core Properties.
Purchase of Significant Equipment
We do not intend to purchase any significant equipment (excluding oil and gas activities) over the results of the interim period ended September 30, 2011 have been made, such adjustments are of a normal recurring nature. These financial statements for the ninenext twelve months ended September 30, 2011 should be read in conjunction with our audited financial statements for the year endedending December 31, 2010.2012.
We have no current arrangements with any party to supplement our operations or provide us with financing. In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
Three months ended March 31, 2012 | Three months ended March 31, 2011 | |||||||
| Cash | 15,852 | 27,987 | ||||||
| Securities available for sale | - | 32,472 | ||||||
| Working capital | (1,353,052 | ) | (18,803 | ) | ||||
| Total assets | 732,795 | 523,713 | ||||||
| Shareholders' equity | (1,293,212 | ) | (237,731 | ) | ||||
| Share capital | 7,647,675 | 7,643,985 | ||||||
| Weighted average common shares outstanding | 11,501,203 | 11,489,197 | ||||||
| Accumulated deficit | (8,952,616 | ) | (7,865,563 | ) | ||||
| Cash flow from operations | (626,361 | ) | (200,747 | ) | ||||
| Net loss | (272,364 | ) | (208,845 | ) | ||||
| Loss per share | (0.02 | ) | (0.02 | ) | ||||
As at March 31, 2012 our total assets increased to $732,795 compared to $523,713 in the Company’s Harmonized Sales Tax (“HST”) Receivable. At September 30, 2010, Other Receivables were $72,611 and included HST Receivable of $22,361. The HST Receivable relates to the Goods and Services Tax (Canada). The Company anticipates the full amount the HST Receivable to be refunded within 12 months of the balance sheet date. Due to the naturecomparable period in 2011. A large portion of this receivable, management does not considerincrease is attributable to an allowance for doubtful accounts to be necessary.
As of capitalized oilthe three months ended March 31, 2021, we had current liabilities of $1,889,314 and gas property costs follows:relative to current liabilities of $478,729 at March 31, 2011. We have promissory notes outstanding repayable on demand in cash or in common stock of the Company amounting to $1,257,059. It is more likely than not that this amount will be repaid in common stock of the Company and have a dilutive effect.
| Net book value at December 31, 2009 | $ | 425,000 | ||
| Reduction: repayment by Vesta to acquire interest in Excelaron | (425,000 | ) | ||
| Additions: related to California leases | 1,396 | |||
| Additions: acquisition costs related to leases for oil and gas rights in Texas | 33,613 | |||
| Additions: Acquisition of 15% working interest for Stafford lease | 1,333 | |||
| Net book value at December 31, 2010 | $ | 36,342 | ||
| Reduction: Billed to joint interest partners | (33,789 | ) | ||
| Additions: Lease acquisition costs | 15,668 | |||
| Additions: Geological and geophysical | 1,441 | |||
| Additions: Intangible drilling costs | 42,288 | |||
| Additions: Intangible completion costs | 14,185 | |||
| Additions: Lease and well equipment | 17,398 | |||
| Net book value at September 30, 2011 | $ | 93,533 |
The Statement of Cash Flows shows that cash outflows from operations for the three months ended March 31, 2012 were $626.37 compared to $191,254 in the prior year. During the current period we had an increase in receivables from our joint interest partners of $448,211 related to property acquisitions, drilling and operating costs incurred
Investing activities on the Statement of Cash Flow for the three months ended March 31, 2012 amounted to a cash outflow of $15,087 compared to an inflow for the comparable period in 2011 ($17,397). This difference was attributable to the proceeds of the sale of our held for sale investment. The Company sold its remaining shares of Sea Dragon Energy for a loss during the period of $8,735 for total proceeds of $11,585. During the corresponding period in 2011 Sea Dragon shares were sold for gross proceeds of $45,134
Financing activities in the three months ended March 31, 2012 inflowed $618,399 as loans from a related party have increase by $397,845 since the 2011 year end.
September 30, 2011 | ||||
| Furniture and fixtures | $ | 11,669 | ||
| Computer equipment | 1,933 | |||
| Pump equipment | 2,250 | |||
| Software | 14,239 | |||
| Total other property and equipment | 30,091 | |||
| Less: accumulated depreciation | (14,616 | ) | ||
| Other property and equipment – net | $ | 15,477 | ||
| September 30, 2011 | ||||||||||||
| Options | Weighted Average Exercise Price | Weighted Average Remaining Life (years) | ||||||||||
| Options outstanding at beginning of period | 2,850,000 | $ | 0.05 | 4.06 | ||||||||
| Options issued during the period | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Expired | - | - | - | |||||||||
| Outstanding at the end of period | 2,850,000 | $ | 0.05 | 4.06 | ||||||||
| Three months ended March 31, 2012 | Three months ended March 31, 2011 | |||||||
| Revenue | ||||||||
| Oil and gas sales | $ | 16,581 | - | |||||
| Management fees | 5,219 | - | ||||||
| Total revenue | $ | 21,800 | - | |||||
| -Expenses | ||||||||
| General & Administration: | ||||||||
| Depreciation, depletion & amortization | $ | 10,440 | 6,451 | |||||
| Communications | 4,815 | 3,847 | ||||||
| Insurance | 12,023 | - | ||||||
| Production tax | 764 | - | ||||||
| Professional fees | 37,586 | 64,677 | ||||||
| Rent | 22,304 | 11,651 | ||||||
| Travel & Promotion | 10,081 | 17,392 | ||||||
| Realized foreign exchange loss | 1,366 | 75 | ||||||
| Wages | 164,028 | 109,520 | ||||||
| Other | 22,022 | 15,551 | ||||||
| Total general and administrative expense | $ | (284,429 | ) | - | ||||
| Loss on securities sold | (8,735 | ) | - | |||||
| Gain on sale of securities available for sale | - | 20,319 | ||||||
| Net loss | $ | (272,364 | ) | (208,845 | ) | |||