UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 – Q

(Mark One)

 

For the quarterly period ended August 31,November 30, 2009

 

or

 

 

For the transition period from ____________ to ________________

 

Commission file number: 000-52782

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED AUGUST 31,NOVEMBER 30, 2009

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

To the extent that the information presented in this Quarterly Report on Form 10-Q for the quarter ended August 31,November 30, 2009 discusses financial projections, information or expectations about our products or markets, or otherwise makes statements about future events, such statements are forward-looking.  We are making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These risks and uncertainties are described, among other places in this Quarterly Report, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

In addition, we disclaim any obligations to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.  When considering such forward-looking statements, you should keep in mind the risks referenced above and the other cautionary statements in this Quarterly Report.

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

fka COBRA OIL & GAS COMPANY

(An Exploration Stage Company)

BALANCE SHEET

The accompanying notes are an integral part of these financial statementsstatements.

 

Cobra Oil & Gas Company (the “Company”), was incorporated in the State of Nevada on November 18, 2005.  The Company was formed to engage in identifying, investigating, exploring, and where determined advantageous, developing, mining, refining, and marketing oil and gas.  The Company may also engage in any other business permitted by law, as designated by the Board of Directors of the Company.

The Company is currently in the exploration stage. During the current quarter the Company has entered into farmout agreements with Enercor, Inc. (a Nevada Corporation) with respect to three leases. The first of these gives the Company a 35% - 40% working interest in the “Tar Sands” components of leases, covering approximately 33,632 acres located in Southern Uintah County Utah, when and if granted by the U S Bureau of Land Management.

The second of these leases is a lease granted by the State of Utah to Pioneer Natural Resources which retains a 62.5% working interest. We have received a 37.5% working interest in approximately 640 acres which has rights for oil and gas drilling and which we are seeking additional rights to the tar sands in the area from the U S Bureau of Land Management.

The third of these leases is one granted by the State of Utah to Questar Corporation which owns the 37.5% residual working interest after our purchase of the 62.5% working interest from Enercor. This lease has oil and gas drilling rights and we will be seeking the tar sands approval also.

The acquisition of each of these leases was accomplished primarily through the issuance of new shares of Company common stock.

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (“SFAS 109”).  Under SFAS 109 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company employs a fiscal year ending May 31.

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding.  Warrants, stock options, and common stock issuable upon the conversion of the Company’s preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.

Revenue is recognized on an accrual basis as earned under contract terms.  The Company has had no revenue to date.

The company follows the full-cost method of accounting for oil and natural gas properties.  Under this method, all costs incurred in the exploration, acquisition, and development, including unproductive wells, are capitalized in separate cost centers for each country.  Such capitalized costs include contract and concessions acquisition, geological, geophysical, and other exploration work, drilling, completing and equipping oil and gas wells, constructing production facilities and pipelines, and other related costs.

The capitalized costs of oil and gas properties in each cost center are amortized on a composite units of production method based on future gross revenues from proved reserves.  Sales or other dispositions of oil and gas properties are normally accounted for as adjustments of capitalized costs.  Gain or loss is not recognized in income unless a significant portion of a cost center’s reserves is involved.  Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to such properties or until the value of the properties is impaired.  If the net capitalized costs of oil and gas properties in a cost center exceed an amount equal to the sum of the present value of estimated future net revenues from proved oil and gas reserves in the cost center and the lower of cost or fair value of properties not being amortized, both adjusted for income tax effects, such excess is charged to expense.

 

Since the company has not produced any oil or gas, a provision for depletion has not been made.

The carrying value of the Company’s  financial instruments, including cash and cash equivalents, as reported in the accompanying balance sheet, approximates fair value.

The Company has adopted the provisions of SFAS No. 123(r) which are effective in general for transactions entered into or modified after June 15, 2005.  The adoption did not have a material effect on the results of operations of the Company.

In May, 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, “Accounting Changes and Error Corrections – A Replacement of APB Opinion No. 20 and SFAS No. 3”.  SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle.  It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  The provisions of SFAS No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.  The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

During the period ended May 31, 2008 the Company entered into a “memorandum of Intent” with Coastal Petroleum Company which outlines the terms and conditions under which Coastal is willing to enter into a formal agreement with the Company on certain oil and gas leases owned by Coastal in Valley Creek, Montana. The leases involve approximately 82,800 net acres. Under the leases, Coastal has a 100% working interest with between 75.5% to 80.5% net revenue interests. Pursuant to the Memorandum of Intent, on May 23, 2008 we paid Coastal $180,000 in exchange for a two year option to purchase a 50% interest in the leases for $1,000,000.

 

As of August 31,November 30, 2009 we have taken no further action on this agreement.

During the quarter ended August 31,November 30, 2009 the Company negotiated a settlement with Mr. Doug Berry, a former officer and stockholder, to exchange common stock of the Company for monies that had been advanced to the Company by Mr. Berry. The terms of the agreement are that the Company issue 153,508 shares of common stock in exchange for release of debt amounting to $125,262.45 which includes $110,625.00 in principal and $14,637.45 of accrued interest. The shares were valued at $0.816 per share which represented a 20% discount to the closing price of our common stock on the date of the Agreement.

In May 2008 the Company entered into a one year office lease at a rate of $2,000 per month plus costs. Initial expenses recorded under this lease in 2008 were $4,890. The minimum required future payments under the lease for fiscal year end 2009 are approximately $24,000.

In May and June of 2008 the Company sold 1,000,000 units to an investor for cash at $.25 per unit, or $500,000 total. Each unit consists of one share of common stock, and one warrant to purchase one share of common stock at an exercise price of $.40, exercisable anytime through May 15, 2011. In fiscal year 2010 the Company sold 1,819,1492,419,149 units to investors for cash at $.50 - $.94$1.00 per unit, or $550,000$1,150,000 total. Each unit consists of one share of common stock, and one warrant to purchase one share of common stock at exercise prices of $.40 - $1.18,$1.25, exercisable anytime through dates from June 2011 through August 2012. No warrants were exercised through August 31,November 30, 2009, leaving a balance of 2,819,1493,419,149 warrants outstanding. As the warrants are non-detachable, all proceeds from the unit sales have been allocated to common stock.

 

The Company has suffered losses from operations and has a working capital deficit.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  The Company may raise additional capital through the sale of its equity securities, through offerings of debt securities, or through borrowings from financial institutions.  In addition, the Company hopes to generate revenues from finding and producing oil and gas on its lease properties.

Capitalized costs at May 31, 2008 relating to the Company’s oil and gas activities are as follows:

The following discussion should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.

  

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed elsewhere in this annual report.

We are in the exploration stage as an oil and gas exploration company and are presently engaged in limited oil and gas activities in Utah and Montana. We had minimal operations and generated no revenues during the quarter ended August 31,November 30, 2009 or the fiscal year ended May 31, 2009. Our ability to develop and maintain a meaningful level of revenues from operations is dependent on our ability to successfully acquire and drill exploration and development wells and complete producing property acquisition.

At the present time, we have no developed properties and no production.

In its report dated July 30,24, 2009, our auditors, Ronald R. Chadwick, PC expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. We have generated no operating revenues since our inception. We had an accumulated deficit of $695,158$875,891 and $530,041 as of August 31,November 30, 2009 and May 31, 2009, respectively. Our continuation as a going concern is dependent upon future events, including our ability to raise additional capital and to generate positive cash flows.

In May 2008 we acquired a two year option to purchase a 50% interest in certain oil and gas leases in Valley Creek, Montana. We have the right but not the obligation to drill a well on the lands covered by these leases prior to exercising the purchase option and earn a 50% working interest therein.

On each of July 25, 2009, August 5, 2009 and August 12, 2009 we entered into Purchase Agreements with Enercor Inc. pursuant to which we have acquired contract rights and working interests in leases located in Uintah County, Utah.  For a more detailed discussion of these Purchase Agreements see Item 5 hereof.

Our current business plan strategy is to develop our properties and any other prospects that we may acquire interests in. We intend to fund any additional lease acquisitions and any seismic costs needed to further define the prospects from additional financing. No assurance can be given that such additional financing will be available to us as and when needed or, if available, the terms on which it will be available.

Subject to receipt of necessary financing, we plan to spend approximately $1,200,000 in the next 12 months on exploration and development activities such as seismic data acquisition, additional lease acquisition, technical studies and participating in joint venture development and exploration drilling.

We will require financing to meet working capital costs, including the cost of reviewing and negotiating transactions and other ordinary general and administrative costs such as regulatory compliance, investor relations, advisory services, officer’s salaries, office and general expenses, professional fees, travel and entertainment and rent and related expenses. We estimate that the level of working capital needed for these general and administrative costs for the next twelve months will be approximately $200,000. However, this estimate is subject to change, depending on the number of transactions in which we ultimately become involved. In addition, funding will be required for follow-on development of working interest obligations of any successful exploration prospects.

Oil and gas exploration requires significant outlays of capital and in many situations may offer a limited probability of success. We hope to enhance our chances for success by effectively using available technology, rigorously evaluating sub-surface data, and, to the extent possible, managing dry-hole and financial risks.

We intend to rely on synergistic partnering with sophisticated industry partners. The ideal partner would tend to be a regionally focused independent which has a large seismic database, a solid grasp on the play’s history, and a lead in understanding technology to exploit the play. However, there is no assurance that we will be able to successfully negotiate any such partnering agreement or raise the necessary financing to invest in such a venture, or that any such venture will yield us any revenues or profits.

We will face competition from firms that are well-established, successful, better capitalized and, in many instances, willing to pay more for properties than what we might consider prudent. Thus, our success will depend on the execution of our business model to

Presently, we have one full-time employee consisting of Massimiliano Pozzoni, our President and Chief Executive and Financial Officer. We do not expect significant changes in the number of employees during the next twelve months.

We intend to contract out certain technical and administrative functions on an as-needed basis in order to conduct our operating activities. Our management team will select and hire these contractors and manage and evaluate their work performance.

We have had no revenues since our inception.

Due to our increased salary and website/investor communication expenses,activities, our operating expenses during the three and six months ended August 31,November 30, 2009 increased to $163,458$180,733 and $345,850 from $90,922$69,897 and $162,478 during the three and six months ended August 31,November 30, 2008.

We incurred a net loss for the three and six months ended August 31,November 30, 2009 of $180,733 and $345,850, respectively, and incurred a net loss for the three and six months ended November 30, 2008 of $165,117$69,897 and $92,581,$162,478, respectively.  The increase in net loss was directly attributable to the increase in our operating expenses.

At August 31,November 30, 2009, we had a working capital deficit of $583,446$216,930 compared to a working capital deficit of $106,091 at May 31, 2009.  Current liabilities increased to $802,061$601,510 at August 31,November 30, 2009 from $127,163 at May 31, 2009.  The increase in current liabilities at August 31,November 30, 2009 compared to May 31, 2009 was due to amounts due on lease contracts.  Current assets increased to $218,615$384,580 at August 31,November 30, 2009 from $21,072 at May 31, 2009. The increase in current assets at August 31,November 30, 2009 compared to May 31, 2009 was due to an increase in cash.

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (“SFAS 109”).  Under SFAS 109 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding.  Warrants, stock options, and common stock issuable upon the conversion of the Company’s preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.

Revenue is recognized on an accrual basis as earned under contract terms.  The Company has had no revenue to date.

The Company follows the full-cost method of accounting for oil and natural gas properties.  Under this method, all costs incurred in the exploration, acquisition, and development, including unproductive wells, are capitalized in separate cost centers for each country.  Such capitalized costs include contract and concessions acquisition, geological, geophysical, and other exploration work, drilling, completing and equipping oil and gas wells, constructing production facilities and pipelines, and other related costs.

The capitalized costs of oil and gas properties in each cost center are amortized on a composite units of production method based on future gross revenues from proved reserves.  Sales or other dispositions of oil and gas properties are normally accounted for as adjustments of capitalized costs.  Gain or loss is not recognized in income unless a significant portion of a cost center’s reserves is involved.  Capitalized costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned to such properties or until the value of the properties is impaired.  If the net capitalized costs of oil and gas properties in a cost center exceed an amount equal to the sum of the present value of estimated future net revenues from proved oil and gas reserves in the cost center and the lower of cost or fair value of properties not being amortized, both adjusted for income tax effects, such excess is charged to expense.

Since the Company has not produced any oil or gas, a provision for depletion has not been made.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, as reported in the Company’s balance sheet, approximates fair value.

The Company has adopted the provisions of SFAS No. 123(r) which are effective in general for transactions entered into or modified after June 15, 2005.  The adoption did not have a material effect on the results of operations of the Company.

In May, 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, “Accounting Changes and Error Corrections – A Replacement of APB Opinion No. 20 and SFAS No. 3”.  SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle.  It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  The provisions of SFAS No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.  The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

We have never entered into any off-balance sheet financing arrangements and have not formed any special purpose entities.  We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Our future revenues, future rate of growth, results of operations, financial condition and ability to borrow funds or obtain additional capital, as well as the carrying value of our properties, are substantially dependent upon prevailing prices of oil and natural gas.  If the price of oil and natural gas increases (decreases), there could be a corresponding increase (decrease) in the operating cost that we are required to bear for operations, as well as an increase (decrease) in revenues.  Inflation has had a minimal effect on the operating activities of the Company.

Not applicable.

Under the supervision and with the participation of our chief executive and financial officer, Massimiliano Pozzoni, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive and financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to us, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) 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.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended August 31,November 30, 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

On August 14, 2009, Cobra Oil & Gas Corporation, a Texas corporation (the “Plaintiff”), filed a complaint against us in the United States District Court for the Southern District of Texas, Houston Division (Case No. 4:09-cv-02601) seeking a preliminary injunction against us on the basis of alleged trademark infringement and unfair competition arising from our use of the name Cobra Oil & Gas in Texas.  Effective September 8, 2009, we entered into a Settlement Agreement with Plaintiff, wherebypursuant to which we agreedchanged our name to ceaseViper Resources, Inc. and ceased use of the name Cobra Oil & Gas Company and certain derivations thereof within 60 days of the effective date of the Settlement Agreement.  The 60 day requirement was made subject to extension in the event of certain delays outside of our control.  In connection therewith, we have obtained the approval of shareholders holding a majority of our outstanding shares to the filing of a Certificate of Amendment to our Articles of Incorporation to change our name from Cobra Oil & Gas Company to Viper Resources, Inc.  We expect to file the Certificate of Amendment and have it take effect within the 60 days period.thereof.  As a result of the Settlement Agreement, on October 8, 2009, the District Court dismissed Plaintiff’s action with prejudice, retaining jurisdiction to enforce the Settlement Agreement, if necessary.

In the ordinary course of our business, we may from time to time become subject to routine litigation or administrative proceedings which are incidental to our business. Except as discussed above, we are not a party to nor are we aware of any existing, pending or threatened lawsuits or other legal actions involving us.

Not applicable.

Effective September 22, 2009 we sold 600,000 units to a single subscriber pursuant to a July 6, 2009 Share Purchase Agreement.  Each unit consists of one share of common stock and one common stock purchase warrant to purchase one additional share of common stock at a price of $1.25 per share for a period of three years from issuance.  The units were issued in reliance on Section 4(2) under the Securities Act of 1933, as amended.

No matters were submitted to a vote of our securityholders during the quarter ended August 31, 2009.  Subsequent to the period covered by this report however, onOn September 8, 2009 our board of directors and shareholders holding 39,147,237 of our then outstanding shares (approximately 51.3%) approved an amendment to our Articles of Incorporation to (i) change our name from Cobra Oil & Gas CompanyViper Resources, Inc. to Viper Resources, Inc.; and (ii) increase our authorized capitalization from 200,000,000 shares, consisting of 100,000,000 shares of common stock, $0.00001 par value and 100,000,000 shares of preferred stock, $0.00001 par value to 400,000,000 shares, consisting of 300,000,000 shares of common stock $0.00001 par value and 100,000,000 shares of preferred stock, $0.00001 par value.  The amendment of our Articles of Incorporation will not be effective until the Articles of Amendment are filed with and made effective by the Nevada Secretary of State. We expect this to take place intook effect on November 5, 2009.  The name change is beingwas effected to resolve a name conflict with a Texas corporation operating as Cobra Oil & Gas Corporation.  After the name change, we will continuehave continued to operate in the same line of business and in the same manner that we are presently operating.were operating prior to the new change.

Effective September 22, 2009 Baden Energy Group Ltd. (“Baden”) purchased 600,000 units, at our request, pursuant to our July 6, 2009 Share Purchase Agreement with Baden at a price of $1.00 per unit or an aggregate of $600,000.  Each unit consists of one share of our common stock and one common stock purchase warrant to purchase one additional share of our common stock at a price of $1.25 per share for a period of three years from issuance.

On August 12, 2009 we entered into a Purchase Agreement with Enercor, Inc., a Nevada corporation (“Enercor”).  Therein we acquired a 62.5% working interest in a lease covering 640 acres in Uintah County, Utah (Lease UTU – 27413).  The lease is subject to aggregate royalties of 18.25%.  The lease provides for conventional oil and gas drilling.  We intend to apply to the Bureau of Land Management for the issuance of a Combined Hydrocarbon Lease on the property which will allow us to also engage in tar sands extraction activity.  The lease is adjacent to the leases which are the subject of our July 25, 2009 and August 5, 2009 Purchase Agreements with Enercor.  We paid Enercor 300,000 shares of our common stock for the working interest.

On August 5, 2009 we entered into a Purchase Agreement with Enercor, Inc., a Nevada corporation (“Enercor”).  Therein we acquired a 37.5% working interest in a lease covering 640 acres in Uintah County, Utah (Lease UTU – 38076).  The lease is subject to aggregate royalties of 18.25%.  The lease provides for conventional oil and gas drilling.  We intend to apply to the Bureau of Land Management for the issuance of a Combined Hydrocarbon Lease on the property which will allow us to also engage in tar sands extraction activity.  The lease is adjacent to the leases which are the subject of our July 25, 2009 and August 12, 2009 Purchase Agreements with Enercor.  We paid Enercor 300,000 shares of our common stock for the working interest.

On July 25, 2009 we entered into a Purchase Agreement with Enercor, Inc., a Nevada corporation (“Enercor”).  Therein we acquired a 35% – 40% interest in certain contract rights acquired by Enercor as the successor to an agreement (the “Tar Sand Rights Agreement”) granting rights to extract tar sand deposits pursuant to Combined Hydrocarbon Leases (“CHL’s”) to be issued by the Bureau of Land Management (“BLM”) covering approximately 33,632 acres of land in Southern Uintah County, Utah.Utah (the “Property”).  The issuance of the CHL’s is subject to regulatory requirements including, but not limited to, approvals of operating plans and environmental impact studies.  If the CHL’s are issued, the right to develop the tar sand deposits covered by the CHL’s willwas to be assigned to Enercor, subject to a reserved overriding royalty and subject to certain third-partythird party consent rights, discussed below, and Enercor will,was to, in turn, assign a 35% – 40% working interest (the “Working Interest”) in the tar sand deposit development rights granted by the CHL’s to us.  The Tar Sand Rights Agreement requiresrequired the approval of the other contracting party to the assignment to and by Enercor of the tar sand deposit rights (the “Contract Approval”).  On December 8, 2009 the other contracting party to the Tar Sand Rights Agreement entered into a Tar Sands Acquisition Agreement (the “Tar Sands Acquisition Agreement”) with Enercor in which it agreed to assign to Enercor, on or prior to January 15, 2010, the existing federal oil and gas leases on the Property (the “Leases”), any CHL’s that may be subsequently issued on the Property, and all of such other contracting party’s rights in such Leases and CHL’s in exchange for $80,000, representing payment of certain out-of-pocket and legal fees incurred by such party in connection with the CHL conversion process, and a reserved overriding royalty.  Upon the closing under the Tar Sands Acquisition Agreement, the Tar Sand Rights Agreement, including the Contract Approval requirement thereunder, will be deemed void and of no further effect, Enercor will own the Leases and other rights described above, and Enercor will have standing to deal directly with the BLM in connection with the request to the BLM to issued CHL’s on the Property, which we expect will expedite the process.  Accordingly, when and if CHL’s are issued on the Property, they will be issued directly to Enercor and Enercor will be required to assign the Working Interest in the tar sands deposits to us without the necessity of first obtaining third party approval.  The grant of the CHL’s to Enercor remains subject to satisfactory completion of all regulatory requirements. We expect the BLM to issue the CHL’s upon the satisfactory completion of all regulatory requirements, expect the Contract Approval to be granted and hope to be able to commence tar sand extraction in approximately 10 months.  Nobut can offer no assurance can be given, however, as to when and if the Contract Approval and Combined Hydrocarbon Leasesthis will be granted and if granted, when we would be able to commence tar sand extraction activities.

We arewere required to pay Enercor an aggregate of up to $5,000,000 for the contract interest in a combination of cash ($500,000 to $1,000,000) and shares of our restricted common stock ($4,000,000).  The stock payment consisting of 4,147,237 shares of our common stock was made on July 31, 2009 (the “Initial Closing Date”).  The cash payments, each in the amount of $100,000 arewere required to be made at 30 day intervals following the Initial Closing Date.  To date weWe have made $300,000$500,000 in cash payments.  We have the optiondetermined to limit our aggregate cash payments to $500,000.  To the extent we do so, we will acquire less than a 40% interest in the contract rights$500,000 and receive an assignment, if applicable, of less than a 40%35% working interest.

On July 6, 2009 we entered into a Share Issuance Agreement (the “Agreement”) with Baden Energy Group Ltd. (“Baden”) pursuant to which Baden may, at our request, purchase units of our securities at a price equal to 80% of the volume weighted average of the closing price for our common stock for the ten business days immediately preceding the date we supply Baden with written notice of our request that they purchase units (the “Unit Price”).  Each unit will consist of one share of our restricted common stock and one common stock purchase warrant to purchase one share of our common stock for a period of three years from issuance at an exercise price equal to 125% of the Unit Price.  Each such request by us must be in the amount of not less than $100,000 of units and must be in multiples of $100,000.  We must use the proceeds from all unit sales for exploration activities, working capital and general corporate activities.  Baden may however, in its sole discretion, refuse to act on any request by us due to its determination that market conditions are unfavorable.

The Agreement is in effect until July 6, 2010 and is subject to extension for an additional six month term at the option of either party by providing the other party with written notice thereof prior to July 6, 2010.  During the term of the Agreement, as such may be extended, we may sell up to $6,000,000 of units to Baden, which amount may be increased by Baden, in its discretion, to $10,000,000.

During the period ending July 5, 2010, we may not discuss, solicit, negotiate or engage in any investment or corporate financing agreements without the prior written consent of Baden, which consent will not be arbitrarily withheld.  Further, Baden has a right of first refusal during such period on all of our proposed financings with third parties.  The foregoing right of Baden to prohibit our discussion, solicitation, negotiation or engagement in investment or corporate financing agreements or to maintain a right of first refusal will be of no further force or effect, however, should Baden refuse a unit purchase request from us by reason of unfavorable market conditions.

The Agreement further provides that until July 6, 2010 we may only engage in equity financings and may not engage in debt financings.  The Agreement is not assignable or transferrable by Baden without our prior written consent, which consent may not be arbitrarily withheld.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.