Bayou City Exploration (BYCX) 10-Q 2010 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2010

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                    TO                    

BAYOU CITY EXPLORATION, INC.

(Exact Name of Small Business Issuer as Specified in Its Charter)

NEVADA	61-1306702
(State or Other Jurisdiction of	(IRS Employer Identification No.)
Incorporation of Organization)

632 Adams Street — Suite 700, Bowling Green, KY 42101
(Address of Principal Executive Offices)

(800) 798-3389
(Issuer’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Not Applicable

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

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 definition of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer:o Accelerated filer:o Non-accelerated filer:o Smaller reporting company:þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

APPLICABLE ONLY TO CORPORATE ISSUERS

Shares outstanding for each class of stock as of the latest practicable date

Title or Class	Share Outstanding on April 30, 2010
Common Stock, $0.005 par value	26,653,633
Preferred Stock, $0.001 par value	0

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT Yeso Noþ

PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
FINANCIAL STATEMENTS OF REGISTRANT
BALANCE SHEETS AS OF MARCH 31, 2010 (UNAUDITED) AND DECEMBER 31, 2009	3
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)	4
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)	5
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS	6
ITEM 3. CONTROLS AND PROCEDURES	8
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	9
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	9
ITEM 5. OTHER INFORMATION	9
ITEM 6. EXHIBITS	9
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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BAYOU CITY EXPLORATION, INC.

BALANCE SHEETS

	March 31,			December 31,
	2010			2009
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	636,662		$	51,704
Accounts receivable:
Trade and other (net of allowance for doubtful accounts — $37,468 as of March 31, 2010 and December 31, 2009)		46,305			165,946
TOTAL CURRENT ASSETS		682,967			217,650
OIL & GAS PROPERTIES		384,375			308,967
TOTAL ASSETS	$	1,067,342		$	526,617
LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	110,526		$	133,071
Accounts payable — related party		84,906			134,906
Notes payable — related parties		100,000			475,000
TOTAL CURRENT LIABILITIES		295,432			742,977
TOTAL LIABILITIES		295,432			742,977
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2009 and December 31, 2008		—			—
Common stock, $0.005 par value; 150,000,000 shares authorized; 26,653,633 shares issued and outstanding at March 31, 2010 and December 31, 2009		133,268			133,268
Additional paid in capital		13,363,430			13,363,430
Accumulated (deficit)		(12,724,788	)		(13,713,058	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		771,910			(216,360	)
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY (DEFICIT)	$	1,067,342		$	526,617

The accompanying notes are an integral part
of these financial statements

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BAYOU CITY EXPLORATION, INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	March 31,
	2010			2009
OPERATING REVENUES:
Oil and gas sales	$	87,413		$	283,025
TOTAL OPERATING REVENUES		87,413			283,025
OPERATING COSTS AND EXPENSES:
Lease operating expenses and production taxes		10,896			24,329
Depreciation, depletion and amortization		6,580			1,458
General and administrative costs		84,410			52,603
TOTAL OPERATING COSTS		101,886			78,390
OPERATING INCOME (LOSS)		(14,473	)		204,635
OTHER INCOME (EXPENSE):
Interest expense		(3,551	)		(10,093	)
Gain on sale of assets		1,000,000			—
Forgiveness of debt		—			165,541
Other income		6,294			—
NET INCOME BEFORE INCOME TAX		988,270			360,083
Income Tax Provision		—			—
NET INCOME	$	988,270		$	360,083
NET INCOME PER COMMON SHARE	$	0.04		$	0.01
Weighted Average Common Shares Outstanding — Basic and Diluted		26,653,633			26,653,633

The accompanying notes are an integral part
of these financial statements

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BAYOU CITY EXPLORATION, INC.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

	THREE MONTHS ENDED
	March 31,
	2010			2009
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income	$	988,270		$	360,083
Adjustments to reconcile net income to net cash flows used in operating activities:
Depreciation, depletion, and amortization		6,580			1,458
Gain on sale of oil & gas property		(1,000,000	)		—
Forgiveness of debt		—			(165,541	)
Change in operating assets and liabilities:
Accounts Receivable		119,641			60,674
Accounts payable — related party		(50,000	)		(57,454	)
Accounts payable and accrued liabilities		(22,545	)		(79,959	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		41,946			119,261
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of oil and gas properties		(81,988	)		—
Proceeds from sale of oil and gas property		1,000,000
NET CASH PROVIDED BY INVESTING ACTIVITIES		918,012			—
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit		(375,000	)		(108,488	)
NET CASH (USED IN) FINANCING ACTIVITIES		(375,000	)		(108,488	)
NET INCREASE IN CASH		584,958			10,773
CASH AT BEGINNING OF PERIOD		51,704			18,042
CASH AT END OF PERIOD	$	636,662		$	28,815

The accompanying notes are an integral part
of these financial statements

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BAYOU CITY EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM REPORTING

The financial statements of the Registrant included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Although certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States has been omitted, the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Form 10-K of the Registrant for its fiscal year ended December 31, 2009 and subsequent filings with the Securities and Exchange Commission.

The financial statements included herein reflect all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods. The results for interim periods are not necessarily indicative of trends or of results to be expected for a full year.

2. SALE OF PROPERTY:

In late December 2009, the Company accepted an offer to purchase it’s 8.073375% royalty interest in the Sein #1 well for a total price of $1,000,000, that took place in two separate transactions, the first on January 1, 2010 and the second on March 01, 2010. The offer to purchase the royalty interest was made by five entities, all of which have a material relationship with the Company’s President and CEO, Robert D. Burr. Blue Ridge Group, Inc. is the Managing General Partner of the 2009 Production and Drilling Program, L.P. which purchased 1.9943981198% of the aforementioned royalty interest on January 01, 2010 for $247,034. Blue Ridge Group is also the managing General Partner of the 2009/2010 Production and Drilling Program L.P. purchased 1.1695494694% of the aforementioned royalty interest on March 01, 2010 for $144,865. Argyle Energy, Inc. is the Managing General Partner of the Argyle Energy 2009-VI Year End Production Program, L.P. which purchase .5494981226% of the aforementioned royalty interest on January 01, 2010 for $68,063. Argyle Energy, Inc. is also the Managing General Partner of the Argyle Energy 2009/2010-VI Year End Production Program, L.P. which purchased .5341506368% of the aforementioned royalty interest on March 01, 2010 for $66,162. Last is Burrite, Inc. which purchased 3.8257786515% of the aforementioned royalty interest on March 01, 2010 for $473,876. Mr. Burr is the President of Blue Ridge Group, Inc., Argyle Energy, Inc., and Burrite Inc. In light of the material relationship between the buyers and seller, the Board of Directors required a third party appraisal of the royalty interest as a condition precedent to acceptance of the offer. The appraisal was received on December 10, 2009 providing an opinion of value equal to $1,000,000. Accordingly, the Board of Directions voted to accept the above referenced offer and proceed to closing. All transactions were in cash and disclosed on two separate 8-K’s that were filed on January 12, 2010 and March 10, 2010.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

GENERAL OPERATIONS

Bayou City Exploration, Inc., (the “Company”), a Nevada corporation, was organized in November 1994, as Gem Source, Incorporated (“Gem Source”), and subsequently changed the name to Blue Ridge Energy, Inc. in May 1996. In September 2005, the Company changed its name to Bayou City Exploration, Inc.

The Company is engaged in the oil and gas business primarily in the gulf coast of Texas, east Texas, south Texas, and Louisiana. The Company develops oil and gas prospects for the drilling of oil and gas wells and attempts to sell the prospects to oil and gas exploration companies under terms that provide the participating company will provide the funds necessary to drill and complete a well on the prospect, reimburse the Company for any leasehold or exploration costs associated with the prospect, pay the Company a prospect fee for developing the oil and gas prospect, and allow the Company to retain a carried interest in the well to be drilled. The wells drilled by the Company included both exploratory and development wells.

The Company’s corporate headquarters are located at 632 Adams Street, Suite 700, Bowling Green, Kentucky, 42101. Robert D. Burr has served as President and Chief Executive Officer of the Company since April 2007 and Stephen C. Larkin has served as Chief Financial Officer since January 2010.

The Company seeks to sell a portion of the interest in each prospect it generates to an operator that will be responsible for the drilling and operating of the oil and gas properties. Currently, all the Company’s ownership in oil and gas wells is through non-operated working interests.

During 2009, the Company was successful in reaching settlement or payout arrangements with many of its vendors in return for a full release on all remaining liabilities. A gain of $166,000 was recognized in the year of 2009 due to these negotiations.

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In prior years the Company has financed much of its operations through the sale of securities. For the three months ended March 31, 2010 and 2009 the Company sold no shares of common stock and no warrants or options were exercised.

As of March 31, 2010, the Company had total assets of $1,067,000, total liabilities of $295,000 and a stockholders’ equity of $772,000. The Company had a net income of $988,000 for the three months ended March 31, 2010 and net income of $360,000 for the same period in 2009. The net income per common share was $0.04 per share during the three months ended March 31, 2010 as compared to $0.01 during the same period in 2009. All per share data in this report has been adjusted to give effect to applicable stock issues and conversions.

All of the Company’s periodic report filings with the SEC pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended, are available through the SEC web site located at www.sec.gov, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports. The Company will also make available to any stockholder, without charge, copies of its Annual Report on Form 10-K as filed with the SEC and a copy of its Code of Ethics. For copies of this, or any other filings, please contact: Robert D. Burr at Bayou City Exploration, Inc., 632 Adams Street — Suite 700, Bowling Green, KY 42101 or call (800)-798-3389.

DESCRIPTION OF PROPERTIES

The following are the primary properties held by the Company as of March 31, 2010:

Key Developed Properties:

Bridges #1well in Shelby County, Texas: The Company owns a 0.7% indirect working interest in this well through two partnerships managed by BR Group.

Rooke #1well: The Company owns a 9.5% working interest in 1 well located in Refugio County Texas which began production in September 2009. The well produces about 350 Mcf per day and about 10 Bbls of oil per day.

Chapman No. 75-1: The Company owns an 8% working interest in 1 well located in Nueces County, Texas which began production in October 2009. The well produces about 375 Mcf per day.

Garcitas #1:The Company owns a 9.5% working interest in 1 well located in Jackson & Victoria County, Texas. The well has been drilled and was completed during the first quarter of 2010. There has been minimal production thus far from this well, but is expected to have stable production during the second quarter of 2010.

Rooke B-1: The Company owns a 9.5% working interest in 1 well located in Refugio County, Texas. The well has been drilled and was completed in early 2010. It started producing in early February 2010 and has produced about 225 Mcf per day and about 12 Bbls of oil per day since then.

Rooke #2well: The Company owns a 9.5% working interest in 1 well located in Refugio County Texas. This well has been completed during the first quarter of 2010 and has had minimal production during the first quarter. Production is expected to become stable during the second quarter of 2010.

Key Undeveloped Properties:

At this time the Company has no undeveloped properties under lease.

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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

The Company had a net income of $988,000 for the three months ended March 31, 2010 compared to $360,000 for the same period in 2009. The income per common share was $0.04 per share during the first quarter of 2010 compared to $0.01 per share during the first quarter of 2009 due mainly to the sale of the Sein #1 well.

OPERATING REVENUES

Operating revenues from oil and gas sales were $87,000 during the three months ended March 31, 2010 as compared to $283,000 during the three months ended March 31, 2009 due to the sale of the Sein #1 well and consequent decrease oil and gas production revenue from aforementioned well.

DIRECT OPERATING COSTS

Direct operating costs are reflected as lease operating expenses and production taxes on the company’s statement of operations and were $11,000 for the three months ended March 31, 2010 as compared to $24,000 during the three months ended March 31, 2009. This decrease is due to the sale of the Sein #1 well and consequent decrease in oil and gas lease operating expenses and production taxes on well.

EXPLORATION COSTS

Exploration costs during the first quarter of 2010 and 2009 were $-0-. The Company does plan to resume its exploration efforts during the 2010 year.

OTHER OPERATING EXPENSES

The Company’s general and administrative expenses increased to $84,000 for the first quarter 2010 as compared to $53,000 for the first quarter of 2009. This increase is due to the establishment of executive salaries paid to Robert D. Burr, President and Chief Executive Officer, and to Stephen C. Larkin, Chief Financial Officer.

INCOME TAX PROVISION

Consistent with the prior period, the Company did not record a provision for income taxes due to the sufficient net operating loss carry forwards available via the federal income tax carry forward provisions. A valuation allowance continues to be recorded due to the uncertainty regarding the Company’s ability to utilize the deferred tax assets.

CAPITAL RESOURCES AND FINANCIAL CONDITION

The Company’s current ratio (current assets / current liabilities) was 2.31 to 1 as of March 31, 2010 compared to .29 to 1 as of December 31, 2009. This increase is mainly the result of the Company’s increased cash from the sale of the Sein #1 well and the reduction in notes payable to related parties.

The Company’s primary source of cash during the first three months of 2010 was from the sale of the Sein #1 Well and production from the three producing wells. At this point it is unclear as to the total production capability of the three current producing wells and the two that are expected to become producing during the second quarter of 2010, therefore future cash flows and duration of those cash flows cannot be known with any degree of certainty.

ITEM 3. CONTROLS AND PROCEDURES

Pursuant to Section 302 of the Sarbanes-Oxley Act and Rules 13a-15(e) and 15d-15 (e) under the Securities Exchange Act of 1934 (Exchange Act) promulgated thereunder, our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2010 (the “Evaluation Date”). Based on this evaluation, our management including the CEO and CFO concluded that the disclosure controls and procedures of the Company were effective, at a reasonable assurance level, as of March 31, 2010 to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, in a manner that allows timely decisions regarding required disclosure. We did not effect any change in our internal controls over financial reporting as of March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no current legal proceeding against the Company at the time of filing this report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit 31.1 Chief Executive Officer’s 302 Certification

Exhibit 31.2 Chief Financial Officer’s 302 Certification

Exhibit 32.1 Chief Executive Officer’s 906 Certification

Exhibit 32.2 Chief Financial Officer’s 906 Certification

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BAYOU CITY EXPLORATION, INC.
Date: May 10, 2010	By:	/s/Robert D. Burr
		Robert D. Burr
		Chief Executive Officer and President
	BAYOU CITY EXPLORATION, INC.
Date: May 10, 2010	By:	/s/Stephen C. Larkin
		Stephen C. Larkin
		Chief Financial Officer

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