TEXEN OIL & GAS, INC.
(Formerly Palal Mining Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
Future net cash flows were computed using year-end prices and period-end quantities of proved reserves. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expense is calculated by applying year-end statutory tax rates (adjusted for permanent differences and tax credits) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved.
These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the Securities and Exchange Commission, and do not represent management's assessment of future profitability or future cash flows to TexEn. Management's investments and operating decisions are based on reserves estimated that include proved reserves prescribed by the SEC as well as probable reserves, and on different price and cost assumptions from those used here.
It should be recognized that applying current costs and prices and a 10% standard discount rate does not convey absolute value. The discounted amounts arrived at are only one measure of the value of proved reserves.
Subsequent to the date of these financial statements, in November 2002, the Company issued 1,250,000 shares of its common stock to an individual for a 5% working interest in the Brookshire Dome Field. This transaction was valued at the fair market value of the stock on the date of issuance. In conjunction with this transaction, the Company's major stockholder rescinded 3,250,000 shares of common stock to facilitate this transaction and any other subsequent transactions requiring the Company to issue additional common stock.
The Company's consolidated financial statements for the period ended September 30, 2002 have been restated to reflect the correction of the recorded valuation of the acquisition of management rights and of subsidiaries with oil and gas producing activities. The correction was due to the restated value of a promoter's basis, which decreased management rights by $1,499,985, net oil and gas properties by $5,766,606 and additional paid-in capital by $7,220,893. In addition, accounts payable were reduced by $45,698 relating to pre-acquisition expenses. These corrections had no effect on operations for the three months ended September 30, 2002.
Item 2.Management Discussion and Analysis of Financial Conditions and Result of Operations for the three months ending September 30, 2002.
This discussion includes a number of forward looking statements that reflect our current views with respect to future events and financial performance. Forward looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward looking statements, which apply only as of the date of this discussion. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
Factors that may affect such forward-looking statements include, but are not limited to:
1) The Company's ability to generate additional capital to complete its planned drilling and exploration activities;
2) Risks inherent in oil and gas acquisitions, exploration, drilling, development and production;
3) Oil and natural gas prices;
4) Competition from other oil and gas companies;
5) Shortages of equipment, services and supplies;
6) General economic, market or business conditions;
7) Economic, market or business conditions in the oil and gas industry and in the energy business generally;
8) Environmental matters;
9) Financial condition and operating performance of the other companies participating in the exploration, development and production of oil and gas ventures that we are involved in. In addition, the Company may be in position to control costs, safety and timeliness of work as well as other critical factors affecting a producing well or exploration and development activities.
We are in an early stage of development with a few proven properties currently producing. Most of our properties are still awaiting additional exploration and development work. For the quarter ending September 30, 2002, we had $102,166 in total revenues in our first operating quarter.
Our auditors have issued a going concern opinion. This means that our auditors believe there is doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have generated limited revenues and expected revenues during the ensuing period are subject to fluctuation based on the availability of additional capital necessary in order to fully exploit the unproven potential of our Oil & Gas portfolio. Accordingly, we must raise cash from sources other than from the sale of Oil & Gas found on our properties. Our only other source for cash at this time is investments by others in our company. We must raise cash to implement our project and stay in business.
Limited Operating History: Need for Additional Capital
There is no historical financial information about our company upon which to base an evaluation of our performance. We have limited Oil & Gas production that has yet to achieve predictable sustained production from operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our properties and fluctuations in Oil & Gas sales and prices.
- 23 -
To become profitable and competitive, we need to fully exploit the undeveloped potential of our exploration properties. If successful, additional funds will be required in order to complete successful wells and place them on production. We are seeking equity financings to provide for our capital requirements in order to implement our exploration plans.
We have no assurances that future financings will be available to us on acceptable terms. If financings are not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financings could result in additional dilution to existing shareholders.
Results from Operations
A comparison of our results of operation for the three month period ending September 30, 2002 in comparison to the result of operations during the same three month period of the preceeding year and for the year ending June 30, 2002 must be prefaced by stating that during the quarter ending September 30, 2002 the Company changed its business direction from being an inactive mining Company to the area of Oil & Gas exploration and development.
On July 11, 2002 we acquired the issued shares of Texas Brookshire Partners, Inc. for 15,376,103 common shares.
On July 26, 2002 we acquired all of the outstanding common shares of Brookshire Drilling Service, LLC for 1,400,000 shares of common stock.
On July 22, 2002 we issued 373,847 shares in exchange for 10,000 shares of Yegua, Inc., which represented all of Yegua's outstanding stock.
On September 18, 2002 we purchased Texas Gohlke Partners, Inc. for 4,000,000 shares of the Company.
In addition, during the period we issued 1,500,000 shares to Senka LLC in exchange for all of the management of Senka LLC; 588,000 shares in exchange for an assignment of a 98% working interest (75% net revenue interest) in approximately 255.21 gross leasehold acres located in Concho County, Texas and 500,000 shares in exchange for the conveyance of a 100% working interest with a 75% net revenue interest in and to the lease hold ownership at the Trull Heirs #1 well bore located in Calhoun County, Texas.
For the purpose of the acquisitions, the shares issued to nonaffiliates were valued at the price of the shares on the date of each transaction. This value could therefore represent an overstatements of the value of the assets acquired.
During the three-month period ending September 30, 2001, no shares were issued. During the year ended June 30, 2002, an additional 15,149,629 shares were issued pursuant to a stock dividend.
- 24 -
During the periods ending September 30, 2001 and June 30, 2002 the Company had no assets and no revenues.
During the period ending September 30, 2002, the Company had revenues of $102,166 of which $75,648 were derived from Oil & Gas production net of taxes and $26,518 were derived from drilling revenues.
During the three months ending September 30, 2002 drilling cost of $16,289 were incurred by us in exploiting our Oil & Gas properties.
Expenses relating to the maintenance of the our Oil & Gas portfolio was $181,948. Legal and accounting costs incurred in order to conclude our acquisitions of Oil & Gas properties during the three month period ending September 30, 2002 was $55,373. Legal and accounting costs incurred by the Company for the same period ending September 30, 2001 was $6,012.
We ended our three-month period ended September 30, 2002 with a working capital deficit of $45,797.
The value placed on our assets including the unexplored potential of the oil and gas assets may be adjusted downwards during the current fiscal year based on a reserve evaluation which will be commissioned and prepared.
We expect to continue with the development of our current asset portfolio and we will be seeking new opportunities during the current fiscal year.
Item 3. Controls and Procedures.
Robert M. Baker, Principal Executive Officer and Principal Financial Officer of Texen Oil & Gas, has established and is currently maintaining disclosure controls and procedures for the Company. The disclosure controls and procedures have been designed to ensure that material information relating to the Company is made known to them as soon as it is known by others within the Company.
Our Principle Executive Officer and Principle Financial Officer conducts an update and a review and evaluation of the effectiveness of the Company's disclosure controls and procedures and have concluded, based on their evaluation within 90 days of the filing of this Report, that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.
- 25 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 29th day of April, 2003.
| TEXEN OIL & GAS INC
(Registrant)
|
| BY: | /s/ Robert M. Baker |
| | Robert M. Baker, President, Principal Executive Officer, Treasurer, Principal Financial Officer and a member of the Board of Directors. |
- 26 -
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Texen Oil & Gas, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date here of (the "report"), I, Robert M. Baker, Cheif Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated this 29th day of April, 2003.
| /s/ Robert M. Baker
Robert M. Baker
Chief Executive Officer and Chief Financial Officer |
- 27 -
CERTIFICATION
I, Robert M. Baker, certify that:
1. I have reviewed this interim report on Form 10-QSB of Texen Oil & Gas, Inc.;2. Based on my knowledge, this interim report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this interim report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this interim report.
4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of Company's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and
6. The Company's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated this 29th day of April, 2003.
| /s/ Robert M. Baker
Robert M. Baker
Principle Executive Officer and Principal Financial Officer |
