UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-72230
TERAX ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
Nevada | 88-0475757 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
| |
8150 N. Central Expy., Suite 1800 | |
Dallas, Texas | 75206 |
(Address of principal executive offices) | (zip code) |
Issuer's Telephone Number: (512) 417-1742
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 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
As of March 31, 2005 there were 28,845,000 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
TERAX ENERGY, INC.
MARCH 31, 2005
INDEX
| PART I - FINANCIAL INFORMATION | Page No.(s) |
| Item 1. Financial Statements | |
| Balance Sheet as of March 31, 2005 | 1 |
| Statement of Operations for the three ended March 31, 2005 and 2004 | 2 |
| Statement of Cash Flows for the three ended March 31, 2005 and 2004 | 3 |
| Notes to Unaudited Financial Statements | 4 |
| Item 2. Plan of Operation | 5 |
| Item 3 Controls and Procedures | 11 |
| PART II - OTHER INFORMATION | |
| Item 1. Legal Proceedings | 11 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
| Item 3. Defaults Upon Senior Securities | 12 |
| Item 4. Submission of Matters to a Vote of Security Holders | 12 |
| Item 5. Other Information | 12 |
| Item 6. Exhibits and Reports on Form 8-K | 12 |
| SIGNATURES | 13 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TERAX ENERGY, INC.
(formerly Royal Phoenix)
(a Development Stage Company)
Balance Sheet
| March 31, 2005 |
Assets | |
| |
Current assets: | |
Cash | $ 14,718 |
| |
Total current assets | 14,718 |
| $ 14,718 |
| |
Liabilities and Stockholder's Equity | |
| |
Current liabilities: | $ 0 |
Total current liabilities | 0 |
| |
Stockholders' equity: | |
| |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, zero shares issued and outstanding | - |
| |
Common stock, $0.001 par value, 60,000,000 shares authorized, 28,845,000 shares issued and outstanding | 28,845 |
| |
Additional paid-in capital | 18,955 |
| |
(Deficit) accumulated during development stage | (33,082) |
| 14,718 |
| |
| $ 14,718 |
The accompanying notes are an integral part of these financial statements.
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TERAX ENERGY, INC.
(formerly Royal Phoenix)
(a Development Stage Company)
Statements of Operations
|
For the Three Months Ended March 31 | October 17, 2000 (inception) to March 31, | |
| 2005 | 2004 | 2005 |
| |||
Revenue | $ - | $ - | $ - |
| |||
Expenses: | |||
General and administrative expenses | 3,531 | 4,500 | 33,082 |
Total expenses | 3,531 | 4,500 | 33,082 |
| |||
Net (loss) | $ (3,531) | $ (4,500) | $ (33,082) |
| |||
Weighted average number of common shares outstanding - basic and fully diluted | 28,845,000 | 28,845,000 | |
| |||
Net (loss) per share - basic and fully diluted | $ (0.00) | $ (0.00) | |
The accompanying notes are an integral part of these financial statements.
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TERAX ENERGY, INC.
(formerly Royal Phoenix)
(a Development Stage Company)
Statements of Cash Flows
|
For the Three Months Ended March 31 | October 17, 2000 (inception) to March 31, | |
| 2005 | 2004 | 2005 |
| |||
Cash flows from operating activities | |||
Net loss | $ (3,531) | $ (4,500) | $ (33,082) |
Shares issued for services | - | - | 7,500 |
Net cash (used) by operating activities | (3,531) | (4,500) | (25,582) |
| |||
Cash flows from financing activities | |||
Debt conversion | - | - | 1,500 |
Issuance of common stock | - | - | 38,800 |
Net cash provided by financing activities | - | - | 40,300 |
| |||
Net (decrease) increase in cash | (3,531) | (4,500) | 14,718 |
Cash - beginning | 18,249 | 25,909 | - |
Cash - ending | $ 14,718 | $ 21,409 | $ 14,718 |
| |||
Supplemental disclosure | |||
Interest paid | $ - | $ - | $ - |
Income taxes paid | $ - | $ - | $ - |
| |||
Non-cash transactions: | |||
Shares issued for services | - | - | 7,500,000 |
The accompanying notes are an integral part of these financial statements.
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TERAX ENERGY, INC.
(formerly Royal Phoenix)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The condensed interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2004 and notes thereto included in the Company's Form 10-KSB annual report. The Company follows the same accounting policies in the preparation of interim reports.
Results of operation for the interim period are not indicative of annual results.
Going concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is in the development stage and, accordingly, has not yet generated revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its product line, setting up its e-commerce website, and incurring substantial costs and expenses. As a result, the Company incurred accumulated net losses from October 17, 2000 (inception) through the period ended March 31, 2005 of $33,082. In addition, the Company's development activities since inception have been financially sustained through equity financing.
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.
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Item 2. Plan of Operation.
This report contains forward-looking statements. Actual results and events could differ materially from those projected, anticipated, or implicit, in the forward-looking statements as a result of the risk factors set forth below and elsewhere in this report.
With the exception of historical matters, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning anticipated trends in revenues and net income, the date of commencement of our operations, projections concerning operations and available cash flow. Our actual results could differ materially from the results discussed in such forward-looking statements primarily as the result of insufficient cash to pursue production and marketing efforts. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere herein.
Overview
We were incorporated in Nevada in October 2000 under the name Royal Phoenix, as a Development Stage Company, previously engaged in the business of marketing and distributing Royal Phoenix, a line of herbal products. The Royal Phoenix herbal product line was developed by Desert Health Products several years ago, however, the product line, after development, was not marketed. We are currently seeking potential alternative business opportunities in conjunction with evaluating our current business plan.
On March 15, 2005, we changed our name from Royal Phoenix to Terax Energy, Inc. The name change was effected through an amendment to our articles of incorporation and approved by the board of directors and by a majority consent of our stockholders.
We have a limited operating history and have not generated revenues from the sale of any products. Our company and products are the result of an agreement, which was entered into between us and Desert Health Products, which resulted in the separation from Desert Health Products of the Royal Phoenix line of herbal products developed by Desert Health Products. Our activities have been limited to the negotiation of a license agreement and preliminary market analysis, capital raising and placing us in a position of raising additional capital. Consequently, we have incurred the expenses of start-up. Future operating results will depend on many factors, including our ability to raise adequate working capital, our ability to locate a potential merger or acquisition target, the level of competition and our ability to deliver products while maintaining quality and controlling costs. As a result of our lack of liabilities, our current cash position allows us to maintain a status quo position for a period of approximately six months. However; this position will not allow us to pursue any significant business opportunity.
Since our incorporation in October 2000 through March 31, 2005, we have not generated any revenues and have incurred a net loss of $33,082. As a result of our determination of the potential lack of viability of The Royal Phoenix business model, and our lack of capital to pursue the business model, we have decided to seek other business alternatives. However, we have not entirely abandoned our previous business plan.
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Satisfaction of our cash obligations for the next 12 months. Our plan of operation has provided for us to establish a marketing venue for the sale of private label vitamin products supplied by Desert Health Products. We capitalized our company with $13,500 from our former sole officer, director and stockholder. We subsequently raised $25,000 from a direct offering registration. After covering costs related to our start up business operations, as of March 31, 2005, we had cash remaining of $14,717. We do not believe that the available cash will satisfy our cash obligations for the next twelve months. We believe that we will require at least $30,000 to continue our existence, which sum would not include sufficient capital to continue with any significant business opportunity. We have included in our recent business plan the concept of seeking, either venture partners, merger candidates, or other means of perfecting a business opportunity or funds needed if we consummate a merger or acquisition. We have been unsuccessful in the past of generating sufficient capital to perfect our business plan. In an effort to assist us in seeking other business opportunities, we have changed our name and management.
Summary of any product research and development that we will perform for the term of the plan. We do not anticipate performing any significant product research and development under our current plan of operation.
Expected purchase or sale of plant and significant equipment. We do not anticipate the purchase or sale of any plant or significant equipment, as such items are not required by us at this time or anticipated in the next 12 months.
Significant changes in number of employees. We currently do not have any employees other than our sole officer, Bill Chester, and until we either obtain sufficient capital to pursue our business plan, or either acquire a business with sufficient cash, or merge with such a company, we will not require new employees.
Plan of Operation
As a result of our lack of revenue generation and the extremely competitive environment for nutritional supplements, we have not been satisfied with our business plan or original plan of operation. In our June 30, 2004 Form 10-QSB we disclosed that during the following 12 months we planned to re-assess our business plan and alternatively seek out other business opportunities capable of increasing stockholder value.
We plan to locate and negotiate with a business entity for the merger of a target business into us. In certain instances, a target business may wish to become a subsidiary of us or may wish to contribute assets to us rather than merge. No assurances can be given that we will be successful in locating or negotiating with any target business.
Management is actively engaged in seeking a qualified company as a candidate for a business combination. We are authorized to enter into a definitive agreement with a wide variety of businesses without limitation as to their industry or revenues. It is not possible at this time to predict with which company, if any, we will enter into a definitive agreement or what will be the industry, operating history, revenues, future prospects or other characteristics of that company.
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As of the date hereof, management has not made any final decision concerning or entered into any written agreements for a business combination. When any such agreement is reached or other material fact occurs, we will file notice of such agreement or fact with the Securities and Exchange Commission on Form 8-K.
On March 22, 2005, our sole officer and director, Joseph Scott Wilson, appointed Bill Chester as a director and as President, Secretary and on that date, Treasurer. Mr. Wilson subsequently resigned, leaving Mr. Chester as the sole director of the Company. Mr. Wilson had been unable to secure adequate funding necessary to further the Company's business plan and felt that Mr. Chester's experience in the oil and gas industry is anticipated to provide the Company with new opportunities and directions that lead to the maximization of stockholder value. More information on Mr. Chester can be found in Item 9 of our Form 10-KSB filed on March 31, 2005.
Concurrent with his resignation, Mr. Wilson sold 21,030,000 shares of the Company's common stock owned by Mr. Wilson to Mr. Chester for $10,000 in cash. The shares sold by Mr. Wilson to Mr. Chester, represent approximately 73% of the Company's issued and outstanding shares of common stock. Mr. Chester used his personal funds for the purchase of the shares from Mr. Wilson.
Liquidity and Capital Resources
A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through additional equity and/or debt financing. We do not anticipate enough positive internal operating cash flow until such time as we can locate a merger or acquisition target or generate substantial revenues, which may take the next few years to fully realize. In the event we cannot obtain the necessary capital to pursue our operations, we may have to cease or significantly curtail our operations. This would materially impact our ability to continue operations.
Since inception, we have financed our cash flow requirements through the issuance of common stock, which has resulted in our receipt of $38,500. As we continue our activities, we may continue to experience net negative cash flows from operations, pending consummation of a merger or acquisition or the receipt of sales revenues. Additionally we anticipate obtaining additional financing to fund operations through common stock offerings and bank borrowings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital.
Over the next twelve months we believe that existing capital and anticipated funds from operations will not be sufficient to sustain operations. Consequently, we will be required to seek additional capital in the future to fund operations through additional equity or debt financing or credit facilities. No assurance can be made that such financing would be available, and if available it may take either the form of debt or equity. In either case, the financing could have a negative impact on our financial condition and our Stockholders.
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We anticipate incurring operating losses over the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies searching for viable merger or acquisition candidates. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, implement and successfully execute our revised business model, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
As of March 31, 2005, we had assets of $14,718 and no liabilities, resulting in a stockholder's equity of $14,718.
FACTORS THAT MAY AFFECT OUR PLAN OF OPERATION
We are a development stage company, with a minimal operating history, which raises substantial doubt as to our ability to successfully develop profitable business operations.
We were incorporated in October of 2000 as a wholly owned subsidiary of Desert Health Products. Concurrent with formation it was determined to separate us from Desert Health Products. We have yet to generate revenues from operations and have been focused on organizational, start-up, and market analysis activities since we incorporated. Although we have products to market as a result of our license with Desert Health Products, there is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. In addition, we are actively seeking merger or acquisition candidates, which is anticipated to drastically change our business operations.
We are an insignificant participant in the business of seeking mergers wherein a large number of established and well financed entities are our competitors.
We are and will continue to be an insignificant participant in the business of seeking mergers with and acquisitions of business entities. A large number of established and well-financed entities, including venture capital firms, are active in mergers and acquisitions of companies, which may be merger or acquisition target candidates for us. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than we do and, consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, we will also compete with numerous other small public companies in seeking merger or acquisition candidates.
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We have no agreement for a business combination or other transaction and have no predetermined standards for a business combination.
We have reached no definitive arrangement or understanding with respect to engaging in a business combination with a specific entity. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or in concluding a business combination. There is no assurance that we will be able to negotiate a business combination on terms favorable to us. We have not established a specific length of operating history or a specified level of earnings, assets, net worth or other criteria, which we will require a Target Company to have achieved, or without which we would not consider a business combination with such business entity. Accordingly, we may enter into a business combination with a business entity having no significant operating history, losses, limited or no potential for immediate earnings, limited assets, negative net worth or other negative characteristics.
We recently changed our management and are unsure of the effect on our ability to operate.
On March 22, 2005, Bill Chester, took over management of our operations. Although Mr. Chester has experience in business matters, we are unsure as to whether Mr. Chester will provide a positive benefit to us in light of our current financial position.
Because our common stock is deemed a low-priced "Penny" stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
Deliver to the customer, and obtain a written receipt for, a disclosure document;
Disclose certain price information about the stock;
Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
Send monthly statements to customers with market and price information about the penny stock; and
In some circumstances, approve the purchaser's account under certain standards and deliver written statements to the customer with information specified in the rules.
Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
9
We will need additional capital in the future to finance our operations, which we may not be able to raise or it may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.
We have and expect to continue to have substantial capital expenditure and working capital needs. We believe that current cash on hand and the other sources of liquidity are only sufficient enough to fund our operations through June 30, 2005. After that time we may need to raise additional funds to fund our operations.
If operating difficulties or other factors, many of which are beyond our control, cause our revenues or cash flows from operations, if any, to decrease, we may be limited in our ability to spend the capital necessary to complete our development, exploitation and exploration programs. If our resources or cash flows do not rapidly commence, we will require additional financing to fund our planned growth.
Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced, and these newly issued securities might have rights, preferences or privileges senior to those of existing stockholders.
Our auditor's report reflects the fact that without realization of additional capital, it would be unlikely for us to continue as a going concern.
As a result of our deficiency in working capital at December 31, 2004 and other factors, our auditors have included a paragraph in their report regarding substantial doubt about our ability to continue as a going concern. Our plans in this regard are to seek merger or acquisition candidates, seek additional funding through future equity private placements or debt facilities.
Going Concern
The consolidated financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of us as a going concern. As a result, we incurred accumulated net losses from October 17, 2000 (inception) through the period ended March 31, 2005 of $33,082. Management intends to use borrowings and security sales to mitigate the effects of its cash position, however no assurance can be given that debt or equity financing, if and when required will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue existence.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, our sole officer evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, our sole officer concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II--OTHER INFORMATION
On March 24, 2005, in conjunction with our name change from Royal Phoenix to Terax Energy, Inc., our OTC:BB trading symbol changed to "TXEI".
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of Proceeds From Sales of Registered Securities
Our Registration Statement on Form SB- 2 (File No. 333-72230), related to our initial public offering, was declared effective by the SEC on December 30, 2002. A total of 250,000 shares of our Common Stock was registered with the SEC with an aggregate offering price of $25,000. All of these shares were registered on our behalf. The offering commenced in June 2003, and all shares of common stock offered were sold for the aggregate offering price directly by the Company with no commissions paid on funds raised.
We incurred offering expenses of approximately $6,000 in connection with the offering. Thus the net offering proceeds to us (after deducting offering expenses) were approximately $19,000. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates), persons owning ten percent (10%) or more of any class of our equity securities or to any other affiliates.
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As of March 31, 2005, $7,000 of the net proceeds had been used for legal, accounting and transfer agent expenses. The remaining $12,000 of the net proceeds are in our operating account pending future use.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matter to a Vote of Security Holders.
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the first quarter ended March 31, 2005.
On March 15, 2005, we changed our name from Royal Phoenix to Terax Energy, Inc. The name change was effected through an amendment to our articles of incorporation and approved by the board of directors and by a majority consent of our stockholders. A copy of the certificate of amendment to the articles of incorporation was attached to the Form 8-K filed on March 28, 2005 as exhibit 3(i)(a).
Item 5. Other Information.
None.
Item 6. Exhibits.
Ex-31 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Ex-32 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TERAX ENERGY, INC.
By: /s/ Bill Chester
Bill Chester, President
(On behalf of the registrant and as
principal accounting officer)
Date: May 13, 2005
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