U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
xx Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: September 30, 2005
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to __________
Commission File number: 0-3912
Petrol Industries, Inc.
-----------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 75-1282449
-------- ------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation of Organization)
202 N. Thomas, Suite 4 Shreveport, LA 71107-6539
-------------------------------------------------------
(Address of Principal Executive Offices)
(318) 424-6396
----------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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. Yes xx No____
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 9,897,608 as of December 9,
2005
Transitional Small Business Disclosure Format: Yes ____ No xx__
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PETROL INDUSTRIES, INC. & SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
2005 2004
-------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 84,865 $ 89,762
Accounts receivable:
Trade 453,083 27,470
Other 2,799 9,498
Deposit on Equipment 100,000 - 0 -
-------------- -------------
640,747 36,968
Inventory 133,909 33,357
Prepaid expenses 5,263 2,849
-------------- -------------
Total current assets 779,919 162,936
-------------- -------------
Property and equipment, at cost:
Land 7,000 7,000
Developed and undeveloped oil and gas
properties-successful efforts method 3,059,099 3,138,401
Trucks and other operating equipment 452,915 363,215
Furniture and fixtures 36,412 36,306
-------------- -------------
3,555,426 3,544,922
Less accumulated depreciation, depletion and
amortization 3,388,906 3,458,877
-------------- -------------
166,520 86,045
-------------- -------------
Other assets 1,107 1,107
-------------- -------------
$ 947,546 $ 250,088
Liabilities and Stockholders' Deficit ============== =============
Current liabilities:
Accounts payable $ 179,220 $ 43,460
Payable to interest owners - 0 - 324,871
Note payable 578,765 1,057,225
Notes payable - 0 - 189,756
Accrued expenses 24,256 96,160
-------------- -------------
Total current liabilities 782,241 1,711,472
-------------- -------------
Reserve for past interest owners 200,000 - 0 -
-------------- -------------
Total Liabilities 982,241 1,711,472
-------------- -------------
Stockholders' equity (deficit):
Preferred stock-no par value. Authorized 1,000,000
shares; no shares issued or outstanding --- ---
Common stock-$.10 par value. Authorized 10,000,000
shares; issued and outstanding 9,697,608 shares
in 2005 and 1,597,196 shares in 2004 969,761 159,720
Additional paid in capital 558,164 ---
Accumulated deficit (1,562,620) (1,621,104)
-------------- -------------
Total stockholders' equity (deficit) (34,695) (1,461,384)
-------------- -------------
$ 947,546 $ 250,088
============== =============
2
PETROL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended Nine Months Ended
September 30, September30,
2005 2004 2005 2004
-------------------------------- --------------------------------
Revenues:
Oil and gas sales $ 179,900 $ 210,254 $ 445,758 $ 622,729
Other operating income 455,277 5,927 587,201 8,488
--------------- -------------- -------------- --------------
635,177 216,181 1,032,959 631,177
--------------- -------------- -------------- --------------
Expenses:
Lease operating expense 326,563 178,144 596,741 500,429
General and administrative 189,885 46,292 340,169 141,807
Depreciation, depletion
and amortization 1,910 2,865 7,640 8,595
--------------- -------------- -------------- --------------
518,358 227,301 944,550 650,831
--------------- -------------- -------------- --------------
Operating Profit (loss) 116,819 (11,120) 88,409 (19,654)
--------------- -------------- -------------- --------------
Other income and (expense):
Gain on sale of assets 192,515 ---- 192,515 148,144
Interest income 367 65 2,077 696
Interest expense --- (15,436) (14,517) (47,774)
Bonus expense --- --- (210,000) ---
--------------- -------------- -------------- --------------
192,882 (15,371) (29,925) 101,066
--------------- -------------- -------------- --------------
Net income/(loss) $ 309,701 $ (26,491) 58,484 81,412
=============== ============== ============== ==============
Net income/(loss) per share $ 0.05 $ (0.02) $ 0.01 $ 0.05
=============== ============== ============== ==============
Average common shares
outstanding 5,711,008 1,597,196 3,256,448 1,597,196
=============== ============== ============== ==============
3
PETROL INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Nine months ended September 30, 2005 and 2004
(unaudited)
2005 2004
-------------- -------------
Operating activities:
Net income/(loss) $ 58,484 $ 81,412
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 7,640 8,595
Gain on sale of assets (192,515) (148,144)
Changes in assets and liabilities:
Accounts receivable, (418,914) 12,739
Inventory (100,552) 1,787
Prepaid expenses (2,414) (3,805)
Accounts payable and accrued expenses (63,856) (16,116)
Accrued director fees ---- 12,400
Payable to interest owners (324,871) 13,326
Deposits (100,000) ---
-------------- -------------
Net cash used by operating activities (1,009,286) (23,936)
Investing activities:
Capital expenditures (121,510) (4,312)
Proceeds from sale of property and equipment 425,910 155,500
-------------- -------------
Net cash provided (used) by investing activities 304,400 151,184
Financing activities:
Issuance of common stock 810,041 ---
Proceeds from notes payable 79,704 42,912
Repayments of gross borrowings (189,756) (84,500)
-------------- -------------
Net cash provided by financing activities 699,989 (84,500)
Increase (decrease) in cash and cash equivalents (4,897) 42,722
Cash and cash equivalents at beginning of period 89,762 25,074
-------------- -------------
Cash and cash equivalents at end of period $ 84,865 $ 67,796
============== =============
Non-cash transactions:
Settlement of debt for stock $ 558,164 $ ---
4
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF OPERATIONS
Petrol Industries, Inc. ("Petrol" or the "Company") is an independent energy
company engaged primarily in the acquisition, exploration, development,
production and sale of oil, gas and natural gas liquids. Petrol's production
activities are located in the United States of America. Petrol operations
primarily consist of one segment of business, oil and gas production. Petrol was
incorporated in 1968 under the laws of the State of Nevada.
Petrol's future financial condition and results of operations will depend upon
prices received for its oil and natural gas and the costs of finding, acquiring,
development and producing reserves. Prices for oil and natural gas are subject
to fluctuations in response to changes in supply, market uncertainty and a
variety of other factors beyond Petrol's control. These factors include
worldwide political instability, the foreign supply of oil and natural gas, the
price of foreign imports, the level of consumer product demand and the price and
availability of alternate fuels.
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and the rules of the Securities and Exchange Commission ("SEC"), and
should be read in conjunction with the audited financial statements and notes
thereto contained in Petrol's Annual Report filed with the SEC on Form 10-KSB.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosure
contained in the audited financial; statements for fiscal 2004 as reported in
the Form 10-KSB have been omitted.
NOTE 2. MAJOR CUSTOMERS
Two customers accounted for approximately 98% of Petrol's net sales for the nine
months ended September 30, 2005.
NOTE 3. NOTES PAYABLE
During the nine months ended September 30, 2005, Petrol retired a total of
$558,164 of notes payable through the issuance of 5,581,640 shares of common
stock.
NOTE 4. COMMON STOCK
On March 30, 2005, Petrol reached an agreement with SHWJ Oil & Gas, Inc., a
Texas corporation to sell 1,240,612 shares of Petrol's authorized common stock
to SHWJ in a private placement at $.40/share, for a total purchase price of
$496,244.80.
The stock was issued in two phases: 678,612 shares on April 28, 2005, and
562,000 shares on June 20, 2005. These shares were issued by Petrol in a
transaction not registered under the Securities Act of 1933, in reliance upon
the exemption provided in Section 4(2) of the Securities Act of 1933.
5
Concurrently with its acquisition of common stock from Petrol, SHWJ also
acquired 575,000 shares of stock owned by Joseph M. Rodano, past President and
Chairman of the Board.
On August 04, 2005 Petrol issued 345,000 common shares reducing notes payable by
$69,000.
On August 08, 2005 Petrol issued 345,000 common shares reducing notes payable by
$69,000.
On August 11, 2005 Petrol issued 310,000 common shares reducing the notes
payable by $62,000.
On August 19, 2005 Petrol issued 509,800 common shares reducing the accounts
payable by $101,960.
On August 23, 2005 Petrol issued 100,000 common shares of which 50,000 were
canceled on September 13,2005 for services rendered in the net amount of
$10,000.
On August 25, 2005 Petrol issued 250,000 common shares for services rendered in
the amount of $50,000.
On September 20, 2005 500,000 common shares were issued for a deposit on
equipment of $50,000.
On September 22, 2005 500,000 common shares were issued for a deposit on
equipment $50,000.
On September 29, 2005, 4,000,000 common shares were issued reducing the notes
payable by $400,000.
NOTE 5. SUBSEQUENT EVENTS
On November 1, 2005, Petrol completed a disposition of certain assets pursuant
to an Agreement to Exchange Oil and Gas Working Interests for Corporate Stock
dated as of October 31, 2005 (the "Agreement") with Black Dragon Resources
Companies, Inc. ("BDRC") under the terms of which Petrol agreed to assign all
its right, title and interest in the majority of its oil and gas properties,
including working interests in individual wells and leases, in properties
located in Caddo Parish, Louisiana to BDRC in exchange for a $300,000 principal
amount promissory note of BDRC and an aggregate of 700,000 shares of BDRC Series
D Convertible Preferred Stock at a face value of $4.50 per share. The stock is
convertible at the option of Petrol into shares of BDRC common stock. The
preferred stock has a dividend rate of 2-1/2% per annum payable by cash or stock
at the election of Petrol.
The promissory note issued to Petrol pays interest at 6% per annum and matures
on October 6, 2008. BDRC has the option to prepay all of a portion of the
indebtedness evidence by the note, in whole or in part, upon 10 days prior
written notice to Petrol.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 that include, among others, statements concerning: expectations,
anticipations, beliefs, estimations, projections, and other similar matters that
are not historical facts, including such matters as: future capital, development
and exploration expenditures (including the amount and nature thereof), drilling
of wells, reserve estimates (including estimates of future net revenues
associated with such reserves and the present value of such future net
revenues), future production of oil and gas, repayment of debt, business
strategies, and expansion and growth of business operations.
These statements are based on certain assumptions and analyses made by the
management of Petrol in light of past experience and perception of: historical
trends, current conditions, expected future developments, and other factors that
the management of Petrol believes are appropriate under the circumstances.
Petrol cautions the reader that these forward-looking statements are subject to
risks and uncertainties, including those associated with: the financial
environment, the regulatory environment, and trend projections, that cause
actual events or results to differ materially from those expressed or implied by
the statements. Such risks and uncertainties include those risks and
uncertainties identified below.
Significant factors that could prevent Petrol from achieving its stated goals
include: declines in the market prices for oil and gas, adverse changes in the
regulatory environment affecting Petrol, the inability to dispose of real
property at prices sufficient enough to liquidate associated indebtedness, the
inherent risks involved in the evaluation of properties targeted for
acquisition, Petrol's dependence on key personnel, the availability of capital
resources at terms acceptable to Petrol, the uncertainty of estimates of proved
reserves and future net cash flows, the risk and related cost of replacing
produced reserves, the high risk in exploratory drilling and competition. Petrol
or persons acting on its or their behalf should consider the cautionary
statements contained or referred to in this report in connection with any
subsequent written or oral forward-looking statements that may be issued. Petrol
undertakes no obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Petrol's revenues from oil and gas activities decreased approximately 21% in the
third quarter of 2005, as compared to the third quarter of 2004, the result
being an approximately 72% decrease in production. On a barrel of oil equivalent
("BOE") basis, the price paid at the wellhead for Petrol's production increased
from $36.41 in third quarter of 2004 to $58.44 in the third quarter of 2005.
The 72% decrease in production is due to the fact that the State of Louisiana
suspended Petrol's R4's (Authority to Transport Oil) until Petrol plugged and
abandoned certain wells. Petrol's Texas production was suspended until a
saltwater disposal well could be tested. These suspensions were lifted in
September and Petrol only had production for one month, plus sale of inventory.
Revenues from operating fees, including rental charges for company-owned
equipment, increased from $1,286 in the third quarter of 2004 to $405,275 in the
third quarter of 2005. This results from contracts to service other operators.
Petrol's lease operating expense increased from $510,429 for the nine months
ended September 30, 2004, to $596,741 for the nine months ended September 30,
2005. Expenses attributable to the producing properties were consistent with the
7
prior year based on production. The costs of maintenance and supplies for
Company equipment increased as Petrol utilized it more for outside operations.
Net operating revenues from Petrol's oil and gas production are very sensitive
to changes in the price of oil: thus it is difficult for management to predict
whether or not Petrol will be profitable in the future. Management continues to
explore possible approaches to increasing oil production, including
technological developments or pursuing drilling operations.
General and administrative expenses increased $98,462 for the nine months ended
September 30, 2005, as compared to the 2004 period. This increase is attributed
to increases in legal and audit expenses incurred by Petrol for the private
placement and compliance issues. Consulting fees increased as Petrol is
attempting to get the oil and gas production increased. Petrol has hired more
staff to account for outside operations along with consultants.
Depreciation, depletion and amortization decreased $335 for the nine months in
2005 and from 2004. Petrol acquired equipment at the end of the 2005 period and
this was not depreciated in the period. The sale of property reduced the
depletion.
Interest income is $2,117 as of September 30, 2005 as compared to $696 at
September 30, 2004. The increase is due to increased cash and cash equivalents
for the period.
Interest expense decreased in 2005 from $32,338 in 2004 due to the retirement of
debt and the change of ownership on a certain note payable.
Petrol's outgoing Board of Directors, with the consent of the new members of the
Board, agreed to pay a bonus to certain officers and consultants of Petrol. Cash
bonuses of $135,000 were paid and $75,000 was paid by assigning royalties and
interest. This was a one-time charge.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, Petrol had a working capital of $2,322. This working
capital is a result of the debt retirement and increased receivables.
Net cash used by operating activities totaled $468,782 for the nine months ended
September 30, 2005, compared to $23,936 used by operating activities for the
nine months ended September 30, 2004. In 2005, net income adjusted for
reconciling items resulted in a cash inflow of $66,140. Changes in assets and
liabilities resulted in a cash inflow of $595,119. In 2004, net income for
reconciling items resulted in cash inflow of $151,184.
Net Cash provided by investing activities totaled $736,104 for the nine months
ended September 30, 2005, as compared to cash provided by investing activities
of $151,184 for the nine months ended September 30, 2004.
Net cash provided by financing activities totaled $900,009 for the nine months
ended September 30, 2005, and net cash used by financing activities totaled
$84,500 for the nine months ended September 30, 2004.
Proceeds of $492,245 were received from private placements of Petrol's stock and
conversion of debt of $875,960. Payments on notes payable resulted in a cash
outflow of $568,196 in 2005. Payments on notes payable were $84,500 in 2004.
Petrol had cash and cash equivalents at September 30, 2005, of $84,865, compared
to $67,796 at the end of the 2004 fiscal year.
8
As reported in the Registrant's 2004 Annual Report on form 10-KSB, Petrol was
under a Compliance Order with the Louisiana Department of Natural Resources
(LDNR) regarding the breach of saltwater to the surface on one (1) of Petrol's
wells. Under this order, Petrol had been assessed civil fines and penalties of
approximately $20,000. Petrol filed for an abatement and removal of the
fines/penalties assessed by the LDNR, contingent upon Petrol drilling a
monitoring well next to the one in question to test the vertical and horizontal
extent of the contamination, and its effect on ground water in the exposed area.
On or about May 20, 2005, Petrol drilled the initial test monitoring well for
the purpose of determining the presence of an Underground Source of Drinking
Water (USDW). Based on an evaluation of the electric log run in the test well,
and the formation descriptions submitted on the driller's log for the test, it
was determined that no USDW was present at that location. Petrol also plugged
and abandoned the well on which the saltwater reached the surface.
On or about September 07, 2005 all suspensions were lifted by the State of
Louisiana and Petrol paid a $1,500 penalty. The State of Texas released all
suspensions on October 09, 2005.
SUBSEQUENT EVENTS
On November 1, 2005, Petrol completed a disposition of certain assets pursuant
to an Agreement to Exchange Oil and Gas Working Interests for Corporate Stock
dated as of October 31, 2005 (the "Agreement") with Black Dragon Resources
Companies, Inc. ("BDRC") under the terms of which Petrol agreed to assign all
its right, title and interest in oil and gas properties, including working
interests in individual wells and leases, in properties located in Caddo Parish,
Louisiana to BDRC in exchange for a $300,000 principal amount promissory note of
BDRC and an aggregate of 700,000 shares of BDRC Series D Convertible Preferred
Stock at a face value of $4.50 per share. The stock is convertible at the option
of Petrol into shares of BDRC common stock. The preferred stock has a dividend
rate of 2-1/2% per annum payable by cash or stock at the election of Petrol.
The promissory note issued to Petrol pays interest at 6% per annum and matures
on October 6,2008. BDRC has the option to prepay all of a portion of the
indebtedness evidence by the note, in whole or in part, upon 10 days prior
written notice to Petrol.
EFFECT OF CHANGES IN PRICES
Changes in prices during the past few years have been a significant factor in
the oil and gas industry. The price received for the oil and gas produced by
Petrol has fluctuated significantly during the last year. Changes in the price
that Petrol receives for its oil and gas is set by market forces beyond Petrol's
control as well as government intervention. The volatility and uncertainty in
oil and gas prices have made it more difficult for a company like Petrol to
increase its oil and gas asset base and become a significant participant in the
oil and gas industry. Most of Petrol's oil and gas production is sold to certain
major oil companies and gas transmission companies. However, in the event these
purchasers discontinued oil and gas purchases, Petrol has made contact with
other purchasers who would purchase the oil and gas at terms standard in the
industry.
9
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discuss Petrol's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, recovery of oil and gas reserves,
financial operations, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of Petrol's financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources, primarily allowance for doubtful accounts,
the discounted value of recoverable oil and gas reserves, the proceeds to be
realized from the sale of real property, and the recognition and classification
of net operating loss carryforwards between current and long-term assets. These
accounting policies are described at relevant sections in this discussion and
analysis and in the notes to the consolidated financial statements included in
our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. As of the end of the
period covered by this report, the Company conducted an evaluation, under the
supervision and with the participation of its chief executive officer and chief
financial officer of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, the Company's chief executive officer and chief financial
officer concluded that its disclosure controls and procedures were not effective
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized, and reported, within the time periods specified in the Commission's
rules and forms. The Company is working to improve the timeliness of the
periodic filings.
(b) Changes in internal controls. There was no change in the Company's internal
controls or in other factors that could affect these controls during the
Company's last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over fiscal
reporting.
10
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES & USE OF PROCEEDS.
On August 04, 2005 the company issued 345,000 common shares reducing notes
payable by $69,000.
On August 08, 2005 the company issued 345,000 common shares reducing notes
payable by $69,000.
On August 11, 2005 the company issued 310,000 common shares reducing the notes
payable by $62,000.
On August 19, 2005 the company issued 509,800 common shares reducing the
accounts payable by $101,960.
On August 23, 2005 the company issued 100,000 common shares of which 50,000 were
canceled on September 13,2005 for services rendered in the net amount of
$10,000.
On August 25, 2005 250,000 common shares of the company was issued for services
rendered in the amount of $50,000.
On September 20, 2005 500,000 shares were issued for a deposit on equipment of
$50,000.
On September 22, 2005 500,000 shares were issued for a deposit on equipment
$50,000.
On September 29, 2005 4,000,000 shares were issued reducing the notes payable by
$400,000.
*All of the above offerings and sales were deemed to be exempt under rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of Petrol Industries, Inc. or
executive officers of Petrol Industries, Inc., and transfer was restricted by
Petrol Industries, Inc. in accordance with the requirements of the Securities
Act of 1933. In addition to representations by the above-referenced persons, we
have made independent determinations that all of the above-referenced persons
were accredited or sophisticated investors, and that they were capable of
analyzing the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
11
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
- ----------------------------------------------
On September 1, 2005, Heard, McElroy and Vestal, LLP (the "Former Accountant")
resigned as the auditors for the Company. On December 13, 2005, the Company
engaged Malone & Bailey, PC (the "New Accountant"), as its independent
registered public accounting firm. The Company's decision to engage the New
Accountant was approved by its Board of Directors on December 13, 2005.
The reports of the Former Accountant on the financial statements of the Company
for each of the two most recent fiscal years, did not contain an adverse opinion
or disclaimer of opinion and was not qualified or modified as to uncertainty,
audit, scope or accounting principles for the two most recent fiscal years and
all subsequent interim periods, except that the Former Accountant's opinion in
its report on the Company's financial statements expressed substantial doubt
with respect to the Company's ability to continue as a going concern for the
last two fiscal years.
During the Company's two most recent fiscal years and the subsequent interim
period through the date of resignation, there were no reportable events as the
term described in Item 304 (a) (1) (iv) of Regulation S-B.
During the Company's two most recent fiscal years and the subsequent interim
period through the date of resignation, there were no disagreements with the
Former Accountant on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
the satisfaction of the Former Accountant, would have caused it to make a
reference to the subject matter of the disagreements in connection with its
reports on these financial statements for those periods.
The Company did not consult with the New Accountant regarding the application of
accounting principles to a specific transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements, and no written or oral advice was provided by the New Accountant
that was a factor considered by the Company in reaching a decision as to the
accounting, auditing or financial reporting issues.
Departure of Directors or Principal Officers; Election of Directors; Appointment
- --------------------------------------------------------------------------------
of Principal Officers.
- ----------------------
On October 24,2005 Mr. Stephen Latieyre resigned as a Director of the Company.
There was no disagreement or dispute between Mr. Latieyre and the Company, which
led to his resignation.
In addition, on October 24, 2005, the Company's Board of Directors appointed Mr.
Michael Ferrone as a Director of the Company. There are no understandings or
arrangements between Mr. Ferrone and any other person pursuant to which Mr.
Ferrone was selected as Director of the Company. Mr. Ferrone does not have any
family relationship with any director, executive officer or person nominated or
chosen by the Company to become a director or executive officer.
From 2004 to the present, Mr. Ferrone has served as a director of Innovative
Food Holdings, Inc. (IVFH) and consults for a number of companies in various
fields. Mr. Ferrone was the Executive Director of the "Bob Villa Home Again"
television show from 1990 to 2000. Mr. Ferrone co-founded Building Media, Inc.,
a multi-media marketing and production company serving the building industry,
which was sold in 2004.
Completion of Acquisition or Disposition of Assets
- --------------------------------------------------
On November 1, 2005, the Company completed a disposition of certain assets
pursuant to an Agreement to Exchange Oil and Gas Working Interests for Corporate
Stock dated as of October 31, 2005 (the "Agreement") with Black Dragon Resources
Companies, Inc. ("BDRC") under the terms of which the Company agreed to assign
all its right, title and interest in oil and gas properties, including working
12
interests in individual wells and leases, in properties located in Caddo Parish,
Louisiana to BDRC in exchange for a $300,000 principal amount promissory note of
BDRC and an aggregate of 700,000 shares of BDRC Series D Convertible Preferred
Stock at a face value of $4.50 per share. The stock is convertible at the option
of the Company into shares of BDRC common stock. The preferred stock has a
dividend rate of 2-1/2% per annum payable by cash or stock at the election of
the Company.
The promissory note issued to the Company pays interest at 6% per annum and
matures on October 6,2008. BDRC has the option to prepay all of a portion of the
indebtedness evidence by the note, in whole or in part, upon 10 days prior
written notice to the Company.
The Pro Forma Financial information reflecting the disposition of certain assets
of the company as described above is not included herewith. The Company will
file a Current Report on Form 8-K containing such information within 60 days
from the date that the Current Report on Form 8-K was required to be filed.
Item 6. EXHIBITS
31.1 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to Sarbanes-Oxley Section 302 (Filed Herewith).
32.1 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to U.S.C. Section 1350 (Filed Herewith)
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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.
PETROL INDUSTRIES, INC.
Dated: January 23, 2005 By: /s/ David Taylor
----------------
David A. Taylor
Chief Executive Officer, President
(Principal Executive Officer) and
Chief Financial Officer (Principal
Accounting and Financial Officer)
14