UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 20, 2006
INDEX OIL AND GAS INC.
(Exact name of registrant as specified in its charter)
Nevada 000-51430 20-0815369
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification Number)
10000 Memorial Drive, Suite 440
Houston, Texas 77024
(Address of principal executive offices)
(713) 683-0800
(Registrant's telephone number, including area code)
Thai One On, Inc.
(Former name or former address, if changed since last report)
Copies to:
Richard A. Friedman, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018
Phone: (212) 930-9700
Fax: (212) 930-9725
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
This Form 8-K/A contains "unaudited" financial statements of Index Oil & Gas
Ltd. for the period ended March 31, 2004. Please refer to the Explanatory Note
below.
EXPLANATORY NOTE
Index Oil & Gas, Inc. (the "Registrant") is filing the following Current Report
on Form 8-K/A containing "unaudited" financial statements to amend the Current
Report on Form 8-K, as previously amended, which was filed in connection with
the acquisition by the Registrant of 100% of Index Oil & Gas, Ltd., a company
formed under the laws of the United Kingdom, which was completed on January 20,
2006.
In connection with the acquisition, the Registrant included Index Oil & Gas
Ltd.'s March 31, 2004 financial statements together with the Independent
Auditors Report, prepared in accordance with Section 235 of the UK Companies Act
1985, in the Form 8-K filed by the Registrant with the Securities and Exchange
Commission on January 25, 2006.
PKF (UK) LLP ("PKF"), the auditor of Index Oil & Gas Ltd, has notified the
Registrant that PKF had not approved the use of their Independent Auditors
Report.
The Registrant recently engaged a new firm, Russell Bedford Stefanou
Mirchandani, LLP to audit the Index Oil & Gas, Ltd. March 31, 2004 and 2005
consolidated financial statements. Due to the time expected to be involved in
having the new auditor perform the audit of the consolidated financial
statements, the Registrant cannot advise as to the date of completion of the
audit and the filing date of the amendment to this annual report. The Registrant
will endeavor to proceed with this audit as expeditiously as possible.
In the interim, the Registrant is filing the Index Oil & Gas, Ltd. consolidated
financial statements, for the period ended March 31, 2004, contained and made
part of this amended current report as unaudited and has furnished such
financial statements without an Accountant's Report. The Registrant intends to
make its report fully compliant with SEC rules and promptly thereafter will file
an amendment to this Current Report with the SEC.
In addition to the foregoing, as described in Item 5.06 of this Form 8-K/A, the
Company is filing this amended Form 8-K in order to provide additional
information regarding Index UK, as well as a description of the material terms
of the Acquisition.
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Item 1.01. Entry into a Material Definitive Agreement.
On January 20, 2006, Index Oil & Gas Inc. (fka Thai One On, Inc.) ("Index
Oil" or the "Company") completed the acquisition of Index Oil & Gas Ltd. (the
"Acquisition" and "Index UK" respectively), a private company formed under the
laws of the United Kingdom, pursuant to certain Acquisition and Share Exchange
Agreements (collectively the "Agreements") entered into on January 20, 2006.
Pursuant to the Agreements, the Company acquired all of the outstanding equity
stock (and warrants) of Index UK from Index UK Shareholders and warrant holders
who held warrants to subscribe for Index UK equity stock (the "Warrant
Holders"). As consideration for the acquisition of the shares of Index UK, the
Company issued an aggregate of 22,615,552 shares of Common stock, $0.001 par
value (the "Common Stock") and 1,092,676 warrants to purchase shares of Common
Stock of the Company to the shareholders of Index UK and Warrant Holders.
Furthermore, as part of the Acquisition, 759,448 shares of Common Stock were
reserved for issuance by the Company. The Acquisition was completed following
the satisfaction of the conditions to closing, including the delivery of audited
financial statements of Index UK for the fiscal period ending March 31, 2004 and
unaudited financial statements of Index UK for the period ending September 30,
2005. As a result of the Acquisition, Index UK has become a wholly-owned
subsidiary of the Company. The Company claims an exemption from the registration
requirements of the Act for the private placement of these securities pursuant
to Section 4(2) of the Act and/or Regulation D promulgated thereunder since,
among other things, the transaction did not involve a public offering, the
investors were accredited investors and/or qualified institutional buyers, the
investors had access to information about the company and their investment, the
investors took the securities for investment and not resale, and the Company
took appropriate measures to restrict the transfer of the securities.
Pursuant to the Agreements, each of the Index UK shareholders agreed not to
dispose of any of the shares of the Company received by them prior to January
20, 2007 and, thereafter, be subject to selling restrictions directly tied to
the average price of the stock of the Company, unless, an offer was made to all
the stockholders of the Company. Furthermore, the Agreements contained an Escrow
provision which provided that during the 12 month escrow period the voting
rights attached to a total of 5,047,130 shares of common stock shall be
exclusively exercised in accordance with the written directions of a majority of
the directors of Index UK: Mr. Lyndon West, Mr. Daniel Murphy, Mr. Andrew
Boetius, Mr. Michael Scrutton and Mr. David Jenkins.
Upon completion of the acquisition, Daniel Murphy was appointed as Chairman
of the Company, Lyndon West was appointed as Chief Executive Officer of the
Company and Andrew Boetius was appointed as Chief Financial Officer of the
Company. In addition, Daniel Murphy, Lyndon West, Andrew Boetius, David Jenkins,
and Michael Scrutton were also appointed to the Board of Directors of the
Company. Following such appointments, in February 2006, John Briner's
resignation as an officer and director of the Company was accepted by the Board.
For a complete description of the backgrounds of such persons, see "Directors
and Executive Officers, Promoters and Control Persons."
In addition, as contemplated by the Agreements, following the completion of
the Acquisition, the Company's Board of Directors approved a stock option plan
providing for the issuance of up to 5,225,000 shares of Common Stock of the
Company to the officers, directors, employees and consultants of the Company
and/or its subsidiaries, and made grants of options to purchase an aggregate of
4,577,526 shares of common stock to the employees of Index UK that held options
to purchase ordinary shares of Index UK prior to the completion of the
acquisition, as well as to the newly appointed directors and officers of the
Company. For a complete description of such plan and the grants made under such
plan, see "Executive Compensation - Stock Option Plan."
Item 2.01. Completion of Acquisition or Disposition of Assets
DESCRIPTION OF INDEX OIL'S BUSINESS
Organizational History
Index Oil was originally incorporated under the name Thai One On, Inc.
("Thai") on March 3, 2004 under the laws of the State of Nevada for the purpose
of developing, owning and operating theme restaurants called "Khanom Jeen" in
Malaysia.
In March 2004, Thai acquired 100% ownership of Chinadoll Inc. Sdn. Bhd, a
privately held company incorporated on January 1, 2004 under the laws of
Malaysia. On March 30, 2004, the name of the acquired subsidiary was changed
from Chinadoll Inc. Sdn. Bhd. to Thai Pasta Enterprise Sdn. Bhd. Thai Pasta
Enterprise Sdn. Bhd. was the entity which operated Thai's restaurant in
Malaysia. In June 2004, Thai opened its first restaurant in Taipan, Selangor,
Malaysia.
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In March 2004, the company issued a total of 1,000,000 shares of $0.001 par
value common stock as founder's shares to Evon Au, David Knapfel, and Au E-Mun,
all of whom were officers and directors of Thai. Both Evon Au and David Knapfel
received 400,000 shares each, and Au E-Mun received 200,000 shares. The shares
were issued in exchange for cash in the aggregate amount of $5,000.
In October 2004, Thai completed an initial public offering of its
securities in which 2,020,000 shares of its common stock, par value $0.001 per
share, were issued to 33 investors for a total of $101,000. Such offering was
completed pursuant to a Form SB-2 registration statement that was declared
effective by the Securities and Exchange Commission on May 27, 2005.
In November 2005, Thai sold a portion of its surplus assets that had
been utilized in connection with its Khanom Jeen restaurant for an aggregate sum
of $5,000 to Mad About Food Inc., a privately held company incorporated under
the laws of Malaysia.
In November 2005, the Company changed its name from Thai One On Inc. to
Index Oil and Gas Inc., and increased the number of authorized shares of common
stock from 25,000,000 to 75,000,000 shares. In addition, following the increase
in the number of authorized shares of common stock, the Company completed an
in-kind dividend of 10 shares of common stock for every 1 shares of common stock
held.
On January 20, 2006, the Company completed the acquisition of all of
the outstanding equity stock of Index UK from the Shareholders of Index UK. In
addition, the Company also completed a private placement on January 20, 2006 for
8,533,333 shares of $0.001 par value common stock of the Company at a price of
$0.60 per share for the aggregate sum of $5,120,000.
DESCRIPTION OF INDEX UK'S BUSINESS
Organizational History
Index UK was incorporated under the laws of the United Kingdom on February
21, 2003.
Summary of Index UK Business
Index UK is an early stage oil exploration and production company formed
under the laws of the United Kingdom with its principal executive office located
in the United States ("U.S."), in Houston, Texas. Index UK has ongoing
operations including oil and gas production in the U.S., where it is also
actively pursuing other opportunities. Index UK currently has three wholly-owned
subsidiaries through which it conducts its operations, Index Investments North
America Inc., Index Oil & Gas (USA) LLC and Index Offshore LLC (the
"Subsidiaries"). The Subsidiaries' head office is also located at: 10,000
Memorial Drive, Suite 440, Houston, Texas 77024.
Index UK was incorporated in 2003 to capitalize on the experience and
contacts of its founder Directors and shareholders. Index UK's objective is to
develop its oil and gas reserves by taking equity positions in proven petroleum
systems and reserves located in the U.S., which it believes eliminates some of
the commercial and exploration risks and uncertainties associated with
international oil ventures.
Index UK Strategy
Management intends to focus its short and medium term efforts on known
petroleum basins within the U.S. and North America which are close to or
adjacent to its current ongoing projects. Index UK's short to mid term objective
is to develop its oil and gas reserves to a point where the cash flow of the
business will contribute not only to the company's overhead, but also to its
capital requirements for investing in new and additional projects. Management
believes that it can achieve its objective by utilizing a risk mitigated
approach of investing in relatively low cost, low risk drilling opportunities.
Management hopes that by taking an increased equity position in the early stages
of oil exploration where early risk exposure is mitigated by the ability to
divest assets and offset risk, Index UK could successfully position its business
in oil exploration and production projects.
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Index UK's current focus is directed towards:
o efficiently managing ongoing (Phase I) projects
o identifying appropriate additional gas and oil opportunities;
o seeking to successfully enter future (Phase II and III) projects; and
o efficiently using its business assets to raise additional capital as
needed.
Overview of Business
Index UK is currently seeking to expand its activities in the North America
market. Among several technical and commercial programs that Index UK utilizes
to determine the attractiveness and feasibility of particular oil and gas
opportunities is a Capital Efficiency Model that compares the net present value
of an opportunity to the capital expenditure utilized. This model provides
Management of Index UK with a profitability indicator that they utilize to
determine the economic attractiveness of an opportunity in order to justify an
investment of capital into such opportunity. Management believes that this risk
mitigated approach to opportunity evaluation is supported by detailed technical
evaluations including the use of 3D seismic data.
3 Phases
Index UK's business model currently consists of 3 successive stages. The
first phase of the business plan, or Phase I, has been completed, has resulted
in the initial startup of Index UK's business operations in the U.S. and the
establishment of early stage oil and gas operations and cashflow. The second
phase of the business plan, or Phase II, commenced in 2005 and is focused on
establishing a reserve and production base which Management believes is capable
of supporting expansion into the future. Phase III is expected to commence in
2006/7 and to consist of evaluation and eventual entry into larger opportunities
with higher equity positions to be held by Index UK. Larger opportunities will
in turn subject the company to higher risks, which Management intends to attempt
to mitigate by appropriate management of its energy portfolio assets. In order
for Index UK to complete Phase II of its business model and enter Phase III
projects and remain a viable business entity, it will require an influx of
future capital funding anticipated to consist of a mixture of debt and equity
financing.
Phase I.
Index UK's initial project Kansas I (Seward North, Globe and Seward
Townsite) was initiated in July of 2003 as a start up project aimed at a low
risk, low cost oil production opportunity. This project was selected by
Management to act upon its core business concept and to establish initial
operations and business relationships.
Index UK's Kansas I project consists of a 5% working interest in oil and
gas leases covering approximately 8,500 acres which are located in Stafford
County, Kansas. Management believes that the acquisition and processing of new 3
Dimensional ("3D") seismic data enables Kansas I project partners including
Index UK to identify undrilled structural highs in a proven petroleum province.
Index UK hopes that the Kansas I project can act as a catalyst to providing it
with additional opportunities to expand within the area.
Phase II
Index UK's goal in Phase II of its operations is to increase its oil/gas
reserves and production along with achieving a stream of revenue to cover
overhead and other company expenses, as well as contributing to the company's
Capex requirements. The Company intends to focus its Phase II structured plan on
selected gas biased projects in the U.S., with the objective of acquiring higher
working interests in larger opportunities in the U.S and North America. Index UK
currently plans to have its Phase II activities consist of a portfolio of
several contracted well and gas prospects located on the Gulf coast and in
Kansas.
5
Index UK has signed Exploration and Joint Operating Agreements (the
"Operating Agreements") with Crawford Operating Company ("Crawford") in the Gulf
Coast area, to participate in 4 wells in Louisiana and South Texas during early
2006. Management believes that the Crawford's extensive industry contacts and
operations in Texas and Louisiana, including its relationship with a 3D seismic
data reprocessor which has successfully reprocessed 3D seismic data in the
Louisiana and South Texas region in the past, will enhance Index UK's ability to
achieve increased oil/gas reserves and production. Participation in such
Operating Agreements gives Index UK a right to acquire a working interest in the
wells when, the wells become producing.
Index UK has also recently acquired a working interest in a new exploration
prospect in the area to the north of Kansas I (Seward) project in Barton County,
Kansas and subject to availability of resources and financing, hopes to
participate in up to 8-10 wells in the Gulf Coast area, as well as seeking
additional opportunities in Kansas and other selected areas of U.S. and North
America.
Pursuant to the Operating Agreements, Index UK has secured a right to
participate in the following 4 wells: Walker #1, Vieman #1, Taffy #1 and #2. As
of the date hereof, The Walker #1 well has been successfully drilled and
completed, and Index UK has entered into an operating lease pursuant to which it
holds a 12.5% working interest in such well. Management anticipates initial
production of the Walker #1 well to commence in the second quarter of 2006,
after the construction of a 1.5 mile gas line which would connect to the
existing infrastructure.
Management expects the Vieman #1 well to be drilled near Manor Lake in
South Texas. The area covering the Vieman #1 location is approximately 320
acres. This prospect is based on 3D seismic data originally shot for EOG
Resources in 1997 and reprocessed by Viking.
The Taffy #1 & #2 wells are located in Matagorda County, South Texas. The
area where Taffy #1 well is located consists of approximately 370 acres. This
prospect is based on 3D seismic data originally shot by Shell in 1993 and
recently reprocessed. Management believes that the Taffy #2 well prospect is
similar to Taffy #1 well in all respects, except that it is located on a
separate 345-acre property and is to be drilled to a lesser depth.
Subject to rig availability, Index UK expects that the Vieman #1 and Taffy
#1 & #2 wells will be drilled in the first quarter or early in the second
quarter of 2006.
In addition to the foregoing, Index UK has secured an interest in an
operating lease of up to 5000 acres (the Barton County project), which is
located to the north of the Kansas I (Seward) project. This project includes 4-5
square miles of new 3D seismic data. Index UK expects that, subject to the
results of the 3D seismic shots, this project should enter the drilling phase
sometime in late 2006.
Phase III.
Index UK hopes that the next stage in its development would progress upon
the experience and alliances that it hopes to generate from the execution of
Phase II. Index UK is currently analyzing a number of proposals and projects
with existing partners and has signed a Memorandum of Understanding with ADC
Petroleum, L.P. ("ADC") which provides Index UK an opportunity to negotiate a
comprehensive agreement with ADC which, if consummated, would give it an
opportunity to participate together with ADC in oil and gas exploration ventures
in certain areas covering an aggregate of 220 square miles of Texas, Louisiana
and Mississippi.
Industry Overview
Index UK is operating at a time where economic conditions have dictated
larger oil exploration and production companies to focus their resources within
the industry in order to become more cost and income efficient. Major energy
companies and large independents continue to focus their attention and resources
toward the discovery and development of large fields. This has resulted in
larger energy companies neglecting to focus on smaller fields and divestment of
production and exploration assets worldwide, a trend which Management expects to
continue. In addition, the recent economics of the oil and gas market have
improved as prices have risen substantially. Management believes that these
conditions provide ample opportunities for smaller independent companies to
acquire and exploit oil and gas opportunities in the U.S. We expect that there
will be an increased competition for such properties in the future.
6
Smaller early stage oil exploration and production companies, such as Index
UK, have established their focus on the acquisition of the opportunities
overlooked by the larger energy firms and have maintained their focus on the
divested oil, gas fields and exploration opportunities located in North America
that no longer fit the portfolios of larger energy companies. The stable
political and economic environment of North America coupled with extensive oil
and gas distribution systems available, has contributed to the industry's
geographic focus. As such, Index UK has built up what it believes to be a
significant pipeline of potential opportunities through Management's extensive
network of industry contacts in North America.
Similarly situated companies within the industry continue to target
potential partner candidates in a disciplined manner in order to target gas and
oil biased plays. These companies use waterflooding, 3D data reprocessing,
enhanced oil recovery, gas and oil production techniques such as
Alkaline-Surfactant-Polymer (ASP) technology, chemical floods, infill drilling
and recompilations of existing wells to engage in production of oil and gas.
Furthermore, pursuant to industry standards, such oil, gas exploration and
production companies enter into "expiring" leases along with the operators who
undertake the exploration and development of a particular project on behalf of
the companies. If the project becomes successful, meaning that it results in
development of producing wells, then the companies enter into producing leases
with the operators for as long as the wells are producing.
Competition
Index UK is a small independent oil exploration and production company that
represents less than 1% of the oil and gas industry. It faces competition from
other oil and gas companies in all aspects of its business, including
acquisition of producing properties and oil and gas leases, and obtaining goods,
services and labor. Many of its competitors have substantially greater financial
and other resources. Factors that affect Index UK's ability to acquire producing
properties include available funds, available information about the property and
its standards established for minimum projected return on investment. Since
Index UK is focusing on acquiring low risk/low cost opportunities and has
experience and expertise in exploiting these reserves, it believes that it can
effectively compete in the market.
Customers
Index UK sells its crude oil and natural gas production to independent
purchasers. Title to the produced quantities transfers to the purchaser at the
time the purchaser collects or receives the quantities. Prices for such
production are defined in sales contracts and are readily determinable based on
certain publicly available indices. The purchasers of such production have
historically made payment for crude oil and natural gas purchases within
thirty-five days of the end of each production month. We periodically review the
difference between the dates of production and the dates we collect payment for
such production to ensure that receivables from those purchasers are
collectible. All transportation costs are accounted for as costs that are offset
against oil and natural gas sales revenue.
Governmental Regulation
Index UK's operations are subject to extensive and continually changing
regulation affecting the oil and natural gas industry. Many departments and
agencies, both federal and state, are authorized by statute to issue, and have
issued, rules and regulations binding on the oil and natural gas industry and
its individual participants. The failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases its cost of doing business and,
consequently, affects its profitability. Index UK does not believe that we are
affected in a significantly different manner by these regulations than are its
competitors.
Transportation and Sale of Natural Gas
Even though Index UK currently focuses on crude oil production, Management
believes that natural gas sales could contribute a substantial part to its total
sales. The interstate transportation and sale for resale of natural gas is
subject to federal regulation, including transportation rates and various other
matters, by the Federal Energy Regulatory Commission ("FERC"). Federal wellhead
price controls on all domestic natural gas were terminated on January 1, 1992
and none of Index UK's natural gas sales prices are currently subject to FERC
regulation. Index UK cannot predict the impact of future government regulation
on any natural gas operations.
7
Regulation of Production
The production of crude oil and natural gas is subject to regulation under
a wide range of state and federal statutes, rules, orders and regulations. State
and federal statutes and regulations require permits for drilling operations,
drilling bonds, and reports concerning operations. Texas, Louisiana and Kansas,
the states in which Index UK owns properties, have regulations governing
conservation matters, including provisions for the unitization or pooling of oil
and natural gas properties, the establishment of maximum rates of production
from oil and natural gas wells, the spacing of wells, and the plugging and
abandonment of wells and removal of related production equipment. Texas,
Louisiana and Kansas also restrict production to the market demand for crude oil
and natural gas. These regulations can limit the amount of oil and natural gas
Index UK can produce from its wells, limit the number of wells, or limit the
locations at which it can conduct drilling operations. Moreover, each state
generally imposes a production or severance tax with respect to production and
sale of crude oil, natural gas and gas liquids within its jurisdiction.
Environmental Regulations
Index UK's operations are subject to numerous stringent and complex laws
and regulations at the federal, state and local levels governing the discharge
of materials into the environment or otherwise relating to human health and
environmental protection. These laws and regulations may, among other things,
require acquisition of a permit before drilling or development commences,
restrict the types, quantities and concentrations of various materials that can
be released into the environment in connection with development and production
activities, and limit or prohibit construction or drilling activities in certain
ecologically sensitive and other protected areas. Failure to comply with these
laws and regulations or to obtain or comply with permits may result in the
assessment of administrative, civil and criminal penalties, imposition of
remedial requirements and the imposition of injunctions to force future
compliance. Index UK's business and prospects could be adversely affected to the
extent laws are enacted or other governmental action is taken that prohibits or
restricts its development and production activities or imposes environmental
protection requirements that result in increased costs to it or the oil and
natural gas industry in general.
Index UK conducts its development and production activities to comply with
all applicable environmental regulations, permits and lease conditions, and it
monitors subcontractors for environment compliance. While Index UK believes its
operations conform to those conditions, it remains at risk for inadvertent
noncompliance, conditions beyond its control and undetected conditions resulting
from activities by prior owners or operators of properties in which it owns
interests. Pursuant to industry customs, a project's operator obtains insurance
policy coverage for the each of the partner's in a particular project. The
operator for Index UK's Kansas I project site has obtained a policy of insurance
on behalf of Index UK, the partner in this project (the "Kansas Insurance
Policy"). The Kansas Insurance Policy provides for $1,000,000 general commercial
liability coverage. This policy also provides for $2,000,000 coverage for
general aggregate and products liability. Furthermore, the operator has secured
"hired and non-owned" commercial automobile liability coverage with a limit of
$1,000,000 and $1,000,000 coverage for workers compensation and employer's
liability insurance.
Crawford, the operator for Index UK's Walker I and Vieman I wells located
in Louisiana and South Texas, has obtained a policy of insurance on behalf of
Index UK, the partner in these projects (the "Crawford Policy"). The Crawford
Policy provides for $1,000,000 general commercial liability coverage. This
policy also provides for $2,000,000 coverage for general aggregate and 1,000,000
coverage for products liability. Furthermore, Crawford has secured "hired and
non-owned" commercial automobile liability coverage with a limit of $1,000,000
and $1,000,000 coverage for workers compensation and employer's liability
insurance. Furthermore, the Crawford Policy provides "umbrella liability"
coverage per occurrence in amount of $10,000,000.
Occupational Safety Regulations
Index UK is subject to various federal and state laws and regulations
intended to promote occupational health and safety. Although all of its wells
are drilled by independent subcontractors under its "footage" or "day rate"
drilling contracts, Index UK has adopted environmental and safety policies and
procedures designed to protect the safety of its own supervisory staff and to
monitor all subcontracted operations for compliance with applicable regulatory
requirements and lease conditions, including environmental and safety
compliance. This program includes regular field inspections of its drill sites
and producing wells by members of its operations staff or consultants and
internal assessments of its compliance procedures. Index UK considers the cost
of compliance a manageable and necessary part of our business.
8
Federal, State or Native American Leases
Index UK's operations on federal, state or Native American oil and gas
leases are subject to numerous restrictions, including nondiscrimination
statutes. Such operations must be conducted pursuant to certain on-site security
regulations and other permits and authorizations issued by the Bureau of Land
Management, Minerals Management Service and other agencies.
Employees
As of January 1, 2006, Index UK had full time employment agreements with
Mr. Andy Boetius and Mr. Lyndon West, its 2 directors, a part time employment
agreement with Mr. Daniel Murphy, its director, letter agreements with Mr. David
Jenkins and Mr. Michael Scrutton, the other 2 directors of the Company and one
part time employee at one of Index Oil's subsidiaries.
DESCRIPTION OF PROPERTY
Principal Executive Offices
The Company currently holds an arrangement to rent its main office
comprising of 300 square feet which is located at 10,000 Memorial Drive, Suite
440, Houston, Texas 77024, at a cost of $1,500 per month for the months of
November and December of 2005 and January of 2006. Starting February of 2006,
rental payments will increase to $2,000 and will be due on a month-to-month
basis.
RISK FACTORS
You should carefully consider the risks described below as well as other
information provided to you in this document, including information in the
section of this document entitled "Information Regarding Forward Looking
Statements." The risks and uncertainties described below are not the only ones
facing the Company. Additional risks and uncertainties not presently known to
the Company or that the Company currently believes are immaterial may also
impair the Company's business operations. If any of the following risks actually
occur, the Company's businesses, financial condition or results of operations
could be materially adversely affected, the value of the Company common stock
could decline, and you may lose all or part of your investment.
Index UK is at an early stage of development and has a limited operating
history.
Index UK was formed in 2003 operating as a private company formed under the
laws of the United Kingdom. As such, it has a limited operating history upon
which you can base an evaluation of its business and prospects. As a start-up
company in the early stage of development, there are substantial risks,
uncertainties, expenses and difficulties Index UK is subject to. You should
consider an investment in Index UK in light of these risks, uncertainties,
expenses and difficulties. To address these risks and uncertainties, Index UK
must do the following:
o Successfully execute its business strategy;
o Continue to develop its oil exploration and production assets;
o Respond to competitive developments; and
o Attract, integrate, retain and motivate qualified personnel.
Index UK may be unable to accomplish one or more of these objectives, which
could cause its business to suffer. In addition, accomplishing one or more of
these objectives might be very expensive, which could harm its financial
results.
Index UK incurred significant losses since inception and anticipates that it
will continue to incur losses for the foreseeable future.
As of March 31, 2004, Index UK had incurred a financial loss after taxation
of (pound)173,233. Index UK plans to significantly increase its corporate
expenses and general overhead. Management believes that its business proposition
will be appealing to oil exploration and development community. There is no
assurance, however, that Index UK will be able to successfully achieve an
increase in production and reserves at its existing properties or future
acquisitions, so as to operate in a profitable manner. If the business of oil
and gas well exploration and development slows, notably commodity prices, its
margins and profitability will suffer. Index UK is unable to predict whether its
operating results will be profitable.
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Management believes that long-term profitability and growth will depend on
its ability to:
o Develop the reputation of Index UK as a successful oil and gas
exploration and production company;
o Successfully identify and exploit appropriate opportunities;
o Develop viable strategic alliances; and
o Maintain sufficient volume of successful new oil and gas
opportunities.
Index UK will need to raise substantial additional capital to fund its
operations, and its failure to obtain funding when needed may force it to delay,
reduce or eliminate its products and services.
Index UK's operations have consumed a substantial amount of cash since
inception. Index UK expects to continue to spend substantial amounts to:
o identify and exploit oil and gas opportunities;
o maintain and increase the company's human resource including full
time and consultant resources;
o evaluating drilling opportunities
o evaluating future projects and areas for long term development.
Index UK expects that its cash requirement for operations (Capex) will
increase significantly over the next several years. Index UK will be required to
raise additional capital to meet anticipated needs. Index UK's future funding
requirements will depend on many factors, including, but not limited to:
o success of ongoing operations;
o forward commodity prices;
o operating costs (including human resource costs).
To date, Index UK's sources of cash have been primarily limited to the sale
of equity securities. Index UK cannot be certain that additional funding will be
available on acceptable terms, or at all. To the extent that Index UK raises
additional funds by issuing equity securities, its stockholders may experience
significant dilution. Any debt financing, if available, may involve restrictive
covenants that impact Index UK's ability to conduct its business. If Index UK is
unable to raise additional capital, when required, or on acceptable terms, it
may have to significantly delay, scale back or discontinue its products and
services.
Index UK may be unable to effectively maintain its oil and gas exploration
business.
Timely, effective and successful oil exploration and production is
essential to maintaining Index UK's reputation as a developing oil exploration
company. Lack of opportunities or success may significantly effect Index UK's
viability. The principal components of Index UK's operating costs include
salaries paid to corporate staff, costs of retention of qualified independent
engineers and geologists, annual system maintenance and rental costs, insurance,
transportation costs and substantial equipment and machinery costs. Because the
majority of these expenses are fixed, a reduction in the number of successful
oil exploration projects, failures in discovery of new opportunities or
termination of ongoing projects will result in lower revenues and margins. Prior
success in exploration or production of oil wells does not guarantee future
success in similar ventures, thus, its revenues could decline and its ability to
effectively engage in oil recovery business would be harmed.
Index UK may be unable to renew or maintain its contracts with independent
purchasers, which would harm its business and financial results.
Upon expiration of its independent purchasers' contracts, Index UK is
subject to the risk that the oil and natural gas purchasers will cease buying
Index UK's oil and gas production output. It is not always possible to
immediately obtain replacement oil and gas purchasers as the industry is
extremely competitive. If these contracts are not renewed, it could result in a
significant negative impact on Index UK's business.
10
Index UK may be subject to liability risks, which could be costly and negatively
impact its business and financial results.
Index UK may be subject to liability claims. There are currently many known
hazards associated with the exploration, discovery and delivery of natural gas
and oil. Other significant hazards may be discovered in the future. To protect
against possible liability, Index UK and its purchasers maintain liability
insurance with coverage that they believe is consistent with industry practice
and appropriate in light of the risks attendant to its business. However, if
Index UK and its purchasers are unable to maintain insurance in the future at an
acceptable cost or at all, or if its insurance does not fully cover it, and a
successful claim was made against Index UK and/or its purchasers, Index UK could
be exposed to liability. Any claim made against Index UK not fully covered by
insurance could be costly to defend against, result in a substantial damage
award against Index UK and divert the attention of management from Index UK's
operations, which could have an adverse effect on its financial performance.
Loss of key executives and failure to attract qualified managers, technologists,
independent engineers and geologists could limit Index UK's growth and
negatively impact its operations.
Index UK depends upon its management team to a substantial extent. In
particular, Index UK depends upon Mr. Lyndon West, its Chief Executive Officer,
Mr. Daniel Murphy, its Chairman of the Board of Directors and Mr. Andrew
Boetius, its Chief Financial Officer, for their skills, experience, and
knowledge of the company and industry contacts. Currently, Index UK has
employment or consulting agreements with all of its directors who are: Lyndon
West, Daniel Murphy, David Jenkins, Michael Scrutton and Andrew Boetius. The
loss of any of these executives, or other members of Index UK's management team,
could have a material adverse effect on its business, results of operations or
financial condition.
As Index UK grows, it will increasingly require field managers with
experience in its industry and skilled engineers, geologists and technologists
to operate its diagnostic, seismic and 3D equipment. It is impossible to predict
the availability of qualified managers, technologists, skilled engineers and
geologists or the compensation levels that will be required to hire them. In
particular, there is a very high demand for qualified technologists who are
particularly necessary to operate systems similar to the ones that Index UK
operates Index UK may not be able to hire and retain a sufficient number of
technologists, engineers and geologists and it may be required to pay bonuses
and higher independent contractor rates to its technologists, engineers and
geologists which would increase its expenses. The loss of the services of any
member of its senior management or Index UK's inability to hire qualified
managers, technologists, skilled engineers and geologists at economically
reasonable compensation levels could adversely affect Index UK's ability to
operate and grow its business.
Complying with federal and state regulations is an expensive and time-consuming
process, and any failure to comply could result in substantial penalties.
Index UK's operations are directly or indirectly subject to extensive and
continually changing regulation affecting the oil and natural gas industry. Many
departments and agencies, both federal and state, are authorized by statute to
issue, and have issued, rules and regulations binding on the oil and natural gas
industry and its individual participants. The failure to comply with such rules
and regulations can result in substantial penalties. The regulatory burden on
the oil and natural gas industry increases its cost of doing business and,
consequently, affects its profitability. Index UK does not believe that we are
affected in a significantly different manner by these regulations than are its
competitors.
If Index UK's operations are found to be in violation of any of the laws
and regulations to which it is subject, it may be subject to the applicable
penalty associated with the violation, including civil and criminal penalties,
damages, fines and the curtailment of its operations. Any penalties, damages,
fines or curtailment of Index UK's operations, individually or in the aggregate,
could adversely affect its ability to operate its business and its financial
results. The risk of Index UK being found in violation of these laws and
regulations is increased by the fact that many of them have not been fully
interpreted by the regulatory authorities or the courts, and their provisions
are open to a variety of interpretations. Any action against Index UK for
violation of these laws or regulations, even if it successfully defends against
it, could cause Index UK to incur significant legal expenses and divert
management's attention from the operation of its business.
Index UK may experience competition from other oil and gas exploration and
production companies and this competition could adversely affect Index UK's
revenues and its business.
11
The market for oil and gas recovery projects is generally highly
competitive. Index UK's ability to compete depends on many factors, many of
which are outside of its control. These factors include: timing and market
acceptance, introduction of competitive technologies, price and purchaser's
interest in acquiring Index UK's oil and natural gas output.
Many existing competitors, as well as potential new competitors, have
longer operating histories, greater name recognition, substantial track records,
and significantly greater financial, technical and technological resources than
Index UK. This may allow them to devote greater resources to the development and
promotion of their oil and gas exploration and production projects. Many of
these competitors offer a wider range of oil and gas opportunities not available
to Index UK, and may attract business partners consequently resulting in a
decrease of Index UK's business opportunities. These competitors may also engage
in more extensive research and development, adopt more aggressive strategies and
make more attractive offers to existing and potential purchasers, and partners.
Furthermore, competitors may develop technology and oil and gas exploration
strategies that are equal or superior to Index UK's and achieve greater market
recognition. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to better address the needs of our target market. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Other companies that are primarily focused on offering competitive products
are Mobil, Shell, Exxon, Yukos and numerous other large oil and gas recovery
companies.
There can be no assurance that Index UK will be able to compete
successfully against its current or future competitors or that competition will
not have a material adverse effect on Index UK's business, results of operations
and financial condition.
If Index UK is unable to protect its intellectual property effectively, it may
be unable to prevent third parties from using its technologies and methods,
which would impair its competitive advantage.
Index UK does not believe that its operations or products infringe on the
intellectual property rights of others. However, there can be no assurance that
others will not assert infringement or trade secret claims against Index UK with
respect to its current or future technologies or that any such assertion will
not require it to enter into a license agreement or royalty arrangement with the
party asserting the claim. Responding to and defending any such claims may
distract the attention of Index UK's management and have an adverse effect on
its business, financial condition and results of operations.
Others may claim in the future that Index UK has infringed their past,
current or future technologies. Index UK expect that participants in its markets
increasingly will be subject to infringement claims as the number of competitors
grow. Any claim like this, whether meritorious or not, could be time-consuming,
and result in costly litigation and possibly result in agreements covering
intellectual property secrets and technologies. These agreements might not be
available on acceptable terms or at all. As a result, any claim like this could
harm Index UK's business.
Index UK regards the protection of its copyrights, service marks,
trademarks, and trade secrets as critical to its success. Index UK relies on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to protect its proprietary rights in products and
services. When applicable, it will enter into confidentiality and invention
assignment agreements with employees and contractors, and nondisclosure
agreements with parties it conducts business with in order to limit access to
and disclosure of its proprietary information. These contractual arrangements
and the other steps taken to protect its intellectual property may not prevent
misappropriation of its technology or deter independent third-party development
of similar technologies. Index UK intends to pursue the registration of
trademarks and service marks in the U.S. and internationally. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which its services are made available.
Index UK will need to increase the size of its organization, and may experience
difficulties in managing growth.
12
Index UK is a small company with minimal employees as of January 20, 2006.
Index UK expects to experience a period of significant expansion in headcount,
facilities, infrastructure and overhead and anticipates that further expansion
will be required to address potential growth and market opportunities. Future
growth will impose significant added responsibilities on members of management,
including the need to identify, recruit, maintain and integrate additional
independent contractors and managers. Index UK's future financial performance
and its ability to compete effectively will depend, in part, on its ability to
manage any future growth effectively.
The following risks relate principally to the Company's common stock and its
market value
There is no existing market for the Company's common stock.
The Company's common stock is quoted on the Over the Counter Bulletin Board
quotation service under the symbol "IXOG". There is no active trading market for
any of the Company's securities. Accordingly, there can be no assurance as to
the liquidity of any markets that may develop for the securities, the ability of
holders of the securities to sell their securities, or the prices at which
holders may be able to sell their securities.
The market price of the Company's common stock may be adversely affected by
several factors.
The market price of the Company's common stock could fluctuate
significantly in response to various factors and events, including:
o the Company's ability to execute its business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments; o economic and other external factors; and
o period-to-period fluctuations in its financial results.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of the Company's common stock.
The Company's common stock may be deemed penny stock with a limited trading
market. The Company's common stock is currently listed for trading on the OTC
Bulletin Board which is generally considered to be a less efficient market than
markets such as NASDAQ or other national exchanges, and which may cause
difficulty in obtaining future financing. Further, the Company's securities are
subject to the "penny stock rules" adopted pursuant to Section 15(g) of the
Securities Exchange Act of the 1934, as amended, or Exchange Act. The penny
stock rules apply to Non-NASDAQ companies whose common stock trades at less than
$5.00 per share or which have a tangible net worth less then $5,000,000
($2,000,000 if the company has been operating for three or more years). Such
rules require, among other things, that brokers who trade "penny stock" to
persons other than "established customers" complete certain documentation, make
suitable inquiries of investors and provide investors with certain information
concerning trading in the security, including a risk disclosure document and
quote information under certain circumstances. Many brokers have decided not to
trade "penny stock" because of the requirements of the penny stock rules and, as
a result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that the Company remains subject to the
"penny stock rules" for any significant period, there may develop an adverse
impact on the market, if any, for the Company's securities. Because the
Company's securities are subject to the "penny stock rules", investors will find
it more difficult to dispose of the Company's securities. Further, for companies
whose securities are traded on the OTC Bulletin Board, it is more difficult: (1)
to obtain accurate quotations, (ii) to obtain coverage for significant new
events because major wire services, such as the Dow Jones News Service,
generally do not publish press releases about such companies, and (iii) to
obtain needed capital.
13
The Company does not expect to pay dividends in the future. Any return on
investment may be limited to the value of the Company's stock.
The Company does not anticipate paying cash dividends on its stock in the
foreseeable future. The payment of dividends on the Company's stock will depend
on its earnings, financial condition and other business and economic factors
affecting the Company at such time as the board of directors may consider
relevant. If the Company does not pay dividends, its stock may be less valuable
because a return on your investment will only occur if the Company's stock price
appreciates.
A sale of a substantial number of shares of the Company's common stock may cause
the price of its common stock to decline.
If the Company's stockholders sell substantial amounts of the Company's
common stock in the public market, including shares issued upon the exercise of
outstanding options or warrants, the market price of its common stock could
fall. These sales also may make it more difficult for the Company to sell equity
or equity-related securities in the future at a time and price that the Company
deems reasonable or appropriate. Stockholders who have been issued shares in the
Acquisition will be able to sell their shares pursuant to Rule 144 under the
Securities Act of 1933, beginning one year after the stockholders acquired their
shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 20, 2006
with respect to the beneficial ownership of the Company's outstanding common
stock following the acquisition of Index UK by (i) any holder of more than five
(5%) percent; (ii) each of the named executive officers, directors and director
nominees; and (iii) our directors, director nominees and named executive
officers as a group. Except as otherwise indicated, each of the stockholders
listed below has sole voting and investment power over the shares beneficially
owned.
14
Common Stock Percentage of
Name of Beneficial Owner Beneficially Owned (1) Common Stock (1)
- ----------------------------------- ------------------------- ------------------
Daniel Murphy*(2) 993,488(4) 1.81%
Lyndon West*(2) 5,060,379(5) 9.14%
Andrew Boetius*(2) 1,999,255(6) 3.62%
David Jenkins** (2) 1,203,172(7) 2.21%
Michael Scrutton** (2) 2,636,417(8) 4.84%
Douglas Wordsworth (3) 3,829,433(9) 7.05%
- ----------------------------------- ------------------------- ------------------
*All officers and directors as a group.
**All directors as a group
(5 persons)
(1) Applicable percentage ownership is based on 54,240,552 shares of common
stock outstanding as of January 20, 2006, together with securities exercisable
or convertible into shares of common stock within 60 days of January 20, 2006
for each stockholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock that are
currently exercisable or exercisable within 60 days of January 20, 2006 are
deemed to be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
(2) The address for these directors of the Index Gas & Oil Ltd. is: c/o Index
Oil & Gas Ltd., Lawrence House, Lower Bristol Road, Bath BA2 9ET, United
Kingdom.
(3) The address for this beneficial owner is: 44 Heath Lane, Little
Sutton, Ellesmere Port, Cheshire, UK CH66 5NT.
(4) Includes (i) warrants to purchase 66,662 shares of common stock of the
Company exercisable at $0.14 per share and (ii) options to purchase 555,435
shares of common stock of the Company exercisable at $0.35 per share, which are
presently exercisable or exercisable within 60 days.
(5) Includes (i) warrants to purchase 266,380 shares of Common Stock of the
Company exercisable at $0.14 per share, (ii) options to purchase 741,292 shares
of common stock of the Company exercisable at $0.35 per share, which are
presently exercisable or exercisable within 60 days, and (iii) 101,265 shares of
Common Stock granted as executive bonus compensation.
(6) Includes (i) warrants to purchase 124,482 shares of Common Stock of the
Company exercisable at $0.14 per share, (ii) options to purchase 741,292 shares
of common stock of the Company exercisable at $0.35 per share, which are
presently exercisable or exercisable within 60 days, and (iii) 101,264 shares of
Common Stock granted as executive bonus compensation.
(7) Includes (i) warrants to purchase 12,539 shares of Common Stock of the
Company exercisable at $0.14 per share, (ii) options to purchase 100,056 shares
of Common Stock of the Company exercisable at $0.35 per share, which are
presently exercisable or exercisable within 60 days, and (iii) 101,264 shares of
Common Stock granted as executive bonus compensation.
(8) Includes (i) warrants to purchase 33,095 shares of Common Stock of the
Company exercisable at $0.14 per share and (ii) options to purchase 150,688
shares of Common Stock of the Company exercisable at $0.35 per share, which are
presently exercisable or exercisable within 60 days.
(9) Includes warrants to purchase 42,126 shares of Common Stock of the Company
exercisable at $0.14 per share which are presently exercisable or exercisable
within 60 days.
15
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive Officers and Directors
Below are the names and certain information regarding the Company's
executive officers, directors and director nominees following the acquisition of
Index UK.
- ----------------------- ------- ------------------------------------------------
Name Age Position
- ----------------------- ------- ------------------------------------------------
Daniel Murphy 63 Director, Chairman of the Company
- ----------------------- ------- ------------------------------------------------
Lyndon West 46 Director, Chief Executive Officer
- ----------------------- ------- ------------------------------------------------
Andrew Boetius 42 Director, Chief Financial Officer
- ----------------------- ------- ------------------------------------------------
David Jenkins 56 Director
- ----------------------- ------- ------------------------------------------------
Michael Scrutton 60 Director
- ----------------------- ------- ------------------------------------------------
Set forth below is a biographical description of each director and senior
executive officer of the Company and Index UK based on information supplied by
each of them.
Mr. Daniel Murphy has been the Chairman of the Company since January 20,
2006. From October 1996 to July, 2004, Mr. Murphy was employed at Intrepid
Energy (North Sea) Ltd. as Engineering and Production Director. In this position
he was instrumental in the development and delineation of the giant Buzzard
field, a 500 million plus (recoverable) barrel oil find. Prior thereto, from
January 1994 to October, 1996, Mr. Murphy was employed at C.C. Management
Associates as the Managing Director. From December 1996 to present date, Mr.
Murphy has continuously been a Non-Executive Director of Aker Kvaerner Offshore
Partners Limited, a United Kingdom registered company.
Mr. Lyndon West, who founded Index UK in February of 2003, has been the
Chief Executive Officer of the Company since January 20, 2006. From October of
1998 to December of 2003, Mr. West was employed at IHS Energy as New Venture
Services Practice Director, and prior thereto as a CEO of IHS Energy's
International Division. In this position, he was responsible for the development
of business relations worldwide. Prior thereto, from June of 1987 to October of
1998, Mr. West was employed at IEDS Limited, a company which he co founded, as
the Managing Director. In this position, he was responsible for developing
business direction and strategy implementation for the company. IEDS Limited was
subsequently acquired by IHS Energy in 1998. Mr. West has 25 years of experience
in the Oil and Gas Industry.
Mr. Andrew Boetius, a UK Chartered Management Accountant, has been the
Chief Financial Officer and a Director of the Company since January 20, 2006.
From September of 1988 to March of 2002, Mr. Boetius was employed at Amerada
Hess Limited ("Amerada"), a UK subsidiary of Amerada Hess Corporation. Mr.
Boetius has held a number of roles during his career with Amerada Hess
Corporation, both in its upstream and downstream businesses. In addition, from
February of 1999 to June 2002, he was the Finance Director for Amerada's UK
Energy Marketing and Trading business. Mr. Boetius was a part of the management
team that divested this business to the TXU Group in March 2002. He remained in
his role after the divesture to TXU Group through June of 2002. Subsequently Mr.
Boetius performed an interim management role for a UK business in the Fortum
Group. Mr. Boetius joined Index UK as a Director on its inception in February of
2003. Prior to 1988, Mr. Boetius worked for the UK divisions of GEC group.
Mr. David Jenkins has been a Director of the Company since January 20,
2006. From December of 2002, to July of 2005, Mr. Jenkins was the President of
Exploration Performance LLC ("Exploration Performance"), a Houston consulting
company specializing in design and implementation of complete, integrated global
exploration processes for oil and gas companies desiring to improve their
exploration performance or to expand their exploration business. Mr. Jenkins
areas of consultancy services included goal setting, strategy development,
project evaluation, portfolio risk analysis, budget optimization, project
implementation and post-audit analysis. Exploration Performance's clients
included Marathon Oil Company, Norsk Hydro, Robertson Research International,
CNODC, IHS Energy and Fairfield Geophysical.
16
During the same period, he also acted as the Technical Director of Index
UK. As result of his industry contacts, Index UK has acquired an interest in two
assets in Stafford County, Kansas and in South Texas. Prior to December 2002, he
was employed at Conoco Phillips Inc. ("Conoco") for 28 years in a number of
senior management positions. Mr. Jenkins was instrumental in developing the
integrated exploration processes, which resulted in Conoco becoming an industry
leader in terms of commercial success rate and the number of significant oil
field discoveries. In addition Mr. Jenkins was responsible for the analysis that
led to major discoveries in the Gulf of Paria and in the CUU Long basins in
Vietnam. Mr. Jenkins has also participated in evaluation of projects for Conoco,
which included the evaluation and ranking of over 50 basins and 100+ oil
exploration plays. Mr. Jenkins has 31 years of experience in global hydrocarbon
exploration.
Dr. Michael Scrutton has been a Director of the Company since January 20,
2006. From 1969 to the end of 2002, Dr. Scrutton was employed by the Robertson
Research Group ("Robertson"), a leading British consulting company involved in
the upstream oil and gas business. During his tenure with Robertson, he became a
director of the Robertson Research Holdings Ltd. and several of its subsidiary
companies. In his employment with Robertson, he has fulfilled a variety of
technical, management, planning and business development roles. From 1970 to
1986 he worked from Robertson's offices in Singapore, Indonesia and the United
States of America, returning to the head office in North Wales in 1986. Dr.
Scrutton is a geologist by training and during his 33 years of involvement in
the upstream petroleum business, has gained experience in most of the world's
oil and gas provinces.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the total
compensation that the Company has paid or that has accrued on behalf of
Company's chief executive officer and other executive officers with annual
compensation exceeding $100,000 during the years ended December 31, 2005 and
2004.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation Awards
Securities
Underlying
Options (#) All Other
Name and Principal Position Year Salary Bonus /SARS Compensation
------------------------------------ ---------- ---------- ---------- -------------- ---------------
Evon Au, CEO 2004 $390 $ 0 0 $ 0
17
The following table sets forth information concerning the total
compensation that Index UK has paid or that has accrued on behalf of Index UK's
chief executive officer and other executive officers with annual compensation
exceeding $100,000 during the years ended March 31, 2005 and 2004 and for the
period between April, 2005 to December 31, 2005.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation Awards
Securities
Underlying
Options (#) All Other
Name and Principal Position Year Salary Bonus /SARS Compensation
------------------------------------ ---------- ---------- ---------- -------------- ---------------
Lyndon West, CEO 2005(1) $0 (4) 0 0 $68,181(5)
2005(2) $0 (4) 0 0 $53,363(6)
2004(3) $0 (4) 0 0 $11,359(7)
(1) Period from April 1, 2005 to December 31, 2005.
(2) Fiscal period starting
March 31, 2004 and ending March 31, 2005.
(3) Fiscal Period ending March 31, 2004 commenced on February 21, 2003, the
incorporation date of Index UK.
(4)Under the Consultancy Agreement entered into in February of 2003 by and
between Index UK and Lyndon West (the "West Consultancy Agreement"), Index UK
had the right to defer certain payments of compensation to its Directors and
Officers and did exercise that right at all times from February of 2003 to
December of 2005, to defer payment of compensation and require that the
Directors and Officers apply the compensation amounts toward exercising options
granted to them to acquire Index UK equity stock.
(5) Compensation of $68,181 for the period from April 1, 2005 to December 31,
2005 pursuant to the West Consultancy Agreement was deferred and required by the
Company to be applied toward exercising of 187,500 options granted to Mr. West
into 187,500 shares of Index UK equity stock.
(6) Compensation of $53,363 for the fiscal period of April 1, 2004 to March 31,
2005, pursuant to the West Consultancy Agreement, was deferred and required by
the Company to be applied toward exercising of 147,500 options granted to Mr.
West into 147,500 shares of Index UK equity stock.
(7) Compensation of $11,359 for the fiscal period of February 21, 2003 to March
31, 2004, pursuant to the West Consultancy Agreement, was deferred and required
by the Company to be applied toward exercising of 62,475 options granted to Mr.
West into 62,475 shares of Index UK equity stock.
* Compensation amounts are based on salaries that are to be paid in British
Pounds. All executive compensation amounts were translated into U.S. dollars at
the average exchange rate prevailing during the applicable periods presented.
18
Employment and Consultancy Agreements
In January 20, 2006, Index UK entered into employment and consulting
agreements, with the following five directors of Index UK that provide for total
aggregate minimum annual salaries of $284,694, which became effective as of
January 1, 2006:
o Mr. West and Mr. Boetius. The agreements provide for Mr. West and Mr.
Boetius to receive each an annual salary of $90,909 per year. Mr.
West's and Mr. Boetius' employment agreements provide for continuous
employment without a set date of termination. Index UK may terminate
Mr. West's or Mr. Boetius' employment when Mr. West or Mr. Boetius
respectively reach such age as Index UK's Board of Directors
determines as the appropriate retirement age for the senior employees
of company. Mr. West and Mr. Boetius may terminate their employment
with the company upon not less than 3 months notice. Pursuant to their
employment agreements, Index UK provides Mr. Murphy and Mr. Boetius
with Director's Liability Insurance and contributes to their pension.
Additionally, Index UK may terminate Mr. West's and/or Mr. Boetius'
employment agreement upon not less than 6 months notice. Pursuant to
Termination of Control protection, upon termination of Mr. West's or
Mr. Boetius' employment due to a change of control of Index UK, Mr.
West and/or Mr. Boetius are entitled to severance pay. The severance
pay is equal to four times the amount of Mr. West's or Mr. Boetius'
compensation package, respectively, as defined in the agreements;
o A part time Employment Agreement with Mr. Murphy. The agreement
provides for Mr. Murphy to receive an annual salary of $75,000 per
year. Mr. Murphy's is employed continuously by Index UK without a set
date of termination; however, his employment is terminated immediately
upon his death or permanent disability. Index UK may also terminate
Mr. Murphy's employment upon six months notice. Mr. Murphy may
terminate his employment upon 3 months notice to Index UK. Pursuant to
his employment agreement, Index UK provides Mr. Murphy with Director's
Liability Insurance and contributes to his pension. Furthermore, the
employment agreement provides for a Termination of Control Protection
which entitles Mr. Murphy to receive an amount equivalent to 4 times
of annual compensation amount; and
o A non executive director Service Agreement with Mr. Jenkins and Mr.
Scrutton. The Agreements provide for Mr. Jenkins to receive a salary
of $1,050 per month, and Mr. Scrutton to receive a salary of $1,091
per month. Mr. Jenkins' and Mr. Scrutton's employment is terminated
immediately upon their death or permanent disability. Index UK may
also terminate Mr. Jenkins' or Mr. Scrutton's employment upon three
months written notice. Mr. Jenkins and Mr. Scrutton may terminate
their employment upon 3 months written notice to Index UK. Pursuant to
their employment agreements Index UK provides Mr. Jenkins and Mr.
Scrutton with Directors Liability Insurance and contributes to their
Private pension plan. Furthermore, the employment agreement provides
for a Termination of Control Protection which entitles Mr. Jenkins and
Mr. Scrutton to achieve vesting of their unvested stock options up to
the date of termination.
* Compensation amounts are based on salaries that are to be paid in British
Pounds. All executive compensation amounts were translated into U.S. dollars at
the average exchange rate prevailing during the applicable periods presented.
Stock Option Plan
As contemplated by the Acquisition Agreement, following the completion of
the Acquisition, the Company's Board of Directors agreed to the adoption of the
Stock Option Plan and ratified it on March 14, 2006 effective as of January 20,
2006, providing for the issuance of up to 5,225,000 shares of Common Stock of
the Company to the officers, directors, employees and consultants of the Company
and/or its subsidiaries. Pursuant to the Stock Option Plan, the Company granted
options to purchase an aggregate of 4,577,526 shares of common stock at $0.35
per share to the newly appointed directors and officers that held options to
purchase ordinary shares of Index UK prior to the completion of the acquisition,
as well as to the newly appointed directors and officers of the Company.
19
The principal terms and conditions of the stock options granted under the
Stock Option Plan are that vesting of the options granted to Directors of the
Company occurs in three stages: (1) 50% on January 20, 2006; (2) 25% on January
20, 2007; and (3) 25% on January 20, 2008. The options granted are exercisable
at $0.35 per share. Furthermore, the stock options granted under the Stock
Option Plan are generally non transferable other than to a legal or beneficial
holder of the options upon the option holder's death. The rights to vested but
unexercised options cease to be effective: (1) 18 months after death of the
stock options holder; (2) 6 months after Change of Control of the Company; 12
months after loss of office due to health related incapacity or redundancy; or
(5) 12 months after the retirement of the options holder from a position with
Index Oil.
Of the options to purchase an aggregate of 4,577,526 shares of common stock
that were granted, the following stock options have been granted to directors of
the Company:
Lyndon West 1,482,584 options
Andrew Boetius 1,482,584 options
Daniel Murphy 1,110,871 options
David Jenkins 200,112 options
Michael Scrutton 301,375 options
Furthermore, the Company granted bonus awards, in the form of shares of
common stock of the Company as follows: 101,265 to Mr. Lyndon West and 101,264
to each of Messrs. Andrew Boetius and David Jenkins, in consideration of Index
UK reaching certain performance objectives.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following related party transactions occurred from January 20, 2004 to
January 20, 2006.
In March of 2004, a total of 1,000,000 shares were issued to the Company's
officers and directors in consideration of $.005 per share, or a total of $5,000
in cash. In addition, Au E-Mun, Evon Au and Evelyn Au, former officers,
directors and founders of Chinadoll, Inc. Sdn. Bhd., a privately held Malaysian
corporation, assigned all of their rights, title and interest in and to the
Malaysian corporation to the Company at no cost to the Company.
On April 28, 2004, David Knapfel, a former officer and director of the
Company, loaned the Company a total of $40,000 pursuant to the Promissory Note
Agreement entered into with the Company, for the purpose of securing the lease
and opening of Thai Pasta Sdn. Bdh.'s first restaurant. The loan was repaid in
full from the proceeds of the Company's initial public offering, registered with
the U.S. Securities and Exchange Commission on Form SB-2 and completed in
November 2004.
DESCRIPTION OF SECURITIES
Common Stock
The Company's authorized capital stock consists of 75,000,000 shares of
common stock at a par value of $0.001 per share and zero shares of preferred
stock. As of January 20, 2006, there were 54,240,552 shares issued and
outstanding of the Company's voting stock.
Holders of the Company's common stock are entitled to one vote for each
share on all matters submitted to a stockholder vote. Holders of common stock do
not have cumulative voting rights. Therefore, holders of a majority of the
shares of common stock voting for the election of directors can elect all of the
directors. Holders of the Company's common stock representing a majority of the
voting power of the Company's capital stock issued, outstanding and entitled to
vote, represented in person or by proxy, are necessary to constitute a quorum at
any meeting of stockholders. A vote by the holders of a majority of the
Company's outstanding shares is required to effectuate certain fundamental
corporate changes such as liquidation, merger or an amendment to the Company's
articles of incorporation.
20
Holders of the Company's common stock are entitled to share in all
dividends that the board of directors, in its discretion, declares from legally
available funds. In the event of a liquidation, dissolution or winding up, each
outstanding share entitles its holder to participate pro rata in all assets that
remain after payment of liabilities and after providing for each class of stock,
if any, having preference over the common stock. The Company's common stock has
no pre-emptive rights, no conversion rights and there are no redemption
provisions applicable to the Company's common stock.
Warrants
In addition to the foregoing, as of January 20, 2006 there were 954,102
warrants outstanding entitling the holder upon exercise and payment of US $0.14
to subscribe for one share of common stock, par value $0.001 (the "Common
Stock") of the Company. Furthermore, as of January 20, 2006 there were 138,664
warrants outstanding entitling the holder upon exercise and payment of US $0.07
to subscribe for one fully paid and non-assessable share of Common Stock of the
Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the OTC Bulletin Board under
the symbol IXOG since January 20, 2006.
The following sets forth the range of the closing bid prices for the
Company's Common Stock for the period starting January 20, 2006 through March 3,
2005. Such prices represent inter-dealer quotations, do not represent actual
transactions, and do not include retail mark-ups, markdowns or commissions. Such
prices were determined from information provided by a majority of the market
makers for the Company's Common Stock.
High Close Low Close
First Quarter, 2006 $1.66 $0.97
------ ------
The shares quoted are subject to the provisions of Section 15(g) and Rule
15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that
has a market price less than $5.00 per share, subject to certain exceptions.
Rule 3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
registrant's net tangible assets; or exempted from the definition by the
Commission. Trading in the shares is subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker dealers to
trade and/or maintain a market in the company's common stock and may affect the
ability of shareholders to sell their shares.
21
Holders
The approximate number of holders of the Common Stock of the Company as of March
2, 2006 was 265.
Dividends
No cash dividends were declared by the Company during the fiscal year ended
March 31, 2005. While the payment of dividends rests within the discretion of
the Board of Directors, it is not anticipated that cash dividends will be paid
in the foreseeable future, as the Company intends to retain earnings, if any,
for use in the development of its business. The payment of dividends is
contingent upon the Company's future earnings, if any, the Company's financial
condition and its capital requirements, general business conditions and other
factors.
EQUITY COMPENSATION PLAN INFORMATION
The following table shows information with respect to each equity
compensation plan under which the Company's common stock is authorized for
issuance as January 20, 2006
------------------------------------ ------------------------ ----------------------- ---------------------------
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding options, future issuance under
outstanding options, warrants and rights equity compensation plans
warrants and rights (excluding securities
reflected in column (a)
------------------------------------ ------------------------ ----------------------- ---------------------------
(a) (b) (c)
------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans approved -0- $ -0- -0-
by security holders
------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans not 4,577,526 0.35 647,474
approved by security holders
------------------------------------ ------------------------ ----------------------- ---------------------------
Total 4,577,526 0.35 647,474
------------------------------------ ------------------------ ----------------------- ---------------------------
LEGAL PROCEEDINGS
Index Oil & Gas Inc.
Index Oil & Gas Inc. is not a party to any material pending legal
proceedings or government actions, including any bankruptcy, receivership, or
similar proceedings. Management of the Company does not believe that there are
any proceedings to which any director, officer, or affiliate of the Company, any
owner of record of the beneficially or more than five percent of the common
stock of the Company, or any associate of any such director, officer, affiliate
of the Company, or security holder is a party adverse to the Company or has a
material interest adverse to the Company.
Index UK
Index UK is not a party to any pending legal proceeding, nor is its
property the subject of a pending legal proceeding, that is not in the ordinary
course of business or otherwise material to the financial condition of Index UK.
22
RECENT SALES OF UNREGISTERED SECURITIES
In March 2004, the Company issued a total of 1,000,000 shares of $0.001 par
value common stock as founder's shares to Evon Au, David Knapfel, and Au E-Mun,
all of whom were officers and directors of Thai. Both Evon Au and David Knapfel
received 400,000 shares each, and Au E-Mun received 200,000 shares. The shares
were issued in exchange for cash in the aggregate amount of $5,000.
On January 20, 2006 the Company completed a private placement for 8,533,333
shares of common stock of the Company at a price of $0.60 per share for an
aggregate sum of $5,120,000.
In addition, on January 20, 2006, the Company issued an aggregate of
22,615,552 shares of common stock of the Company and 1,092,676 warrants to
subscribe for Common Stock of the Company as consideration for the acquisition
of Index UK's outstanding equity stock and warrants from the Index UK's
Shareholders. As part of the Acquisition, 759,448 shares of Common Stock were
reserved for issuance by the Company.
All of the above offerings and sales were deemed to be exempt under rule
506 of Regulation D and/or 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 Index Oil and Gas
Inc. or executive officers of Index Oil and Gas Inc., and transfer was
restricted by Index Oil and Gas 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.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's directors and executive officers are indemnified as provided by
the Nevada Revised Statutes and the Company's Bylaws. These provisions state
that the Company's directors may cause the Company to indemnify a director or
former director against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, actually and reasonably incurred
by him as a result of him acting as a director. The indemnification of costs can
include an amount paid to settle an action or satisfy a judgment. Such
indemnification is at the discretion of the Company's board of directors and is
subject to the Securities and Exchange Commission's policy regarding
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
23
Item 3.02 Unregistered Sales of Equity Securities.
See Item 2.01.
Item 5.01 Changes in Control of Registrant.
See Item 2.01.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
See Item 2.01.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
See Item 2.01.
Item 5.06 Change in Shell Company Status.
Prior to the entry into the Letter of Intent to acquire 100% of the share
capital of Index UK, the Company owned and operated a theme restaurant called
"Khanom Jeen" in Taipan, Selangor, Malaysia. Such business was open and active
as reported in the Form 10-QSB for the period ended September 30, 2005, which
was filed by Thai on November 9, 2005. Subsequent to that date, but prior to the
completion of the Acquisition, Thai sold a portion of its surplus assets that
had been utilized in connection with its Khanom Jeen restaurant for an aggregate
sum of $5,000 to Mad About Food Inc., a privately held company incorporated
under the laws of Malaysia, and, thereafter, it ceased all operations in its
Thai Pasta Enterprise Sdn. Bhd. subsidiary. Subsequently, the parties completed
the Acquisition in January 2005 and a Form 8-K regarding the completion of the
acquisition (and amendments to the Form 8-K) was filed by the Company.
Management of the Company has since determined, based upon information provided
to the Company subsequent to the completion of the Acquisition and the filing of
the Form 8-K, as previously amended, including preliminary unaudited financial
accounts prepared by former management of Thai for the year ended December 31,
2005, that Thai may have been deemed to be a shell company at the time of the
completion of the acquisition. Accordingly, the Company is providing additional
information regarding Index UK in this Amended Form 8-K, as well as a
description of the material terms of the Acquisition, in order to comply with
the requirements of Item 5.06. See Items 1.01 and 2.01.
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
This Form 8-K/A contains "unaudited" financial statements of Index Oil & Gas
Ltd. for the period ended March 31, 2004. Please refer to the Explanatory Note
to this filing.
Statement of Directors' Responsibilities
Consolidated Profit And Loss Account For Period Ended March 31, 2004
Consolidated Statement Of Total Recognised Gains And Losses For Period Ended
March 31, 2004
Consolidated Balance Sheet as of March 31, 2004
Company Balance Sheet as of March 31, 2004
Consolidated Cash Flow Statement For Period Ended March 31, 2004
24
Notes to the Unaudited Financial Statements For Period Ended March 31, 2004
(b) Pro forma financial information. To be filed by amendment.
(c) Shell company transactions.
See Items 9.01(a) and 9.01(b).
(d) Exhibits
Exhibit
Number Description
- --------------------------------------------------------------------------------
3.1 Amendment to the Articles of Incorporation of Index Oil & Gas
Inc. (the "Company"), dated November 28, 2005, changing the name
of the Company from Thai One On Inc. to Index Oil & Gas Inc., and
increasing the number of authorized shares from 25,000,000 to
75,000,000.
10.1 Acquisition Agreement between Index Oil and Gas Inc., certain
Shareholders of Index Oil & Gas Ltd., and Briner Group Inc. dated
January 20, 2006.
10.2 Form of Share Exchange Agreement entered into by and between
Index Oil & Gas Inc. and certain Index Oil & Gas Ltd.
shareholders.
10.3 Employment Agreement entered into by and between Index Oil & Gas
Ltd. and Lyndon West, dated January 20, 2006.
10.4 Employment Agreement entered into by and between Index Oil & Gas
Ltd. and Andrew Boetius, dated January 20, 2006.
10.5 Employment Agreement entered into by and between Index Oil & Gas
Ltd. and Daniel Murphy, dated January 20, 2006.
10.6 Non Executive Director Service Agreement entered into by and
between Index Oil & Gas Ltd. and David Jenkins, dated January 20,
2006.
10.7 Non Executive Director Service Agreement entered into by and
between Index Oil & Gas Ltd. and Michael Scrutton, dated January
20, 2006.
10.8 Form of Subscription Agreement dated as of January 20, 2006.
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 hereunto duly authorized.
Index Oil & Gas Inc.
Dated: March 14, 2006 By: /s/ Lyndon West
-------------------------------
Name: Lyndon West
Title: Chief Executive Officer
25
INDEX OIL AND GAS LTD.
UNAUDITED FINANCIAL STATEMENTS
March 31, 2004
Index Page
STATEMENT OF DIRECTORS'RESPONSIBILITIES 1
CONSOLIDATED PROFIT AND LOSS ACCOUNT 2
FOR FISCAL YEAR ENDING MARCH 31, 2004
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2
FOR FISCAL YEAR ENDING MARCH 31, 2004
CONSOLIDATED BALANCE SHEET 3
AS AF MARCH 31, 2004
COMPANY BALANCE SHEET 4
AS AF MARCH 31, 2004
CONSOLIDATED CASH FLOW STATEMENT
5
FOR FISCAL YEAR ENDING MARCH 31, 2004
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 11 - 15
FOR FISCAL YEAR ENDING MARCH 31, 2004
INDEX OIL & GAS LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial period, which give a true and fair view of the state of affairs of the
company and the group and of the profit or loss of the group for that period. In
preparing those financial statements, the directors are required to:
o select suitable accounting policies and then apply them consistently;
o make judgements and estimates that are reasonable and prudent;
o state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
o prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company and the group will continue in
business.
The directors are responsible for keeping proper records which disclose with
reasonable accuracy at any time the financial position of the company and the
group and enable them to ensure that the financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding the assets of the
group and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for ensuring that the directors' report is
prepared in accordance with company law in the United Kingdom.
1
INDEX OIL & GAS LIMITED
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 31 MARCH 2004
Period ended
31 March
Notes 2004
----- ----
(pound) (pound)
Turnover 2 21,480
Cost of sales
Production costs (9,392)
Depreciation, depletion and amortization 8 (7,553)
--------
(16,945)
---------
Gross profit 4,535
Administrative expenses
(179,779)
---------
Operating loss 3 (175,244)
Interest receivable and similar income 4 2,011
--------
Loss on ordinary activities before taxation (173,233)
Taxation 6 -
--------
Loss for financial year 14 (173,233)
=========
All amounts relate to continuing activities.
2
INDEX OIL & GAS LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE PERIOD ENDED 31 MARCH 2004
Period ended
31 March
2004
(pound)
Loss for the financial year (173,233)
Exchange translation differences on consolidation (27,349)
--------
Total recognised gains and losses (200,582)
========
3
INDEX OIL & GAS LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF 31 MARCH 2004
2004
----
Notes (pound) (pound)
-----
FIXED ASSETS
Intangible assets 7 138,087
Tangible assets 8 92,332
---------
230,419
CURRENT ASSETS
Debtors 10 5,503
Cash at bank and in hand 139,315
--------
144,818
CREDITORS
Amounts falling due within one year 11 (164,268)
--------
NET CURRENT ASSETS (19,450)
PROVISIONS FOR LIABILITIES AND CHARGES 12 (5,713)
---------
TOTAL ASSETS LESS LIABILITIES
205,256
=========
CAPITAL AND RESERVES
Called up share capital 13 345,652
Share premium account 16 60,186
Profit and loss account 14 (200,582)
---------
SHAREHOLDERS' FUNDS - Equity 15 205,256
=========
The financial statements were approved by the board on 13 July 2004
Signed on behalf of the board of directors
L West A Boetius
Director Director
4
INDEX OIL & GAS LIMITED
UNAUDITED COMPANY BALANCE SHEET
AS OF 31 MARCH 2004
2004
-----
Notes (pound) (pound)
-----
FIXED ASSETS
Tangible assets 8 4,045
Investments 9 233,372
---------
237,417
CURRENT ASSETS
Debtors 10 44,602
Cash at bank and in hand 135,119
---------
179,721
CREDITORS
Amounts falling due within one year 11 (144,008)
---------
NET CURRENT ASSETS 35,713
---------
TOTAL ASSETS LESS CURRENT LIABILITIES 273,130
=========
CAPITAL AND RESERVES
Called up share capital 13 345,652
Share premium account 16 60,186
Profit and loss account 14 (132,708)
---------
SHAREHOLDERS' FUNDS - Equity 15 273,130
=========
The financial statements were approved by the board on 13 July 2004
Signed on behalf of the board of directors
L West A Boetius
Director Director
5
INDEX OIL & GAS LIMITED
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 31 MARCH 2004
2004
(pound)
Reconciliation of operating loss to net cash outflow from
operating activities
Operating loss (175,244)
Depreciation of tangible fixed assets 8,156
Increase in debtors (5,696)
Increase in creditors 88,281
---------
Net cash outflow from operating activities (84,503)
=========
CASH FLOW STATEMENT (note 17)
Net cash outflow from operating activities (84,503)
Returns on investments and servicing of finance 2,011
Taxation -
Capital expenditure (261,955)
---------
Net cash outflow before financing (344,447)
Financing 482,567
---------
Increase in cash 138,120
=========
Reconciliation of net cash flow to movement in net funds (note 18)
Increase in cash in the year 138,120
Foreign Exchange differences 1,195
---------
Change in net funds 139,315
Net cash in hand and at Bank at 21 February 2003 -
---------
Net cash in hand and at Bank at 31 March 2004 139,315
=========
Net debt (note 18)
At 21 February 2003
Net cash in hand -
Debt -
---------
Net funds -
=========
At 31 March 2004
Net cash in hand 139,315
Debt (80,962)
---------
Net funds 58,353
=========
6
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
1 ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the
unaudited financial statements are as follows:
(a) Going concern
The group is in an early stage of development. It has limited cash
resources, it does not currently generate any significant revenues and
its success will depend largely upon the outcome of its future
exploration and development programs in the US. The Company has
entered into an Option Agreement to enter into such a program and the
Directors are currently actively working to raise the additional
funding, in the form of convertible debt which will convert to equity,
required to proceed with this and cover ongoing operating costs. They
believe that they will be successful and they have also received
written confirmations of continuing financial support from existing
shareholders to meet current financial obligations. However, the
fundraising process is currently ongoing and therefore there can be no
certainty in this regard.
The directors believe they have considered all relevant information
and have concluded that it is appropriate to prepare these financial
statements on the going concern basis. The financial statements do not
include any adjustments that may be required if the additional funds
are not available or if additional programs under the Option Agreement
are not secured.
(b) Basis of preparation
The accounts have been prepared under the historical cost convention
and in accordance with applicable UK accounting standards.
The financial statements fall within the scope of the Statement of
Recommended Practice ("SORP"), "Accounting for Oil and Gas
Exploration, Development, Production and Decommissioning Activities",
issued by the Oil Industry Accounting Committee. The financial
statements, including disclosures, have been prepared in accordance
with the provisions of the SORP currently in effect.
(c) Basis of consolidation
The consolidated financial statements include the financial statements
of the Company and its subsidiary made up to 31 March 2004. The
acquisition method of accounting has been adopted, such that the
results of the subsidiary undertaking established during the year are
included in the consolidated profit and loss account from the date of
acquisition.
The Group's exploration, development and production activities are
conducted jointly with other companies. Since these arrangements do
not constitute entities in their own right, the financial statements
reflect the relevant proportion of costs, revenues, assets and
liabilities applicable to the Group's interests.
(d) Turnover
Turnover is recognised on an entitlement basis and represents the
sales value, net of Royalty Interests, of the Group's share of oil and
gas revenue in the year.
(e) Oil and gas interests
Oil and gas projects
The Group has adopted the full costs accounting policy for expenditure
on oil and gas projects. As a result, all costs are accumulated in
cost pools and are then written off to the extent that they are not
supported by underlying oil and gas reserves, unless the expenditure
relates to an area where it is too early to make such a decision.
7
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
1 ACCOUNTING POLICIES (Continued)
(f) Oil and gas interests (continued)
Production Assets
Impairment and ceiling test Capitalised expenditure is reviewed each
year for possible impairment on a property basis. Any expenditure
which is judged to be impaired is included in the relevant depletion
calculation. As a test for impairment, the capitalised costs in each
cost pool of tangible assets is compared each year with the net
present value of future cash flows derived from the assets in the
pool. These ceiling test values are calculated on the basis of
expected future product prices.
Depreciation, depletion and amortisation
Amortisation of expenditure held in each tangible cost pool is
provided using the unit of production method based on entitlement to
proved and probable reserves of oil and gas and estimated future
development expenditure to be incurred to access these reserves.
Changes in reserves are accounted for prospectively.
Decommissioning costs
Provision for decommissioning is recognised in full at the
commencement of oil and gas production, or when the assets are
acquired, if later. The amount recognised is the present value of the
estimated future expenditure. A corresponding tangible fixed asset is
also created at an amount equal to the provision. This is subsequently
amortised as part of the capital costs of the production facilities,
having taken account of any expected salvage value. Any change in the
present value of the estimated expenditure is reflected as an
adjustment to the fixed asset.
Pre-production assets
Expenditure in this category has been included in the balance sheet
under intangible assets. Expenditure incurred on pre-production assets
is transferred to tangible assets once a decision has been made as to
the commercial development of a field or property.
(g) Other tangible fixed assets
Other tangible fixed assets are shown at cost. Depreciation is
provided at rates calculated to write off the cost, less estimated
residual value, of each asset on a straight-line basis over its
expected useful life, as follows:
Computer Equipment 20% straight line
(h) Fixed asset investment
Fixed asset investments are stated at cost less provision for any
impairment in value.
(i) Deferred taxation
In accordance with FRS 19 full provision is made at current rates for
taxation deferred in respect of all timing differences. Deferred tax balances
are not discounted.
Deferred tax assets are only recognised where they arise from timing
differences where their recoverability in the short term is regarded as more
likely than not.
(j) Foreign currency
The results of overseas operations are translated at average rates of
exchange during the period and the balance sheet is translated into sterling at
the rate of exchange ruling on the balance sheet date. Exchange differences
which arise from translation of the opening net assets and results of foreign
subsidiary undertakings are taken to reserves. All other exchange differences
are taken to the profit and loss account.
8
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
1 ACCOUNTING POLICIES (Continued)
(k) Company profit and loss account
The company had taken advantage of the exemption conferred by
Companies Act 1985 section 230 from publishing its own profit and loss
account. The result for the period ended 31 March 2004 was a loss
after taxation of (pound)132,708.
2 TURNOVER
The Group operates in one business segment, the exploration for and
production of oil and gas. The origin and destination of all sales is
in the USA.
3 OPERATING LOSS
2004
----
(pound)
The operating loss is stated after charging/(crediting):
Depreciation of tangible assets 8,156
Auditors remuneration - audit services 13,809
- non audit services 3,044
Loss on foreign exchange translation 3,214
=======
4 INTEREST RECEIVABLE AND SIMILAR INCOME
2004
------
(pound)
Bank interest received 2,011
=======
5 DIRECTORS' REMUNERATION
Directors' remuneration, all of which relates to payments on service
contracts and expenses, consists of the following:
2004
------
(pound)
Directors fees 36,824
=======
There was no pension scheme in operation during the year. All executive
directors received equal remuneration based on length of service in the year.
The average number of employees, including directors, in the period was 3.
9
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
6 TAXATION
a) Analysis of charge for the year
No corporation tax liability arises in respect of the period due to the
loss incurred.
2004
(pound)
b) Factors affecting tax charge for period
Loss on ordinary activities before tax (173,233)
---------
Expected tax @ 30% (51,970)
Expenses not deductible for tax purposes 27,046
Unrelieved trading losses arising in the period 24,924
---------
Actual tax charge -
=========
c) Factors affecting future tax charge
No liability to UK corporation tax arose on ordinary activities for the
period ending 31 March 2004. At 31 March 2004 the group had losses
amounting to approximately (pound)82,000 available for offset against
future taxable profits. This represents a deferred tax asset of
approximately (pound)24,900, which has not been recognised in these
financial statements because there is currently insufficient evidence of
recovery in the near future.
7 INTANGIBLE FIXED ASSETS
Unproven and
undeveloped
Oil Interests
--------------
Group (pound)
Cost
Additions 232,775
Transfer to Tangible Fixed Assets (75,247)
Currency translation adjustment (19,441)
----------
Cost and net book value at 31 March 2004 138,087
==========
Licenses
--------
Company (pound)
Cost
Additions 232,775
Disposals
Disposal in year (232,775)
----------
Cost and net book value at 31 March 2004 -
==========
The company acquired a 5% working interest in an area of mutual interest
covering 8,500 acres in Stafford County, Kansas, USA on 25 July 2003. On
26 August 2003, the company assigned all rights and obligations relating
to this asset to Index Oil and Gas (USA) LLC. The company was granted
interest in the equity capital of Index Oil & Gas (USA) LLC equal to the
value of the asset.
10
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
8 TANGIBLE FIXED ASSETS
Group
Proven and
developed Oil Computer
interests equipment Total
--------- --------- -----
(pound) (pound) (pound)
Cost
Transfers from Intangible Fixed Assets 75,247 - 75,247
Additions 22,853 6,327 29,180
Decommissioning costs provided 5,713 - 5,713
Currency translation adjustment (9,598) (54) (9,652)
--------- --------- --------
Total transfers, additions and adjustments at 31 March 2004 94,215 6,273 100,488
--------- --------- --------
Depreciation
Charge for the period and at 31 March 2004 7,553 603 8,156
--------- --------- --------
Net book value
At 31 March 2004 86,662 5,670 92,332
========= ========= ========
Company Proven and Computer
developed Oil Computer
interests equipment Total
--------- --------- -----
(pound) (pound) (pound)
Cost
Additions and at 31 March 2004 - 4,495 4,495
--------- --------- --------
Depreciation
Charge for the period and at 31 March 2004 - 450 450
--------- --------- --------
Net book value
At 31 March 2004 - 4,045 4,045
========= ========= ========
9 FIXED ASSET INVESTMENTS
Company
Shares in
subsidiary
undertakings
------------
(pound)
Cost
Additions and at 31 March 2004 233,372
============
As at 31 March 2004 , the company held 100% of the ordinary shares of
Index Oil & Gas (USA) LLC, incorporated in the US, whose principal
activity is the exploration, development and production of oil and gas.
11
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
10 DEBTORS
Group Company
2004 2004
---- ----
(pound) (pound)
Trade debtors 5,281 -
Other debtors 222 222
Amounts owed by group undertakings - 44,380
------- ------
5,503 44,602
======= ======
11 CREDITORS
Group Company
2004 2004
---- ----
(pound) (pound)
Falling due within one year:
Trade creditors 17,403 -
Convertible debt 76,730 76,730
Other creditors 35,895 35,895
Accruals and deferred income 34,240 31,383
------- -------
164,268 144,008
======= =======
Convertible debt has been stated as proceeds net of issue costs. This debt
is convertible into 490,262 10p nominal value shares. Repayment or
conversion of this debt is at the sooner of the last repayment date for the
convertible debt and Index Oil & Gas Ltd entering into an Option Agreement
for further oil and gas exploration and development activity. It was due to
be repaid or converted into ordinary share capital by 31 March 2004. Since
the year end, repayment/conversion has been extended to 11 June 2004 when
this debt was converted into 10p ordinary shares on the signing of the
aforementioned Option Agreement.
12 PROVISIONS FOR LIABILITIES AND CHARGES
Group Company
2004 2004
---- ----
(pound) (pound)
Future decommissioning costs
As at 31 March 2004 5,713 -
======= ==========
2004
13 CALLED UP SHARE CAPITAL ------
Group and company (pound)
Authorized
100,000,000 ordinary shares of 10p each 10,000,000
==========
Allotted, issued and fully paid
3,456,528 ordinary shares of 10p each 345,652
==========
On 26 February 2003, the company split its authorized share capital of 100
(pound)1 Ordinary shares to 1000 shares of 10p each. At that date the
company also increased its authorized share capital from (pound)100 to
(pound)10,000,000.
At this date, the subscription share of (pound)1 in issue was split into 10
shares of 10p each.
12
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
13 CALLED UP SHARE CAPITAL (Continued)
On 17 March 2003 the company issued 693,332 shares at par. The company also
issued convertible loan capital of (pound)138,667, that was convertible on
majority Shareholder approval and no later than 5 months after the closing
of the related offer. The conversion of this loan capital into 1,386,668
Ordinary share of 10p at par was approved in July 2003, at the point the
Company acquired its first oil and gas property. The shares were
subsequently issued on 15 December 2003.
On 22 July 2003 the company issued convertible loan capital of
(pound)125,750 that was convertible on majority Shareholder approval and no
later than 2 months after the closing of the related offer. The conversion
of this loan capital into 886,256 shares of 10p at a premium of
(pound)37,125 was similarly approved in July 2003, again at the point the
Company acquired its first oil and gas property These shares were also
subsequently issued on 15 December 2003.
On 2 March 2004, the company issued 490,262 Ordinary share of 10p at a
premium of (pound)31,935. The company also issued convertible loan capital
of (pound)80,962, that was convertible on majority Shareholder approval.
Details of the conversion since the year end are given in note 11.
Share options
At 31 March 2004 the following share options were outstanding in respect of
the ordinary shares:
Date of grant Number of shares Period of options Option price per share
8 March 2004 297,425 shares of 10p 31 December 2003 - 10p
31 December 2010
Warrants
At 31 March, the following warrants were outstanding in respect of the
ordinary shares:
Date of warrant Number of shares Expiry dates
27 February 2003 45,882 Not later than the date
of listing of the Company
on a recognized Stock
Exchange or the date of
the Sale and Purchase of
more than 90% of existing
Ordinary shares in issue,
whichever is earliest.
22 July 2003 2,653
14 PROFIT AND LOSS ACCOUNT Company Group
2004 2004
---- ----
(pound) (pound)
Loss for the period (132,708) (173,233)
Exchange differences on consolidation - (27,349)
-------- --------
At 31 March 2004 (132,708) (200,582)
======== ========
15 RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
Company Group
2004 2004
----------------------
(pound) (pound)
Share capital issued 345,652 345,652
Share premium net of issue costs 60,186 60,186
Loss for the period (132,708) (200,582)
-------- --------
Shareholders funds at 31 March 2004 273,130 205,256
======== ========
13
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
16 MOVEMENT ON RESERVES
Group
Share Profit and
premium loss
account account Total
------- ------- -----
(pound) (pound) (pound)
At beginning of period - - -
Loss for period - (173,233) (173,233)
Premium on issue of shares 69,060 - 69,060
Issue costs (8,874) - (8,874)
Currency translation differences
on foreign currency net investments - (27,349) (27,349)
-------- -------- --------
At end of period 60,186 (200,582) (140,396)
======== ======== ========
Company
Share Profit and
premium loss
account account Total
------- ------- -----
(pound) (pound) (pound)
At beginning of period - - -
Loss for period - (132,708) (132,708)
Premium on issue of shares 69,060 - 69,060
Issue costs (8,874) - (8,874)
-------- -------- --------
At end of period 60,186 (132,708) (72,522)
======== ======== ========
17 GROSS CASH FLOWS
2004
(pound)
Returns on investments and servicing of finance
Interest received 2,011
---------
2,011
=========
Capital expenditure
Payments to acquire intangible fixed assets (232,775)
Payments to acquire tangible fixed assets (29,180)
---------
(261,955)
=========
Financing
Issue of share capital, including Share Premium 414,712
Share issue costs (8,874)
Issue of loan capital 80,962
Loan issue costs (4,233)
---------
482,567
=========
14
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
18 ANALYSIS OF CHANGES IN NET FUNDS
At At
21 February Cash Exchange 31 March
2003 flows difference 2004
---- ----- ---------- ----
(pound) (pound) (pound) (pound)
Cash at bank and in hand - 138,120 1,195 139,315
--------- -------- --------- --------
Debt <1 year (convertible debt) - (80,962) - (80,962)
--------- -------- --------- --------
Total - 57,158 1,195 58,353
========= ======== ========= ========
19 MAJOR NON-CASH TRANSACTIONS
There were no external non-cash transactions during the year.
20 RELATED PARTY TRANSACTIONS
During the Period ended 31 March 2004:
A Boetius subscribed for (pound)9,508 of loan notes issued by the company.
L West subscribed for (pound)79,167 of loan notes issued by the company.
D Jenkins subscribed for (pound)13,667 of loan notes issued by the company.
D Wordsworth subscribed for (pound)106,500 of loan notes issued by the
company.
As at the Balance Sheet date:
A Boetius held (pound)1,625 of outstanding loan notes issued by the
company.
L West held (pound)17,500 of outstanding loan notes issued by the company.
D Jenkins held (pound)5,000 of outstanding loan notes issued by the
company.
D Wordsworth held (pound)17,500 of outstanding loan notes issued by the
company.
During the year the company entered into service contracts with A Boetius,
L West and D Jenkins. Under these contracts the directors received
remuneration of (pound)12,247.50 each. These directors were each granted
62,475 share options, with an exercise price of 10p per share under an
unapproved share option plan.
During the year, prior to being appointed a Director D Wordsworth received
(pound)6,000 for the provision of Consultancy services. D Wordsworth was
granted 60,000 in share options with an exercise price of 10p per share
under an unapproved share option plan.
All share options were exercised between 19 April and 30 April 2004.
15
INDEX OIL & GAS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED 31 MARCH 2004
21 CONTROLLING PARTY
The company is controlled by the directors by virtue of their combined
shareholding, as shown in the Directors' Report.
22 POST BALANCE SHEET EVENTS
The Group has entered into an Option Agreement to acquire certain US gas
properties and participate in development programmes on these.
Consideration of $75,000 has been paid to the counterparty in return for
rights under the Option Agreement. Under the Option Agreement the Index
Group has the right, but not the obligation, to execute a Sale and Purchase
Agreement relating to these properties. The consideration payable on any
completion of the Sale and Purchase Agreement is $5.2million in cash,
together with the grant of certain future royalty interests in the
properties and an uplift to Index's working interest share of costs on a
defined future development well. As of the date of this report the
Directors are currently actively working to raise the funding required to
proceed with this opportunity.
All Share Options granted at the Balance Sheet date have been exercised in
the subsequent period and prior to the date of this report.
16