UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 2009.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 000-52319
EXTERRA ENERGY INC.
-------------------
(Exact name of registrant as specified in its charter)
Nevada 20-5086877
------ ----------
(State of Incorporation) (I.R.S. Employer Identification Number)
701 South Taylor, Suite 440, Amarillo, Texas 79105
--------------------------------------------------
(Address of Principal executive offices) (Zip Code)
(806) 373-7111
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Act) [ ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
12,051,279 shares of common stock were issued and outstanding as of
October 19, 2009.
EXTERRA ENERGY INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Balance Sheet 1
Statements of Operations and Deficit 2
Statements of Cash Flows 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Item 4. Controls and Procedures 9
Part II Other Information
Item 1. Legal Proceedings 11
Item 1A. Risk Factors 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits 12
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXTERRA ENERGY INC.
BALANCE SHEETS
(Unaudited)
August 31, 2009 May 31, 2009
--------------- ------------
CURRENT ASSETS:
Cash and equivalents $ 2,098 $ 7,505
Oil and gas receivable 50,425 42,326
Prepaid expenses and other current assets -- 611
------------ ------------
TOTAL CURRENT ASSETS 52,523 50,442
OIL AND GAS PROPERTIES, successful efforts method,
net of accumulated depletion of $647,830 and $629,453 2,360,817 2,379,194
VEHICLES, FURNITURE AND EQUIPMENT, net of
accumulated depreciation of $13,455 and $11,535 23,155 25,075
OTHER ASSETS 9,913 9,913
------------ ------------
TOTAL ASSETS $ 2,446,408 $ 2,464,624
============ ============
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,206,841 $ 1,042,749
Oil and gas properties purchase note payable 200,000 200,000
Notes payable - Convertible 367,500 367,500
Notes payable - Related Parties 50,000 30,000
Notes payable - Other 462,125 462,125
------------ ------------
TOTAL CURRENT LIABILITIES 2,286,466 2,102,374
NON-CURRENT LIABILITIES:
Asset retirement obligations 124,696 120,271
------------ ------------
TOTAL LIABILITIES 2,411,162 2,222,645
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock: $0.001 par value
75,000,000 shares authorized: 7,051,279
and 7,036,279 shares issued and outstanding, respectively 7,051 7,036
Additional paid-in capital 20,495,482 20,450,498
Accumulated deficit (20,467,287) (20,215,555)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 35,246 241,979
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,446,408 $ 2,464,624
============ ============
See accompanying notes to financial statements
1
EXTERRA ENERGY INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
--------------------------------
August 31, 2009 August 31, 2008
--------------- ---------------
REVENUE:
Oil and gas sales $ 72,392 $ 193,246
OPERATING EXPENSES:
Lease operating expenses 22,754 88,758
Depreciation, depletion and accretion 24,720 65,276
General and administrative 248,550 484,247
------------ ------------
Total Expenses 296,024 638,281
------------ ------------
LOSS FROM OPERATIONS (223,632) (445,035)
------------ ------------
OTHER EXPENSES:
Interest Expense (28,100) (34,983)
------------ ------------
NET LOSS $ (251,732) $ (480,018)
============ ============
LOSS PER SHARE - BASIC AND DILUTED $ (0.04) $ (1.01)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 7,037,991 476,922
See accompanying notes to financial statements
2
EXTERRA ENERGY INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
-------------------------------
August 31, 2009 August 31, 2008
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(251,732) $(480,018)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, depletion and accretion 24,720 65,276
Stock issued for services 45,000 283,250
Changes in operating assets and liabilities:
O&G receivables (8,099) (1,037)
Prepaid expenses and other current assets 611 718
Accounts payable (18,007) (13,479)
Accrued expenses 182,100 103,634
--------- ---------
Net Cash Used by Operating Activities (25,407) (41,656)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock -- 131,000
Borrowings on related party debt 20,000 --
Principal payments on long term debt -- (4,565)
--------- ---------
Net Cash Provided by Financing Activities 20,000 126,435
--------- ---------
NET CHANGE IN CASH (5,407) 84,779
CASH AT BEGINNING OF PERIOD 7,505 9,190
--------- ---------
CASH AT END OF PERIOD $ 2,098 $ 93,969
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ -- $ --
Income taxes $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock issued upon conversion of warrants and options $ -- $ 498
See accompanying notes to financial statements
3
EXTERRA ENERGY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Exterra Energy, Inc.
("Exterra") have been prepared in accordance with accounting principles
generally accepted in the United States of America and rules of the Securities
and Exchange Commission, and should be read in conjunction with the audited
financial statements and notes thereto contained in Exterra's annual report on
Form 10-K for the year ended May 31, 2009 filed with the SEC on October 14,
2009. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes to
the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements as reported in the 2009 annual
report on Form 10-K have been omitted.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the
current period presentation.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The Company has not yet established an ongoing
source of revenues sufficient to cover its operating costs and has defaulted on
certain outstanding notes payable, which raises substantial doubt about its
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the Company obtaining adequate capital to
fund operating losses until it becomes profitable and to settle or restructure
its outstanding past due notes payable. If the Company is unable to obtain
adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. Management's plans to obtain such
resources for the Company include obtaining capital from management and
significant shareholders sufficient to meet its minimal operating expenses.
However, management cannot provide any assurances that the Company will be
successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - ASSET RETIREMENT OBLIGATIONS
The following is a description of the changes to the Company's asset retirement
obligations for the three months ended August 31,
2009
--------
Asset retirement obligations at May 31 $120,271
Additions for exploratory and development drilling --
Accretion expense 4,425
--------
Asset retirement obligations at August 31 $124,696
========
4
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
During the three month period ended August 31, 2009, the Company consummated the
following transactions:
06/26/2009 Issued 15,000 common shares valued at $3.00 per share in payment
for services and fees to third parties
NOTE 5 - RELATED PARTY TRANSACTIONS
During the quarter ended August 31, 2009, Exterra was loaned $20,000 from
ROYALCO Oil & Gas Corporation. ROYALCO Oil and Gas is a private oil and gas
company in Texas that is owned and controlled by Robert Royal, CEO and Director
and Todd Royal, President and Director.
NOTE 6 - SUBSEQUENT EVENTS
Subsequent to August 31, 2009, Exterra issued 5,000,000 shares of common stock
for settlement of $579,308 of principal and accrued interest on a note payable.
In September 2009, Exterra entered into a $10,000,000 bank line of credit. The
line of credit is subject to an initial borrowing base limitation of $1,475,000
and is secured by Exterra's interests in various oil and gas leases originally
acquired in October of 2007. The loan proceeds are to be used for oil and gas
investments, development of oil and gas properties and working capital
associated with operating oil and gas properties.
Exterra evaluated its subsequent events through October 20, 2009.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
LITIGATION REFORM ACT OF 1995. Statements contained in this filing that are not
based on historical fact, including without limitation statements containing the
words "believe," "may," "will," "estimate," "continue," "anticipate." "intend,"
"expect" and similar words, constitute "forward-looking statements". These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, events or developments to be
materially different from any future results, events or developments expressed
or implied by such forward-looking statements. These factors include, among
other, the following: general economic and business conditions, both nationally
and in the regions in which Exterra Energy, Inc. ("we", "Exterra" or "Company")
operates; technology changes, the competition we face; changes in our business
strategy or development plans; the high leverage of Exterra; our ability to
attract and retain qualified personnel; existing governmental regulations and
changes in, or our failure to comply with, governmental regulations; liability
and other claims asserted against us; our ability or the ability of our
third-party suppliers to take corrective action in a timely manner with respect
to changing government regulations; and other factors referenced in our filings
with the Securities and Exchange Commission.
Results of Operations
The following table sets forth the percentage relationship to total revenues of
principal items contained in the statements of operations of the financial
statements included herewith for the three months ended August 31, 2009 and
2008. It should be noted that percentages discussed throughout this analysis are
stated on an approximate basis.
6
Three Months Ended August 31,
2009 2008
----------------------- -----------------------
Amount Percentage Amount Percentage
---------- ---------- ---------- ----------
Total revenues $ 72,392 100% $ 193,246 100%
Total Expenses 296,024 409% 638,281 330%
Total Other Expenses (28,100) -39% (34,983) -18%
Income before income taxes (251,732) -348% (480,018) -248%
Net loss $(251,732) -348% $(480,018) -248%
Three months ended August 31, 2009 and 2008
Oil and Gas Revenues
Revenues for the three months ended August 31, 2009 and 2008 were $72,392 and
$193,246, respectively. The decrease is due to decreased production and
decreases in commodity pricing. We expect our oil and gas revenues to increase
in the following months as our oil and natural gas properties are brought to
greater levels of production.
Lease Operating Expenses
Lease operating expenses for the three months ended August 31, 2009 and 2008
were $22,754 and $88,758, respectively. The decrease is due to decreased
production and decreases in commodity pricing. We expect our operating expenses
to continue to grow as we repair and improve the wells we have purchased.
Depreciation and Depletion
Depreciation and depletion expenses for the three months ended August 31, 2009
and 2008 were $24,720 and $65,276, respectively. The decrease in the depletion
and depreciation is due to the decrease in the depletable property base as a
result of impairment recognized during the year ended May 31, 2009.
General and Administrative Expenses
General and administrative expenses for the three months ended August 31, 2009
and 2008 were $248,550 and $484,247, respectively. The decrease is principally
due to the change in management. We expect our general and administrative
expenses to decline in the current year as the majority of non-cash consulting
expenses are non-recurring.
Interest Expense
Interest expense for the three months ended August 31, 2009 and 2008 were
$28,100 and $34,983, respectively. The decrease is due to a reduction in
non-cash interest expense for the three months ended August 31, 2009 as compared
to the same period in 2008.
Net Loss
Our net loss for the three months ended August 31, 2009 and 2008 was $251,732
and $480,018, respectively. The decrease is primarily attributable to the
decrease in general and administrative expenses noted above.
7
Liquidity and Capital Resources
The Company's financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The Company has not yet established an ongoing
source of revenues sufficient to cover its operating costs and has defaulted on
certain outstanding notes payable, which raises substantial doubt about its
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the Company obtaining adequate capital to
fund operating losses until it becomes profitable and to settle or restructure
its outstanding past due notes payable. If the Company is unable to obtain
adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. Management's plans to obtain such
resources for the Company include obtaining capital from management and
significant shareholders sufficient to meet its minimal operating expenses.
However, management cannot provide any assurances that the Company will be
successful in accomplishing any of its plans.
As of August 31, 2009, Exterra had cash of $2,098 and negative working capital
of $2,233,943. This compares to cash of $7,505 and negative working capital of
$2,051,932 for the year ending May 31, 2009.
Debts outstanding at August 31, 2009 are as follows:
(1) Note payable to purchase oil and gas properties $200,000
(2) Convertible loans $367,500
(3) Note payable to Coventry Capital, net of discount $462,125
(4) Note payable to ROYALCO Oil and Gas Corporation $50,000
Total debt outstanding - $1,079,625
(1) Principal with interest (10% per annum) on the note are payable on the tenth
(10th) day of each calendar month, beginning on January 10, 2007, in monthly
installments equal to the difference between the prior month's (i) income and
(ii) the royalties, severance, ad valorem, lifting and transportation expenses
directly related to the operation of the Pecos County leases. Each monthly
installment will be applied first to any outstanding and accrued interest and,
thereafter, to principal on the note. The entire principal amount outstanding
under the note and all accrued interest thereon was due and payable on July 15,
2008. The note payable is secured by the oil and gas properties and 20,000
shares of the Company's restricted common stock. The Company has accrued $65,041
in interest on the note payable as of August 31, 2009. As the Company is unable
at present to pay the balances due, we are seeking an extension from the Lender.
There are no guarantees these discussions will be successful.
(2) During the year ended May 31, 2007, the Company received $367,500 from the
sale of its Convertible Loans. The Convertible Loans were due June 30, 2008 and
bear interest at 10% per annum payable quarterly. In addition, 10% of the face
value of the Convertible Loans is due to the holders as a revenue sharing bonus.
This bonus is due from initial production revenue realized from the first six
months of net revenue from the University Lands, Pecos County, Texas.
Furthermore, 205,900 common shares in aggregate were issued as a bonus. These
bonus shares are restricted from sale for 2 years. The Convertible Loans are
convertible into common shares of the Company at $45 per share for a total of
8,167 common shares. The Company is currently negotiating an extension with the
Convertible Loan Holders. There are no guarantees these negotiations will be
successful.
Through August 31, 2009 a net revenue sharing bonus has not been paid as the
University Lands have yet to yield net revenue. The Company has accrued interest
of $57,908 at August 31, 2009 on the Convertible Loans.
(3) Principal with interest (18% per annum) due monthly in blended payments of
$20,000 commenced December 7, 2007. The loan is secured by certain oil and gas
properties and was due May 7, 2008. The Company had accrued $117,183 in interest
as of August 31, 2009. The Company successfully re-negotiated the terms of the
Loan. The debt was settled with 5,000,000 shares of stock issued subsequent to
August 31, 2009.
(5) Principal and interest (10% per annum) is un-secured and due April 15, 2010.
The Company has accrued $2,010 in interest as of May 31, 2009.
We believe these funds are inadequate to satisfy current operation needs and
comply with debt obligation for the next 12 months. Additional financing whether
debt or equity is necessary although we cannot provide any assurance we will be
able to successfully raise additional funds as needed to compete in the energy
market.
8
Cash Flow from Operating Activities
For the three-month period ended August 31, 2009, net cash used by operating
activities was $25,407, versus net cash used by operating activities of $41,656
for the three-month period ended August 31, 2008. This decrease in net cash used
by operations activities is primarily due to decreased general and
administrative expenses.
Cash Flow from Financing Activities
For the three-month period ended August 31, 2009, net cash provided by financing
activities was $20,000, versus net cash provided by financing activities of
$126,435 for the three month period ended August 31, 2008. The decrease was due
to private placement stock sales that occurred during the three month period
ended August 31, 2008 that did not occur for the same period in 2009.
Subsequent Events
Subsequent to August 31, 2009, Exterra issued 5,000,000 shares of common stock
for settlement of $579,308 of principal and accrued interest on one of its notes
payable.
In September 2009, Exterra entered into a $10,000,000 bank line of credit. The
line of credit is subject to an initial borrowing base limitation of $1,475,000
and is secured by Exterra's interests in various oil and gas leases originally
acquired in October of 2007. The loan proceeds are to be used for oil and gas
investments, development of oil and gas properties and working capital
associated with operating oil and gas properties.
Hedging
We did not hedge any of our oil or natural gas production during 2009 and have
not entered into any such hedges from August 31, 2009 through the date of this
filing.
Contractual Commitments
Information about contractual obligations at August 31, 2009 did not change
materially from the disclosures in our Annual Report on Form 10-K for the year
ended May 31, 2009.
Off-Balance Sheet Arrangements
As of August 31, 2009, we had no off-balance sheet arrangements.
Related Party Transactions
During the quarter ended August 31, 2009, Exterra was loaned $20,000 from
ROYALCO Oil & Gas Corporation. ROYALCO Oil and Gas is a private oil and gas
company in Texas that is owned and controlled by Robert Royal, CEO and Director
and Todd Royal, President and Director.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
is based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and
prices. We are exposed to risks related to increases in the prices of fuel and
raw materials consumed in exploration, development and production. We do not
engage in commodity price hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we
conducted an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO") of our disclosure controls and procedures (as defined in
Rules13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation,
the CEO and CFO have concluded that our disclosure controls and procedures were
not effective as of August 31 2009.
(b) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting
that occurred during our fiscal quarter ended August 31,2009 that have
materially affected; or is reasonably likely to materially affect our internal
control over financial reporting.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments occurred in any previously reported legal proceedings
involving the Company during the quarter ended August 31, 2009.
The Company is aware of the following pending litigation that could result in a
material loss:
At August 31, 2009, the following litigation is pending:
1. Cause No. 08-05-07052: Hope Drilling Company and Hope Workover Services,
Inc. vs Exterra Energy Inc.; in the District Court of Crockett County
Texas; 112th Judicial District
a. This is a suit on a debt in the amount of $21,331 plus attorney's
fees.
b. An answer has been filed on behalf of the Company.
c. Management's intends to attempt to resolve this matter.
As of August 31, 2009, Exterra had $11,331 recorded in accounts payable and
accrued expenses related to this claim. Subsequent to August 31, 2009, this was
paid.
2. Randall K. Boatright v. Exterra Energy, Inc., in the 55th District Court in
and for Harris County, Texas
a. Plaintiff is a former officer and director of the Company and has
claimed the amount of $97,200 plus attorney's fees and interest
for past compensation owed and severance.
b. An answer has been filed on behalf of the Company.
c. Management's intends to attempt to resolve this matter.
As of August 31, 2009, Exterra had $97,200 recorded in accounts payable and
accrued expenses related to this claim.
3. 0424864 BC, Ltd. and Gordon McDougall v. Exterra Energy, Inc., in the 151st
District Court in and for Harris County, Texas
a. Plaintiff is a former officer and director of the Company and has
claimed the amount of $132,800 plus attorney's fees and interest
for past compensation and severance.
b. An answer has been filed on behalf of the Company.
c. Management's intends to attempt to resolve this matter.
As of August 31, 2009, Exterra had $135,000 recorded in accounts payable and
accrued expenses related to this claim.
4. Planet United, Inc. v. Exterra Energy, Inc., in the 80th District Court in
and for Harris County, Texas
a. This is a suit on a debt in the amount of $250,000 originally due
July 17, 2008 and bearing interest at 10%. In addition, the
plaintiff claims they are owed a revenue sharing bonus of up to
$25,000 derived from the Company's University Lands in Pecos
County, TX.
b. An answer has been filed on behalf of the Company.
c. Management's intends to attempt to resolve this matter.
As of August 31, 2009, Exterra had $250,000 recorded in convertible notes
payable and $37,551 of accrued interest recorded in accounts payable and accrued
expenses related to this claim.
In addition to the above litigation, Exterra has been named in several cases
against Star of Texas Energy Services, Inc as mentioned in the 10-K for the
year ended May 31, 2009. The lienholders for various wells and leases owned by
Star of Texas have filed several cases against Star of Texas for payment of the
outstanding liens. Exterra has been named in several of these cases, however it
is management's opinion that the likelihood of a loss outcome to Exterra is any
of these cases is remote because Exterra never took ownership of the wells and
leases in question.
Management efforts to resolve all these matters will include litigation and
settlement negotiation.
10
ITEM 1A. RISK FACTORS
Not required.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
06/26/2009 Issued 15,000 common shares valued at $3.00 per share in payment
for services and fees to third parties
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The following listings of corporate debt are in default:
(1) $200,000 of principal with interest (10% per annum) on the note are payable
on the tenth (10th) day of each calendar month, beginning on January 10, 2007,
in monthly installments equal to the difference between the prior month's (i)
income and (ii) the royalties, severance, ad valorem, lifting and transportation
expenses directly related to the operation of the Pecos County leases. Each
monthly installment will be applied first to any outstanding and accrued
interest and, thereafter, to principal on the note. The entire principal amount
outstanding under the note and all accrued interest thereon was due and payable
on July 15, 2008. The note payable is secured by the oil and gas properties and
20,000 shares of the Company's restricted common stock. The Company has accrued
$65,041 in interest on the note payable as of August 31, 2009. As the Company is
unable at present to pay the balances due, we are seeking an extension from the
Lender. There are no guarantees these discussions will be successful.
(2) During the year ended May 31, 2007, the Company received $367,500 from the
sale of its Convertible Loans. The Convertible Loans were due June 30, 2008 and
bear interest at 10% per annum payable quarterly. In addition, 10% of the face
value of the Convertible Loans is due to the holders as a revenue sharing bonus.
This bonus is due from initial production revenue realized from the first six
months of net revenue from the University Lands, Pecos County, Texas.
Furthermore, 205,900 common shares in aggregate were issued as a bonus. These
bonus shares are restricted from sale for 2 years. The Convertible Loans are
convertible into common shares of the Company at $45 per share for a total of
8,167 common shares. The Company is currently negotiating an extension with the
Convertible Loan Holders. There are no guarantees these negotiations will be
successful.
Through August 31, 2009 a net revenue sharing bonus has not been paid as the
University Lands have yet to yield net revenue. The Company has accrued interest
of $57,908 at August 31, 2009 on the Convertible Loans.
(3) $462,125 of principal with interest (18% per annum) due monthly in blended
payments of $20,000 commenced December 7, 2007. The loan is secured by certain
oil and gas properties and was due May 7, 2008. The Company had accrued $117,183
in interest as of August 31, 2009. The Company successfully re-negotiated the
terms of the Loan. The debt was settled with 5,000,000 shares of stock issued
subsequent to August 31, 2009.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Exterra Energy Inc.
By: /s/ Todd R. Royal
----------------------------
Todd R. Royal
President, Secretary, and Director
Date: October 21, 2009
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