UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
AMENDMENT NO. 1
The purpose of this Amendment is to clarify the Issuer's Controls and
Procedures in Item 3 and to conform Exhibits 31.1 and 31.2 with
Item 601(b)(31) of Regulation S-B.
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2006
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ________ to ________
Commission file number: 000-51488
PETROSEARCH ENERGY CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 20-2033200
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
675 BERING DRIVE, SUITE 200
HOUSTON, TX 77057
(Address of principal executive offices)
(713) 961-9337
(Issuer's telephone number)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
Check whether the issuer: (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 31,099,570 SHARES OF $0.001 PAR VALUE
COMMON STOCK OUTSTANDING AS OF MAY 9, 2006
Transitional Small Business Disclosure Format (check one): Yes [_] NO [X]
PETROSEARCH ENERGY CORPORATION
FORM 10-QSB/A
FOR THE QUARTER ENDED MARCH 31, 2006
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
ITEM 3. CONTROLS AND PROCEDURES
PART II--OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 6. EXHIBITS
SIGNATURES
ITEM 1. FINANCIAL STATEMENTS
PETROSEARCH ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2006 AND DECEMBER 31, 2005
ASSETS MARCH 31, DECEMBER 31,
----- ---------- ------------
2006 2005
---- ----
(UNAUDITED) (SEE NOTE)
----------- ----------
Current assets:
Cash $ 1,960,093 $ 4,052,844
Accounts receivable:
Joint owners, net of allowance of $83,073 1,164,932 1,344,344
Oil and gas production sales 60,335 9,345
Prepaid expenses 548,099 517,482
----------------------------
Total current assets 3,733,459 5,924,015
----------------------------
Property and equipment:
Oil and gas properties, full cost method of accounting:
Properties subject to amortization 12,494,824 11,849,520
Properties not subject to amortization 6,617,580 3,513,597
Other property and equipment 147,047 147,047
----------------------------
Total property and equipment 19,259,451 15,510,164
Less accumulated depreciation, depletion and amortization (2,003,380) (1,966,000)
----------------------------
Property and equipment, net 17,256,071 13,544,164
Prepaid oil and gas costs 241,189 81,603
Other assets 12,731 66,462
----------------------------
Total assets $21,243,450 $ 19,616,244
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,264,204 $ 908,168
Accounts payable 710,694 561,546
Accrued liabilities 373,012 750,036
----------------------------
Total current liabilities 2,347,910 2,219,750
----------------------------
Long-term debt, net of current portion 2,190,056 2,537,251
Other long-term obligations 669,229 670,456
----------------------------
Total liabilities 5,207,195 5,427,457
Stockholders' equity:
Preferred stock, par value $1.00 per share, 20,000,000 shares
authorized:
Series A 8% convertible preferred stock, 1,000,000 shares authorized; 483,416
shares issued and outstanding at March 31, 2006 and December 31, 2005,
respectively 483,416 483,416
Series B convertible preferred stock, 100,000 shares authorized; 43,000 43,000
43,000 shares issued and outstanding
Common stock, par value $0.001 per share, 100,000,000 shares 31,068 28,497
Authorized; 31,068,300 and 28,497,761 shares issued and outstanding at March
31, 2006 and December 31, 2005, respectively.
Additional paid-in capital 21,324,355 18,089,828
Unissued common stock - 545,000
Accumulated deficit (5,845,584) (5,000,954)
----------------------------
Total stockholders' equity 16,036,255 14,188,787
----------------------------
Total liabilities and stockholders' equity $21,243,450 $ 19,616,244
============ ==============
<FN>
Note: The balance sheet at December 31, 2005 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements
PETROSEARCH ENERGY CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
2006 2005
------------ ------------
Oil and gas production revenues $ 121,914 $ 654,164
--------------------------
Operating costs and expenses:
Lease operating and production taxes 161,690 177,060
Depreciation, depletion and amortization 37,381 334,459
General and administrative 722,548 638,080
--------------------------
Total costs and expenses 921,619 1,149,599
--------------------------
Operating loss (799,705) (495,435)
--------------------------
Other income (expense):
Interest income 19,592 416
Interest expense (64,517) (49,303)
--------------------------
Total other income (expense) (44,925) (48,887)
Net loss $ (844,630) $ (544,322)
============ ============
Basic and diluted net loss per common share $ (0.03) $ (0.03)
============ ============
Weighted average common shares 29,327,487 18,144,067
============ ============
<FN>
See accompanying notes to unaudited condensed
consolidated financial statements
PETROSEARCH ENERGY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2006
SERIES A SERIES B
----------------- --------------- TOTAL
COMMON STOCK PREFERRED STOCK PREFERRED STOCK ADDITIONAL UNISSUED ACCUM- STOCK
------------------- ----------------- --------------- PAID-IN COMMON ULATED HOLDERS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT EQUITY
---------- ------- ------- -------- ------ ------- ------------ ---------- ------------ ------------
Balance at
December 31, 28,497,761 $28,497 483,416 $483,416 43,000 $43,000 $18,089,828 $ 545,000 $(5,000,954) $14,188,787
2005
Common Stock
issued for cash 1,928,576 1,929 2,698,078 2,700,007
Common stock
issued for oil and 500,000 500 544,500 (545,000) -0-
gas properties
Common Stock
issued - exercise 141,963 142 138,982 139,124
of warrants
Offering costs
related to private (147,033) (147,033)
placement
Net loss (844,630) (844,630)
---------- ------- ------- -------- ------ ------- ------------ ---------- ------------ ------------
Balance at March
31, 2006 31,068,300 $31,068 483,416 $483,418 43,000 $43,000 $21,324,355 $ 0 $(5,845,584) $16,036,255
========== ======= ======= ======== ====== ======= ============ ========== ============ ============
PETROSEARCH ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
2006 2005
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (844,630) $ (544,322)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Depletion, depreciation and amortization expense 37,380 334,459
Amortization of deferred compensation - 18,750
Amortization of deferred rent (1,227) -
Amortization of debt discount and financing costs 8,841 -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable 128,422 (229,266)
Amortization of financing costs 10,722 -
Prepaid expenses and other assets 12,392 (360,740)
Accounts payable and accrued liabilities (32,617) (91,993)
-------------------------
NET CASH USED IN OPERATING ACTIVITIES (680,717) (873,112)
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including purchases and development of properties (3,749,286) (184,616)
Prepayments for oil and gas properties, net (159,586) -
Payments of accounts payable for property (195,259) -
-------------------------
NET CASH USED IN INVESTING ACTIVITIES (4,104,131) (184,616)
-------------------------
Cash flows from financing activities:
Proceeds from the sale of common stock 2,692,097 620,812
Proceeds from notes payable 1,250,000
Repayment of notes payable (830,000)
-------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,692,097 1,040,812
-------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,092,751) (16,916)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,052,844 1,100,568
============ ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,960,093 $1,083,652
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 90,695 $ 24,885
============ ===========
Income taxes paid $ - $ -
============ ===========
<FN>
See accompanying notes to unaudited condensed consolidated financial statements
PETROSEARCH ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
------------------------------
The accompanying un-audited interim financial statements have been prepared
without audit pursuant to the rules and regulations of the U.S. Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted, pursuant to such rules and regulations.
These unaudited consolidated condensed financial statements should be read
in conjunction with the audited financial statements and notes thereto of
Petrosearch Energy Corporation (the "Company") for the year ended December
31, 2005. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
of financial position, results of operations and cash flows for the interim
periods presented have been included. Operating results for the interim
periods are not necessarily indicative of the results that may be expected
for the respective full year.
2. INCOME TAXES
-------------
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and income tax carrying amounts of
assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. A
valuation allowance, if necessary, is provided against deferred tax assets,
based upon management's assessment as to their realization.
The difference between the 34% federal statutory income tax rate and
amounts shown in the accompanying interim financial statements is primarily
attributable to the utilization of net operating loss carry-forwards and a
valuation allowance recorded against net deferred tax assets.
3. CAPITAL RAISE
--------------
On February 8, 2006, Petrosearch Energy Corporation completed a private
placement of equity securities solely to accredited investors for total
proceeds of $2,700,000 (the "Offering"). Pursuant to the Offering, the
Company issued 1,928,572 shares of the Company's common stock at a price of
$1.40 per share and 964,286 three year warrants to purchase shares of the
Company's common stock with an exercise price of $2.00 per share to the
accredited investors. On February 3, 2006, the Company engaged a placement
agent to handle the Offering. At the time of closing, the Company paid a
placement fee of 5% of the gross proceeds of the Offering. Additionally, at
the time of closing, the placement agent received 96,429 warrants to
purchase shares of the Company's common stock equal to 5% of the number of
shares of common stock issued to the accredited investors at the time of
closing of the Offering. The warrants issued to the placement agent are
exercisable for three years and have an exercise price of $2.00 per share.
The shares of common stock and the shares of common stock underlying the
warrants have piggyback registration rights. The Company intends to use the
proceeds of the Offering for working capital and general corporate
purposes.
4. PURCHASE OF INTERESTS IN OIL AND GAS PROPERTIES
------------------------------------------------------
BARNETT SHALE, 5 COUNTIES, TEXAS
On May 9, 2006, the Company entered into a Heads of Agreement
("ExxonMobil/Harding Agreement") with Exxon Mobil Corporation, Harding
Company, Eagle Oil & Gas Co., PS Gas Partners, LLC, and Gas Partners, L.P.
The ExxonMobil/Harding Agreement addresses the economic terms of the
project, provides the alternative structure under which the new integrated
venture in the Barnett Shale Project will operate, and provides the
structure within which the parties will negotiate definitive agreements.
Formation of the new integrated venture is conditioned upon execution of
definitive agreements. The ExxonMobil/Harding Agreement also extends for 60
days Exxon Mobil Corporation's preferential purchase rights and preserves
all Petrosearch's legal rights under the Amended and Restated Program
Agreement.
The First Amended and Restated Program Agreement followed a June 29, 2005
Lease Acquisition and Development Agreement between Exxon Mobil Corporation
and Harding Company and a Memorandum of Understanding Regarding Gas
Evacuation from ExxonMobil and Harding Barnett Shale E&P Venture covering
the project (the "ExxonMobil/Harding Agreements").
At the time of the execution of the First Amended and Restated Program
Agreement, Harding had not obtained from ExxonMobil consent to transfer and
a waiver of Exxon/Mobil's a preferential purchase right set forth in the
ExxonMobil/Harding agreement. At the time of the Company's execution of and
initial funding under the First Amended and Restated Program Agreement, the
Company did not have a direct contractual relationship with ExxonMobil. The
Company believed that all conditions necessary to assign and convey the
working interest from Harding had been met. The Company subsequently
learned that ExxonMobil had not waived the contingencies and that
ExxonMobil desired to explore possible alternative ownership structures
beneficial to all concerned before making a determination with respect to
the preferential right to purchase.
In the event that the parties cannot formulate the Definitive project
agreements before 60 days from May 9, 2006, Exxon Mobil could exercise its
preferential purchase right which, if exercised, would prevent the
Company's participation in the project. In the event of such a loss of this
opportunity to participate in the project, the Company's legal rights are
not prejudiced by the Heads of Agreement and the Company would then expect
to pursue all potential remedies available to us relating to the factual
circumstances surrounding these agreements.
We also signed a letter agreement ("Letter Agreement") on May 7, 2006 with
Harding Company that defines the terms of participation and interest
between Harding Company and Petrosearch in the formation of a new venture
entity. The terms of the Letter Agreement are subject to the completion of
the definitive agreements as outlined in the ExxonMobil/Harding Agreement.
QUINDUNO FIELD, ROBERTS COUNTY, TEXAS
On November 15, 2005, the Company closed on an agreement to purchase a 100%
working interest in 1780 acres of leases in the Quinduno Field located in
Roberts County, Texas from Quinduno Energy, L.L.C. The agreement provided
for the payment of the purchase price of $2,000,000 cash and 3,000,000
shares of unregistered common shares of the Company to occur in three
phases as the project progresses. Should the project not proceed past the
first phase, Petrosearch's maximum obligation would be $750,000 in cash and
1,000,000 unregistered common shares plus the cost of capital expenditures
for the first phase which are estimated to be $2,900,000. The project is in
the first phase of the water flood. Upon completion of the entire project,
the seller will back in for a 10% working interest after Petrosearch has
been repaid all capital expenditure costs plus $9.5 million.
LODGEPOLE REEF, STARK COUNTY, NORTH DAKOTA
Effective September 28, 2005, the Company purchased a 21.25% working
interest in the Gruman #18-1 Well and Gruman Leases for $637,500 increasing
the Company's working interest in the properties to 85%.
5. AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
----------------------------------------------------
On September 29, 2005, the Company entered into an amended and restated
revolving credit agreement to borrow up to $10,000,000 over a two-year
period to October 1, 2007, from a private, non-public entity. The note
matures on April 1, 2008. As of March 31, 2006, the balance outstanding
under the line of credit agreement was $3,525,000, $1,264,204 of which is
due in the next twelve months.
6. STOCK WARRANTS
---------------
In the past, the Company has periodically issued incentive stock warrants
to officers, executives, directors, and consultants to provide additional
incentives to promote the success of the Company's business and to enhance
the ability to attract and retain the services of qualified persons. The
issuance of such warrants has been approved by the Board of Directors. The
exercise price of a warrant granted is determined by the fair market value
of the stock on the date of grant.
In December 2004, the FASB issued SFAS 123(R), which is a revision of SFAS
123. SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized as stock-based
compensation expense in the Company's Consolidated Statements of Operations
based on their fair values. Proforma disclosure is no longer an
alternative, as was permitted by SFAS 123. Until the adoption of the
provisions of SFAS 123(R) on January 1, 2006, the Company elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for its
employee stock options and warrants because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation", required use of option valuation models that
were not developed for use in valuing employee stock options or warrants.
Under APB 25, if the exercise price of the Company's employee stock options
is greater than or equal to the market price of the underlying stock on the
date of grant, no compensation expense was recognized.
Currently, the Company has no plans to issue stock warrants to any parties
other than in financing arrangements with third parties. Consequently,
based on current plans, the adoption of SFAS 123(R)'s fair value method
will not have a significant impact on the Company's future results of
operations or financial position. The adoption of SFAS 123(R) will not
result in any compensation charges in 2006 related to options outstanding
at December 31, 2005, because all employee stock options were vested as of
December 31, 2005. There was no compensation expense related to warrants
during the three month periods ended March 31, 2006 and 2005.
Although it is no longer required, due to the adoption of SFAS 123(R),
proforma information regarding net income and earnings per share was
required by Statement 123 and 148 (included for purposes of 2005 proforma
comparison), and has been determined as if the Company had accounted for
its employee stock warrants under the fair value method of these
Statements. For warrants granted to employees or directors during the three
months ended March 31, 2006 and 2005, the fair value of such warrants was
estimated at the date of grant using a Black-Scholes option-pricing model
with the following assumptions:
MARCH MARCH
31, 2006 31, 2005
----------------- --------------
Dividend yield - 0 - - 0 -
Expected volatility 70% 180 %
Risk free interest 3.00% 2.25%
Expected lives 2 - 4 years 3 years
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options or warrants that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
warrants have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock warrants.
For purposes of proforma disclosures, the estimated fair value of the
warrants is included in expense over the vesting period or expected life of
the warrant.
THREE MONTHS ENDED
MARCH 31,
2005
--------------------
Net income (loss), as reported $ (544,322)
Less stock-based compensation calculated in
accordance with SFAS 123 (540,000)
--------------------
Proforma net loss (1,084,322)
====================
Basic and fully diluted net income (loss) per
common share, as reported $ (0.03)
====================
Basic and fully diluted proforma net loss per
common share $ (0.06)
====================
A summary of the Company's warrant activity and related information for the
three months ended March 31, 2006 follows:
WEIGHTED
NUMBER OF AVERAGE
SHARES UNDER EXERCISE EXERCISE
WARRANT PRICE PRICE
------------- ----------- ---------
Balance outstanding at
December 31, 2005 8,495,045 $0.98-$9.75 $ 3.57
Issued 1,060,715 $ 2.00 $ 2.00
Exercised (142,462) $ 0.98 $ 0.98
-------------
Balance outstanding at
March 31, 2006 9,413,298 $0.98-$9.75 $ 3.43
=============
A summary of outstanding stock warrants at March 31, 2006 is as follows:
WEIGHTED
NUMBER OF REMAINING AVERAGE
COMMON STOCK CONTRACTED EXERCISE EXERCISE
EQUIVALENTS EXPIRATION DATE LIFE (YEARS) PRICE PRICE
------------ --------------- ------------ ----------- ---------
488,312 August 2006 .42 $ 0.98 $ 0.98
92,308 November 2008 2.67 $ 0.98 $ 0.98
615,385 September 2006 .44 $ 1.63 $ 1.63
76,923 November 2008 2.67 $ 1.63 $ 1.63
1,076,923 November 2006 .67 $ 9.75 $ 9.75
211,538 February 2007 1.92 $ 9.75 $ 9.75
30,769 March 2007 1.00 $ 9.75 $ 9.75
300,000 April 2007 1.09 $ 9.75 $ 9.75
161,538 May 2007 1.17 $6.50-$9.75 $ 7.27
76,923 July 2007 1.25 $5.20-$6.50 $ 6.24
269,231 September 2007 1.42 $4.88-$5.20 $ 5.15
100,000 November 2007 1.67 $ 2.00 $ 2.00
20,000 August 2008 2.37 $ 1.95 $ 1.95
4,832,733 November 2008 2.67 $ 1.95 $ 1.93
1,060,715 February 2009 3.91 $ 2.00 $ 2.00
------------
9,413,298
============
7. RELATED PARTY TRANSACTIONS
----------------------------
During the three months ended March 31, 2006 there were no related party
transactions.
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------
During the three months ended March 31, 2006 and 2005, the Company engaged
in non-cash financing and investing activities as follows:
2006 2005
-------- --------
Reduction of prepaid services for development
of oil and gas properties $ - $ 4,476
======== ========
Increase in accounts payable for property costs $ - $956,895
======== ========
Purchase of property for stock $545,000 $ -
======== ========
9. EARNINGS PER SHARE
--------------------
The Company has adopted SFAS No. 128, which provides for calculation of
"Basic" and "Diluted" earnings per share. Basic earnings per share includes
no dilution and is computed by dividing net income available to common
shareholders by the weighted average common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings of an entity similar to fully
diluted earnings per share.
Following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the three months ended March 31,
2006 and 2005:
2006 2005
-------------- --------------
Net loss $ (844,630) $ (544,322)
Less: Preferred stock dividends (9,668) (9,668)
------------------------------
Net loss available to common
stockholders (numerator) $ (854,298) $ (553,990)
============== ==============
Weighted average shares of common stock
(denominator) 29,327,487 18,144,067
============== ==============
Basic and diluted net loss per share $ (0.03) $ (0.03)
============== ==============
10. SUBSEQUENT EVENTS
------------------
On April 7, 2006 the Company drew down $1,800,000 from its revolving credit
facility. Proceeds of the credit line are to be used to finance activity
related to the designated eight prospects including costs associated with
acquisitions of oil and gas leases, oil and gas drilling, reworking,
production, transportation, marketing and plugging activities under the
leases, and all lender charges and fees. Advances under the amended and
restated revolving credit agreement bear interest at a rate of the Wall
Street Journal Prime Rate plus three percent (3%) per year. Each advance of
principal under the amended facility is treated as a separate loan and is
repayable in six (6) interest only installments followed by up to twenty
four (24) principal and interest installments based upon a 30-month
amortization. The principal balance outstanding on the credit facility as
of May 9, 2006 is $5,207,500.
On May 5, 2006 the Company sold its 1,500,000 shares of Texcomm Stock for a
total of $1,000,000. The Company acquired the shares in November 2003
pursuant to a merger and a sale of a subsidiary.
On May 9, 2006, the Company entered into a Heads of Agreement
("ExxonMobil/Harding Agreement") with Exxon Mobil Corporation, Harding
Company, Eagle Oil & Gas Co., PS Gas Partners, LLC, and Gas Partners, L.P.
The ExxonMobil/Harding Agreement addresses the economic terms of the
project, provides the alternative structure under which the new integrated
venture in the Barnett Shale Project will operate, and provides the
structure within which the parties will negotiate definitive agreements.
Formation of the new integrated venture is conditioned upon execution of
definitive agreements. The ExxonMobil/Harding Agreement also extends for 60
days Exxon Mobil Corporation's preferential purchase rights and preserves
all Petrosearch's legal rights under the Amended and Restated Program
Agreement.
We signed a letter agreement ("Letter Agreement") on May 7, 2006 with
Harding Company that defines the terms of participation and interest
between Harding Company and Petrosearch in the formation of a new venture
entity. The terms of the Letter Agreement are subject to the completion of
the definitive agreements as outlined in the ExxonMobil/Harding Agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENTS
Statements contained herein and the information incorporated by reference herein
may be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements
can be identified by the use of forward-looking terminology such as, but not
limited to, "may," "will," "expect," "anticipate," "estimate," "would be,"
"believe," or "continue" or the negative or other variations of comparable
terminology. We intend such forward-looking statements to be covered by the
safe harbor provisions applicable to forward-looking statements contained in
Section 21E of the Exchange Act. Such statements (none of which is intended as a
guarantee of performance) are subject to certain assumptions, risks and
uncertainties, which could cause our actual future results, achievements or
transactions to differ materially from those projected or anticipated. Such
risks and uncertainties are set forth herein.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events, or performance and underlying assumptions and
other statements, which are other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demands and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, and government regulation and
approvals. Petrosearch cautions that assumptions, expectations, projections,
intentions, or beliefs about future events may, and often do, vary from actual
results and the differences can be material. Some of the key factors which could
cause actual results to vary from those Petrosearch expects include changes in
natural gas and oil prices, the timing of planned capital expenditures,
availability of acquisitions, uncertainties in estimating proved reserves and
forecasting production results, operational factors affecting the commencement
or maintenance of producing wells, the condition of the capital markets
generally, as well as our ability to access them, and uncertainties regarding
environmental regulations or litigation and other legal or regulatory
developments affecting our business.
Our expectations, beliefs and projections are expressed in good faith and are
believed to have a reasonable basis, including without limitation, our
examination of historical operating trends, data contained in our records and
other data available from third parties. There can be no assurance, however,
that our expectations, beliefs or projections will result, be achieved, or be
accomplished. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We
undertake no duty to update these forward-looking statements.
OVERVIEW
We were founded on the belief that, despite the steady decline of U.S.
hydrocarbon reserves and production during the past three decades, the
consolidation and restructuring of the upstream portion of the oil and gas
industry (including exploration, drilling and production) had left a significant
number of valuable oil and gas prospects and projects available for acquisition
and development throughout North America.
We continue to implement our business plan which is to find high quality
prospects and projects and provide the capital, along with the technical,
operational and administrative support and management oversight, needed to
develop the projects. We have increased our SEC PV-10 proved reserves from
$13.7 million as of December 31, 2004 to $46.5 million as of December 31, 2005.
We have also successfully improved the quality of our portfolio and have
acquired assets that have multiple year growth potential that allow us to
efficiently control the amount and timing of our capital expenditures. In 2006
we plan to focus on the development of our high quality properties which will
have a significant impact on our production, revenues and cash flows.
In late 2005 and early 2006 we entered into two agreements, for significant
resource projects that we believe will have a major impact on our future growth.
The first project includes the purchase on November 15, 2005, of a 100% working
interest in a waterflood project consisting of 1,755 acres in the Quinduno Field
located in Roberts County, Texas.
The second project is the Barnett Shale project covered by the
ExxonMobil/Harding Agreement as described herein. The ExxonMobil/Harding
Agreement addresses the economic terms of the project, provides the
alternative structure under which the new integrated venture in the Barnett
Shale Project will operate, and provides the structure within which the
parties will negotiate definitive agreements. Formation of the new
integrated venture is conditioned upon execution of definitive agreements.
These Agreements provide for our participation with Harding Company and other
oil and gas companies in the development of an Area of Mutual Interest
representing a total of 1.6 million acres of Barnett Shale lands located in five
North Texas Counties.
Should the parties not be able to formulate the Definitive project agreements
before 60 days from May 9, 2006, ExxonMobil could exercise its preferential
purchase right which, if exercised, would prevent the our participation in the
project. In the event of such a loss of this opportunity to participate in the
project, our legal rights are not prejudiced by the Heads of Agreement and the
Company would then expect to pursue all potential remedies available to us
relating to the factual circumstances surrounding these agreements.
We also signed a letter agreement ("Letter Agreement") on May 7, 2006 with
Harding Company that defines the terms of participation and interest between
Harding Company and Petrosearch in the formation of a new venture entity. The
terms of the Letter Agreement are subject to the completion of the definitive
agreements as outlined in the ExxonMobil/Harding Agreement.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have primarily financed our operating and investing cash
flow needs through private offerings of equity securities, sales of crude oil
and natural gas, and the use of debt instruments such as corporate bonds and
revolving credit facilities. The proceeds from, and the utilization of, all
these methods have been and Management believes will continue to be, sufficient
to keep the operations funded and the business plan moving forward. We plan to
continue to utilize these methods to access capital in order to implement our
business plan, which we believe will be an effective vehicle to enlist more
independent oil and gas professionals to participate with us and will attract
high quality projects.
FINANCIAL ADVISORS
On December 21, 2005, we engaged the Corporate Finance Division of Macquarie
Securities (USA) Inc. as an exclusive financial advisor. Macquarie's services
will be utilized in connection with debt or equity transactions the Company may
contemplate.
PRIVATE PLACEMENTS
In February 2006, we completed sales of $2.7 million of our common stock in a
private offering. We received net proceeds of approximately $2.56 million which
are to be used for general corporate purposes, including the drilling of
projects in our prospect inventory.
REVOLVING CREDIT AGREEMENT
On September 29, 2005, the Company entered into an amended and restated
revolving credit agreement to borrow up to $10,000,000 over a two-year period to
October 1, 2007, from a private, non-public entity. As of March 31, 2006, the
balance outstanding under the line of credit agreement was $3,525,000,
$1,264,204 of which is due in the next twelve months.
PROJECT FINANCING AND RIGHT OF FIRST REFUSAL
On January 11, 2006, we entered into an Agreement with Rock Energy Partners
("Rock") covering the geographic areas of current operations in Jefferson
County, Mississippi and Colorado County, Texas affecting the Company and Rock,
including agreements and stipulations regarding future operations in those
geographic areas, the terms under which future exploration and development
participation opportunities shall be offered by the Company to Rock, and agreed
procedures for conducting internal audits and accounting reconciliations. As
part of the transaction with Rock, the parties have executed an Amended Right of
First Refusal Agreement (the "Amended ROFR") which replaces the previous Right
of First Refusal Agreement between the Company and Rock which was entered in
March 2004 (the "ROFR").
The Amended ROFR has more limited applicability to our various projects than the
ROFR. While the original agreement required all of our prospects to be
presented to Rock for consideration by Rock, the Amended ROFR does not require
that all our prospects be offered to Rock for participation. The Amended ROFR
also does not require that we offer to Rock prospects in any specified area,
although the parties have separately stipulated to certain specified areas of
mutual interest in the Mississippi and Colorado County areas based upon
historical operations in those areas. The Amended ROFR permits us to decide
which projects will be offered to Rock, so long as the projects actually
presented are projects in which the Company owns or intends to retain a minimum
of ten percent (10%) of the project interest available to the Company.
Under the Amended ROFR, Rock's percentage participation is limited to the range
between ten percent (10%) minimum participation and forty percent (40%) maximum
participation. The minimum and maximum participation limits are proportional
to the interest available to the Company. The Amended ROFR also calls for a
minimum funding commitment required from Rock equal to $3,000,000 per year for
new projects, without the right to carry over to any subsequent year as credit
expenditures above the minimum required commitment for that year. Rock is also
obligated to spend up to $8,800,000 for the drilling of one new well and one
well re-entry to test the deep Wilcox at the SW Garwood prospect during 2006.
This obligation of Rock's will cover 100% of the capital requirements for the
two projects.
The Amended ROFR provides that the Company to retain in each prospect which is
accepted by Rock a twenty-five percent (25%) reversionary interest in each
interest assigned to Rock, with the reversion to take effect upon "payout" or
recoupment of Rock's development costs net to that interest.
OTHER FINANCING OPPORTUNITIES
We are currently in discussions with several investment groups which could
result in additional sources of capital in the future.
DRILLING PARTNERSHIPS
We continue to strive to develop relationships with institutional or high net
worth individuals to participate in our prospects. Management believes this
will reduce our capital risk and increase the diversity of the projects in which
we use our own capital. We intend to establish these drilling partnership
relationships with terms that are standard in the oil and gas industry.
CURRENT PROJECTS AND CAPITAL REQUIREMENTS
BARNETT SHALE PROJECT - In February 2006, we entered into a First Amended and
Restated Program Agreement (the "First Amended and Restated Program Agreement")
with Harding Company (Dallas, Texas) which provides for our participation with
Harding Company and other oil and gas companies in the development of an Area of
Mutual Interest representing a total of 1.6 million acres of Barnett Shale lands
located in five North Texas Counties. The first well was spudded on February 8,
2006, in Tarrant County, Texas, casing was cemented at 9,264 feet total depth on
March 4th, and this initial well is awaiting fracture stimulation and
completion. The second well in the project was spudded on March 15, 2006, in
Ellis County and is drilling at 11,460 feet as of this filing. This project is
subject to the pending resolution of all matters relating to the First Amended
and Restated Program Agreement between the Company and Harding, and the
contingencies set forth in the ExxonMobil/Harding Agreement as previously
described herein.
NORTH TEXAS/PANHANDLE WATER FLOOD PROJECT - In November 2005, we acquired a 100%
working interest in 1,755 acres in the Quinduno Field in Roberts County, Texas,
in the Anadarko Basin. The Company's working interest reduces to 90% at payout,
including the cost of acquisition. Proved reserves are estimated by Ryder Scott
to be 2.0 MMbo and 1.1 Bcf of gas with an SEC PV-10 value of $33.7 million (at
December 31, 2005). The purchase price (in November 2005) equated to $3.37 per
proved barrel of oil equivalent (boe) based on a conversion factor of 6 Mcf/bo.
As operator, we intend to extract the reserves through conventional water flood
technology. The first phase of the project began in March 2006 with the
drilling of a new well, the Maddox #42, for production to a depth of 4,495 feet.
An unexpected oil saturated fourteen foot limestone interval was found, and
tested, approximately 180 feet below the top of the target water flood horizon
(Lower Albany Dolomite). The reservoir appears to be normally pressured and
does not appear to have been produced in the past. The well was completed April
13, 2006, and is producing at the rate of approximately 8 to 12 BOPD. As a
result of this new zone discovery, the company is evaluating plans to develop
the zone without interfering with the planned water flood development. During
2006, a minimum of 4 old wells will be converted to injection wells and water
injection will begin.
SW GARWOOD, COLORADO COUNTY, TEXAS - The initial well on this prospect, the
Pintail #1, completed in the Upper Wilcox in December 2004, is expected to pay
out by the end of the second quarter of 2006 from the first of 5 potentially
productive zones. The well is currently producing approximately 467 Mcfd with 7
barrels of condensate. After payout we will back-in for 33-1/3% working interest
until payout of all project money spent to-date, including acquisition costs, at
which time our working interest will reduce to 13.33%.
The second well, Pintail Flats #1, was completed and fracture stimulated in May,
2005 in the deepest sands penetrated by the well in the Lower Wilcox formation.
Completion problems resulting from the fracture treatment have resulted in the
well performing below expectations (producing approximately 170 Mcfd) from this
zone. The well has an additional 5 potentially productive zones in the Lower
Wilcox and 3 in the Upper Wilcox. An engineering review of available data to
determine the best way to maximize the production rate from the well has been
completed. Plans are being made to re-complete and stimulate the well in 3 or 4
of the shallower Lower Wilcox zones by the end of the second quarter.
Net proved reserves for this project, as estimated by Ryder Scott Company are
1.2 Mbo and 642 MMcf of natural gas. Of the 2,402 acres in the prospect, we
have: 20% working interest in approximately 240 acres; 33.33% working interest
after payout on a well by well basis in 1,018 acres that reduces to 13.33% after
project payout; 33.33% working interest after payout on a well-by-well basis in
640 acres that reduces to 18.33% at project payout; and 21.5% working interest
after payout on a well by well basis in 444 acres that reduces to 19.25% at
project payout. The cost of the two existing wells has been funded by our
drilling partner.
BUENA VISTA, JEFFERSON COUNTY, MISSISSIPPI - We fracture stimulated and tested
approximately 80 feet of potentially productive sands at the base of the Hosston
zone without establishing commercial production in the Phillips-Burkley #1 well
during 2005. The presence of gas was established but production rates were
non-commercial. These sands have been abandoned and we plan to test and
complete the well in a portion of approximately 280 feet of potentially
productive Hosston sands up-hole, which appear to have superior reservoir
properties compared to the sands already tested. We plan to complete the work by
the end of June.
The Phillips-Burkley # 1, an exploratory gas well on a leasehold position of
7,481 acres, has been funded by our drilling partner. We are the operator and
have a 50% working interest in the well and acreage. If commercial reserves can
be established, the structure could support in excess of 22 additional wells.
AIRPORT PROSPECT, WOODWARD COUNTY, OKLAHOMA - We farmed out this 640-acre
prospect in November 2005 and retained a 10% working interest. The initial well,
the Corbett N 13 #1 was spudded on March 7, 2006, and reached total depth of
8,323 feet in the Morrow Sands on March 27, 2006. Three sands were perforated
and tested gas. The well is currently awaiting fracture stimulation.
PROJECTS ASSOCIATED WITH REVISED CREDIT AGREEMENT
GRUMAN PROSPECT, STARK COUNTY, NORTH DAKOTA - In September 2005, we purchased an
additional 21.25% working interest, giving us an 85% working interest in this
Lodgepole Reef oil well. On March 28, 2006, we spudded a well (the Gruman 18-3)
intended to be either an increased density well or a water injection well, updip
of the Gruman 18-1. The well reached total depth of 9.890 feet on April 14,
2006, and is being completed as an injection well.
Proved developed reserves in the prospect to our share of the well as of
December 31, 2005, are 309 Mbo and 82 MMcf of natural gas, as estimated by a
third party engineering firm, McCartney Engineering, LLC.
RODNEY ISLAND, TENSAS PARISH, LOUISIANA - In October 2005, we took over
operations of the Harper Z-1 well on the Rodney Island prospect from the
previous operator after casing was set and cemented. Downhole mechanical
difficulties hindered our attempt to complete the well, which was directionally
drilled to a measured depth of 11,701 feet (vertical depth = 9,373 feet) and
logged approximately 19 feet of oil sand in the Tuscaloosa Massive Sand. We are
now finalizing our well program and rig selection for sidetracking the well to
improve wellbore conditions. We expect the work to be done by the end of July.
Re-mapping based on the additional data from the Harper Z-1 well indicates as
many as 2 additional proved locations and 3 other identified locations. Ryder
Scott estimates proved reserves net to our share as of December 31, 2005 to be -
49.4 Mbo and 26 MMcf. We have a 25% working interest before payout in the Harper
Z-1 well and 18.75% working interest after payout. We have an 18.75% working
interest in all additional wells.
TAIT PROJECTS - COLORADO COUNTY, TEXAS - This is a natural gas prospect with the
potential of up to 7 locations on 1,250 net acres. The prospects consist of two
primary targets in the Upper Wilcox at approximately 10,000 feet. All acreage
has been leased and we have acquired and analyzed 3-D seismic data on the
prospect. The initial well, the Sealy #1, was spudded April 25 and is drilling
near total projected depth of 10,900 feet. Four wells in the project are planned
for 2006. We have a 10% non-operated working interest.
BURLESON COUNTY, TEXAS, PROJECTS -- A multi-well natural gas project that
includes a total of 15 development and step-out locations in the Austin Chalk
and Georgetown formations at approximately 10,000 feet vertical depth on a
targeted leasehold position of approximately 11,000 acres, with 7,361 net acres
having been leased. Horizontal wells are planned with total measured length of
approximately 13,000 feet. The initial well is planned to be spudded in the
third quarter of 2006 with a second well planned in the fourth quarter of 2006.
We will have a 37.5% non-operated working interest in the project.
MISSISSIPPI TUSCALOOSA PROJECTS -- We have identified five Tuscaloosa oil
prospects in the Mississippi Inland Salt Basin, in Yazoo County, comprising a
maximum of 2,295 acres and up to 18 potential drilling locations. Eight
locations are planned to be drilled in 2007, ranging from 6,150 feet to 7,500
feet in depth. Approximately 55% of the required acreage has been leased.
Seismic data on the prospects has been reprocessed and confirmed our original
geological analysis. We own 100% of the prospects and will operate the project.
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes and the other financial information appearing elsewhere in
this filing.
The factors that most significantly affect our results of operations are: (i)
the sale prices of crude oil and natural gas; (ii) the amount of production
sales; and (iii) the amount of lease operating expenses. Sales of production and
level of borrowings are significantly impacted by our ability to maintain or
increase production and reserves from existing oil and gas properties through
exploration and development activities.
FOR THE THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2005
REVENUES
Consolidated oil and gas production revenue for the quarter ended March 31, 2006
was $121,914 versus $654,164 for the quarter ended March 31, 2005. The decrease
was primarily due to our North Dakota well being down from October, 2005 until
March, 2006 as a result of the pump being down. However, we have drilled a
9,900 foot increased density well into the base of the productive reef in April
2006 for the purpose of re-pressuring the reservoir and increasing the
production of the well. We are currently awaiting the completion of the new
well.
Other projects that may have a near term affect on our revenues are 1) the first
well in the SW Garwood project should payout in the second quarter of 2006, 2)
the first well in the Rodney Island project will be sidetracked and completed in
the second quarter of 2006, 3) the first well in the Tait prospect is being
drilled and we expect completion in the second quarter of 2006, 4) in the Buena
Vista, Mississippi prospect, we plan to test and complete the well in a portion
of approximately 280 feet of potentially productive Hosston sands up-hole, which
appears to have superior reservoir properties compared to the sands already
tested.
The decrease in revenue can also be attributed to the sale of our Blue Ridge
Field property in Fort Bend County, Texas effective July 1, 2005, which
previously accounted for an average of 1,845 barrels of oil per month of
production.
Our revenue will principally be dependent upon the success of the acquisition
and development of future quality prospects as well as the market price for
crude oil and natural gas.
LEASE OPERATING AND PRODUCTION TAX EXPENSE
Lease operating and production tax expense for the quarters ended March 31, 2006
and 2005 were $161,690 and $177,060, respectively. These expenses relate to the
costs that are incurred to operate and maintain our wells and related production
equipment, including the costs applicable to the operating costs of support
equipment and facilities. Although there was a significant decrease in
production from 2005 to 2006, the lease operating expenses remained relatively
constant because in November 2005 we added approximately 30 existing wells
associated with our Quinduno Field Prospect, Roberts County, Texas that require
lease operating costs to be incurred even though the wells have minimal
production. These existing, but non-productive wells are vital to the success
of the waterflood project that we will be needed to realize the reserves in the
Quinduno Field.
DEPLETION, DEPRECIATION AND AMORTIZATION
Costs for depletion, depreciation and amortization for the quarters ended March
31, 2006, and 2005, were $37,381 and $334,459 respectively. This decrease is
attributable to both lower production in the first quarter of 2006 compared with
the first quarter of 2005 and the significant increase in proved reserves in the
first quarter of 2006 compared with the first quarter of 2005. Production in
the first quarter of 2005 was 14,187 Boe as compared to 1,544 Boe in the first
quarter of 2006. The proved reserves increased to approximately 2.6 million Boe
as of March 31, 2006 as opposed to approximately 580,000 as of March 31, 2005.
Given the fact that depletion is calculated by multiplying the net amortizable
costs times the units of production in the related period relative to the total
proved reserves, the depletion amount for the first quarter of 2006 was
significantly lower than the depletion for the same period in 2005.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the quarters ended March 31, 2006 and
2005, were $722,548 and $638,080, respectively. The increase can be attributed
mainly to the hiring of several technical and financial employees after the
first quarter of 2005.
NET LOSS/INCOME FROM OPERATIONS
We generated a net operating loss of $(799,705) or $(0.03) per share, for the
quarter ended March 31, 2006, compared to net operating loss of $(495,435) or
$(0.03) per share, for the quarter ended March 31, 2005. The $(304,270)
variance is related mainly to the fact that revenues decreased a total of
$532,250 from the same period in 2005 to 2006 offset by a decrease in total
costs and expenses of $227,980 from 2005 to the same period in 2006. The
decrease in revenue was due primarily to the decrease in the production of our
North Dakota well (as discussed herein) due to operational problems with a pump.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements during the fiscal quarter ended March
31, 2006.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures as of March 31, 2006.
This evaluation was carried out under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, these management executives concluded that our disclosure controls
and procedures are effective.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
During our most recently completed fiscal quarter ended March 31, 2006, there
were no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
The term "internal control over financial reporting" is defined as a process
designed by, or under the supervision of, the registrant's principal executive
and principal financial officers, or persons performing similar functions, and
effected by the registrant's board of directors, management and other personnel,
to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedures that:
1. Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
registrant;
2. Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
registrant are being made only in accordance with authorizations of
management and directors of the registrant; and
3. Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the registrant's assets
that could have a material effect on the financial statements.
PART II--OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2006, we completed the following
transactions in reliance upon exemptions from registration under the
Securities Act of 1933, as amended (the "Act") as provided in Section 4(2)
thereof. All certificates issued in connection with these transactions were
endorsed with a restrictive legend confirming that the securities could not
be resold without registration under the Act or an applicable exemption
from the registration requirements of the Act. We believe that each person
was a "qualified" investor within the meaning of the Act and had knowledge
and experience in financial and business matters, which allowed them to
evaluate the merits and risks of our securities. Each person was
knowledgeable about our operations and financial condition.
On February 8, 2006, we completed a private placement of equity securities
solely to accredited investors for total proceeds of $2,700,000 (the
"Offering"). Pursuant to the Offering, we issued 1,928,572 shares of our
restricted common stock at a price of $1.40 per share and 964,286 three
year warrants to purchase shares of our restricted common stock with an
exercise price of $2.00 per share to the accredited investors. On February
3, 2006, we engaged a placement agent to handle the Offering. At the time
of closing, we paid a placement fee of 5% of the gross proceeds of the
Offering. Additionally, at the time of closing, the placement agent
received 96,429 warrants to purchase shares of our restricted common stock
equal to 5% of the number of shares of restricted common stock issued to
the accredited investors at the time of closing of the Offering. The
warrants issued to the placement agent are exercisable for three years and
have an exercise price of $2.00 per share. The shares of common stock and
the shares of common stock underlying the warrants have piggyback
registration rights. We intend to use the proceeds of the Offering for
working capital and general corporate purposes.
ITEM 6. EXHIBITS
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
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31.1 Rule 13a-14(a) Certification of Chief Executive Officer
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31.2 Rule 13a-14(a) Certification of Chief Financial Officer
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32.1 Section 1350 Certification of Chief Executive Officer
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32.2 Section 1350 Certification of Chief Financial Officer
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the small business issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PETROSEARCH ENERGY CORPORATION
Date: June 6, 2006
By: /s/ Richard Dole
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RICHARD DOLE
CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN