UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 333-146627
BARON ENERGY INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
26-0582528
IRS Identification Number
3753 Howard Hughes Parkway
Suite 135
Las Vegas, NV 89169
(Address of principal executive offices, including zip code.)
702-993-7424
(Telephone number, including area code)
Indicate by check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the last 90 days. YES [X] 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,"
"non-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]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 26,200,000 shares as of March 14,
2009.
BARON ENERGY INC.
INDEX
Item 1. Financial Statements (Unaudited) 3
Balance Sheets 3
Statements of Expenses 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
Part II Other Information
Item 1. Legal Proceedings 14
Item 1A. Risk Factors 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 16
2
ITEM 1. FINANCIAL STATEMENTS
BARON ENERGY INC.
(An Exploration Stage Company)
Balance Sheets
(Unaudited)
- --------------------------------------------------------------------------------
As of As of
January 31, July 31,
2009 2008
--------- ---------
ASSETS
CURRENT ASSETS
Cash $ 509 $ 49,754
Restricted cash 1,156 --
Other receivables 29,571 --
Deposits 2,000 4,750
--------- ---------
TOTAL CURRENT ASSETS 33,236 54,504
OIL AND GAS PROPERTIES (FULL COST METHOD)
Unevaluated 417,937 --
--------- ---------
TOTAL ASSETS $ 451,173 $ 54,504
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accrued expenses $ 5,186 $ --
--------- ---------
TOTAL CURRENT LIABILITIES 5,186 --
LONG-TERM LIABILITIES
ARO liability 4,654 --
--------- ---------
TOTAL LONG-TERM LIABILITIES 4,654 --
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 150,000,000 shares authorized;
26,200,000 and 24,000,000 shares issued and outstanding as of
January 31, 2009 and July 31, 2008 26,200 24,000
Additional paid-in capital 598,800 51,000
Subscriptions receivable (60,429) --
Deficit accumulated during exploration stage (123,238) (20,496)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 441,333 54,504
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 451,173 $ 54,504
========= =========
See notes to the financial statements.
3
BARON ENERGY INC.
(An Exploration Stage Company)
Statements of Expenses
(Unaudited)
- --------------------------------------------------------------------------------
July 24, 2007
Three Months Ended Six Months Ended (inception)
January 31, January 31, through
--------------------------- ---------------------------- January 31,
2009 2008 2009 2008 2009
----------- ----------- ----------- ----------- -----------
Professional fees $ 15,266 $ 809 $ 39,221 $ 3,500 $ 45,521
General & administrative expenses 16,799 -- 53,804 3,067 60,250
Accretion expense 110 -- 217 -- 217
----------- ----------- ----------- ----------- -----------
Loss from continuing operations (32,175) (809) (93,242) (6,567) (105,988)
Discontinued operations
Loss from discontinued operations -- -- (9,500) (7,750) (17,250)
----------- ----------- ----------- ----------- -----------
Net Loss $ (32,175) $ (809) $ (102,742) $ (14,317) $ (123,238)
=========== =========== =========== =========== ===========
Basic and diluted net loss per:
Net loss (0.00) (0.00) (0.00) (0.00)
Loss from continuing operations (0.00) (0.00) (0.00) (0.00)
Loss from discontinued operations (0.00) (0.00) (0.00) (0.00)
Weighted average number of common
shares outstanding, basic and
diluted 26,002,174 24,000,000 25,630,435 23,673,913
----------- ----------- ----------- -----------
See notes to the financial statements.
4
BARON ENERGY INC.
(An Exploration Stage Company)
Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
July 24, 2007
Six Months Ended (inception)
January 31, through
-------------------------- January 31,
2009 2008 2009
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(102,742) $ (14,317) $(123,238)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Accretion expense 217 -- 217
Changes in operating assets and liabilities:
Accounts receivable (29,571) -- (29,571)
Accounts payable and accrued expenses 5,186 (590) 5,186
Deposits 2,750 -- (2,000)
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (124,160) (14,907) (149,406)
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash (1,156) -- (1,156)
Acquisition of oil and gas properties (413,500) -- (413,500)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (414,656) -- (414,656)
CASH FLOWS FROM FINANCING ACTIVITIES
Accounts payable -- 10,000 --
Issuance of common stock 489,571 -- 564,571
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 489,571 10,000 564,571
--------- --------- ---------
NET INCREASE IN CASH (49,245) (4,907) 509
CASH AT BEGINNING OF PERIOD 49,754 15,000 --
--------- --------- ---------
CASH AT END OF YEAR $ 509 $ 10,093 $ 509
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during year for:
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
See notes to the financial statements.
5
BARON ENERGY INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of Baron
Energy Inc. ("Baron") have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission, and should be read in conjunction with
the audited financial statements and notes thereto contained in Baron's annual
report filed with the SEC on Form 10-K for the year ended July 31, 2008. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year
2008 as reported in Form 10-K have been omitted.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2008, the FASB issued SFAS No. 162, THE HIERARCHY OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, (SFAS 162), which identifies a consistent framework for
selecting accounting principles to be used in preparing financial statements for
nongovernmental entities that are presented in conformity with United States
generally accepted accounting principles (GAAP). The current GAAP hierarchy was
criticized due to its complexity, ranking position of FASB Statements of
Financial Accounting Concepts and the fact that it is directed at auditors
rather than entities. SFAS 162 will be effective 60 days following the United
States Securities and Exchange Commission's (SEC's) approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, THE MEANING OF
PRESENT FAIRLY IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES . The
FASB does not expect that SFAS 162 will have a change in current practice, and
the Company does not believe that SFAS 162 will have an impact on operating
results, financial position or cash flows.
On December 31, 2008, the SEC published the final rules and interpretations
updating its oil and gas reporting requirements. Many of the revisions are
updates to definitions in the existing oil and gas rules to make them consistent
with the petroleum resource management system, which is a widely accepted
standard for the management of petroleum resources that was developed by several
industry organizations. Key revisions include changes to the pricing used to
estimate reserves utilizing a 12-month average price rather than a single day
spot price which eliminates the ability to utilize subsequent prices to the end
of a reporting period when the full cost ceiling was exceeded and subsequent
pricing exceeds pricing at the end of a reporting period, the ability to include
nontraditional resources in reserves, the use of new technology for determining
reserves, and permitting disclosure of probable and possible reserves. The SEC
will require companies to comply with the amended disclosure requirements for
registration statements filed after January 1, 2010, and for annual reports on
Form 10-K for fiscal years ending on or after December 15, 2009. Early adoption
is not permitted. We are currently assessing the impact that the adoption will
have on our disclosures, operating results, financial position and cash flows.
6
NOTE 2. GOING CONCERN
As shown in the accompanying financial statements, we incurred a net loss of
$32,175 for the three months ended January 31, 2009 and have an accumulated
deficit of $123,238 as of January 31, 2009. These conditions raise substantial
doubt as to our ability to continue as a going concern. The financial statements
do not include any adjustments that might be necessary if we are unable to
continue as a going concern.
Our 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. We are in the process of establishing a sufficient
ongoing source of revenues to cover its operating costs. The ability of the
Company to continue as a going concern is dependent on our ability to fulfill
the business plan.
NOTE 3. ORGANIZATION AND BUSINESS OPERATIONS
Baron Energy Inc. was incorporated as Nevwest Explorations Corp. in the State of
Nevada on July 24, 2007 to engage in the acquisition, exploration and
development of natural resource properties. Effective September 2, 2008, we
changed our name from Nevwest Explorations Corp. to Baron Energy Inc. We are an
exploration stage company with no revenues and limited operating history. The
principal executive offices are located at 3753 Howard Hughes Parkway, Suite
135, Las Vegas, NV 89169.
NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OIL AND GAS PROPERTIES, FULL COST METHOD
During October, 2008, we acquired the oil, gas, and mineral leasehold working
interests in Baylor County, Texas from Lucas Energy Inc. in exchange for two
hundred thirteen thousand five hundred dollars ($213,500). In addition, we
assumed all liabilities and obligations with regard to the acquired property
including the obligation to deliver 225 barrels of oil to a third party. In the
preliminary purchase price allocation, the entire purchase price was allocated
to unevaluated properties. During November 2008, another $200,000 was spent on a
feasibility study. Unevaluated properties include $4,437 of capitalized costs
associated with our asset retirement obligation.
We use the full cost method of accounting for oil and gas producing activities.
Costs to acquire mineral interests in oil and gas properties, to drill and equip
exploratory wells used to find proved reserves, and to drill and equip
development wells, including directly related overhead costs and related asset
retirement costs are capitalized.
Under this method of accounting, all costs, including internal costs directly
related to acquisition, exploration and development activities are capitalized
as oil and gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. Baron assesses the realizability
of unproved properties, if any, on at least an annual basis or when there has
been an indication that impairment in value may have occurred. Impairment of
unproved properties is assessed based on management's intention with regard to
future exploration and development of individually significant properties and
the ability of Baron to obtain funds to finance such exploration and
development. If the results of an assessment indicate that the properties are
impaired, the amount of the impairment is added to the capitalized costs to be
amortized.
7
Costs of oil and gas properties are amortized using the units of production
method. There was no production in the three months ended January 31, 2009,
therefore no amortization was recorded.
Under full cost accounting rules for each cost center, capitalized costs of
proved properties, less accumulated amortization and related deferred income
taxes, shall not exceed an amount (the "cost ceiling") equal to the sum of (a)
the present value of future net cash flows from estimated production of proved
oil and gas reserves, based on current economic and operating conditions,
discounted at 10 percent, plus (b) the cost of properties not being amortized,
plus (c) the lower of cost or estimated fair value of any unproved properties
included in the costs being amortized, less (d) any income tax effects related
to differences between the book and tax basis of the properties involved. If
capitalized costs exceed this limit, the excess is charged as an impairment
expense. There was no impairment expense in the three months ended January 31,
2009.
ASSET RETIREMENT OBLIGATIONS
Baron follows the provisions of Financial Accounting Standards Board Statement
No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). The fair
value of an asset retirement obligation is recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The present
value of the estimated asset retirement costs is capitalized as part of the
carrying amount of the long-lived asset. For Baron, asset retirement obligations
relate to the abandonment of oil and gas producing facilities. The amounts
recognized are based upon numerous estimates and assumptions, including future
retirement costs, future recoverable quantities of oil and gas, future inflation
rates and the credit-adjusted risk-free interest rate.
The following is a description of the changes to the Company's asset retirement
obligations:
Asset retirement obligations at July 31, 2008 $ --
Additions 4,437
Accretion expense 217
------
Asset retirement obligations at January 31, 2009 $4,654
======
INCOME PER SHARE OF COMMON STOCK
Basic and diluted net income per share calculations are presented in accordance
with Financial Accounting Standards Statement 128 and are calculated on the
basis of the weighted average number of common shares outstanding during the
year. Common stock equivalents are excluded from the calculation when a loss is
incurred as their effect would be anti-dilutive. The basic income per share of
common stock is based on the weighted average number of shares issued and
outstanding at the date of the financial statements. Baron had no options or
warrants outstanding at January 31, 2009.
RECLASSIFICATIONS
Certain amounts in prior periods have been reclassified to conform to current
period presentation.
8
NOTE 5. DISCONTINUED OPERATIONS
On July 31, 2008, Baron's management made the decision to discontinue its
business plan to invest in minerals and move its direction towards the
investment and exploration of oil and gas. The action was to be immediate,
therefore there will be no further expenses associated with the mineral
operations beyond the current quarter. There were no assets associated with
these operations, no remaining liabilities as of January 31, 2009, and there was
no gain or loss associated with the discontinuation of the minerals operations.
Prior period amounts applicable to the mineral operations were reclassified and
included under "Loss from discontinued operations."
The following table presents the loss for the interim periods shown and from
Inception.
July 24, 2007
Three Months Ended Six Months Ended (inception)
January 31, January 31, through
--------------------- ---------------------- January 31,
2009 2008 2009 2008 2009
-------- -------- -------- -------- --------
Costs and expenses $ -- $ -- $ (9,500) $ (7,750) $(17,250)
-------- -------- -------- -------- --------
Loss from discontinued
operations $ -- $ -- $ (9,500) $ (7,750) $(17,250)
======== ======== ======== ======== ========
Discontinued operations have not been segregated in the statement of cash flows.
Therefore, amounts for certain captions will not agree with respective data in
the statement of operations.
NOTE 6. COMMON STOCK
DURING THE SIX MONTHS ENDED JANUARY 31, 2009:
All references in the financial statements to the number of common shares and
related per share amounts reflect the effect of both the September 2008 and
February 2009 stock splits.
Effective September 2, 2008, we affected a two (2) for one (1) forward stock
split of our issued and outstanding common stock. As a result, our authorized
capital was not increased and remained at 75,000,000 shares of common stock with
a par value of $0.001 and our issued and outstanding shares increased from
6,000,000 shares of common stock to 12,000,000 shares of common stock.
On November 5, 2008, we filed with the State of Nevada the paperwork required
for a two (2) for one (1) forward stock split of our authorized, issued and
outstanding common stock; however, this stock split was not effective until
February 24, 2009. As a result, our authorized capital was increased from
75,000,000 to 150,000,000 shares of common stock with a par value of $0.001 and
our issued and outstanding shares increased from 13,100,000 shares of common
stock to 26,200,000 shares of common stock. For purposes of calculating earnings
per share, the stock split was retroactively applied to prior periods.
On August 29, 2008, we sold 1,400,000 shares of common stock for $350,000.
On October 16, 2008, we sold 600,000 shares of common stock for $150,000.
On January 29, 2009, we sold 200,000 shares of common stock for $50,000.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements that involve risk and
uncertainties. We use words such as "anticipate", "believe", "plan", "expect",
"future", "intend", and similar expressions to identify such forward-looking
statements. Investors should be aware that all forward-looking statements
contained within this filing are good faith estimates of management as of the
date of this filing. Our actual results could differ materially from those
anticipated in these forward-looking statements.
GENERAL INFORMATION
You should read the following summary together with the financial statements and
related notes that appear elsewhere in this report. In this report, unless the
context otherwise denotes, references to "we", "us", "our", "Company", "Baron"
and "Baron Energy" are to Baron Energy Inc. (formerly Nevwest Explorations
Corp.).
Baron Energy Inc. was incorporated as Nevwest Explorations Corp. in the State of
Nevada on July 24, 2007 to engage in the acquisition, exploration and
development of natural resource properties. Effective September 2, 2008 we
changed our name from Nevwest Explorations Corp. to Baron Energy Inc.. We are an
exploration stage company with no revenues and limited operating history. The
principal executive offices are located at 3753 Howard Hughes Parkway, Las
Vegas, NV 89169. The telephone and fax number is (702) 993-7424.
We completed a form SB-2 Registration Statement under the Securities Act of 1933
with the U.S. Securities and Exchange Commission registering 6,000,000 shares at
a price of $0.02 per share. The offering was completed on April 8, 2008 for
total proceeds to the company of $60,000.
On July 9, 2008 our common stock shares were approved for trading on the
Over-the-Counter Bulletin Board under the symbol "NVWT".
On July 31, 2008, we discontinued our business plan to invest in minerals and
move its direction towards the investment and exploration of oil and gas.
On August 29, 2008, we sold 1,400,000 shares of common stock for $350,000
Effective September 2, 2008, we affected a two (2) for one (1) forward stock
split of our issued and outstanding common stock. As a result, our authorized
capital was not increased and remained at 75,000,000 shares of common stock with
a par value of $0.001 and our issued and outstanding shares increased from
6,000,000 shares of common stock to 12,000,000 shares of common stock.
During October, 2008, we acquired the oil, gas, and mineral leasehold working
interests in Baylor County, Texas from Lucas Energy Inc. in exchange for two
hundred thirteen thousand five hundred dollars ($213,500). In addition, we
assumed all liabilities and obligations with regard to the acquired property
including the obligation to deliver 225 barrels of oil to a third party.
On October 16, 2008, we sold 600,000 shares of common stock for $150,000.
10
On November 3, 2008, Baron Energy Inc. (the "Company") entered into an agreement
with a third party to perform the evaluation, economic analysis, geologic study,
seismic study, AFE design and prospect, and overall feasibility of the South
Texas YUGA prospect for a fee of ($200,000).
On January 29, 2009, we sold 200,000 shares of common stock for $50,000.
We have a total of 150,000,000 authorized common shares with a par value of
$0.001 per share and 26,200,000 common shares issued and outstanding as of
January 31, 2009.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2009 AND 2008
REVENUES
We had no revenues during the three months ended January 31, 2009 and 2008.
PROFESSIONAL FEES
For the three month ended January 31, 2009 and 2008, our professional fees were
$15,266 and $809, respectively. The increase is due to our increased requirement
for accounting and legal assistance related to our progressed business stage.
GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended January 31, 2009 and 2008, our general and
administrative expenses were $16,799 and $0, respectively. The increase is
primarily due to consulting fees.
NET LOSS
For the three months ended January 31, 2009 and 2008, our net losses were
$32,175 and $809, respectively. The increase is due to our increased business
activity.
SIX MONTHS ENDED JANUARY 31, 2009 AND 2008
REVENUES
We had no revenues during the six months ended January 31, 2009 and 2008.
PROFESSIONAL FEES
For the six months ended January 31, 2009 and 2008, our professional fees were
$39,221 and $3,500, respectively. The increase is due to our increased
requirement for accounting and legal assistance related to our progressed
business stage.
11
GENERAL AND ADMINISTRATIVE EXPENSES
For the six months ended January 31, 2009 and 2008, our general and
administrative expenses were $53,804 and $3,067, respectively. The increase is
primarily due to consulting fees.
NET LOSS
For the six months ended January 31, 2009 and 2008, our net losses were $102,742
and $14,317, respectively. The increase is due to our increased business
activity.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2009 we had cash of $509 and working capital of $28,050. This
compares to cash of $49,754 and working capital of $54,504 at July 31, 2008. As
of January 31, 2009, we had a deficit accumulated during the development stage
of $123,238.
Baron will need to generate revenues to achieve profitability. To the extent
that increases in its operating expenses precede or are not subsequently
followed by commensurate revenues, or that Baron is unable to adjust operating
expense levels accordingly, the Company's business, results of operations and
financial condition would be materially and adversely affected. There can be no
assurances that the Company can achieve or sustain profitability or that the
Company's operating losses will not increase in the future.
If we experience a shortage of funds prior to generating revenues from
operations we may utilize funds from our director, who has informally agreed to
advance funds to allow us to pay for operating costs, however he has no formal
commitment, arrangement or legal obligation to advance or loan funds to us.
CASH USED IN OPERATING ACTIVITIES
Cash used in operating activities for the six months ended January 31, 2009 and
2008 were $124,160 and $14,907, respectively. The increase is due to our
increased business activity.
CASH USED IN INVESTING ACTIVITIES
Cash used in investing activities for the three months ended January 31, 2009
and 2008 were $413,500 and $0, respectively. The increase is due to our
acquisition of oil and gas properties.
CASH PROVIDED BY FINANCING ACTIVITIES
Cash provided by financing activities for the three months ended January 31,
2009 and 2008 were $488,415 and $0, respectively. The increase is due to our
private placement.
12
CRITICAL ACCOUNTING POLICIES
ASSET RETIREMENT OBLIGATIONS
We have significant obligations to remove tangible equipment and facilities
associated with our oil and gas wells and our gathering systems, and to restore
land at the end of oil and gas production operations. Our removal and
restoration obligations are associated with plugging and abandoning wells and
our gathering systems. Estimating the future restoration and removal costs is
difficult and requires us to make estimates and judgments because most of the
removal obligations are many years in the future and contracts and regulations
often have vague descriptions of what constitutes removal. Asset removal
technologies and costs are constantly changing, as are regulatory, political,
environmental, safety and public relations considerations. Inherent in the
present value calculations are numerous assumptions and judgments including the
ultimate settlement amounts, inflation factors, credit adjusted discount rates,
timing of settlements and changes in the legal, regulatory, environmental and
political environments.
FULL COST CEILING LIMITATION
Under the full cost method, we are subject to quarterly calculations of a
ceiling or limitation on the amount of our oil and natural gas properties that
can be capitalized on our balance sheet. If the net capitalized costs of our oil
and natural gas properties exceed the cost center ceiling, we are subject to a
ceiling test write down to the extent of such excess. If required, it would
reduce earnings and impact stockholders' equity in the period of occurrence and
result in lower amortization expense in future periods. The discounted present
value of our proved reserves is a major component of the ceiling calculation and
represents the component that requires the most subjective judgments. However,
the associated prices of oil and natural gas reserves that are included in the
discounted present value of the reserves do not require judgment. The ceiling
calculation dictates that prices and costs in effect as of the last day of the
quarter are held constant. However, we may not be subject to a write down if
prices increase subsequent to the end of a quarter in which a write down might
otherwise be required. If oil and natural gas prices decline, even if for only a
short period of time, or if we have downward revisions to our estimated proved
reserves, it is possible that write downs of our oil and natural gas properties
could occur in the future.
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
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our principal executive officer and the principal financial officer, we have
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934, as of the end of the period
covered by this report. Based on this evaluation, our principal executive
officer and principal financial officer concluded as of the evaluation date that
13
our disclosure controls and procedures were not effective such that the material
information required to be included in our Securities and Exchange Commission
reports is accumulated and communicated to our management, including our
principal executive and financial officer, recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms relating to
our company, particularly during the period when this report was being prepared.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that
occurred during the last fiscal quarter ended January 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our management is not aware of any significant litigation, pending or
threatened, that would have a significant adverse effect on our financial
position or results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors set forth in our Annual
Report on Form 10-K for the year ended July 31, 2008, as filed with the SEC on
October 8, 2008. The risk factors disclosed in our Annual Report on Form 10-K
for the fiscal year ended July 31, 2008, in addition to the other information
set forth in this quarterly report, could materially affect our business,
financial condition or results of operations. Additional risks and uncertainties
not currently known to us or that we deem to be immaterial could also materially
adversely affect our business, financial condition or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
August 29, 2008 - Sold 1,400,000 shares of common stock for $350,000.
October 16, 2008 - Sold 600,000 shares of common stock for $150,000.
January 29, 2009 - Sold 200,000 shares of common stock for $50,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
SUBSEQUENT EVENT
On February 24th, 2009, our November 5, 2008 filing with the State of Nevada to
request a two (2) for one (1) forward stock split of our authorized, issued and
outstanding common stock became effective. In addition to the forward split, the
ticker symbol was changed from "BRON" to "BROE". As a result, our authorized
capital was increased from 75,000,000 to 150,000,000 shares of common stock with
a par value of $0.001 and our issued and outstanding shares increased from
13,100,000 shares of common stock to 26,200,000 shares of common stock.
ITEM 6. EXHIBITS
The following exhibits are included with this quarterly filing. Those marked
with an asterisk and required to be filed hereunder, are incorporated by
reference and can be found in their entirety in our Form SB-2 Registration
Statement, filed under SEC File Number 333-146627, at the SEC website at
www.sec.gov:
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation*
3.2 Bylaws*
31.1 Sec. 302 Certification of Principal Executive Officer
31.2 Sec. 302 Certification of Principal Financial Officer
32.1 Sec. 906 Certification of Principal Executive Officer
32.2 Sec. 906 Certification of Principal Financial Officer
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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.
March 17, 2009 Baron Energy Inc.
/s/ Michael Maguire
---------------------------------------------------
By: Michael Maguire
(Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, President, Secretary,
Treasurer & Director)
/s/ Lou Schiliro
---------------------------------------------------
By: Lou Schiliro
(Director)
In accordance with the requirements of the Securities Act of 1933, this
quarterly report was signed by the following person in the capacities and date
stated.
/s/ Michael Maguire March 17, 2009
- -------------------------------------------------- --------------
Michael Maguire, President & Director Date
(Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer)
16