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 APRIL 30, 2010
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
3327 W. Wadley Ave.
Suite 3-267
Midland, TX 79707
(Address of principal executive offices, including zip code)
(432) 685-1307
(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 has submitted electronically and
posted on its corporate web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES [ ] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer, "accelerated filer,"
"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 [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 42,087,668 shares as of June 21,
2010.
BARON ENERGY INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4T. Controls and Procedures 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 19
Signatures 20
2
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BARON ENERGY INC.
Consolidated Balance Sheets
(Unaudited)
As of As of
April 30, July 31,
2010 2009
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 66,072 $ 63,735
Accounts receivable 262,610 88,557
Prepaid expenses 74,795 --
Deposits 3,305 5,000
----------- -----------
TOTAL CURRENT ASSETS 406,782 157,292
OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS), net 2,063,984 2,932,766
INVESTMENTS 211,400 211,400
----------- -----------
TOTAL ASSETS $ 2,682,166 $ 3,301,458
=========== ===========
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable & accrued expenses $ 1,987,787 $ 1,022,935
Loans payable - related party 77,613 94,547
Loans payable 2,545,407 2,845,953
----------- -----------
TOTAL CURRENT LIABILITIES 4,610,807 3,963,435
LONG-TERM LIABILITIES
Asset retirement obligation 423,705 476,657
----------- -----------
TOTAL LONG-TERM LIABILITIES 423,705 476,657
TOTAL STOCKHOLDERS'DEFICIT
Common stock, $0.001 par value, 75,000,000 shares authorized;
41,327,650 and 22,200,000 shares issued and outstanding as of
April 30, 2010 and July 31, 2009 41,328 22,200
Additional paid-in capital 3,147,017 1,779,822
Accumulated deficit (5,540,691) (2,940,656)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (2,352,346) (1,138,634)
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS'DEFICIT $ 2,682,166 $ 3,301,458
=========== ===========
See notes to the financial statements.
3
BARON ENERGY INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------------ ------------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
Oil and gas revenues $ 141,648 $ 122,185 $ 365,428 $ 578,118
Costs and Expenses:
General & administrative expenses 1,534,228 69,871 1,968,930 307,160
Lease operating expenses 79,152 127,191 304,988 596,549
Impairment -- -- 383,688 --
Depletion Expense 55,585 28,632 120,972 101,476
Accretion Expense 11,201 12,708 36,436 38,122
Gain on sale of assets -- -- (94,637) (467,759)
------------ ------------ ------------ ------------
Total costs and expenses 1,680,166 238,402 2,720,377 575,548
Gain (Loss) from Operations (1,538,518) (116,217) (2,354,949) 2,570
Other income (expense)
Interest expense (81,993) (92,032) (245,498) (304,105)
Interest income -- -- 412 3,232
------------ ------------ ------------ ------------
Total other expenses (81,993) (92,032) (245,086) (300,873)
------------ ------------ ------------ ------------
Net Loss $ (1,620,511) $ (208,249) $ (2,600,035) $ (298,303)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.04) $ (0.01) $ (0.10) $ (0.02)
Weighted average number of common
shares outstanding, basic and diluted 41,298,998 15,426,966 26,880,050 13,666,667
------------ ------------ ------------ ------------
See notes to the financial statements.
4
BARON ENERGY INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
April 30,
-----------------------------------
2010 2009
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,600,035) $ (298,303)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock based compensation 1,092,500 --
Depletion expense 120,972 101,476
Accretion expense 36,436 38,122
Impairment 383,688 --
Gain on sale of assets (94,637) (467,759)
Changes in operating assets and liabilities:
Accounts receivable (174,054) 97,030
Prepaid expenses (74,795) --
Inventory -- --
Accounts payable and accrued expenses 964,852 374,342
Deposits 1,695 4,750
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (343,378) (150,042)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 369,371 781,344
Acquisition of oil and gas properties -- (520,130)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 369,371 261,214
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 121,853 --
Payments on notes payable (439,333) (830,506)
Issuance of Common Stock, net of issuance costs 293,824 717,891
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (23,656) (112,615)
------------ ------------
NET INCREASE (DECREASE) IN CASH 2,337 (1,443)
CASH AT BEGINNING OF PERIOD 63,735 106,189
------------ ------------
CASH AT END OF PERIOD $ 66,072 $ 104,746
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during year for:
Interest $ 106,772 $ 195,724
Income Taxes $ -- $ --
NON-CASH TRANSACTIONS
Asset retirement obligations $ 89,388 $ 4,137
Stock issued for business combination $ 20,000 $ 4,500,000
Stock cancelled $ 4,300 $ --
See notes to the financial statements.
5
BARON ENERGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Baron Energy Inc.
("Baron" or the "Company") 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
forthcoming 8-K that the company will file with the SEC. 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 consolidated financial
statements which would substantially duplicate the disclosures contained in the
audited financial statements for the most recent fiscal year 2009 as reported in
the forthcoming Form 8-K have been omitted.
The Company completed an acquisition, effective on February 22, 2010, of Esconde
Resources, Inc. ("Esconde") and Permian Legend Petroleum, Inc., ("Permian") both
of which were commonly controlled, privately held companies incorporated in the
State of Texas (collectively referred to as the "Acquired Entities") pursuant to
an Agreement and Plan of Merger, dated February 19, 2010, by and among the
Company, Pertex Acquisition, Inc., a Texas corporation and wholly-owned
subsidiary of the Company ("Merger Sub") and the Acquired Entities (the "Merger
Agreement"). The Merger Agreement provides for the merger of the Acquired
Entities with and into the Merger Sub, with the Merger Sub continuing as the
surviving entity in the merger and a wholly-owned subsidiary of the Company (the
"Merger"). As a result of the Merger and the Subsidiary Merger, the Company is
now headquartered in Midland, Texas.
For Securities and Exchange Commission ("SEC') reporting purposes, the merger
between Esconde Resources, Inc. and Permian Legend Petroleum, Inc and Baron and
was treated as a reverse merger with Esconde Resources, Inc. and Permian Legend
Petroleum, Inc. being the "accounting acquirer" and, accordingly, they assumed
Baron's reporting obligations with the SEC. In accordance with SEC requirements,
the historical financial statements and related disclosures presented herein for
the period prior to the date of merger (i.e., February 22, 2010) are the
combined financial statements of Esconde Resources, Inc. and Permian Legend
Petroleum, Inc. The assets and liabilities of Baron were recorded, as of
completion of the merger, at fair value, which is considered to approximate
historical cost, and added to those of Esconde Resources, Inc. and Permian
Legend Petroleum, Inc. .
Under the terms of the Merger Agreement, at the closing of the Merger,
* all of the issued and outstanding shares of common stock of Esconde (other
than dissenting shares, if any) were cancelled and each share of common
stock of Esconde was converted into and exchanged for the right to receive
4.048447 validly issued, fully paid and nonassessable shares of common
stock in the Company,
* all of the issued and outstanding shares of common stock of Permian (other
than dissenting shares, if any) were cancelled and each share of common
stock of Permian was converted into and exchanged for the right to receive
3.798208025 validly issued, fully paid and nonassessable shares of common
stock in the Company,
At the closing of the Merger, all of the issued and outstanding shares of common
stock of the Acquired Entities were converted into and exchanged for the right
to receive an aggregate of 20,000,000 shares of common stock of the Company, par
value $.001 per share. There were no issued and outstanding options or other
convertible securities convertible into common stock of either Acquired Entity.
Immediately prior to the merger, the Company redeemed 4,350,000 shares of its
common stock from its founder, Albert Abah, reducing the number of its issued
and outstanding shares to 20,000,000. Upon issuance of the 40,000,000 shares of
common stock to the former shareholders of the Acquired Entities, the Company's
current total number of issued and outstanding shares of the Company increased
6
to 40,000,000, and the former shareholders of the Acquired Entities controlled
50% of the issued and outstanding shares of common stock of the Company.
Immediately after completion of the Merger, the Merger Sub was merged with and
into the Company, effective as of February 23, 2010 (the "Subsidiary Merger").
The assets acquired in the Merger included approximately 3,100 gross acres and
oil and gas working interests located in the Permian Basin of west Texas and the
counties of Borden, Garza, Jones, Runnells, Scurry, and Taylor. The Acquired
Entities' working interests ("WI") in the various operated properties average
98% and the average WI in non-operated properties is 13%. Current production is
approximately 39 barrels of oil equivalent per day ("BOEPD") net and 238 BOEPD
gross, of which 98% is oil and 2% natural gas from 27 producing wells (13
operated and 14 non-operated).
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
("SFAS 168" or ASC 105-10). SFAS 168 (ASC 105-10) establishes the Codification
as the sole source of authoritative accounting principles recognized by the FASB
to be applied by all nongovernmental entities in the preparation of financial
statements in conformity with GAAP. SFAS 168 (ASC 105) was prospectively
effective for financial statements issued for fiscal years ending on or after
September 15, 2009, and interim periods within those fiscal years. The adoption
of SFAS 168 (ASC 105) on August 1, 2009 did not impact the Company's results of
operations or financial condition. The Codification did not change GAAP;
however, it did change the way GAAP is organized and presented. As a result,
these changes impact how companies reference GAAP in their financial statements
and in their significant accounting policies. The Company implemented the
Codification in this Report by providing references to the Codification topics
alongside references to the corresponding standards.
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 to the utilization of a 12-month average price rather than a
single day spot price, 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. The
Company is currently assessing the impact that the adoption will have on the
Company's disclosures, operating results, financial position and cash flows.
With the exception of the pronouncements noted above, no other accounting
standards or interpretations issued or recently adopted are expected to a have a
material impact on the Company's consolidated financial position, operations or
cash flows.
We use the successful efforts method of accounting for oil and gas property
acquisition, exploration, development, and production activities. Costs to
acquire mineral interests in oil and gas properties, to drill and equip
exploratory wells that find proved reserves, and to drill and equip development
wells are capitalized as incurred. Costs to drill exploratory wells that are
unsuccessful in finding proved reserves are expensed as incurred. In addition,
the geological and geophysical costs, and costs of carrying and retaining
unproved properties are expensed as incurred. Costs to operate and maintain
wells and field equipment are expensed as incurred.
Capitalized proved property acquisition costs are amortized (DD&A) by field
using the unit-of-production method based on proved reserves. Capitalized
exploration well costs and development costs (plus estimated future
dismantlement, surface restoration, and property abandonment costs, net of
equipment salvage values) are amortized in a similar fashion (by field) based on
their proved developed reserves. Support equipment and other property and
equipment are depreciated over their estimated useful lives.
Pursuant to FASB ASC Topic 360, "PROPERTY, PLANT AND EQUIPMENT", we review
proved oil and natural gas properties and other long-lived assets for
impairment. These reviews are predicated by events and circumstances, such as
downward revision of the reserve estimates or commodity prices, that indicate a
decline in the recoverability of the carrying value of such properties. We
estimate the future cash flows expected in connection with the properties and
compare such future cash flows to the carrying amount of the properties to
determine if the carrying amount is recoverable. When the carrying amounts of
the properties exceed their estimated undiscounted future cash flows, the
carrying amounts of the properties are reduced to their estimated fair value.
The factors used to determine fair value include, but are not limited to,
7
estimates of proved reserves, future commodity prices, the timing of future
production, future capital expenditures and a risk-adjusted discount rate. The
charge is included in DD&A.
Unproved oil and gas properties that are individually significant are also
periodically assessed for impairment of value. An impairment loss for unproved
oil and gas properties is recognized at the time of impairment by providing an
impairment allowance.
On the retirement or sale of a partial unit of proved property, the cost and
accumulated DD&A are removed and and a resulting gain or loss is recognized in
the statement of operations.
Deposits and advances for services expected to be provided for exploration and
development or for the acquisition of oil and gas properties are classified as
long term other assets.
NOTE 2. GOING CONCERN
As shown in the accompanying consolidated financial statements, we incurred a
net loss of $1,620,511 and $2,600,037 for the three and nine months ended April
30, 2010, respectively, and had an accumulated deficit of $5,540,691 as of April
30, 2010. Additionally, at April 30, 2010, the Company is in default of certain
debt agreements that are secured by the Company's oil and gas properties. These
conditions raise substantial doubt as to our ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might be necessary if we are unable to continue as a going concern.
Our consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The Company is in the process of establishing a
sufficient ongoing source of revenues to cover its operating costs.
As part of the merger between Baron, Esconde, and Permian, Baron intends to
focus its efforts on the development and exploitation of its Texas properties.
In addition the Company plans on taking advantage of low-risk opportunities on
its existing acreage while continuing to consider exploratory opportunities by
applying technology and capital to deeper zones with significant upside
potential. Additionally, Baron will pursue accretive acquisitions in core areas.
NOTE 3. LOSS PER SHARE OF COMMON STOCK
Basic and diluted net loss per share calculations are calculated on the basis of
the weighted average number of common shares outstanding during the year.
Purchases of treasury stock, if any, reduce the outstanding shares commencing on
the date that the stock is purchased. Common stock equivalents, of which there
are none, are excluded from the calculation when a loss is incurred as their
effect would be anti-dilutive.
Three Months Ended Nine Months Ended
April 30, April 30,
----------------------------- ----------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
Numerator - Net Income (Loss) ( A) $ (1,620,511) $ (208,249) $ (2,600,035) $ (298,303)
Basic Income (loss) Per Share (A/B) $ (0.04) $ (0.01) $ (0.10) $ (0.02)
Denominator - weighted average shares (B) 41,298,998 15,426,966 19,381,882 13,666,667
Fully Diluted Income Per Share (A)/(B+C) $ (0.04) $ (0.01) $ (0.10) $ (0.02)
Dilutive effect of warrants (C) -- -- -- --
Denominator - fully diluted weighted
average shares (B+C) 41,298,998 15,426,966 26,880,050 13,666,667
8
NOTE 4. OIL AND GAS PROPERTIES
As of April 30, 2010 we had oil and gas properties, net of impairment and
depletion in the amount of $2,063,984. During the nine months ended April 30,
2010, we sold two properties for net proceeds of $369,371 which was used to pay
down a portion of a third party bank loan. We recognized a gain in the amount of
$94,637 upon the sale. We also recorded depletion expense and impairment
expenses in the amount of $120,972 and $383,688, respectively for the nine
months ended April 30, 2010.
NOTE 5. LOANS PAYABLE
As of April 30, 2010 we had loans payable to third parties and related parties
in the amount of $2,545,407 and $77,613, respectively. The loans carried
interest rates varying from 5% to 18% and 0% to 4%, respectively. All loans are
classified as current on the balance sheet (See Note 8).
NOTE 6. ASSET RETIREMENT OBLIGATION
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------ ------------------------
2010 2009 2010 2009
--------- --------- --------- ---------
Asset retirement obligations, beginning $ 412,503 $ 451,235 $ 476,657 $ 421,684
Additions -- -- -- 4,137
Reductions -- -- (89,388) --
Accretion expense 11,201 12,708 36,436 38,122
--------- --------- --------- ---------
Asset retirement obligations, ending $ 423,705 $ 463,943 $ 423,705 $ 463,943
========= ========= ========= =========
NOTE 7. COMMON STOCK
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 and the March 2010 reverse stock split.
On September 2, 2008, we effected 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 effected 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.
On March 4, 2010, we effected a two (2) for one (1) reverse stock split of our
authorized, issued and outstanding common stock As a result, our authorized
capital was decreased from 150,000,000 to 75,000,000 shares of common stock with
a par value of $0.001 and our issued and outstanding shares decreased from
80,000,000 to 40,000,000.
9
On October 22, 2009, we sold 50,000 shares of common stock for $25,000.
On December 11, 2009, we sold 150,000 shares of common stock for $30,000.
On January 7, 2010, we sold 100,000 shares of common stock for $20,000.
On January 13, 2010, we sold 50,000 shares of common stock for $10,000.
On January 27, 2010, we sold 300,000 shares of common stock for $60,000.
On January 28, 2010, we sold 500,000 shares of common stock for $100,000.
On February 8, 2010, we issued 1,000,000 shares of Common Stock pursuant to the
terms of an agreement between us and a consultant for various investor
relations, public relations, direct marketing and other related services, dated
January 29, 2010, valued at $760,000, based on the presplit quoted market price.
On February 22, 2010, the Company redeemed 4,350,000 shares of its common stock
from its founder, Albert Abah, for no consideration.
On February 22, 2010, the Company issued an aggregate of 20,000,000 shares of
its common stock in the acquisition of Esconde and Permian.
On March 3, 2010, we issued 117,650 shares of our common stock, with a market
value of $40,000 based on the last closing sale price on that date, to Kodiak
Capital Group, LLC as consideration for its commitment to enter into an equity
line of financing.
On March 8, 2010 we issued 10,000 shares of our common stock to Southwest
Investment Association, Inc., in lieu of a cash payment of $2,500 for the
registration fee required to present at a conference organized by the recipient.
On March 22, 2010 we issued 100,000 shares of our common stock for of $23,500,
net of commissions of approximately $1,500.
On April 22, 2010 we issued 1,000,000 shares of our common stock to a third
party for consulting services.
On April 27, 2010 we issued 100,000 shares of our common stock for $25,000.
NOTE 8. COMMITMENTS & CONTINGENCIES
On January 29, 2010, we entered into an agreement with a consultant for various
investor relations, public relations, direct marketing and other related
services, for a one-year period. The Company paid $150,000 of cash during
January 2010 and issued 2,000,000 shares of common stock subsequent to January
2010. $50,000 of the cash paid was for a non-refundable deposit and recognized
as an expense in the statement of operations for the nine month period ended
April 30, 2010. $100,000 of the cash paid was for future services to be provided
by the consultant, was recognized as a prepaid expense in the balance sheet as
of April 30, 2010 and will be amortized to expense over the requisite service
period.
On April 6, 2009, Baron acquired 100% of the issued and outstanding membership
interests of TMG Partners, LLC, a Nevada limited liability company ("TMG") in
exchange for 9,000,000 restricted shares of common stock of the Company, valued
at $4,500,000. Upon the acquisition of TMG Partners, LLC, the Company assumed an
agreement to acquire certain leases. Under the terms of the agreement, the
Company is committed to fund approximately $1,055,000 for leases; the Company
had paid $955,000 and owed $100,000 of the remaining commitment and is obligated
to pay the remaining amount upon request.
As a result of the acquisition, effective on February 22, 2010, of Esconde
Resources, Inc. ("Esconde") and Permian Legend Petroleum, Inc. the Company
assumed the following obligations:
10
(1) Obligations of Permian under certain debt agreements by and between Permian
and American State Bank of Odessa, Texas ("ASB") dated August 1, 2008, as
amended ("Permian Loan Agreement"); and
(2) Obligations of Esconde under certain debt agreements by and between Esconde
and ASB dated December 15, 2009 ("Esconde Note" and together with the Permian
Loan Agreement, the "Assumed Loans").
On March 4, 2010 the Acquired Entities received notice ("Default Notice") from
ASB that they were in default of the Assumed Loans because amounts were owed
under each of the Assumed Loans, which matured on March 1, 2010. Specifically,
the Acquired Entities were notified that $688,724 plus accrued interest was owed
under the Permian Loan Agreement and $299,282 plus accrued interest was owed
under the Esconde Note.
In the Default Notice, ASB notified the Company that if all amounts due, plus
accrued interest, late charges and attorney's fees were not paid to ASB within
10 days receipt of the Default Notice, ASB would proceed to foreclose on (1)
with respect to the Permian Loan Agreement, certain oil and gas properties
located in Haskel, Jones, Nolan, Reagan, Runnels and Taylor County, Texas, and
(2) with respect to the Esconde Note, certain oil and gas properties located in
Borden, Garza and Scurry County, Texas. Moreover, ASB asserted that if the
foreclosure process resulted in any deficiency, it would pursue a deficiency
judgment against the Acquired Entities. These properties represent a substantial
portion of the assets of the Acquired Entities. The Company is currently in
negotiations with ASB for an extension of time to pay all amounts due.
NOTE 9. RELATED PARTY
As of April 30, 2010 we had loans payable to related parties in the amount of
$77,613. The loans were advanced to assist with daily operating expenses and
carry interest rates varying from 0% to 4%. All loans are classified as current
on the balance sheet.
NOTE 10. SUBSEQUENT EVENTS
On May 11, 2010, we issued 10,000 shares of our common stock to Southwest
Investment Association, Inc., in lieu of a cash payment of $2,500 for the
registration fee required to present at a conference organized by the recipient.
During the period from May 1, 2010 through June 21, 2010, we issued an aggregate
of 750,000 shares of our common stock to 9 investors in connection with a
private offering of our securities. As consideration for the issuance of the
750,000 shares, we received: $75,000 in cash for 300,000 shares; satisfaction of
a $75,000 trade payable owed to P. Mark Stark for 300,000 shares; and advisory
services to be provided by the six members of our advisory board and valued at
$5,000 per person for the 25,000 shares issued to each person.
11
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 consolidated 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. The
principal executive offices are located at . 3327 W. Wadley Ave., Suite 3-267,
Midland, TX. The telephone and fax number is (432) 685-1307.
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 $0.01 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 shares were approved for trading on the
Over-the-Counter Bulletin Board under the symbol "NVWT". On September 2, 2008
the symbol was changed to "BRON" and on February 24, 2009 the symbol was changed
to "BROED".
On September 2, 2008, we effected 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 effected 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.
On March 4, 2010 pursuant to the Certificate of Change to the Company's Articles
of Incorporation filed with the Secretary of State of Nevada, we effected a two
(2) for one (1) reverse stock split of our issued and outstanding common stock .
As a result of the reverse split, the number of outstanding shares of the
Company's common stock was reduced to 40,000,000 from 80,000,000, and the number
of authorized but unissued shares of the Company's common stock was reduced to
75,000,000 from 150,000,000.
On August 29, 2008, we sold 700,000 shares of common stock for $350,000.
On October 16, 2008, we sold 300,000 shares of common stock for $150,000.
On January 29, 2009, we sold 100,000 shares of common stock for $50,000.
12
On April 6, 2009, we issued 9,000,000 shares of common stock for 100% membership
interest in TMG Partners, LLC valued at $4,500,000.
On April 29, 2009, we sold 100,000 shares of common stock for $50,000.
On October 22, 2009, we sold 50,000 shares of common stock for $25,000.
On December 11, 2009, we sold 150,000 shares of common stock for $30,000.
On January 7, 2010, we sold 100,000 shares of common stock for $20,000.
On January 13, 2010, we sold 50,000 shares of common stock for $10,000.
On January 27, 2010, we sold 300,000 shares of common stock for $60,000.
On January 28, 2010, we sold 500,000 shares of common stock for $100,000.
On February 8, 2010, we issued 1,000,000 shares of Common Stock pursuant to the
terms of an agreement between us and a consultant for various investor
relations, public relations, direct marketing and other related services, dated
January 29, 2010, valued at $760,000, based on the presplit quoted market price.
On February 22, 2010, the Company redeemed 4,350,000 shares of its common stock
from its founder for no consideration, Albert Abah.
On February 22, 2010, the Company issued an aggregate of 20,000,000 shares of
its common stock in the acquisition of Esconde and Permian, both of which were
privately held companies incorporated in the State of Texas, pursuant to the
Merger Agreement. The Merger Agreement provides for the merger of the Acquired
Entities with and into the Merger Sub, with the Merger Sub continuing as the
surviving entity in the merger and a wholly-owned subsidiary of the Company (the
"Merger"). As a result of the Merger, the Company is now headquartered in
Midland, Texas. In connection with the Merger: (1) Mr. Michael Maguire resigned
as the Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, President, Treasurer, and Secretary of the Company effective as of
February 19, 2010, and as a director of the Company effective as of February 28,
2010; (2) Mr. Lou Schiliro resigned as a director of the Company effective as of
February 28, 2010; (3) Mr. Ronnie L. Steinocher was elected and appointed the
Chief Executive Officer, President, a director and Chairman of the board of
directors of the Company effective as of February 22, 2010; and (4) Ms. Lisa P.
Hamilton was elected and appointed the Executive Vice President, Chief Financial
Officer, Treasurer, Secretary, and a member of the Board effective as of
February 22, 2010.
On March 3, 2010, we issued 117,650 shares of our common stock, with a market
value of $40,000 based on the last closing sale price on that date, to Kodiak
Capital Group, LLC as consideration for its commitment to enter into an equity
line of financing. The shares were issued pursuant to the exemption provided by
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder for
transactions by an issuer not involving a public offering. The recipient of our
securities took them for investment purposes without a view to distribution.
Furthermore, they had access to information concerning us and our business
prospects; there was no general solicitation or advertising for the purchase of
our securities; and the securities are restricted pursuant to Rule 144.
On March 8, 2010 we issued 10,000 shares of our common stock to Southwest
Investment Association, Inc., in lieu of a cash payment of $2,500 for the
registration fee required to present at a conference organized by the recipient.
The shares were issued pursuant to the exemption provided by Section 4(2) of the
Securities Act for transactions by an issuer not involving a public offering.
The recipient of our securities is an "accredited investor" and it took them for
investment purposes without a view to distribution. Furthermore, they had access
to information concerning us and our business prospects; there was no general
solicitation or advertising for the purchase of our securities; and the
securities are restricted pursuant to Rule 144.
On March 22, 2010 we issued 100,000 shares of our common stock for $23,500, net
of commissions of $1,500.
13
On April 22, 2010 we issued 1,000,000 shares of our common stock to a third
party for consulting services.
On April 27, 2010 we issued 100,000 shares of our common stock for $25,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2010 AND 2009
For the three months ended April 30, 2010 and 2009, our oil and gas revenues
were $141,648 and $122,185, respectively. The increase is primarily due to an
increase in oil and gas prices.
For the three months ended April 30, 2010 and 2009, our general and
administrative expenses were $1,534,228 and $69,871, respectively. The increase
is primarily due to a significant increase in consulting, marketing and legal
fees incurred during the quarter.
For the three months ended April 30, 2010 and 2009, our lease operating expenses
were $79,152 and $127,191, respectively. The decrease is primarily due to the
resolution of prior period well repairs.
For the three months ended April 30, 2010 and 2009, our depletion expenses were
$55,585 and $28,632, respectively. The increase is primarily due to a revision
in the life of certain properties.
For the three months ended April 30, 2010 and 2009, our interest expenses were
$81,993 and $92,032, respectively. The decrease is due to the reduction of debt.
NINE MONTHS ENDED APRIL 30, 2010 AND 2009
For the nine months ended April 30, 2010 and 2009, our oil and gas revenues were
$365,428 and $578,118, respectively. The decrease is primarily due to the
disposition of properties during the nine months ended April 30, 2009.
For the nine months ended April 30, 2010 and 2009, our general and
administrative expenses were $1,968,932 and $307,160, respectively. The increase
is primarily due to a significant increase in consulting, marketing and legal
fees incurred during the period.
For the nine months ended April 30, 2010 and 2009, our lease operating expenses
were $304,988 and $596,549, respectively. The decrease is primarily due to the
resolution of prior period well repairs.
For the nine months ended April 30, 2010 and 2009, our depletion expenses were
$120,972 and $101,476, respectively. The increase is primarily due to a revision
in the life of certain properties.
For the nine months ended April 30, 2010 and 2009, our interest expenses were
$245,498 and $304,105, respectively. The decrease is due to the reduction of
debt.
For the nine months ended April 30, 2010 and 2009, we realized gains on sale of
certain oil and gas properties of $94,637 and $467,759, respectively.
For the nine months ended April 30, 2010 and 2009, we realized impairments on
certain oil and gas properties of $383,688 and $0, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2010, we had cash of $66,072 and negative working capital of
$4,204,025. This compares to cash of $63,735 and negative working capital of
$3,806,143 at July 31, 2009. As of April 30, 2010, we had a deficit accumulated
of $5,540,691.
14
On March 4, 2010 the Acquired Entities received notice ("Default Notice") from
ASB that they were in default of the Assumed Loans because amounts were owed
under each of the Assumed Loans, which matured on March 1, 2010. Specifically,
the Acquired Entities were notified that $688,724 plus accrued interest was owed
under the Permian Loan Agreement and $299,282 plus accrued interest was owed
under the Esconde Note.
In the Default Notice, ASB notified the Company that if all amounts due, plus
accrued interest, late charges and attorney's fees were not paid to ASB within
10 days receipt of the Default Notice, ASB would proceed to foreclose on (1)
with respect to the Permian Loan Agreement, certain oil and gas properties
located in Haskel, Jones, Nolan, Reagan, Runnels and Taylor County, Texas, and
(2) with respect to the Esconde Note, certain oil and gas properties located in
Borden, Garza and Scurry County, Texas. Moreover, ASB asserted that if the
foreclosure process resulted in any deficiency, it would pursue a deficiency
judgment against the Acquired Entities. These properties represent a substantial
portion of the assets of the Acquired Entities. The Company is currently in
negotiations with ASB for an extension of time to pay all amounts due.
Baron will need to increase 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. These factors raise
substantial doubt regarding Baron's ability to continue as a going concern.
We are in the process of establishing a sufficient ongoing source of revenues to
cover our operating costs. The ability of the Company to continue as a going
concern is dependent on our ability to fulfill the business plan.
As part of the merger between Baron Energy, Inc., Esconde, and Permian , Pertex
management became the new management team for Baron Energy, Inc. This highly
experienced management team that has worked together for more than 17 years will
be responsible for developing the company's vision and business plan execution,
including sourcing of capital, producing property acquisitions, and day-to-day
management of its oil and gas assets. Baron intends to focus its efforts on the
development and exploitation of its Texas properties. In addition the company
will continue taking advantage of low-risk opportunities on its existing acreage
while continuing to consider exploratory opportunities by applying technology
and capital to deeper zones with significant upside potential. Additionally,
Baron will pursue accretive acquisitions in core areas.
CASH FLOW FROM OPERATING ACTIVITIES
Cash used in operating activities for the nine months ended April 30, 2010 and
2009 were $349,007 and $150,042, respectively. The increase is primarily due to
our prepaid marketing agreement signed in January 2010. On January 29, 2010, we
entered into an agreement with a consultant for various investor relations,
public relations, direct marketing and other related services, for a one-year
period. The Company paid $150,000 of cash during January 2010 and issued
1,000,000 shares of common stock subsequent to January 2010. $50,000 of the cash
paid was for a non-refundable deposit and recognized as an expense in the
statement of operations for the nine month period ended April 30, 2010. $100,000
of the cash paid was for future services to be provided by the consultant, was
recognized as a prepaid expense in the balance sheet as of April 30, 2010 and is
being amortized to expense over the requisite service period.
CASH FLOW FROM INVESTING ACTIVITIES
Cash provided by investing activities for the nine months ended April 30, 2010
and 2009 were $369,371 and $261,214, respectively. The decrease is due to sale
of oil and gas assets, partially offset by the acquisition of oil and gas
properties.
CASH FLOW FROM FINANCING ACTIVITIES
Cash provided by (used in) financing activities for the nine months ended April
30, 2010 and 2009 were $351,344 and ($112,615), respectively. The increase is
due to the sale of our common stock from private placements for the nine month
period ended April 30, 2010 net of repayment or in addition to net proceeds of
debt in the nine months ended April 30, 2010.
15
HEDGING
We did not hedge any oil or natural gas production during the periods ending
April 30, 2010 or 2009 and have not entered into any such hedges from April 30,
2010 through the date of this filing.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
On January 29, 2010, we entered into an agreement with a consultant for various
investor relations, public relations, direct marketing and other related
services, for a one-year period. The Company paid $150,000 of cash during
January 2010 and issued 2,000,000 shares of common stock subsequent to January
2010. $50,000 of the cash paid was for a non-refundable deposit and recognized
as an expense in the statement of operations for the nine month period ended
April 30, 2010. $100,000 of the cash paid was for future services to be provided
by the consultant, was recognized as a prepaid expense in the balance sheet as
of April 30, 2010 and will be amortized to expense over the requisite service
period.
Upon the acquisition of TMG Partners, LLC, the Company assumed an agreement to
acquire certain leases. Under the terms of the agreement, the Company is
committed to fund approximately $1,055,000 for leases; the Company had paid
$955,000 and owed $100,000 of the remaining commitment and is obligated to pay
the remaining upon request.
The Company completed an acquisition, effective February 22, 2010, of Esconde
Resources, Inc. ("Esconde") and Permian Legend Petroleum, Inc., ("Permian" and
together with Esconde, the "Acquired Entities") pursuant to an Agreement and
Plan of Merger, dated February 19, 2010, by and among the Company, Pertex
Acquisition, Inc., a Texas corporation and wholly-owned subsidiary of the
Company ("Merger Sub") and the Acquired Entities (the "Merger Agreement").
As a result of the Merger Agreement, the Company assumed the following
obligations:
(1) Obligations of Permian under certain debt agreements by and between Permian
and American State Bank of Odessa, Texas ("ASB") dated August 1, 2008, as
amended ("Permian Loan Agreement"); and
(2) Obligations of Esconde under certain debt agreements by and between Esconde
and ASB dated December 15, 2009 ("Esconde Note" and together with the Permian
Loan Agreement, the "Assumed Loans").
On March 4, 2010 the Acquired Entities received notice ("Default Notice") from
ASB that they were in default of the Assumed Loans because amounts were owed
under each of the Assumed Loans, which matured on March 1, 2010. Specifically,
the Acquired Entities were notified that $688,724 plus accrued interest was owed
under the Permian Loan Agreement and $299,282 plus accrued interest was owed
under the Esconde Note.
In the Default Notice, ASB notified the Company that if all amounts due, plus
accrued interest, late charges and attorney's fees were not paid to ASB within
10 days receipt of the Default Notice, ASB would proceed to foreclose on (1)
with respect to the Permian Loan Agreement, certain oil and gas properties
located in Haskel, Jones, Nolan, Reagan, Runnels and Taylor County, Texas, and
(2) with respect to the Esconde Note, certain oil and gas properties located in
Borden, Garza and Scurry County, Texas. Moreover, ASB asserted that if the
foreclosure process resulted in any deficiency, it would pursue a deficiency
judgment against the Acquired Entities. These properties represent a substantial
portion of the assets of the Acquired Entities. We are currently in negotiations
with ASB for an extension of time to pay all amounts due.
RELATED PARTY TRANSACTIONS
There are various related party notes payable totaling $77,613 as of April 30,
2010, with interest rates varying from 0% to 4%.
16
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
is based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We use the successful efforts method of accounting for oil and gas property
acquisition, exploration, development, and production activities. Costs to
acquire mineral interests in oil and gas properties, to drill and equip
exploratory wells that find proved reserves, and to drill and equip development
wells are capitalized as incurred. Costs to drill exploratory wells that are
unsuccessful in finding proved reserves are expensed as incurred. In addition,
the geological and geophysical costs, and costs of carrying and retaining
unproved properties are expensed as incurred. Costs to operate and maintain
wells and field equipment are expensed as incurred.
Capitalized proved property acquisition costs are amortized by field using the
unit-of-production method based on proved reserves. Capitalized exploration well
costs and development costs (plus estimated future dismantlement, surface
restoration, and property abandonment costs, net of equipment salvage values)
are amortized in a similar fashion (by field) based on their proved developed
reserves. Support equipment and other property and equipment are depreciated
over their estimated useful lives.
Pursuant to FASB ASC Topic 360, "PROPERTY, PLANT AND EQUIPMENT", we review
proved oil and natural gas properties and other long-lived assets for
impairment. These reviews are predicated by events and circumstances, such as
downward revision of the reserve estimates or commodity prices, that indicate a
decline in the recoverability of the carrying value of such properties. We
estimate the future cash flows expected in connection with the properties and
compare such future cash flows to the carrying amount of the properties to
determine if the carrying amount is recoverable. When the carrying amounts of
the properties exceed their estimated undiscounted future cash flows, the
carrying amounts of the properties are reduced to their estimated fair value.
The factors used to determine fair value include, but are not limited to,
estimates of proved reserves, future commodity prices, the timing of future
production, future capital expenditures and a risk-adjusted discount rate. The
charge is included in DD&A.
Unproved oil and gas properties that are individually significant are also
periodically assessed for impairment of value. An impairment loss for unproved
oil and gas properties is recognized at the time of impairment by providing an
impairment allowance.
On the retirement or sale of a partial unit of proved property, the cost is
charged to accumulated DD&A with a resulting gain or loss recognized in income.
Deposits and advances for services expected to be provided for exploration and
development or for the acquisition of oil and gas properties are classified as
long term other assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Under the supervision and with
the participation of our senior management, including our Chief Executive
Officer and Principal Accounting Officer, we 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
Exchange Act of 1934, as of the end period covered by this quarterly report.
Based on this evaluation, our Chief Executive Officer and Principal Accounting
Officer concluded as of April 30, 2010, that our disclosure controls and
procedures were not effective such that the information required to be disclosed
17
in our Securities and Exchange Commission ("SEC") reports ( i) is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms, and (ii) is accumulated and communicated to our management,
including our chief executive officer and Principal Accounting Officer, as
appropriate to allow timely decisions regarding required disclosure. Our Chief
Executive Officer and Principal Accounting Officer concluded, based on the
evaluation of the effectiveness of the disclosure controls and procedures by our
management, that as of April 30, 2010, our disclosure controls and procedures
were not effective due to the material weaknesses related to the Company's
Internal Control over Financial Reporting as described below:
1. We do not employ an Audit Committee - While not being legally obligated to
have an audit committee, it is management's view that such a committee,
including a financial expert member, is an utmost important entity level control
over the Company's financial statement. Currently the Board of Directors acts in
the capacity of the Audit Committee.
2. We did not maintain proper segregation of duties for the preparation of our
financial statements - As of April 30, 2010 the majority of the preparation of
financial statements was carried out by one person. In addition, the Company
currently only has one officer and director having oversight on all
transactions. This has resulted in several deficiencies including:
A) Significant, non-standard journal entries were prepared and approved
by the same person.
B) Lack of control over preparation of financial statements and proper
application of accounting policies.
3. The information required to be disclosed in our SEC reports has not been
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms.
Accordingly, the Company concluded that these control deficiencies resulted in a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis by the
Company's internal controls. Under the rules promulgated by the US Securities
and Exchange Commission (the "SEC"), the term "material weakness" means a
deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of the registrant's annual or interim financial statements will not
be prevented or detected on a timely basis. A material weakness in internal
control over financial reporting does not imply that a material misstatement of
the financial statements has occurred, but rather, that there is a reasonable
possibility that a material misstatement could occur.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As a result of the reverse merger, our internal control over financial reporting
has changed.
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, 2009, as filed with the SEC on
October 29, 2009. The risk factors disclosed in our Annual Report on Form 10-K
for the fiscal year ended July 31, 2009, 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.
18
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On October 22, 2009, we sold 50,000 shares of common stock for $25,000 for
working capital purposes.
On December 11, 2009, we sold 150,000 shares of common stock for $30,000 for
working capital purposes.
On January 7, 2010, we sold 100,000 shares of common stock for $20,000 for
working capital purposes.
On January 13, 2010, we sold 50,000 shares of common stock for $10,000 for
working capital purposes.
On January 27, 2010, we sold 300,000 shares of common stock for $60,000 for
working capital purposes.
On January 28, 2010, we sold 500,000 shares of common stock for $100,000 for
working capital purposes.
On March 22, 2010, we sold 100,000 shares of common stock for $25,000 for
working capital purposes.
On April 27, 2010, we sold 100,000 shares of common stock for $25,000 for
working capital purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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
19
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.
Date: June 21, 2010 /s/ Lisa Hamilton
---------------------------------------
By: Lisa Hamilton
(Executive Vice President and
Chief Financial Officer)
20