SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB/A-2
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2006
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________
Commission file number 333-116890
BASELINE OIL & GAS CORP.
----------------------------------------------------------
(Exact name of small business as specified in its charter)
Nevada 30-0226902
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation ororganization)
20022 Creek Farm, San Antonio, Texas 78259
(Address of principal executive offices)
(210) 481-5177
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 42,341,068 shares of Common
Stock, $.001 per share, as of May 12, 2006.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
Introductory Note
This amendment is being filed to update certain information regarding the
termination of our proposed transaction with Rex Energy (please see Item 1
hereto).
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
BASELINE OIL & GAS CORP.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2006 2005
------------ -----------
ASSETS
Cash $ 4,157,451 $ 206,489
Prepaid and other current assets 56,250 --
------------ -----------
Total current assets 4,213,701 206,489
Deferred debt issuance costs, net of amortization of
$59,298 and $0, respectively 266,841 326,139
Property acquisition deposit -- 1,750,000
Unproven leasehold acquisition costs 5,653,584 --
------------ -----------
Total assets $ 10,134,126 $ 2,282,628
============ ===========
LIABILITIES & STOCKHOLDERS'
EQUITY
Accounts payable $ 96,075 $ 98,726
Accrued liabilities 123,481 56,492
Derivative liability 605,644 -
Short term debt and current portion long
term debt, net of discount 339,941 298,384
------------ -----------
Total current liabilities 1,165,141 453,602
Long term debt, net of discount 1,094,000 809,333
------------ -----------
Total liabilities 2,259,141 1,262,935
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
10,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $.001 par value,
140,000,000 shares authorized,
40,521,068 and 20,270,000 shares issued
and outstanding, respectively 40,521 20,270
Additional paid-in-capital 27,747,182 18,791,179
Stock subscription receivable (1,206,925) --
Deficit accumulated in the development
Stage (18,705,793) (17,791,756)
------------ -----------
Total stockholders' equity 7,874,985 1,019,693
------------ -----------
Total liabilities & stockholders'
equity $ 10,134,126 $ 2,282,628
============ ===========
See accompanying summary of accounting policies
and notes to financial statements.
1
BASELINE OIL & GAS CORP.
(A Development Stage Company)
STATEMENTS OF EXPENSES
Three Month Periods Ended March 31, 2006 and 2005 and the Period from
June 29, 2004 (Inception) through March 31, 2006
(Unaudited)
Inception
Three Months Ended Through
March 31, March 31, March 31,
2006 2005 2006
----------------------------------------------------------
Selling, general and
administrative expenses $ 426,255 $ 25,451 $ 1,351,322
Share based compensation -- 5,935,194 16,499,670
Interest income (22,030) -- (22,030)
Interest expense 409,839 198 773,599
Loss on derivative liability 99,973 -- 99,973
Other expense -- -- 3,259
------------ ------------ ------------
Total expenses 914,037 5,960,843 18,705,793
------------ ------------ ------------
Net loss $ (914,037) $ (5,960,843) $(18,705,793)
============ ============ ============
Basic and diluted net loss
per common share $ (0.03) $ (6.24)
============ ============
Weighted average common
shares outstanding 35,557,242 955,822
See accompanying summary of accounting policies
and notes to financial statements.
2
BASELINE OIL & GAS CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Three Month Periods Ended March 31, 2006 and 2005 and the Period from
June 29, 2004 (Inception) through March 31, 2006
(Unaudited)
Three Months Ended Inception Through
March 31, 2006 March 31, 2005 March 31, 2006
----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (914,037) $ (5,960,843) $ (18,705,793)
Adjustments to reconcile net loss to
cash used in operating activities:
Share based compensation -- 5,935,194 16,499,670
Amortization of debt discount 342,517 -- 648,342
Amortization of debt issuance costs 59,298 -- 88,947
Unrealized (gain) loss on derivative
liability 99,973 -- 99,973
Changes in:
Prepaid assets and other assets (56,250) -- (56,250)
Accounts payable and accrued liabilities 64,541 25,649 221,052
------------- ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (403,958) -- (1,204,059)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property acquisition costs (3,903,584) -- (5,653,584)
------------- ------------- -------------
NET CASH FLOWS USED IN INVESTING
ACTIVITIES (3,903,584) -- (5,653,584)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on note payable (16,496) -- (16,496)
Proceeds from note payable -- -- 15,000
Proceeds from common stock
sales, net 8,275,000 725 8,291,590
Proceeds from convertible notes -- 305,000 2,725,000
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,258,504 305,725 11,015,094
------------- ------------- -------------
NET CHANGE IN CASH 3,950,962 305,725 4,157,451
Cash balance, beginning of period 206,489 -- --
------------- ------------- -------------
Cash balance, end of period $ 4,157,451 $ 305,725 $ 4,157,451
============= ============= =============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ -- $ -- $ --
Cash paid for income taxes $ -- $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Warrants issued in connection with
issuance of stock $ 505,671 $ -- $ 505,671
See accompanying summary of accounting policies
and notes to financial statements.
3
BASELINE OIL & GAS CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations and organization
Baseline Oil & Gas Corp. is an independent exploration and production company,
with operations presently focused in the Illinois Basin New Albany Shale play.
Pursuant to a definitive purchase agreement and subject to the satisfaction of
certain terms and conditions, Baseline anticipates acquiring significant oil and
natural gas assets from Rex Energy Operating Corp. ("Rex Energy") and its
affiliates. Such assets consist of operated and non-operated working interests
in leases located in Illinois, Indiana, Pennsylvania, West Virginia, New York,
Texas and New Mexico, and approximately 2,028 gross producing oil and natural
gas wells.
Basis of Presentation
The accompanying unaudited interim financial statements of Baseline have been
prepared in accordance with accounting principles generally accepted in the
United Sates of America and the rules of the Securities and Exchange Commission,
and should be read in conjunction with Baseline's audited 2005 annual financial
statements and notes thereto. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
financial position and the result 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 required in Baseline's 2005 annual financial statements
have been omitted.
Use of estimates
The preparation of these financial statements is in conformity with accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - ISSUANCE OF COMMON STOCK
On March 28, 2005, Baseline issued 17,006,000 shares as follows:
o 100,000 shares of common stock for services valued at $35,000 and is
included in share based compensation; and
o 16,906,000 shares of common stock valued at $5,917,100 for cash
proceeds of $16,906. The $5,900,194 of value in excess of the cash
proceeds received has been charged to expense as share based
compensation;
The services were provided by the founders in connection with non-specific
research into oil and gas business opportunities. The value of the shares issued
was determined by reference to the closing price of Baseline's stock on the date
of issuance.
On January 16, 2006, Baseline entered into a definitive Purchase Agreement
("Purchase Agreement") to purchase certain assets from Rex Energy and its
affiliates, and, the 50% membership in the New Albany -Indiana, LLC ("New
Albany") that we do not already own. Concurrently with the execution of the
4
Purchase Agreement, we entered into a Stock Agreement with certain individuals
designated by Rex Energy, pursuant to which we issued a total of 12,069,250
shares of our Common Stock valued at $1,206,925 or $0.10 per share. The issuance
of such shares is subject to our right of first refusal to repurchase all such
shares at a price $1.00 below any bona fide purchase offer for such shares made
by a third party. We have accounted for the aforementioned shares as a stock
subscription receivable.
On February 1, 2006 Baseline completed a private placement of $ 9,000,000 by
selling an aggregate of 8,181,819 shares of newly-issued Common Stock at $ 1.10
per share. As part of the transaction, Baseline issued warrants to the placement
agents ("Placement Warrants") to purchase an aggregate of 204,546 shares of
Common Stock at an exercise price of $ 1.32 per share. These warrants have a
three year term. The Company agreed to register the resale of the shares of
common stock issuable upon exercise of the Placement Warrants. If the Company
fails to timely register or if the registration does not become effective within
a certain time frame, the Company will be subject to certain financial
penalties. Such penalties shall equal $90,000 per each 30 days that the Company
is late, payable at the Company's election in either (i) cash or (ii) shares of
additional common stock having a market value equal to $90,000. Based on the
guidance in SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities" and EITF 00-19 "Accounting for Derivative Financial Instruments
Indexed to and Potentially Settled in a Company's Own Stock", Baseline concluded
the Placement Warrants qualified for derivative accounting. Baseline determined
the Placement Warrants had the attributes of a liability and therefore recorded
the fair value of the Placement Warrants on day one as a current liability and a
reduction of additional paid in capital as a cost of equity issuance. Baseline
is required to record the unrealized changes in fair value in subsequent periods
of the Placement Warrants as an adjustment to the current liability with
unrealized changes in the fair value of the derivative reflected in the
statement of expenses as "(Gain)/loss on derivative liability." The fair value
of the Placement Warrants was $505,671 at February 1, 2006. The fair value of
the Placement Warrants was determined utilizing the Black-Scholes stock option
valuation model. The significant assumptions used in the valuation were: the
exercise price as noted above; the market value of Baseline's common stock on
February 1, 2006, $2.50; expected volatility of 268%; risk free interest rate of
approximately 4.54%; and a term of three years. The fair value of the Placement
Warrants was $605,644 at March 31, 2006. The fair value of the Placement
Warrants was determined utilizing the Black-Scholes stock option valuation
model. The significant assumptions used in the valuation were: the exercise
price as noted above; the market value of Baseline's common stock on March 31,
2006, $3.02; expected volatility of 248%; risk free interest rate of
approximately 4.83%; and a term of two years and ten months. The resulting
unrealized change in fair value of $99,973 from February 1, 2006 was recorded in
the statement of expenses as a loss on derivative liability.
NOTE 3 - INVESTMENT IN JOINT VENTURE
On November 25, 2005, Baseline entered into a joint venture with Rex Energy, a
privately held company, for the purpose of acquiring a working interest in
certain leasehold interests located in the Illinois Basin, Indiana. The joint
venture will be conducted through New Albany, a Delaware limited liability
company. Pursuant to a Limited Liability Company Agreement, Baseline has a 50%
economic/voting interest in New Albany and Rex Energy and its affiliates has a
50% economic/voting interest in New Albany. Rex Energy Wabash, LLC, an affiliate
of Rex, is the Managing Member of New Albany and manages the day to day
operations of New Albany.
On November 15, 2005, New Albany entered into a Purchase and Sale Agreement with
Aurora Energy Ltd ("Aurora"), pursuant to which New Albany has agreed to
purchase from Aurora an undivided 48.75% working interest (40.7% net revenue
interest) in (i) certain oil, gas and mineral leases covering acreage in several
counties in Indiana and (ii) all of Aurora's rights under a certain Farmout and
Participation Agreement with a third party ("Farmout Agreement"). In addition,
at the closing of the transaction, New Albany was granted an option from Aurora,
exercisable by New Albany for a period of eighteen (18) months thereafter, to
acquire a fifty percent (50%) working interest in any and all acreage leased or
acquired by Aurora or its affiliates within certain other counties located in
Indiana, at a fixed price per acre.
5
On February 1,2006, New Albany completed its acquisition of certain oil and gas
leases and other rights from Aurora pursuant to the November 15,2005 Purchase
and Sale Agreement mentioned above. The total purchase price under the Aurora
Purchase Agreement and the grant of the Aurora Option was $ 10,500,000 of which
Baseline paid $5,250,000.
On March 6, 2006, New Albany acquired a 45% working interest (37.125% net
revenue interest) in certain oil, gas and mineral leases covering approximately
21,000 acres of prospective New Albany Shale acreage in Knox and Sullivan
Counties, Indiana. New Albany acquired its 45% working interest from Source Rock
Resources, Inc., for a total consideration of $ 735,000 (of which Baseline paid
half).
NOTE 4 - SUBSEQUENT EVENTS
On April 6, 2006, holders of Baseline's convertible promissory notes issued in
April of 2005, in the aggregate principal amount of $350,000, converted all of
such notes into 1,820,000 shares of Baseline's common stock.
On June 8th, 2006, Baseline entered into a Mutual Termination Agreement
("Termination Agreement") and Mutual Release Agreement ("Release Agreement")
with the Rex Parties pursuant to which we and the Rex Parties mutually
terminated (i) that certain purchase agreement between us dated January 16, 2006
and (ii) that certain stock agreement dated January 16, 2006 (as amended on
March 10, 2006).
Pursuant to the termination agreement, the Rex Parties surrendered for
cancellation of the aforementioned, 12,069,250 shares of our common stock,
previously issued to them pursuant to the Stock Agreement. In connection with
the surrender of these shares, the $1,206,925 of stock subscription receivable
relating to the shares was eliminated as an adjustment to equity. After giving
effect to the cancellation of such shares, we have 30,271,818 shares of common
stock outstanding as of the date hereof and options, warrants and convertible
promissory notes to purchase up to an additional 19,871,590 shares of our common
stock. Pursuant to the Release Agreement, we and the Rex Parties have agreed to
release and hold each other harmless from all Claims stemming from Controversies
(each as defined in the Release Agreement) arising out of our dealings with one
another.
6
Item 2. Management's Discussion and Analysis or Plan of Operation.
We were incorporated as a Nevada corporation in February 2004 under the
name of College Oak Investments, Inc., and changed our name to Baseline Oil &
Gas Corp. on January 17, 2006. We are a "shell company" as that term is defined
in Rule 405 promulgated under the Securities Act of 1933 (the "Securities Act")
and Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), and as such, are subject to rules of the Securities Exchange
Commission (SEC) applicable to shell companies. To date, we have only conducted
nominal operations and have only nominal assets.
On November 25, 2005, we entered into a joint venture with Rex Energy
Operating Corp. ("Rex Energy"), a privately held Delaware corporation, for the
purpose of acquiring working interests in leasehold interests in leasehold
acreage in the Illinois Basin located in Southern Indiana known to contain New
Albany Shale formations. Under this joint venture, we and Rex Energy formed New
Albany-Indiana, LLC, a Delaware limited liability company (the "LLC" or "New
Albany"). Pursuant to a Limited Liability Company Agreement (the "LLC
Agreement"), we have a 50% economic/voting interest in the LLC and certain
affiliates of Rex Energy have a 50% economic/voting interest in the LLC. Rex
Energy had originally been a member of the LLC but, on January 30, 2006, Rex
Energy withdrew as a member and assigned its membership interests to several of
its affiliates, namely Lance T. Shaner, Shaner & Hulburt Capital Partners
Limited Partnership, Rex Energy II Limited Partnership, Douglas Oil & Gas and
Rex Energy Wabash, LLC (collectively, the "LLC Assignees"). Rex Energy Wabash,
LLC ("Rex Wabash"), a Delaware limited liability company and an affiliate of Rex
Energy, is the Managing Member of the LLC and manages its day-to-day operations.
On February 1, 2006, the LLC completed its acquisition of certain oil and
gas leases and other rights from Aurora Energy Ltd., a Nevada corporation
("Aurora"), pursuant to a Purchase and Sale Agreement dated November 15, 2005
(the "Aurora Agreement"). Pursuant to the Aurora Agreement, the LLC purchased
from Aurora an undivided 48.75% working interest (40.7% net revenue interest) in
(i) certain oil, gas and mineral leases covering approximately 80,000 acres in
several counties in Indiana (the "Leases") and (ii) all of Aurora's rights under
a certain Farmout and Participation Agreement with a third party ("Farmout
Agreement"). In addition, the LLC was granted an option from Aurora (the
"Option"), exercisable by the LLC until August 1, 2007, to acquire a fifty
percent (50%) working interest in any and all acreage leased or acquired by
Aurora or its affiliates within certain other counties located in Indiana
(currently estimated to be 50,000 acres), at a fixed price of $25 per net acre.
The total purchase price for the acquisition of the working interests in the
Leases and the Farmout Agreement, together with the grant of the Option, was
$10,500,000. Of the total purchase price, we paid an aggregate of $5,250,000. We
obtained funding to pay our share of the LLC's purchase price for this
acquisition through private placements of (i) the convertible notes and stock in
November 2005 and (ii) shares of our common stock in February 2006. As described
above, on January 30, 2006, Rex Energy withdrew as a member from the LLC and
assigned its membership interests to the LLC Assignees.
On March 6, 2006, the LLC purchased from Source Rock Resources, Inc.
("Source Rock") a 45% working interest in certain oil, gas and mineral leases
covering approximately 21,000 acres in Knox and Sullivan Counties in Indiana,
which the Company believes contain New Albany Shale formation stratum. The
purchase price paid by the LLC was $735,000 (of which we paid half). Rex Energy
will be the operator for wells drilled on the acreage.
As previously reported, we signed a definitive Purchase Agreement dated as
of January 16, 2006 (the "Purchase Agreement") with Rex Energy, Rex Energy
Royalties Limited Partnership ("Rex Royalties"), PennTex Resources, L.P.
("PennTex Resources"), PennTex Resources Illinois, Inc. ("PennTex Illinois"),
Douglas Oil & Gas Limited Partnership ("Douglas O&G"), Douglas Westmoreland
7
Limited Partnership ("Douglas Westmoreland"), Midland Exploration Limited
Partnership ("Midland"), Rex Wabash, Lance T. Shaner and Benjamin W. Hulburt
(each sometimes referred to as a "Rex Seller" and collectively, the "Rex
Sellers"). For a more complete description of the Purchase Agreement, reference
is made to our Report on Form 8-K, filed with the Securities and Exchange
Commission on January 17, 2006, and a copy of the Purchase Agreement that was
filed as Exhibit 10.1 thereto, the terms of which are incorporated by reference
herein.
Pursuant to the Purchase Agreement, the Company has agreed to purchase the
following assets (the "Rex Assets") from the Rex Sellers: (i) all of the assets
of Douglas O&G, Midland, Douglas Westmoreland, PennTex Resources, Rex Royalties
and Rex Wabash, together with 100% of the outstanding capital stock of Rex
Energy and PennTex Illinois (which own working and royalty interests in oil and
gas leases as operator and non-operator, located in Illinois, Indiana,
Pennsylvania, West Virginia, Texas, New Mexico, Virginia and New York, that
contain approximately 2,028 gross producing oil and natural gas wells) and (ii)
Rex Sellers' 50% membership interest (the "New Albany Membership Interest") in
the LLC, together with all rights of the LLC in the Aurora Agreement.
The Closing of our purchase of the Rex Assets (the "Closing"), while
originally contemplated to close on or about May 1, 2006, will take place on the
third business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated by the
Purchase Agreement, but in no event later than June 30, 2006. As the Closing is
subject to the satisfaction of various terms and conditions including our
ability to obtain sufficient financing, there can be no assurances that the
Closing will occur and the transaction between us and the Rex Sellers will be
consummated.
The purchase price which the Company has agreed to pay for the Rex Assets
(other than the New Albany Membership Interest) is $73,169,999 in cash, subject
to certain adjustments as set forth in the Purchase Agreement. The purchase
price the Company has agreed to pay for the New Albany Membership Interest is
payable in shares of our common stock (approximately 5,103, 636 shares as of
March 31, 2006). Previously we had anticipated funding the acquisition through a
combination of senior secured debt and through the offering of shares of our
common stock. While we still intend to finance a significant portion of the
Purchase Price through a senior credit facility, we may or may not finance all
or a portion of the balance of the Purchase Price by selling shares of our
common stock. Management has continued to explore numerous other alternatives
with respect to financing the acquisition of the Rex Assets in an attempt to
maximize value for the Company's shareholders. There can be no assurances that
the financing necessary to consummate the Purchase Agreement will be available
or, if available, will be on acceptable terms.
A failure to complete the Rex Energy asset acquisition transaction could
negatively impact our future business prospects and our future financial
condition and results of operations. Such a failure would also likely adversely
affect the price for our common stock. If an asset acquisition transaction with
Rex Energy is completed, it may be on terms different than those described
herein.
Although we and the Rex Sellers have entered into a binding Purchase
Agreement for the proposed asset acquisition, the completion of the transactions
contemplated under the Purchase Agreement is subject to a number of conditions,
some of which may not be satisfied. If the acquisition transaction is not
completed, then we will be subject to several risks, including the following:
o If the asset acquisition transaction is not completed, then we would
own only passive equity interests in a joint venture and the
prospects for the growth of our business and increasing our revenues
would be impaired. Also, we would likely lose access to capital
resources to finance our operations and expected growth. In this
event, we would continue to face the risks that we currently face as
a small, independent company owning limited assets.
8
o Certain costs relating to the asset acquisition transaction (such as
legal, reserve engineering, accounting and financial advisory fees)
will be payable by us whether or not the transaction is completed.
o The current market price of our common stock may reflect an
assumption that the asset acquisition transaction will occur.
Therefore, a failure to complete the transaction would likely result
in a negative perception by the stock market of the Company
generally and a resulting decline in the market price of our common
stock.
As discussed above, we presently hold a 50% economic/voting membership
interest in New Albany-Indiana LLC, which holds working interests in leases
covering approximately 101,000 acres in the New Albany Shale area of the
Illinois Basin located in Southern Indiana. These properties were acquired by
the LLC from (i) Aurora Energy in February 2006 and (ii) Source Rock Resources
Inc. in March 2006. With respect to the properties acquired from Aurora, the
locations for the vertical wells that will serve as the first two horizontal
drilling units are presently being built and we plan to begin drilling the
vertical wells in the next two weeks. We expect to commence drilling the two
horizontal wells in early June, immediately following the drilling of the
vertical wells. The anticipated cost to the LLC of the 10-well pilot program is
estimated to be $4.6 million. With respect to the properties acquired from
Source Rock Resources, we anticipate that the LLC will commence drilling these
properties by December 2006.
In February 2006, we completed the sale of 8,181,818 shares of our common
stock at a price of $1.10 per share in privately-negotiated transactions with
accredited investors, raising $9.0 million in gross proceeds. We also entered
into a registration rights agreement with the purchasers whereby we agreed to
use our best efforts to file a registration statement covering re-sales of the
shares acquired in that offering within 60 days of its closing. Because we did
not file the registration statement registering for resale the shares issued in
this offering on or before April 2, 2006 (the 60th day following the closing of
the February private placement), we are required to issue to holders of such
common stock additional shares having a market value equal to $90,000 (1% of the
$9 million raised) for each 30 day period until the registration statement is
filed.
After payment to our placement agents of $725,000, the remaining proceeds
of $8,275,000 raised by the Company in the February private placement was
applied, or will be applied, as follows:
o $3,500,000 was applied to pay our share of the costs to fund the
LLC's purchase price obligations under the Aurora Agreement;
o $367,500 was applied to pay our share of the costs to fund the LLC's
purchase price for the Source Rock purchase described in Item 1
"Description of Business"; and
o $4,407,500 will be applied for our working capital purposes.
In the event that we do not purchase the assets from Rex Energy and its
affiliates, we believe that we would have sufficient capital to satisfy our cash
requirements over the next twelve months. However, our activities would be
significantly curtailed from what is planned, and our sources for liquidity and
capital resources in that event would not be known.
9
FORWARD LOOKING STATEMENTS
With the exception of historical information, certain matters discussed in
this Form 10-QSB are forward looking statements that involve risks and
uncertainties. Certain statements contained in this Form 10-QSB, including
statements which may contain words such as "could", "should", "expect",
"believe", "will", and similar expressions and statements relating to matters
that are not historical facts are forward-looking statements. Such statements
involve known and unknown risks and uncertainties which may cause our actual
results, performances or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Although we believe that our expectations are based
on reasonable assumptions, we can give no assurance that our goals will be
achieved. Important factors that could cause actual results to differ materially
from those in the forward-looking statements herein include, but are not limited
to, our ability to raise capital as and when required, the timing and extent of
changes in prices for oil and gas, the availability of drilling rigs,
competition, environmental risks, drilling and operating risks, uncertainties
about the estimates of reserves, the prices of goods and services, legislative
and government regulations, political and economic factors in countries in which
we operate and implementation of our capital investment program.
Item 3. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-15(e). In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
At the end of the period covered by this quarterly report, we carried out
an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon the foregoing, our Chief Executive Officer
and Chief Financial Officer concluded that, as of March 31, 2006, our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported on a timely basis.
During the quarter ended March 31, 2006, we increased our accounting staff
and improved the internal distribution of contracts in order to correct certain
weaknesses in our disclosure controls that were detected during the prior
quarter. There were no changes in our internal control over financial reporting
during the quarter ended March 31, 2006, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
10
PART II
OTHER INFORMATION
Item 6. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
- --------------------------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, by Chief Executive Officer
32.2 Certification pursuant to 18 U.S.C. 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, by Chief Financial Officer
(b) Reports on Form 8-K
During the period covered by this Report, we filed Reports on Form 8-K on
each of the following dates: (i) January 17, 2006 (announcing the signing of the
Purchase Agreement with the Rex Sellers), (ii) January 19, 2006 (announcing
appointment of Richard d'Abo to the Board and our name change), (iii) February
3, 2006 (announcing the closing of our February private offering) and (iv) March
7, 2006 (announcing Source Rock acquisition).
11
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.
BASELINE OIL & GAS CORP.
Date: October 6, 2006 By: /s/ Barrie M. Damson
----------------------------------------
Name: Barrie M. Damson
Title: Chairman, Chief Executive Officer
Date: October 6, 2006 By: /s/ Richard M. Cohen
----------------------------------------
Name: Richard M. Cohen
Title: Chief Financial Officer
12
INDEX TO EXHIBITS
Exhibit Number Description
- --------------------------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, by Chief Executive Officer
32.2 Certification pursuant to 18 U.S.C. 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, by Chief Financial Officer
13