Attached files
| file | filename |
|---|---|
| EX-21 - AMERICAN PETRO-HUNTER INC | v178643_ex21.htm |
| EX-32 - AMERICAN PETRO-HUNTER INC | v178643_ex32.htm |
| EX-14.1 - AMERICAN PETRO-HUNTER INC | v178643_ex14-1.htm |
| EX-31.2 - AMERICAN PETRO-HUNTER INC | v178643_ex31-2.htm |
| EX-31.1 - AMERICAN PETRO-HUNTER INC | v178643_ex31-1.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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x
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ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
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¨
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
File Number 0-22723
AMERICAN
PETRO-HUNTER, INC.
(Name of
registrant as specified in its charter)
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Nevada
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98-0171619
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
Number)
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17470
North Pacesetter Way
Scottsdale, AZ
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85255
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(480)
305-2052
(Registrant’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Act:
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None
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None
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(Title
of each class)
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(Name
of each exchange on which
registered)
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Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par
value
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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YES o
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NO x
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Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
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YES o
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NO x
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Indicate
by check mark whether the registrant (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.
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YES x
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NO o
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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 (§ 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).
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YES o
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NO o
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a small reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
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Accelerated
filer o
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Non-accelerated
filer o (do not check if
smaller reporting company)
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
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YES o
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NO x
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The
aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 2008 was $ 402,600.76 (computed by reference to the
last sale price of a share of the registrant’s common stock on that date as
reported by the Over the Counter Bulletin Board). For purposes of
this computation, it has been assumed that the shares beneficially held by
directors and officers of registrant were “held by affiliates”; this assumption
is not to be deemed to be an admission by such persons that they are affiliates
of registrant.
As of
March 23, 2010, there were outstanding 27,060,561 shares of registrant’s
common stock, par value $0.001 per share.
DOCUMENTS
INCORPORATED BY REFERENCE
Exhibits
incorporated by reference are referred under Part IV.
TABLE
OF CONTENTS
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Page
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PART
I
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ITEM
1 — BUSINESS
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1
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ITEM
1A — RISK FACTORS
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5
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ITEM
1B — UNRESOLVED STAFF COMMENTS
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11
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ITEM
2 — PROPERTIES
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11
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ITEM
3 — LEGAL PROCEEDINGS
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11
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ITEM
4 — RESERVED
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11
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PART
II
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ITEM
5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
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12
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ITEM
6 — SELECTED FINANCIAL DATA
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12
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ITEM
7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN
OF OPERATIONS
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12
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ITEM
7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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17
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ITEM
8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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17
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ITEM
9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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17
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ITEM
9A(T) —
CONTROLS AND PROCEDURES
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17
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ITEM
9B — OTHER INFORMATION
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18
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PART
III
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ITEM
10 — DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
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18
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ITEM
11 — EXECUTIVE COMPENSATION
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20
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ITEM
12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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21
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ITEM
13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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22
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ITEM
14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES
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23
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PART
IV
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ITEM
15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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24
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SIGNATURES
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26
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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INDEX
TO EXHIBITS
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EXHIBIT
31.1
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EXHIBIT
31.2
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EXHIBIT
32
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Background
American
Petro-Hunter Inc. (the “Company,” “we,” “us,” or “our”) is an oil and natural
gas exploration and production (E&P) Company with current projects in Kansas
and California. As of December 31, 2009, we had no producing wells in
California and one producing well in Kansas, and rights for the exploration and
production of oil and gas on more than an aggregate of 11,100 acres
in those states. Typically, our interest in a well arises from a
contract with another entity pursuant to which provide financial support for
certain costs incurred in the exploration and development of a project, which
may include land costs, seismic or other exploration, and test
drilling. In exchange, we typically receive an interest in the
proceeds from the project’s production.
We were
formed on January 24, 1996 pursuant to the laws of the State of Nevada under the
name Wolf Exploration, Inc. with a business plan to acquire properties for
precious metal exploration in the western United States. However,
after considering several properties, we determined the properties identified
were not suitable to fully implement an exploration and development project in
the United States. In August 1996, we changed our management team and
developed a new business plan to sell chemical products to the oil and gas
industry. In 1998, we sold that business and developed a new business
plan for the manufacturing and marketing of a dental color
analyzer. Our plans to manufacture and sell the analyzer were delayed
pending completion of research and development and by an action brought against
us by AEI Trucolor. After settling that action, in August 2001, we
changed our name to “American Petro-Hunter Inc.” and changed our focus to the
exploration and eventual exploitation of oil and gas.
On April
6, 2009, we entered into a Participation Agreement with Archer Exploration, Inc.
(“Archer”) to participate in the drilling for natural gas on a prospect located
in Stanislaus County, California. Pursuant to the agreement, we
agreed to pay to Archer $200,000 for all costs in connection with the
acquisition and operation of the prospect until completion of an initial test
well, which includes historic engineering and geological development of prospect
as well as costs for a seismic program required to finalize and define the
initial well location, in exchange for a 25% working interest in the
prospect. The assignment of the 25% interest will only be made upon
the successful completion of the initial test well. The seismic shoot
began on August 10, 2009. The results of the seismic indicate the
need to reprocess the data and potentially add additional seismic lines to
identify the test well locations.
On May 4,
2009, we entered into a binding Letter of Intent with S&W Oil & Gas, LLC
(“S&W”) to acquire a 25% working interest and 81.5% net revenue interest on
all commercial production in the 750-acre Poston Prospect #1 Lutters
oilfield in Southwest Trego County, Kansas, for a purchase price of $64,536
which we have paid. Management believes this prospect contains a
potential multi well program and that the available transportation and support
infrastructure will support a requisite storage tank battery at the
location. On May 13, 2009, drilling began on the prospect with a
planned total depth of 4,500 feet, and on May 19, 2009, we announced the well
had reached a total depth of 4,400 feet encountering both oil and gas over a 46
foot interval. The oil was excellent quality 35 degree light oil and
tests resulted in 65% oil cut with 10% gas and mud with no water. The
#1 Lutters Well was completed on June 16, 2009. The Company then made
a casing election set pipe following well logging. Oil production on
the #1 Lutters Well began on June 18, 2009 and on July 9, 2009, we announced
that 770 barrels of oil had been shipped from the #1 Lutters Well for the 11
days of production in June 2009. As of August 2009, we had begun
receiving revenue from this oilfield and have experienced average production of
approximately 70 to 75 barrels per day since August 2009. The next
well planned for the Poston Project was designated as the #2 Lutters Well, which
was drilled to a total depth of 4,320 feet where we encountered good oil shows
during drilling and in initial drill stem tests from a target
zone. After further drilling, we encountered good oil shows but we
did not complete drilling of the well for commercial production because of the
oil’s permeability and porosity. However, management believes the
project itself remains viable as there are additional offset opportunities for
this project.
1
On June
4, 2009, we entered into a Participation Agreement with Archer to participate in
the drilling for natural gas on a 668-acre prospect known as the Victory
Prospect located in Sacramento County, California. The Victory
Prospect is located approximately 20 miles south of the city of Sacramento and
is within the “Eastside Stratigraphic Trend” along the southern edge of the
Sacramento Valley which is within a larger region that contains some of the most
prolific gas reservoirs in the Sacramento Valley, accounting for over 400 BCF of
gas produced to date. The Victory Prospect is very close to an
existing pipeline offering a convenient, low cost and rapid tie-in to enable gas
sales. Pursuant to the agreement, we paid Archer $142,000 for costs
in connection with the acquisition and operation of the prospect until
completion of an initial test well in exchange for a 25% working interest in the
prospect. These costs included the prospect fee, re-payment of
pro-rata cost for the already-completed and interpreted 3D seismic shoot, as
well as geological and engineering costs. The assignment of the 25%
interest will only be made upon the successful completion of the initial test
well. In July 2009, a seismic shoot was completed on the
prospect. Based on the favorable results of the survey, we began
drilling the Archer-Myers #1 in this well location, which was drilled to a total
depth of 7,950 feet. In connection with drilling, we paid $158,150
for our working interest share of the drilling costs. The target
sands were encountered at 7,713 and contained gas shows. However,
after drilling, it was determined the gas volumes were insufficient to warrant
completion of the well as a viable producer.
On June
11, 2009, we entered into a binding Letter of Intent with S&W to participate
in the drilling for oil and natural gas in the 1,760-acre Brinkman Prospect
located in Clark County, Kansas, approximately 20 miles south of Dodge City
The project is proximal to historic oil production primarily from
Marmaton Limestone with secondary objectives in the Morrow Sand. Of
significance, over 49,000 barrels has been produced from a seismic anomaly to
the northeast of the chosen drilling location as well as Langdon Sands that has
produced cumulative gas production in excess of 1 BCF. We paid
S&W a total of $22,833.28 for land acquisition, leasing and seismic costs
for a 25% working interest in the prospect. In addition, we agreed to
pay $56,466.66 to cover dry-hole cased drilling costs associated with the first
exploratory oil well and 25% of all further going forward costs such as
completion and related infrastructure costs. If a successful
commercial well is established, we will receive an 81.5% net revenue interest in
the prospect. On July 28, 2009, drilling on the Brinkman Prospect
commenced and by August 14, 2009, drilling was completed. Several oil
and gas shows in the well were tested and deemed not commercially viable and was
plugged and abandoned. We will work with the engineering team to
determine if the prospect has any future potential for commercial hydrocarbon
production.
On June
19, 2009, we entered into a binding Letter of Intent with S&W to participate
in the drilling for oil and natural gas in the Rooney Project located in
southwestern Ford County, Kansas. The Rooney Project is located in
southwestern Ford County, Kansas 20 miles due south of Dodge
City. The project consists of 8 sections totaling 5,120 acres and the
large contiguous acreage block represents the first land position we acquired
that management considers to be a “core” land holding that could, with future
successful development, provide the basis for the requisite production necessary
to meet our intermediate and long term goals. The Rooney Project is
directly adjacent to the north edge of existing Morrow Sand oil and gas
production. An analog well designated as 3-30-25W in the Morrow pool
has cumulatively produced 344,448 barrels of oil and 933,622 MCF
gas. There are multiple wells within 2 miles of our acreage that have
produced in the 35,000 to 40,000 barrel range from discrete sand
channels. It is these sand channels that we were attempting to
identify through the completion of a 3D seismic shoot across the entire
acreage. Based on 3D seismic shoot we have developed a minimum of 5
target locations for new wells. Under the terms of the agreement with
S&W, we paid S&W a total of $113,333.12 for land acquisition and leasing
costs and agreed to pay up to $216,666.64 for the 3D seismic shoot costs that
include processing and interpretation as well as 50% of all further going
forward costs such as completion and related infrastructure costs. If
a successful commercial well is established, S&W will assign 50% of the
working interest and 81.5% net revenue interest in the prospect to
us. Drilling at the #24-1 Double H Oil Well site in the Rooney
Project commenced on November 12, 2009, and we successfully discovered both oil
and gas. On December 9th we announced the preliminary findings from
the initial drill stem tests at the #24-1 Double H Oil Well. A 12
foot pay zone was encountered that produced excellent quality 44 degree oil in
the tubing up to the surface from 5,400 feet of depth with fluid test results
returning 99% oil cut. Subsequent to our fiscal year ended December
31, 2010, on January 4, 2010, the #24-1 Double H well at the Rooney Prospect
commenced oil production and we have entered into an oil purchase contract with
the National Co-op Refinery Association of McPherson Kansas to purchase all
production at the Rooney lease at a premium to Kansas common oil prices of $3.85
per barrel above the daily price. This price premium reflects the
quality of the 44 degree oil being produced at Rooney. In February
2010, we began drilling a second well at the Rooney Project, the Shelor 23-2
Well, which is planned for a total depth of 4,500 feet. We plan to
drill 10 wells in the Rooney Prospect for the fiscal year 2010 which represents
an investment of approximately $2.5 million.
2
On August
25, 2009, we entered into a binding Letter of Intent with S&W to participate
in the drilling for oil in the Colby Prospect located in Thomas County,
Kansas. The 500 acre block has a well defined 3D seismic anomaly that
includes 7 potential zones to be tested. We agreed to pay S&W
cash in an amount to be determined for dry-hole cased drilling costs as well as
25% of all further going forward costs such as completion and related
infrastructure costs. If a successful commercial well is established,
S&W will assign 25% of the working interest and 81.5% net revenue interest
in the Prospect to us. On October 20, 2009, we began drilling
operations at the #1 Keck Well, and on November 4, 2009, drilling operations at
this well ended. While the well successfully encountered oil and gas
in the target horizons, there were no adequate reservoirs in order to complete
the well as a commercial producer. Management believes that Colby
remains a viable prospect, and further work and analysis will be required in
order to fully develop the Colby lease.
On
September 8, 2009, we entered into a Participation Agreement with Archer to
participate in the drilling for natural gas on the Wurster Gas Project, a
prospect located in Sacramento County, California, 20 miles south of the city of
Sacramento. The Wurster Prospect target lies due east of the Victory
Gas Project in which the Company also has a 25% working
interest. This project targets Winters sandstones which have, in the
Sacramento Valley, have accounted for over 400 BCF of gas production to-date
along the Upper Cretaceous Winters “Eastside Stratigraphic
Trend.” Pursuant to the Participation Agreement, we have paid Archer
$25,000 for costs in connection with the acquisition and operation of the
prospect up to the drilling of an initial test well in exchange for a 25%
working interest in the prospect. Further, we are responsible for and
have paid $125,000 for dry hole costs. We are also responsible for
25% of all expenditures in connection with the development and operation of the
prospect for drilling. We may elect not to participate in additional
expenditures in connection with the prospect at which time we will forfeit any
interests we have in the prospect. On October 8, 2009, we began
drilling operations at the Wurster Gas Prospect – Archer-Tsakopoulos #2 well,
which was planned as a 7,800 foot test for gas indicated by 3D seismic
tests. We increased our working interest in the Archer-Tsakopoulos #2
well up to 36% by purchasing an additional 11% through the payment of a pro-rata
share for the seismic reprocessing and drilling costs in the amount of
$66,000. On November 4, 2009, drilling at this well
ended. While the well successfully encountered oil and gas in the
target horizons, there were no adequate reservoirs in order to complete the well
as a commercial producer.
Our
Strategy
Our focus
is currently in locating and assessing potential acquisition targets, including
real property, oil and gas rights and oil and gas companies. We will
focus primarily on oil and gas properties within the U.S. and Canada including
exploration, secondary recovery and development projects. Each
project will be evaluated by our management based on sound geology, acceptable
risk levels and total capital requirements to develop. Our officers
and directors expect to travel to different locations throughout North America
to evaluate potential acquisitions. Further, our management will participate in
a variety of different conferences throughout 2009 to increase our exposure to
potential opportunities.
Our
ability to execute our strategy as outlined above is dependent on several
factors including but not limited to: (i) identifying potential acquisitions of
either assets or operational companies with prices, terms and conditions
acceptable to us; (ii) additional financing for capital expenditures,
acquisitions and working capital either in the form of equity or debt with terms
and conditions that would be acceptable to us; (iii) our success in developing
revenue, profitability and cash flow; (iv) the development of successful
strategic alliances or partnerships; and (v) the extent and associated efforts
and costs of federal, state and local regulations in each of the industries in
which we currently or plan to operate in. There are no assurances
that we will be successful in implementing our strategy as any negative result
of one of the factors alone or in combination could have a material adverse
effect on our business.
Major
Customers
For the
year ended December 31, 2009, sales from our Lutters #1 Well to National
Cooperative Refinery Association (NCRA) accounted for 100% of our oil and gas
production revenues.
3
Employees
As of
December 31, 2009, we had no employees. We currently utilize
temporary contract labor throughout the year to address business and
administrative needs.
Oil and
gas operations are subject to country-specific federal, state, and local laws
relating to the protection of the environment, including laws regulating removal
of natural resources from the ground and the discharge of materials into the
environment. Various permits from governmental bodies are required
for drilling operations to be conducted. Numerous governmental
departments issue rules and regulations to implement and enforce such laws that
are often complex and costly to comply with and that carry substantial
administrative, civil and possibly criminal penalties for failure to
comply. Under these laws and regulations, we may be liable for
remediation or removal costs, damages and other costs associated with releases
of hazardous materials (including oil) into the environment, and such liability
may be imposed on us even if the acts that resulted in the releases were in
compliance with all applicable laws at the time such acts were
performed.
The
Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)
contains provisions requiring the remediation of releases of hazardous
substances into the environment and imposes liability, without regard to fault
or the legality of the original conduct, on certain classes of persons including
owners and operators of contaminated sites where the release occurred and those
companies who transport, dispose of, or arrange for disposal of hazardous
substances released at the sites. Under CERCLA, such persons may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment, for damages
to natural resources and for the costs of certain health
studies. Third parties may also file claims for personal injury and
property damage allegedly caused by the release of hazardous
substances. Although we handle hazardous substances in the ordinary
course of business, we are not aware of any hazardous substance contamination
for which we may be liable.
Management
believes that we are in compliance in all material respects with the applicable
environmental laws and regulations to which we are subject. We do not
anticipate that compliance with existing environmental laws and regulations will
have a material effect upon our capital expenditures, earnings or competitive
position. To date, we have not been required to spend any material
amount on compliance with environmental regulations. However, changes
in the environmental laws and regulations, or claims for damages to persons,
property, natural resources or the environment, could result in substantial
costs and liabilities, and thus there can be no assurance that we will not incur
significant environmental compliance costs in the future.
4
ITEM 1A — RISK
FACTORS
With the exception of historical
facts stated herein, the matters discussed in this report on Form
10-K are “forward looking” statements that involve risks and uncertainties
that could cause actual results to differ materially from projected
results. Such “forward looking” statements include, but are not
necessarily limited to statements regarding anticipated levels of future
revenues and earnings from the operations of American Petro-Hunter, Inc. and its subsidiaries, (the
“Company,” “we,” “us” or “our”), projected costs and expenses related to our
operations, liquidity, capital resources, and availability of future equity
capital on commercially reasonable terms. Factors that could
cause actual results to differ materially are discussed below. We
disclaim any intent or obligation to publicly update these “forward
looking” statements, whether as a result of new information, future events
or otherwise.
Risks
Relating to Our Business
The
duration or severity of the current global economic downturn and disruptions in
the financial markets, and their impact on our Company, are
uncertain.
The oil
and gas industry generally is highly cyclical, with prices subject to worldwide
market forces of supply and demand and other influences. The recent
global economic downturn, coupled with the global financial and credit market
disruptions, have had a historic negative impact on the oil and gas
industry. These events have contributed to an unprecedented decline
in crude oil and natural gas prices, weak end markets, a sharp drop in
demand, increased global inventories, and higher costs of borrowing and/or
diminished credit availability. While we believe that the long-term
prospects for oil and gas remain bright, we are unable to predict the duration
or severity of the current global economic and financial
crisis. There can be no assurance that any actions we may take in
response to further deterioration in economic and financial conditions will be
sufficient. A protracted continuation or worsening of the global
economic downturn or disruptions in the financial markets could have a material
adverse effect on our business, financial condition or results of
operations.
We
have a history of losses which may continue, which may negatively impact our
ability to achieve our business objectives.
We have
incurred net losses and other comprehensive losses of $5,284,172 for the period
from January 24, 1996 (inception) to December 31, 2009. We cannot be
assured that we can achieve or sustain profitability on a quarterly or annual
basis in the future. Our operations are subject to the risks and
competition inherent in the establishment of a business
enterprise. There can be no assurance that future operations will be
profitable. We may not achieve our business objectives and the
failure to achieve such goals would have an adverse impact on us.
If
we are unable to obtain additional funding our business operations will be
harmed and if we do obtain additional financing our then existing shareholders
may suffer substantial dilution.
We will
require additional funds to initiate our oil and gas exploration activities, and
to take advantage of any available business
opportunities. Historically, we have financed our expenditures
primarily with proceeds from the sale of debt and equity securities, and bridge
loans from our officers and stockholders. In order to meet our
obligations or acquire an operating business, we will have to raise additional
funds. Obtaining additional financing will be subject to market
conditions, industry trends, investor sentiment and investor acceptance of our
business plan and management. These factors may make the timing,
amount, terms and conditions of additional financing unattractive or unavailable
to us. If we are not successful in achieving financing in the amount
necessary to further our operations, implementation of our business plan may
fail or be delayed.
Our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern, which may hinder our ability to obtain future
financing.
In their
report dated March 26, 2010, our independent auditors stated that our financial
statements for the fiscal year ended December 31, 2009 were prepared assuming
that we would continue as a going concern. Our ability to continue as
a going concern is an issue raised as a result of recurring losses from
operations. We continue to experience net operating
losses. Our ability to continue as a going concern is subject to our
ability to obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities. Our continued net
operating losses increase the difficulty in meeting such goals and there can be
no assurances that such methods will prove successful.
5
We
have a limited operating history and if we are not successful in growing our
business, then we may have to scale back or even cease our ongoing business
operations.
We have
yet to generate positive earnings from our current business strategy and there
can be no assurance that we will ever operate profitably. Our Company
has a limited operating history in the business of oil and gas exploration and
must be considered in the development stage. Our success
significantly depends on successful acquisition and subsequent exploration
activities. Our operations will be subject to all the risks inherent
in the establishment of a developing enterprise and the uncertainties arising
from the absence of a significant operating history. We may be unable
to locate recoverable reserves or operate on a profitable basis. We
are in the development stage and potential investors should be aware of the
difficulties normally encountered by enterprises in the development
stage. If our business plan is not successful, and we are not able to
operate profitably, investors may lose some or all of their investment in our
Company.
We
are subject to new corporate governance and internal control reporting
requirements, and our costs related to compliance with, or our failure to comply
with existing and future requirements, could adversely affect our
business.
We may
face new corporate governance requirements under the Sarbanes-Oxley Act of 2002,
as well as new rules and regulations subsequently adopted by the SEC and the
Public Company Accounting Oversight Board. These laws, rules and regulations
continue to evolve and may become increasingly stringent in the
future. We are required to evaluate our internal control over
financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404 “). We are a non-accelerated filer as defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended. Section
404 requires us to include an internal control report with our Annual Report on
Form 10-K. That report must include management’s assessment of the
effectiveness of our internal control over financial reporting as of the end of
the fiscal year. This report must also include disclosure of any
material weaknesses in internal control over financial reporting that we have
identified. Failure to comply, or any adverse results from such
evaluation could result in a loss of investor confidence in our financial
reports and have an adverse effect on the trading price of our
securities. Furthermore, an attestation report on our internal
controls from our independent registered public accounting firm is required as
part of our annual report for the fiscal year ending December 31,
2009. We strive to continuously evaluate and improve our control
structure to help ensure that we comply with Section 404 of the Sarbanes-Oxley
Act. The financial cost of compliance with these laws, rules and
regulations is expected to remain substantial. We cannot assure you
that we will be able to fully comply with these laws, rules and regulations that
address corporate governance, internal control reporting and similar
matters. Failure to comply with these laws, rules and regulations
could materially adversely affect our reputation, financial condition and the
value of our securities.
Risks
Related to our Oil and Gas Exploration
Our
future operating revenue is dependent upon the performance of our
properties.
Our
future operating revenue depends upon our ability to profitably operate our
existing properties by drilling and completing wells that produce commercial
quantities of oil and gas and our ability to expand our operations through the
successful implementation of our plans to explore, acquire and develop
additional properties. The successful development of oil and gas properties
requires an assessment of potential recoverable reserves, future oil and gas
prices, operating costs, potential environmental and other liabilities and other
factors. Such assessments are necessarily inexact. No
assurance can be given that we can produce sufficient revenue to operate our
existing properties or acquire additional oil and gas producing properties and
leases. We may not discover or successfully produce any recoverable
reserves in the future, or we may not be able to make a profit from the reserves
that we may discover. In the event that we are unable to produce
sufficient operating revenue to fund our future operations, we will be forced to
seek additional, third-party funding, if such funding can be
obtained. Such options would possibly include debt financing, sale of
equity interests in our Company, joint venture arrangements, or the sale of oil
and gas interests. If we are unable to secure such financing on a
timely basis, we could be required to delay or scale back our
operations. If such unavailability of funds continued for an extended
period of time, this could result in the termination of our operations and the
loss of an investor’s entire investment.
6
We
own rights to oil properties that have not yet been developed.
We own
rights to oil and gas properties that have limited or no
development. There are no guarantees that our properties will be
developed profitably or that the potential oil and gas resources on the property
will produce as expected if they are developed.
Title
to the properties in which we have an interest may be impaired by title
defects.
Our
general policy is to obtain title opinions on significant properties that we
drill or acquire. However, there is no assurance that we will not
suffer a monetary loss from title defects or title
failure. Additionally, undeveloped acreage has greater risk of title
defects than developed acreage. Generally, under the terms of the
operating agreements affecting our properties, any monetary loss is to be borne
by all parties to any such agreement in proportion to their interests in such
property. If there are any title defects or defects in assignment of
leasehold rights in properties in which we hold an interest, we will suffer a
financial loss.
We
are subject to risks arising from the failure to fully identify potential
problems related to acquired reserves or to properly estimate those
reserves.
Although
we perform a review of the acquired properties that we believe is consistent
with industry practices, such reviews are inherently incomplete. It
generally is not feasible to review in depth every individual property involved
in each acquisition. Ordinarily, we will focus our review efforts on
the higher-value properties and will sample the remainder, and depend on the
representations of previous owners. However, even a detailed review
of records and properties may not necessarily reveal existing or potential
problems, nor will it permit a buyer to become sufficiently familiar with the
properties to assess fully their deficiencies and
potential. Inspections may not always be performed on every well, and
environmental problems, such as ground water contamination, are not necessarily
observable even when an inspection is undertaken. Even when problems
are identified, we often assume certain environmental and other risks and
liabilities in connection with acquired properties. There are
numerous uncertainties inherent in estimating quantities of proved oil reserves
and actual future production rates and associated costs with respect to acquired
properties, and actual results may vary substantially from those assumed in the
estimates.
If
we are unable to successfully recruit qualified managerial and field personnel
having experience in oil and gas exploration, we may not be able to execute on
our business plan.
In order
to successfully implement and manage our business plan, we will be dependent
upon, among other things, successfully recruiting qualified managerial and field
personnel having experience in the oil and gas exploration
business. Competition for qualified individuals is
intense. There can be no assurance that we will be able to find,
attract and retain existing employees or that we will be able to find, attract
and retain qualified personnel on acceptable terms.
Even
if we are able to discover and produce oil or natural gas, the potential
profitability of oil and gas ventures depends upon factors beyond the control of
our Company.
The
potential profitability of oil and gas properties is dependent upon many factors
beyond our control. For instance, world prices and markets for oil
and gas are unpredictable, highly volatile, potentially subject to governmental
fixing, pegging, controls or any combination of these and other factors, and
respond to changes in domestic, international, political, social and economic
environments. Additionally, due to worldwide economic uncertainty,
the availability and cost of funds for production and other expenses have become
increasingly difficult, if not impossible, to project. These changes
and events may materially affect our future financial performance. These factors
cannot be accurately predicted and the combination of these factors may result
in our Company not receiving an adequate return on invested
capital.
7
Drilling
for oil and gas involves inherent risks that may adversely affect our future
results of operations and financial condition.
Drilling
for oil and gas involves numerous risks, including the risk that we will not
encounter commercially productive oil and gas reservoirs. The wells
we drill or participate in may not be productive and we may not recover all or
any portion of our investment in those wells. The seismic data and
other technologies we use do not allow us to know conclusively prior to drilling
a well that crude or natural gas is present or may be produced economically. The
costs of drilling, completing and operating wells are often uncertain, and
drilling operations may be curtailed, delayed or canceled as a result of a
variety of factors including, but not limited to:
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•
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unexpected
drilling conditions;
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•
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pressure
or irregularities in formations;
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•
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equipment
failures or accidents;
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•
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mechanical
difficulties, such as lost or stuck oil field drilling and service
tools;
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•
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fires,
explosions, blowouts and surface
cratering;
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•
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uncontrollable
flows of oil and formation water;
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environmental
hazards, such as oil spills, pipeline ruptures and discharges of toxic
gases;
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other
adverse weather conditions; and
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•
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increase
in the cost of, or shortages or delays in the availability of, drilling
rigs and equipment.
|
Certain
future drilling activities may not be successful and, if unsuccessful, this
failure could have an adverse effect on our future results of operations and
financial condition. While all drilling, whether developmental or
exploratory, involves these risks, exploratory drilling involves greater risks
of dry holes or failure to find commercial quantities of
hydrocarbons.
Our
oil and gas operations involve substantial costs and are subject to various
economic risks.
Our oil
and gas operations are subject to the economic risks typically associated with
exploration, development and production activities, including the necessity of
significant expenditures to locate and acquire producing properties and to drill
exploratory wells. The cost and length of time necessary to produce
any reserves may be such that it will not be economically viable. In
conducting exploration and development activities, the presence of unanticipated
pressure or irregularities in formations, miscalculations or accidents may cause
our exploration, development and production activities to be
unsuccessful. In addition, the cost and timing of drilling,
completing and operating wells is often uncertain. We also face the
risk that the oil and gas reserves may be less than anticipated, that we will
not have sufficient funds to successfully drill on the property, that we will
not be able to market the oil and gas due to a lack of a market and that
fluctuations in the prices of oil will make development of those leases
uneconomical. This could result in a total loss of our
investment.
A
substantial or extended decline in oil and gas prices may adversely affect our
business, financial condition, cash flow, liquidity or results of operations as
well as our ability to meet our capital expenditure obligations and financial
commitments to implement our business plan.
Any
revenues, cash flow, profitability and future rate of growth we achieve will be
greatly dependent upon prevailing prices for oil and gas. Our ability
to maintain or increase our borrowing capacity and to obtain additional capital
on attractive terms is also expected to be dependent on oil and gas
prices. Historically, oil and gas prices and markets have been
volatile and are likely to continue to be volatile in the
future. Prices for oil and gas are subject to potentially wide
fluctuations in response to relatively minor changes in supply of and demand for
oil and gas, market uncertainty, and a variety of additional factors beyond our
control. Those factors include:
8
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the
domestic and foreign supply of oil and natural
gas;
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the
ability of members of the Organization of Petroleum Exporting Countries
and other producing countries to agree upon and maintain oil prices and
production levels;
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political
instability, armed conflict or terrorist attacks, whether or not in oil or
natural gas producing regions;
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•
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the
level of consumer product demand;
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•
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the
growth of consumer product demand in emerging markets, such as China and
India;
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weather
conditions, including hurricanes and other natural occurrences that affect
the supply and/or demand of oil and natural
gas;
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domestic
and foreign governmental regulations and other
actions;
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•
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the
price and availability of alternative
fuels;
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the
price of foreign imports;
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the
availability of liquid natural gas imports;
and
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worldwide
economic conditions.
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These
external factors and the volatile nature of the energy markets make it difficult
to estimate future prices of oil and natural gas. Lower oil and
natural gas prices may not only decrease our revenues on a per unit basis, but
may also reduce the amount of oil we can produce economically, if
any. A substantial or extended decline in oil and natural gas prices
may materially affect our future business, financial condition, results of
operations, liquidity and borrowing capacity. While our revenues may
increase if prevailing oil and gas prices increase significantly, exploration
and production costs and acquisition costs for additional properties and
reserves may also increase.
Competition
in the oil and gas industry is highly competitive and there is no assurance that
we will be successful in acquiring viable leases.
The oil
and gas industry is intensely competitive. We compete with numerous
individuals and companies, including many major oil and gas companies which have
substantially greater technical, financial and operational resources and
staffs. Accordingly, there is a high degree of competition for
desirable oil and gas leases, suitable properties for drilling operations and
necessary drilling equipment, as well as for access to funds. We
cannot predict if the necessary funds can be raised or that any projected work
will be completed.
Oil
and gas operations are subject to comprehensive regulation which may cause
substantial delays or require capital outlays in excess of those anticipated
causing an adverse effect on our Company.
Oil and
gas operations are subject to country-specific federal, state, and local laws
relating to the protection of the environment, including laws regulating removal
of natural resources from the ground and the discharge of materials into the
environment. Oil and gas operations are also subject to
country-specific federal, state, and local laws and regulations which seek to
maintain health and safety standards by regulating the design and use of
drilling methods and equipment. Various permits from governmental
bodies are required for drilling operations to be conducted and no assurance can
be given that such permits will be received. Environmental standards
imposed by federal, state, provincial, or local authorities may be changed and
any such changes may have material adverse effects on our
activities. Moreover, compliance with such laws may cause substantial
delays or require capital outlays in excess of those anticipated, thus causing
an adverse effect on us. Additionally, we may be subject to liability
for pollution or other environmental damages. To date, we have not
been required to spend any material amount on compliance with environmental
regulations. However, we may be required to do so in the future and
this may affect our ability to expand or maintain our operations.
9
The
unavailability or high cost of drilling rigs, equipment, supplies, personnel and
oil field services could adversely affect our ability to execute our exploration
and development plans on a timely basis and within our budget.
Our
industry is cyclical and, from time to time, there is a shortage of drilling
rigs, equipment, supplies or qualified personnel. During these
periods, the costs and delivery times of rigs, equipment and supplies are
substantially greater. In addition, the demand for, and wage rates
of, qualified drilling rig crews rise as the number of active rigs in service
increases. As a result of increasing levels of exploration and
production in response to strong prices of oil and natural gas, the demand for
oilfield services and equipment has risen, and the costs of these services and
equipment are increasing. If the unavailability or high cost of
drilling rigs, equipment, supplies or qualified personnel were particularly
severe in areas where we operate, we could be materially and adversely
affected.
We
depend on the skill, ability and decisions of third party operators to a
significant extent.
The
success of the drilling, development and production of the oil properties in
which we have or expect to have a working interest is substantially dependent
upon the decisions of such third-party operators and their diligence to comply
with various laws, rules and regulations affecting such
properties. The failure of any third-party operator to make
decisions, perform their services, discharge their obligations, deal with
regulatory agencies, and comply with laws, rules and regulations, including
environmental laws and regulations in a proper manner with respect to properties
in which we have an interest could result in material adverse consequences to
our interest in such properties, including substantial penalties and compliance
costs. Such adverse consequences could result in substantial
liabilities to us or reduce the value of our properties, which could negatively
affect our results of operations.
Exploration
and production activities are subject to certain environmental regulations which
may prevent or delay the commencement or continuation of our
operations.
In
general, our future exploration and production activities are subject to certain
country-specific federal, state and local laws and regulations relating to
environmental quality and pollution control. Such laws and
regulations increase the costs of these activities and may prevent or delay the
commencement or continuation of a given operation. Compliance with
these laws and regulations has not had a material effect on our operations or
financial condition to date. Specifically, we will be subject to
legislation regarding emissions into the environment, water discharges and
storage and disposition of hazardous wastes. In addition, legislation
has been enacted which requires well and facility sites to be abandoned and
reclaimed to the satisfaction of U.S. state authorities. However,
such laws and regulations are frequently changed and we are unable to predict
the ultimate cost of compliance. Generally, environmental requirements do not
appear to affect us any differently or to any greater or lesser extent than
other companies in the industry. We believe that our current
operations comply, in all material respects, with all applicable environmental
regulations.
Risks
Related to our Common Stock
Our common stock may be subject to
the penny stock rules which may make it more difficult to sell our common
stock.
The
Securities and Exchange Commission has adopted regulations which generally
define a “penny stock” to be any equity security that has a market price, as
defined, less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Our securities may be covered
by the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors such as, institutions with assets in excess of $5,000,000
or an individual with net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with his or her spouse. For
transactions covered by this rule, the broker-dealers must make a special
suitability determination for the purchase and receive the purchaser’s written
agreement of the transaction prior to the sale. Consequently, the
rule may affect the ability of broker-dealers to sell our securities and also
affect the ability of our stockholders to sell their shares in the secondary
market.
10
Our
management and stockholders may lose control of the Company as a result of a
merger or acquisition.
We may
consider an acquisition in which we would issue as consideration for the
business opportunity to be acquired an amount of our authorized but unissued
common stock that would, upon issuance, represent the great majority of the
voting power and equity of the Company. As a result, the acquiring
company’s stockholders and management would control the Company, and our current
management may be replaced by persons unknown at this time. Such a
merger would result in a greatly reduced percentage of ownership of the Company
by its current stockholders.
We
have historically not paid dividends and do not intend to pay
dividends.
We have
historically not paid dividends to our stockholders and management does not
anticipate paying any cash dividends on our common stock to our stockholders for
the foreseeable future. We intend to retain future earnings, if any,
for use in the operation and expansion of our business.
A
limited public trading market exists for our common stock, which makes it more
difficult for our stockholders to sell their common stock in the public
markets.
Although
our common stock is quoted on the OTCBB under the symbol “AAPH,” there is a
limited public market for our common stock. No assurance can be given
that an active market will develop or that a stockholder will ever be able to
liquidate its shares of common stock without considerable delay, if at
all. Many brokerage firms may not be willing to effect transactions
in the securities. Even if a purchaser finds a broker willing to
effect a transaction in these securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs may
exceed the selling price. Furthermore, our stock price may be
impacted by factors that are unrelated or disproportionate to our operating
performance. These market fluctuations, as well as general economic,
political and market conditions, such as recessions, interest rates or
international currency fluctuations may adversely affect the market price and
liquidity of our common stock.
None.
Facilities
Our
corporate headquarters are located at 17470 North Pacesetter Way, Scottsdale,
AZ 85255.
None.
Not
applicable.
11
Market
Information
Our
common stock is traded on the Over the Counter Bulletin Board under the symbol
AAPH.
The
following is the range of high and low bid prices for our common stock for the
periods indicated. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not represent actual
transactions.
|
Fiscal 2009
|
High
|
Low
|
||||||
|
First
Quarter (March 31, 2009)
|
$ | .40 | $ | .02 | ||||
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Second
Quarter (June 30, 2009)
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$ | .59 | $ | .25 | ||||
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Third
Quarter (September 30, 2009)
|
$ | .55 | $ | .35 | ||||
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Fourth
Quarter (December 31, 2009)
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$ | .68 | $ | .22 | ||||
|
Fiscal 2008
|
High
|
Low
|
||||||
|
First
Quarter (March 31, 2008)
|
$ | .15 | $ | .06 | ||||
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Second
Quarter (June 30, 2008)
|
$ | .06 | $ | .04 | ||||
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Third
Quarter (September 30, 2008)
|
$ | .07 | $ | .03 | ||||
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Fourth
Quarter (December 31, 2008)
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$ | .08 | $ | .03 | ||||
The
closing price for our common stock on December 31, 2009 was $0.58.
Stockholders
As of
March 23, 2010, there were 27,060,561 shares of common stock issued and
outstanding held by 79 stockholders of record (not including street name
holders).
Dividends
We have
not paid dividends to date and do not anticipate paying any dividends in the
foreseeable future. Our Board of Directors intends to follow a policy of
retaining earnings, if any, to finance our growth. The declaration
and payment of dividends in the future will be determined by our Board of
Directors in light of conditions then existing, including our earnings,
financial condition, capital requirements and other factors.
Not
applicable.
The
following discussion should be read in conjunction with our consolidated
financial statements and notes thereto included elsewhere in this
Report. Forward looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. Forward-looking statements
are based upon estimates, forecasts, and assumptions that are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control and many of which, with
respect to future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and could cause actual
results to differ materially from those expressed in any forward-looking
statements made by us, or on our behalf. We disclaim any obligation
to update forward-looking statements.
12
Background
We are an
oil and natural gas exploration and production (E&P) Company with current
projects in Kansas and California. As of December 31, 2009, we had no
producing wells in California and one producing wells in Kansas, and rights for
the exploration and production of oil and gas on more than an aggregate
of 11,100 acres in those states. Typically, our interest
in a well arises from a contract with another entity pursuant to which provide
financial support for certain costs incurred in the exploration and development
of a project, which may include land costs, seismic or other exploration, and
test drilling. In exchange, we typically receive an interest in the
proceeds from the project’s production.
We were
formed on January 24, 1996 pursuant to the laws of the State of Nevada under the
name Wolf Exploration, Inc. with a business plan to acquire properties for
precious metal exploration in the western United States. However,
after considering several properties, we determined the properties identified
were not suitable to fully implement an exploration and development project in
the United States. In August 1996, we changed our management team and
developed a new business plan to sell chemical products to the oil and gas
industry. In 1998, we sold that business and developed a new business
plan for the manufacturing and marketing of a dental color
analyzer. Our plans to manufacture and sell the analyzer were delayed
pending completion of research and development and by an action brought against
us by AEI Trucolor. After settling that action, in August 2001, we
changed our name to “American Petro-Hunter Inc.” and changed our focus to the
exploration and eventual exploitation of oil and gas.
On April
6, 2009, we entered into a Participation Agreement with Archer Exploration, Inc.
(“Archer”) to participate in the drilling for natural gas on a prospect located
in Stanislaus County, California. Pursuant to the agreement, we
agreed to pay to Archer $200,000 for all costs in connection with the
acquisition and operation of the prospect until completion of an initial test
well in exchange for a 25% working interest in the prospect. The
assignment of the 25% interest will only be made upon the successful completion
of the initial test well. The seismic shoot began on August 10,
2009. The results of the seismic indicate the need to reprocess the
data and potentially add additional seismic lines to identify the test well
locations.
On May 4,
2009, we entered into a binding Letter of Intent with S&W Oil & Gas, LLC
(“S&W”) to acquire a 25% working interest and 81.5% net revenue interest in
the 750-acre Poston Prospect #1 Lutters oilfield in Southwest Trego County,
Kansas, for a purchase price of $64,536. On May 13, 2009, drilling
began on the prospect and the #1 Lutters Well was completed on June 16,
2009. Oil production on the #1 Lutters Well began on June 18, 2009
and as of August 2009, we have begun receiving revenue from this oilfield with
average production of approximately 70 to 75 barrels per day since August
2009. The next well planned for the Poston Project was designated as
the #2 Lutters Well. Preliminary drilling at #2 Lutters Well tested
positive for oil. After further drilling, we encountered good oil
shows but we did not complete drilling of the well for commercial production
because of the oil’s permeability and porosity. However, the project
itself remains viable as there are additional offset opportunities for this
project.
On June
4, 2009, we entered into a Participation Agreement with Archer to participate in
the drilling for natural gas on a 668-acre prospect located in Sacramento
County, California. Pursuant to the agreement, we agreed to pay to
Archer $142,000 for all costs in connection with the acquisition and operation
of the prospect until completion of an initial test well in exchange for a 25%
working interest in the prospect. The assignment of the 25% interest
will only be made upon the successful completion of the initial test
well. In July 2009, a seismic shoot was completed on the
prospect. Based on the favorable results of the survey, we began
drilling in this well location. However, after drilling, although we
encountered good gas shows, the gas volumes were insufficient to warrant
completion of the well as a viable producer.
On June
11, 2009, we entered into a binding Letter of Intent with S&W to participate
in the drilling for oil and natural gas in the 1,760-acre Brinkman Prospect
located in Clark County, Kansas. We agreed to pay S&W a total of
$22,833.28 for land acquisition, leasing and seismic costs for a 25% working
interest in the prospect. In addition, we agreed to pay $56,466.66 to
cover dry-hole cased drilling costs associated with the first exploratory oil
well and 25% of all further going forward costs such as completion and related
infrastructure costs. If a successful commercial well is established,
the Company will receive an 81.5% net revenue interest in the
prospect. On July 28, 2009, drilling on the Brinkman Prospect
commenced and by August 14, 2009, drilling was completed. Several oil
and gas shows in the well were tested and deemed not commercially
viable. We will work with the engineering team to determine if the
prospect has any future potential for commercial hydrocarbon
production.
13
On June
19, 2009, we entered into a binding Letter of Intent with S&W to participate
in the drilling for oil and natural gas in the Rooney Prospect located in
southwestern Ford County, Kansas. The prospect consists of 8 sections
totaling 5,120 acres. We agreed to pay S&W a total of $113,333.12
for land acquisition and leasing costs and up to $216,666.64 for the 3D seismic
shoot costs that include processing and interpretation as well as 50% of all
further going forward costs such as completion and related infrastructure
costs. If a successful commercial well is established, S&W will
assign 50% of the working interest and 81.5% net revenue interest in the
prospect to us. Drilling at the #24-1 Double H Oil Well site commenced on
November 12, 2009 and we successfully discovered both oil and
gas. Subsequent to our fiscal year ended December 31, 2009, on
January 4, 2010, the #24-1 Double H well at the Rooney Prospect commenced oil
production, and we have entered into an oil purchase contract with the National
Co-op Refinery Association of McPherson Kansas to purchase all production at the
Rooney lease at a premium to Kansas common oil prices of $3.85 per barrel above
the daily price. This price premium reflects the quality of the 44
degree oil being produced at Rooney. In February 2010, we began
drilling a second well, the Shelor 23-2 Well. We plan to drill one
well each month in the Rooney Prospect for the fiscal year 2010.
On August
25, 2009, we entered into a binding Letter of Intent with S&W to participate
in the drilling for oil in the Colby Prospect located in Thomas County,
Kansas. We agreed to pay S&W cash in an amount to be determined
for dry-hole cased drilling costs as well as 25% of all further going forward
costs such as completion and related infrastructure costs. If a
successful commercial well is established, S&W will assign 25% of the
working interest and 81.5% net revenue interest in the Prospect to
us. On October 20, 2009, we began drilling operations at the #1 Keck
Well with a planned well depth of 5,000 feet, and on November 4, 2009, drilling
operations at this well ended. While the well successfully
encountered oil and gas in the target horizons, there were no adequate
reservoirs in order to complete the well as a commercial
producer. The Colby remains a viable prospect, and further work and
analysis will be required in order to fully develop the Colby
lease.
On
September 8, 2009, we entered into a Participation Agreement with Archer to
participate in the drilling for natural gas on a prospect located in Sacramento
County, California. Pursuant to the Agreement, we agreed to pay to
Archer $25,000 for all costs in connection with the acquisition and operation of
the prospect up to the drilling of an initial test well in exchange for a 25%
working interest in the prospect. Further, we are responsible for its
proportionate share of the dry hole costs, which is $125,000. We are
also responsible for 25% of all expenditures in connection with the development
and operation of the prospect for drilling. We may elect not to
participate in additional expenditures in connection with the prospect at which
time we will forfeit any interests it has in the prospect. On October
8, 2009, we began drilling operations at the Wurster Gas Prospect –
Archer-Tsakopoulos #2 well. We increased our working interest in the
Archer-Tsakopoulos #2 well up to 36% by purchasing an additional 11% through the
payment of a pro-rata share for the seismic reprocessing and drilling costs in
the amount of $66,000. On November 4, 2009, drilling at this well
ended. While the well successfully encountered oil and gas in the
target horizons, there were no adequate reservoirs in order to complete the well
as a commercial producer.
Development
Our
future operations are dependent upon the identification and successful
completion of additional long-term or permanent equity financings, the support
of creditors and shareholders, and, ultimately, the achievement of profitable
operations. There can be no assurances that we will be successful,
which would in turn significantly affect our ability to meet our business
objectives. If not, we will likely be required to reduce operations
or liquidate assets. We will continue to evaluate our projected
expenditures relative to our available cash and to seek additional means of
financing in order to satisfy our acquisition, working capital and other cash
requirements.
We
continue to operate with very limited administrative support, and our current
officers and directors continue to be responsible for many duties to preserve
our working capital. We expect no significant changes in the number
of employees over the next 12 months.
14
We have
initiated drilling operations on several prospects, and as such we may have some
significant ongoing capital expenditures. We believe that, with our
current efforts to raise capital, we will have sufficient cash resources to
satisfy our needs over the next 12 months. Our ability to satisfy
cash requirements thereafter will determine whether we achieve our business
objectives. Should we require additional cash in the future, there
can be no assurance that we will be successful in raising additional debt or
equity financing on terms acceptable to our Company, if at all.
Critical
Accounting Policies
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management of our Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods.
The
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. We believe certain critical accounting policies affect our
more significant judgments and estimates used in the preparation of the
financial statements. A description of our critical accounting
policies is set forth in our Annual Report on Form 10-K for the year ended
December 31, 2008. As of, and for the year ended December 31, 2009,
there have been no material changes or updates to our critical accounting
policies.
Results
of Operations
The
discussion and financial statements contained herein are for our fiscal year
ended December 31, 2009 and December 31, 2008. The following
discussion regarding our financial statements should be read in conjunction with
our financial statements included herewith.
Financial
Condition as of December 31, 2009
We
reported total current assets of $58,334 at December 31, 2009, consisting of
cash of $38,021, accounts receivable of $5,018, other receivable of $13,184, and
taxes recoverable of $2,111. Total current liabilities reported of
$914,724 consisted of accounts payable of $184,602, note payable of $35,977, a
convertible debenture (net of discount of $384,021) of $599,285, and a loan
guarantee of $94,860. The Company had a working capital deficit of
$856,390 at December 31, 2009.
Stockholders’
Deficiency decreased from $453,801 at December 31, 2008 to $147,956 at December
31, 2009. This decrease is due primarily to the issuance of shares of
our common stock and an increase in additional paid-in capital during the same
period.
We are
currently a development stage company focused on the oil and gas industry, and
evaluating opportunities for expansion within that industry through acquisition
or other strategic relationships.
Cash
and Cash Equivalents
As of
December 31, 2009, we had cash of $38,021 and did not have any cash
equivalents. We anticipate that a substantial amount of cash will be
used as working capital and to execute our strategy and business
plan. As such, we further anticipate that we will have to raise
additional capital through debt or equity financings to fund our operations
during the next 6 to 12 months.
Results
of Operations
For
the Fiscal Year Ended December 31, 2009
For the
fiscal year ended December 31, 2009, we incurred a net loss of
$1,655,978.
15
General
and administration expenses for the fiscal year end December 31, 2009, amounted
to $348,045 compared to $121,423 in 2008. Executive compensation for
the 2009 fiscal year end is $173,749 compared to $0 in 2008.
For
the Fiscal Year Ended December 31, 2008
For the
fiscal year ended December 31, 2008, we incurred a net loss of
$123,823.
Administration
expenses for the fiscal year end amounted to $121,423 compared to $92,554 in
2007. Executive compensation for the 2008 fiscal year end is $0 compared to
$15,000 in 2007.
Period
from inception, January 24, 1996 to December 31, 2009
We have
incurred losses in each period since inception and have an accumulated deficit,
consisting of deficit and accumulated comprehensive losses, of $5,284,172 at
December 31, 2009. We expect to continue to incur losses as a result
of expenditures for general and administrative activities while we remain in the
development stage.
Liquidity
and Capital Resources
As of
December 31, 2009, we had cash of $38,021, and working capital deficiency of
$856,390. During the year ended December 31, 2009, we funded our
operations from the proceeds of private sales of equity and/or convertible
notes. We are currently seeking further financing and we believe that
will provide sufficient working capital to fund our operations for at least the
next six months. Changes in our operating plans, increased expenses,
acquisitions, or other events, may cause us to seek additional equity or debt
financing in the future.
For the
year ended December 31, 2009, we used net cash of $446,782 in
operations. Net cash from operating activities reflected an increase
in impairment expenses, warrants issued and amortization of $765,229, $238,227
and $197,605, respectively.
We raised
$1,111,500 during the twelve month period ended December 31, 2009 from the
issuance of common stock and convertible notes.
Our
current cash requirements are significant due to planned exploration and
development of current projects. We anticipate drilling 10 wells in
our Rooney prospect in 2010 which will cost approximately
$2,500,000. Accordingly, we expect to continue to use debt and equity
financing to fund operations for the next twelve months, as we look to expand
our asset base and fund exploration and development of our
properties.
Our
management believes that we will be able to generate sufficient revenue or raise
sufficient amounts of working capital through debt or equity offerings, as may
be required to meet our short-term and long-term obligations. In
order to execute on our business strategy, we will require additional working
capital, commensurate with the operational needs of our planned drilling
projects and obligations. Such working capital will most likely be
obtained through equity or debt financings until such time as acquired
operations are integrated and producing revenue in excess of operating
expenses. There are no assurances that we will be able to raise the
required working capital on terms favorable, or that such working capital will
be available on any terms when needed.
Off-Balance
Sheet Arrangements
There are
no off-balance sheet arrangements.
Capital
Expenditures
We made
capital expenditure investments in nine natural resource projects in the amount
of $1,473,663 during the fiscal year ending December 31, 2009. Seven
of those investments produced “dry holes” and $765,229 was treated as an
impairment expense. At December 31, 2009 the company has two
investments valued at cost for a total of $708,434.
16
Contractual
Obligations
The
following table outlines payments due under our significant contractual
obligations over the periods shown, exclusive of interest:
|
|
Payments Due by Period
|
||||||||||||
|
Contractual Obligations
At December 31, 2009
|
Total
|
Less than
1 Year
|
1-3 years
|
3-5 years
|
More than
5 years
|
||||||||
|
Convertible
Promissory Note @ 18%
|
$ | 1,000,000 | $ | 1,000,000 | |||||||||
|
Total
|
$ | 1,000,000 | $ | 1,000,000 | |||||||||
The above
table outlines our obligations as of December 31, 2009 and does not reflect any
changes in our obligations that have occurred after that date.
Not
applicable.
Reference
is made to the financial statements, the reports of our independent registered
public accounting firm, and the notes thereto of this report, which financial
statements, reports, and notes are incorporated herein by
reference.
None.
Evaluation
of Disclosure Controls and Procedures
Our Chief
Executive Officer and Chief Financial Officer have evaluated our disclosure
controls and procedures as of December 31, 2009 and have concluded that
these disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Act is recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms and is accumulated and
communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation under the framework in Internal Control – Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2009.
This
Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Our management’s report was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit our company to provide only our
management’s report in this Report.
17
Changes
in Internal Controls Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during the fourth quarter of 2009 that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.
None.
Directors
and Executive Officers
The
following table sets forth the names and ages of our current directors and
executive officers, the principal offices and positions held by each
person:
|
Person
|
Age
|
Position
|
||
|
John
J. Lennon
|
55
|
Chairman
of the Board; Chief Financial Officer and Secretary
|
||
|
Dan
Holladay
|
50
|
Director
|
||
|
Robert
McIntosh
|
49
|
Director;
President and Chief Executive
Officer
|
Our board
of directors believes that its members encompass a range of talent, skill, and
experience sufficient to provide sound and prudent guidance with respect to our
operations and interests. The information below with respect to our
directors includes each director’s experience, qualifications, attributes, and
skills that led our board of directions to the conclusion that he or she should
serve as a director.
John J. Lennon. Mr.
Lennon became our President, Chairman and Chief Financial Officer in February
2009. On June 2, 2009, Mr. Lennon resigned as President, but remained
as our Chief Financial Officer. From May 30, 2008, until July 6,
2009, Mr. Lennon served as a Director, Treasurer and VP of Finance of
Brite-Strike Tactical Illumination Products, Inc. Mr. Lennon is
currently President and a Director of LED Power Group, Inc., President and a
Director of UV Flu Technologies, Inc., and President and a Director of Far East
Wind Power Corp. Mr. Lennon has served as President of
Chamberlain Capital Partners since 2004, and served as a Director of American
Durahomes from 2006 and Treasurer, VP of Finance and a Director of US Starcom
from 2005-2007. Chamberlain Capital Partners assists companies in the
area of maximizing shareholder value through increased sales, cost reduction and
refined business strategy. Mr. Lennon has also assisted companies in
obtaining debt financing, private placements or other methods of
funding. He is responsible for corporate reporting, press releases,
and funding related initiatives for American Durahomes, a private corporation,
and previously for US Starcom, a public entity. On December 31, 2007, Mr. Lennon
was appointed Chief Executive Officer, President, Chief Financial Officer,
Secretary, Treasurer and director of Explortex Energy Inc., a publicly reporting
company, which is a natural resource exploration company engaged in the
participation in drilling of oil and gas in the United States. From
1987 to 2004, Mr. Lennon served as Senior Vice President of Janney Montgomery
Scott, Osterville, MA, Smith Barney and Prudential Bache Securities, managing
financial assets for high net worth individuals. Mr. Lennon’s
prior executive officer and director experience provides our Board with a
perspective of someone with knowledge in multiple facets of public and private
company operations and strategy.
18
Dan Holladay. Mr.
Holladay became a Director of the Company in June 2009. Mr. Dan
Holladay is oil industry management consultant based in Wichita
Kansas. He graduated in 1983 graduate from the University of Eastern
New Mexico with an Associate degree in Petroleum Management following extensive
studies at the University of Kansas in geology. After a short career
in a variety of oil field work, he began a 25 year career as an Investment
Adviser for firms such as AG Edwards where he advised high net worth
clients. Recently, Mr. Holladay has been working as an independent
oil industry management consultant where he has been identifying, evaluating and
assisting companies and individuals on a variety of Kansas based oil and gas
prospects for both exploration and production projects. On July 30,
2009, Mr. Holladay filed for personal bankruptcy in the United States Bankruptcy
Court for the Sedgwick County, Kansas (Case No. 09CV4118) and was discharged
under Chapter 7 on January 25, 2010. The Board has considered Mr.
Holladay’s bankruptcy filing and determined that it has no bearing on his
efforts on behalf f our company. Mr. Holladay’s background as an oil
industry management consultant, and his 25 year career as an investment advisor,
provides a unique perspective to our Board.
Robert McIntosh. On
June 2, 2010, Mr. McIntosh became our President and Chief Executive
Officer. Prior to that, Mr. McIntosh had been our Chief Operating
Officer and a Director on our Board since March 2009. Prior to
joining our company, Mr. McIntosh served as President of Silver Star Energy,
Inc. from September 2003 to May 2008 and as President of Bancroft Uranium, Inc.
from July 2008 to December 2008. Mr. McIntosh has been a businessman
and consulting geologist for the past 25 years. He is experienced
both as a resource exploration geoscientist alongside noteworthy strengths in
all facets of corporate development. Since 1983 his career has taken
him across the Americas and abroad where he has been instrumental in the design,
implementation, execution and management of programs in the oil, gas, precious
and base metals segments of the resource sector. His skills encompass
virtually every aspect of oil & gas exploration, well completion and
production techniques alongside a diverse experience in project acquisition,
negotiations, contracts, and project divestitures within the petroleum
industry. He has developed significant expertise and industry
contacts in his various roles across the publicly traded market sector as well
as with private junior E&P companies. Mr. McIntosh has
successfully assisted his clients and stakeholders in the U.S.A. and Canada on
projects that ultimately became producing properties where he has contributed in
full field exploitation programs with additional traditional and secondary forms
of drilling and completions, along with ongoing well site supervision aimed at
fully optimizing the overall asset. Mr. McIntosh’s business
experience, and his 25 year career as a consulting geologist, give him unique
insights into our challenges, opportunities, and operations.
Except as
set forth above, no officer or director has been involved in any material legal
proceeding.
There are
no arrangements, understandings, or family relationships pursuant to which our
executive officers were selected.
Audit
Committee Financial Expert
Our Board
of Directors has not established a separate audit committee within the meaning
of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Instead, the entire Board of Directors acts as the
audit committee within the meaning of Section 3(a)(58)(B) of the Exchange
Act. In addition, John J. Lennon currently meets the definition of an
“audit committee financial expert” within the meaning of Item 407(d)(5) of
Regulation S-K. Mr. Lennon is not an independent
director. We are seeking candidates for outside directors and for a
financial expert to serve on a separate audit committee when we establish
one. Due to our small size and limited operations and resources, it
has been difficult to recruit outside directors and financial
experts.
Section
16(a) Beneficial Ownership Reporting Compliance
Based
solely upon a review of Forms 3, 4 and 5 delivered to us as filed with the
Securities Exchange Commission, as of December 31, 2009, all of our executive
officers and directors, and persons who own more than 10% of our Common Stock
timely filed all required reports pursuant to Section 16(a) of the Securities
Exchange Act.
Subsequent
to our fiscal year ended December 31, 2009, in connection with his acquisition
of 50,000 shares of our common stock on February 9, 2010, Dan Holladay was
required to file a Form 4 no later than February 11, 2010. Mr.
Holladay filed the Form 4 on March 19, 2010.
Subsequent
to our fiscal year ended December 31, 2009, in connection with his acquisition
of 200,000 shares of our common stock on February 9, 2010, Robert McIntosh was
required to file a Form 4 no later than February 11, 2010. Mr.
McIntosh instead filed a Form 3 in error with respect to such shares on February
10, 2010, and subsequently filed a Form 4 on March 19, 2010 to correct this
error.
19
Code
of Ethics
On July
20, 2009, our Board of Directors adopted a Code of Ethical Conduct that provides
an ethical standard for all employees, officers and directors. A copy
of the Code of Ethical Conduct is filed as Exhibit 14.1 to this Annual Report on
Form 10-K.
Summary
Compensation
The
summary compensation table below shows certain compensation information for
services rendered in all capacities to us by our principal executive officer and
principal financial officer and by each other executive officer whose total
annual salary and bonus exceeded $100,000 during the fiscal periods ended
December 31, 2009 and December 31, 2008. Other than as set forth
below, no executive officer’s total annual compensation exceeded $100,000 during
our last fiscal period.
Summary
Compensation Table
|
Name and Principal Po
sition (a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
Awards
($)
(e)
|
Option
Awards
($)
(f)
|
Non
Equity
Incentive
Plan
Compensation
($)
(g)
|
Non-qualified
Deferred
Compensation
Earnings
($)
(h)
|
All Other
Compensation
($)
(i)
|
Total
($)
(j)
|
|||||||||||||||||||||||||
|
John
J. Lennon,
|
2009
|
$ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||||
|
Chairman
of the Board, Chief Financial Officer (1)
|
2008
|
$ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||||
|
Gregory
Leigh Lyons
|
2009
|
$ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||||
|
Former
Chairman of the Board, President, and Chief Financial Officer
(2)
|
2008
|
$ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 30,000 | $ | 30,000 | |||||||||||||||||
|
Robert
McIntosh
|
2009
|
$ | 114,000 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 28,500 | $ | 142,500 | |||||||||||||||||
|
Director,
President and Chief Executive Officer (3)
|
2008
|
$ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||||
|
(1)
|
Mr.
Lennon became our President, Chairman and Chief Financial Officer on
February 13, 2009. Mr. Lennon resigned as President on June 2,
2009.
|
|
(2)
|
Mr.
Lyons resigned all his positions with us on February 13,
2009.
|
|
(3)
|
Mr.
McIntosh became our President and Chief Executive Officer on June 2,
2009.
|
Mr.
Lennon did not incur any compensation for the fiscal year ended December 31,
2008. Mr. Lennon, through his affiliate, Chamberlain Capital
Partners, entered into a Management and Governance Consultant Agreement with us
on February 13, 2009, whereby he agreed to provide us with management and
governance consulting services, including of liaising with our officers and
employees concerning matters relating to the management and corporate governance
of our day to day operations, accounting, regulatory compliance, marketing and
investor relations issues. Our board of directors approved the
agreement and transaction on February 13, 2009. In consideration of
services rendered, we agreed to pay Chamberlain Capital Partners a fee in the
amount of $2,500 per month, together with applicable taxes and out-of-pocket
expenses for specialized services. The agreement is for a one year
term commencing February 13, 2009 and continuing until February 13, 2010 and is
subject to termination upon 30 day prior written notice by either
party. This agreement has not continued into 2010.
20
Mr. Lyons
billed a total of $30,000 for the fiscal year ended December 31, 2008 and $2,500
for the fiscal year ended December 31, 2007 in accordance with a consulting
agreement approved by the board of directors on December 21, 2007, whereby Mr.
Lyons, through his affiliate, Sound Energy Advisors, LLC (“SEA”), agreed to
provide us with management and governance consulting services, including of
liaising with our officers and employees concerning matters relating to the
management and corporate governance of our day to day operations, accounting,
regulatory compliance, marketing and investor relations issues. In
consideration of services rendered, we agreed to pay SEA a fee in the amount of
$2,500 per month, together with applicable taxes and out-of-pocket expenses for
specialized services. The agreement is for a two year term commencing
December 1, 2007 and continuing until November 30, 2009 and is subject to
termination upon 30 day prior written notice by either party. The agreement was
terminated on February 13, 2009.
Mr.
McIntosh billed a total of $142,500 for the fiscal year ended December 31, 2009
in accordance with a business consultant agreement with Mr. McIntosh dated March
15, 2009 whereby it was agreed that Mr. McIntosh would provide us with corporate
management consulting services for a monthly fee of $15,000. The term
of the agreement is twelve months and is subject to termination upon 30 days
prior written notice by either party. The terms of this agreement
continue on a month-by-month basis.
Director
Compensation
Our board
of directors are reimbursed for actual expenses incurred in attending Board
meetings. There are no other compensation arrangements with
directors, and the directors did not receive any compensation in the fiscal year
ending December 31, 2009, except as indicated below.
Director
Compensation
|
Name (a)
|
Fees
earned or
paid
in cash
(b)
|
Stock
awards
($)
(c)
|
Option
awards
($)
(d)
|
Non-equity
incentive
plan
compensation
($)
(e)
|
Nonqualified
incentive
plan
compensation
($)
(f)
|
All
other
compensation
($)
(g)
|
Total
($)
(h)
|
||||||
|
Dan
Holladay (1)
|
$ | 17,375 | $ | 17,375 | |||||||||
|
(1)
|
Mr.
Holladay became a Director in June
2009.
|
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth, as of March 10, 2010, the number and percentage of
outstanding shares of our common stock owned by (i) each person known to us to
beneficially own more than 5% of our outstanding common stock, (ii) each
director, (iii) each named executive officer, and (iv) all executive officers
and directors as a group. Share ownership is deemed to include all
shares that may be acquired through the exercise or conversion of any other
security immediately or within sixty days of March 10, 2010. Such
shares that may be so acquired are also deemed outstanding for purposes of
calculating the percentage of ownership for that individual or any group of
which that individual is a member. Unless otherwise indicated, the
stockholders listed possess sole voting and investment power with respect to the
shares shown.
21
|
Name and Address
of Beneficial Owner
|
Title of Class
|
Amount and Nature
of Beneficial
Ownership of
Common Stock(1)
|
Percentage of
Common Stock
Outstanding(1)
|
|||||||
|
John
J. Lennon
104
Swallow Hill Drive
Barnstable,
Massachusetts
|
Common
|
- | - | |||||||
|
Robert
B. McIntosh
17470
N Pacesetter ‘Way
Scottsdale,
AZ 85255
|
Common
|
200,000 | 0.7391 | % | ||||||
|
Dan
Holladay
5813
E 17
Wichita,
KS 67208
|
Common
|
50,000 | 0.1848 | % | ||||||
|
All
Executive Officers and Directors as a Group (3 persons)
|
Common
|
250,000 | 0.9239 | % | ||||||
|
Consists
of the aggregate total of shares of common stock held by the named
individual directly. Based upon information furnished to us by
the directors and executive officers or obtained from our stock transfer
books showing 27,060,561 shares of common stock outstanding as of March
23, 2010. We are informed that these persons hold the sole
voting and dispositive power with respect to the common stock except as
noted herein. For purposes of computing “beneficial ownership”
and the percentage of outstanding common stock held by each person or
group of persons named above as of March 23, 2010, any security which such
person or group of persons has the right to acquire within 60 days after
such date is deemed to be outstanding for the purpose of computing
beneficial ownership and the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other
person.
|
Equity
Compensation Plan Information
The
company has no active equity compensation plans and there are currently no
outstanding options from prior plans.
Related
Party Transactions
On March
15, 2009 we entered into a business consultant agreement with Robert McIntosh,
our President, Chief Executive Officer and director, whereby it was agreed that
Mr. McIntosh will provide us with corporate management consulting services for a
monthly fee of $15,000. The term of the agreement is twelve months
and is subject to termination upon 30 days prior written notice by either
party. This agreement will continue into 2010 on a month-by-month
basis until further notice.
Although
we adopted a Code of Ethical Conduct on July 20, 2009, we still rely on our
board to review related party transactions on an ongoing basis to prevent
conflicts of interest. Our board reviews a transaction in light of
the affiliations of the director, officer or employee and the affiliations of
such person’s immediate family. Transactions are presented to our board for
approval before they are entered into or, if this is not possible, for
ratification after the transaction has occurred. If our board finds
that a conflict of interest exists, then it will determine the appropriate
remedial action, if any. Our board approves or ratifies a transaction
if it determines that the transaction is consistent with the best interests of
the Company. For the above transaction, the board approved and
ratified the transaction, finding it in the best interest of the
Company.
22
Director
Independence
During
fiscal 2009, we had one independent director on our board, Mr.
Holladay. We evaluate independence by the standards for director
independence established by applicable laws, rules, and listing standards
including, without limitation, the standards for independent directors
established by The New York Stock Exchange, Inc., The NASDAQ National Market,
and the Securities and Exchange Commission.
Subject
to some exceptions, these standards generally provide that a director will not
be independent if (a) the director is, or in the past three years has been,
an employee of ours; (b) a member of the director’s immediate family is, or
in the past three years has been, an executive officer of ours; (c) the
director or a member of the director’s immediate family has received more than
$120,000 per year in direct compensation from us other than for service as a
director (or for a family member, as a non-executive employee); (d) the
director or a member of the director’s immediate family is, or in the past three
years has been, employed in a professional capacity by our independent public
accountants, or has worked for such firm in any capacity on our audit;
(e) the director or a member of the director’s immediate family is, or in
the past three years has been, employed as an executive officer of a company
where one of our executive officers serves on the compensation committee; or
(f) the director or a member of the director’s immediate family is an
executive officer of a company that makes payments to, or receives payments
from, us in an amount which, in any twelve-month period during the past three
years, exceeds the greater of $1,000,000 or two percent of that other company’s
consolidated gross revenues.
ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND
SERVICES
The
following table shows the fees paid or accrued by us for the audit and other
services provided by Berkovits & Company, LLP for the fiscal periods
shown.
|
December 31, 2009
|
December 31, 2008
|
|||||||
|
Audit
Fees
|
$
|
0
|
$
|
16,950
|
||||
|
Audit
— Related Fees
|
0
|
0
|
||||||
|
Tax
Fees
|
0
|
0
|
||||||
|
All
Other Fees
|
0
|
0
|
||||||
|
Total
|
$
|
0
|
$
|
16,950
|
||||
The
following table shows the fees paid or accrued by us for the audit and other
services provided by Weaver & Martin, LLC for the fiscal periods
shown.
|
December 31, 2009
|
December 31, 2008
|
|||||||
|
Audit
Fees
|
$
|
11,000
|
$
|
6,000
|
||||
|
Audit
— Related Fees
|
7,250
|
0
|
||||||
|
Tax
Fees
|
0
|
0
|
||||||
|
All
Other Fees
|
0
|
0
|
||||||
|
Total
|
$
|
18,250
|
$
|
6,000
|
||||
Audit
fees consist of fees billed for professional services rendered for the audit of
our financial statements and review of the interim financial statements included
in quarterly reports and services that are normally provided by the above
auditors in connection with statutory and regulatory fillings or
engagements.
In the
absence of a formal audit committee, the full Board of Directors pre-approves
all audit and non-audit services to be performed by the independent registered
public accounting firm in accordance with the rules and regulations promulgated
under the Securities Exchange Act of 1934, as amended. The Board of
Directors pre-approved 100% of the audit, audit-related and tax services
performed by the independent registered public accounting firm in fiscal
2009. The percentage of hours expended on the principal
accountant’s engagement to audit the Company’s financial statements for the most
recent fiscal year that were attributed to work performed by persons other than
the principal accountant’s full-time, permanent employees was
0%.
23
PART
IV
ITEM
15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial
Statements and Financial Statement Schedules
(1) Financial
Statements are listed in the Index to Financial Statements of this
report.
(b) Exhibits
|
Exhibit Number
|
Name
|
||
|
3.1(1)
|
Amended
and Restated Articles of Incorporation
|
||
|
3.2(1)
|
Bylaws
|
||
|
10.10(2)
|
Management
and Governance Consultant Agreement with Sound Energy Advisors,
LLC
|
||
|
10.11(3)
|
Management
and Governance Consultant Agreement with Chamberlain Capital
Partners
|
||
|
10.12(3)
|
Business
Consultant Agreement with Bakerview Investor Relations,
Inc.
|
||
|
10.13(5)
|
Management
and Governance Consultant Agreement with Robert
McIntosh
|
||
|
10.14(6)
|
Participation
Agreement with Archer Exploration, Inc.
|
||
|
10.15(7)
|
Letter
of Intent with S&W Oil & Gas, LLC dated May 4,
2009.
|
||
|
10.16(8)
|
Participation
Agreement with Archer Exploration, Inc. dated June 4,
2009.
|
||
|
10.17(9)
|
Letter
of Intent with S&W Oil & Gas, LLC dated June 11,
2009.
|
||
|
10.18(10)
|
Letter
of Intent with S&W Oil & Gas, LLC dated June 23,
2009.
|
||
|
10.19(11)
|
Note
Purchase Agreement dated August 13, 2009.
|
||
|
10.20(12)
|
Letter
of Intent with S&W Oil & Gas, LLC dated August 25,
2009.
|
||
|
10.21(13)
|
Participation
Agreement with Archer Exploration, Inc. dated September 8,
2009.
|
||
|
10.22(14)
|
Secured
Convertible Promissory Note dated September 15, 2009
|
||
|
14.1
|
Code
of Ethical Conduct
|
||
|
16(4)
|
Letter
from Berkovits & Company, LLP
|
||
|
21
|
List
of Subsidiaries (None)
|
||
|
31.1
|
Rule
13(a) — 14(a)/15(d) — 14(a) Certification (Principal Executive
Officer)
|
||
|
31.2
|
Rule
13(a) — 14(a)/15(d) — 14(a) Certification (Principal Financial
Officer)
|
||
|
32
|
Section
1350
Certifications
|
||
24
Footnotes to Exhibits
Index
|
(1)
|
Incorporated
by reference to Form 10-SB12G dated June 19,
1997.
|
|
(2)
|
Incorporated
by reference to Form 10-KSB for the year ended December 31,
2007.
|
|
(3)
|
Incorporated
by reference to Form 10-K for the year ended December 31,
2008.
|
|
(4)
|
Incorporated
by reference to Form 8-K dated March 23,
2009.
|
|
(5)
|
Incorporated
by reference to Form 8-K dated March 27,
2009.
|
|
(6)
|
Incorporated
by reference to Form 8-K dated April 10,
2009.
|
|
(7)
|
Incorporated
by reference to Form 8-K dated May 6,
2009.
|
|
(8)
|
Incorporated
by reference to Form 8-K dated June 5,
2009.
|
|
(9)
|
Incorporated
by reference to Form 8-K dated June 11,
2009.
|
|
(10)
|
Incorporated
by reference to Form 8-K dated June 23,
2009.
|
|
(11)
|
Incorporated
by reference to Form 10-QSB for the period ended June 30,
2009.
|
|
(12)
|
Incorporated
by reference to Form 8-K dated August 27,
2009.
|
|
(13)
|
Incorporated
by reference to Form 8-K dated September 14,
2009.
|
|
(14)
|
Incorporated
by reference to Form 8-K dated September 24,
2009.
|
25
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
AMERICAN PETRO-HUNTER,
INC.
|
Dated:
March 26, 2010
|
/s/ Robert
B. McIntosh
|
|
By:
Robert B. McIntosh
|
|
|
Its:
President and Chief Executive Officer
|
|
|
(Principal
Executive Officer)
|
Pursuant
to requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
|
Signature
|
Capacity
|
Date
|
||
|
/s/ Robert
B. McIntosh
|
President,
Chief Executive Officer and Director
|
March
26, 2010
|
||
|
Robert
B. McIntosh
|
(Principal
Executive Officer)
|
|||
|
/s/ John J. Lennon
|
Chief
Financial Officer, Secretary and Chairman of the Board
|
March
26, 2010
|
||
|
John
J. Lennon
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|||
|
/s/ Dan Holladay
|
Director
|
March
26, 2010
|
||
|
Dan
Holladay
|
26
AMERICAN
PETRO-HUNTER INC.
(A
Development Stage Company)
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
(Stated
in U.S. Dollars)
American
Petro-Hunter Inc.
Index
to Financial Statements
December
31, 2009
INDEX
|
Page
|
|
|
Independent
Registered Public Accounting Firms’ Reports
|
F-2
|
|
Financial
Statements
|
|
|
Balance
Sheets as of December 31, 2009 and 2008
|
F-3
|
|
Statements
of Operations for the years ended December 31, 2009 and 2008 and for the
period from January 24, 1996 (inception) to December 31,
2009
|
F-4
|
|
Statements
of Cash Flows for the years ended December 31, 2009 and 2008 and for the
period from January 24, 1996 (inception) to December 31,
2009
|
F-5
|
|
Statements
of Changes in Stockholders’ Deficit for the period from January 24, 1996
(inception) through December 31, 2009
|
F-6
|
|
Notes
to Financial Statements
|
F-8
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
American
Petro-Hunter, Inc.
We have
audited the accompanying balance sheet of American Petro-Hunter, Inc. (A
Development Stage Company) as of December 31, 2009 and 2008 and the related
statements of operations, stockholders’ deficit, and cash flows for the years
then ended. American Petro-Hunter, Inc.’s management is responsible
for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audit. Our opinion
on the statement of operations, changes in stockholders’ deficit and cash flows
for the period from January 24, 1996 (inception) to December 31, 2009 insofar as
it relates to amounts for periods prior to January 1, 2008 is based on the
reports of other auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. Our audit of the financial statements includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of American Petro-Hunter, Inc. as of
December 31, 2009 and 2008 and the results of its operations, stockholders’
deficit, and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and is
dependent upon the continued sale of its securities or obtaining debt financing
for funds to meet its cash requirements. These factors raise substantial doubt
about the Company’s ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
Weaver & Martin, LLC
Weaver
& Martin, LLC
Kansas
City, Missouri
March 26,
2010
F-2
American
Petro-Hunter, Inc.
(A
Development Stage Company)
Balance
Sheets
(Expressed
in U.S. Dollars)
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
|
$ | 38,021 | $ | 136 | ||||
|
Accounts
receivable
|
5,018 | - | ||||||
|
Other
receivable
|
13,184 | - | ||||||
|
Taxes
recoverable
|
2,111 | 2,003 | ||||||
|
Total
current assets
|
58,334 | 2,139 | ||||||
|
Investments
in mineral properties
|
708,434 | - | ||||||
|
Total
assets
|
$ | 766,768 | $ | 2,139 | ||||
|
Liabilities
and Stockholders’ (Deficit)
|
||||||||
|
Liabilities:
|
||||||||
|
Accounts
payable and other liabilities
|
$ | 184,602 | $ | 223,770 | ||||
|
Due
to related party
|
- | 123,877 | ||||||
|
Note
payable
|
35,977 | 25,000 | ||||||
|
Convertible
debenture, net of discount of $384,021
|
599,285 | - | ||||||
|
Loan
guarantee
|
94,860 | 83,293 | ||||||
|
Total
liabilities
|
914,724 | 455,940 | ||||||
|
Stockholders’
equity
|
||||||||
|
Common
stock, $0.001 par value, 200,000,000 shares authorized, 23,748,561 and
10,065,019 shares issued and outstanding as of December 31, 2009 and 2008,
respectively
|
23,749 | 10,065 | ||||||
|
Common
stock to be issued; 1,830,825 and 800,000 as of December 31, 2009 and
2008, respectively
|
1,831 | 40,000 | ||||||
|
Additional
paid-in capital
|
5,110,636 | 3,124,328 | ||||||
|
Accumulated
comprehensive gain (loss)
|
(8,114 | ) | (8,114 | ) | ||||
|
(Deficit)
accumulated during development stage
|
(5,276,058 | ) | (3,620,080 | ) | ||||
|
Total
stockholders’ (deficit)
|
(147,956 | ) | (453,801 | ) | ||||
|
Total
liabilities and stockholders (deficit)
|
$ | 766,768 | $ | 2,139 | ||||
The
accompanying notes are an integral part of these financial
statements.
F-3
American
Petro-Hunter, Inc.
(A
Development Stage Company)
Statements
of Operations
(Expressed
in U.S. Dollars)
|
For the Period
|
||||||||||||
|
from January
|
||||||||||||
|
For the
|
24,1996
|
|||||||||||
|
Year Ended
|
(inception) to
|
|||||||||||
|
December 31,
|
December 31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Revenue
|
$ | 77,728 | $ | - | $ | 77,728 | ||||||
|
Cost
of Good sold
|
||||||||||||
|
Production
Expenses
|
13,090 | - | 13,090 | |||||||||
|
Gross
profit
|
64,638 | - | 64,638 | |||||||||
|
Expenses:
|
||||||||||||
|
General and
administrative
|
348,045 | 121,423 | 2,152,336 | |||||||||
|
Executive
compensation
|
173,749 | - | 573,237 | |||||||||
|
Rent
|
915 | 2,400 | 60,213 | |||||||||
|
Total expenses
|
522,709 | 123,823 | 2,785,786 | |||||||||
|
Net
loss before other income (expense)
|
(458,071 | ) | (123,823 | ) | (2,721,148 | ) | ||||||
|
Other
income and (expense):
|
||||||||||||
|
Interest
expense
|
(265,440 | ) | - | (265,440 | ) | |||||||
|
Loan placement
fee
|
(238,227 | ) | - | (238,227 | ) | |||||||
|
Loss from discontinued
operations
|
- | - | (937,194 | ) | ||||||||
|
Loss from loan
guarantee
|
- | - | (84,858 | ) | ||||||||
|
Loss from settlement of
debt
|
(14,971 | ) | - | (14,971 | ) | |||||||
|
Impairment
expense
|
(765,229 | ) | - | (1,100,180 | ) | |||||||
|
Income from debt
forgiveness
|
85,960 | - | 85,960 | |||||||||
|
Total other income
(expenses)
|
(1,197,907 | ) | - | (2,554,910 | ) | |||||||
|
Net
loss for the period
|
(1,655,978 | ) | (123,823 | ) | (5,276,058 | ) | ||||||
|
Other
comprehensive gain (loss)
|
||||||||||||
|
Foreign
currency translation gain
|
- | 81,146 | (8,114 | ) | ||||||||
|
Comprehensive
loss
|
$ | (1,655,978 | ) | $ | (42,677 | ) | $ | (5,284,172 | ) | |||
|
Weighted
average number of common shares outstanding - basic and fully
diluted
|
(20,348,579 | ) | 9,327,295 | |||||||||
|
Net
(loss) per share - basic and fully diluted
|
$ | (0.08 | ) | $ | (0.005 | ) | ||||||
The
accompanying notes are an integral part of these financial
statements.
F-4
American
Petro-Hunter, Inc.
(A
Development Stage Company)
Statement
of Cash Flows
(Expressed
in U.S. Dollars)
|
For the
Year ended
December 31, 2009
|
For the
Year ended
December 31,
2008
|
For the Period
from January 24,
1996 (inception) to
December 31, 2009
|
||||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
(loss)
|
$ | (1,655,978 | ) | $ | (123,823 | ) | $ | (4,338,864 | ) | |||
|
Adjustments
to reconcile net (loss) to net cash used in operating
activities:
|
||||||||||||
|
Accrued
interest on note payable
|
12,841 | 2,959 | 16,400 | |||||||||
|
(Gain)
loss from loan guarantee
|
11,567 | (19,931 | ) | 94,860 | ||||||||
|
Warrants
issued for services
|
238,227 | - | 366,227 | |||||||||
|
Shares
issued for services
|
- | - | 992,558 | |||||||||
|
Amortization
of discount
|
197,605 | - | 197,605 | |||||||||
|
Impairment
expense
|
765,229 | - | 772,729 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
(Increase)
decrease in accounts receivable
|
(5,018 | ) | - | (5,018 | ) | |||||||
|
(Increase)
decrease in other receivable
|
(13,184 | ) | - | (13,184 | ) | |||||||
|
(Increase)
decrease in taxes recoverable
|
(108 | ) | 481 | (2,111 | ) | |||||||
|
Increase
(decrease) in accounts payable and other liabilities
|
125,914 | (1,880 | ) | 1,962,962 | ||||||||
|
Increase
(decrease) in due to related parties
|
(123,877 | ) | (15,023 | ) | (107,170 | ) | ||||||
|
Net
cash (used) by operating activities
|
(446,782 | ) | (157,217 | ) | (63,006 | ) | ||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Acquisition
of investments in mineral properties
|
(1,473,663 | ) | - | (1,473,663 | ) | |||||||
|
Net
cash provided by investing activities
|
(1,473,663 | ) | - | (1,473,663 | ) | |||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds
from sale of common stock, net of share issuance costs
|
111,500 | 70,000 | 648,168 | |||||||||
|
Proceeds
from warrant exercise
|
645,524 | - | 645,524 | |||||||||
|
Proceeds
from note payable
|
218,000 | - | 243,000 | |||||||||
|
Proceeds
from convertible debenture
|
1,000,000 | - | 1,000,000 | |||||||||
|
Payments
for convertible debenture
|
(16,694 | ) | - | (16,694 | ) | |||||||
|
Net
cash provided by financing activities
|
1,958,330 | 70,000 | 2,519,998 | |||||||||
|
Cash
flows used in discontinued operations
|
- | - | (937,194 | ) | ||||||||
|
Foreign
currency translation effect on cash
|
- | 81,146 | (8,114 | ) | ||||||||
|
Net
increase (decrease) in cash
|
37,885 | (6,071 | ) | 38,021 | ||||||||
|
Cash -
beginning
|
136 | 6,207 | - | |||||||||
|
Cash -
ending
|
$ | 38,021 | $ | 136 | $ | 38,021 | ||||||
|
Supplemental
disclosures:
|
||||||||||||
|
Interest
paid
|
$ | - | $ | - | $ | - | ||||||
|
Income
taxes paid
|
$ | - | $ | - | $ | - | ||||||
|
Non-cash
transactions:
|
||||||||||||
|
Warrants
issued for services
|
$ | 238,227 | $ | 366,227 | ||||||||
|
Shares
issued for services
|
$ | - | $ | 992,558 | ||||||||
|
Note
payable converted to common stock
|
$ | 219,864 | $ | 219,864 | ||||||||
|
Accounts
payable converted to common stock
|
$ | 165,082 | $ | 165,082 | ||||||||
The
accompanying notes are an integral part of these financial
statements.
F-5
American
Petro-Hunter, Inc.
Statement
of Stockholders’ Equity (Deficit)
(Expressed
in U.S. Dollars)
|
Deficit
|
||||||||||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||||||||||
|
Additional
|
Common
|
during the
|
Accumulated
|
Stockholders’
|
||||||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Deferred
|
Stock to
|
development
|
Comp.
|
Equity
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Comp
|
be issued
|
stage
|
gain (loss)
|
(Deficit)
|
|||||||||||||||||||||||||
|
Shares
issued for cash, net of issue costs
|
10,497,300 | $ | 10,497 | $ | 296,833 | $ | - | $ | - | $ | - | $ | - | $ | 307,330 | |||||||||||||||||
|
Net
income
|
- | - | - | - | - | 4,856 | - | 4,856 | ||||||||||||||||||||||||
|
Balance
at December 31, 1996
|
10,497,300 | 10,497 | 296,833 | - | - | 4,856 | - | 312,186 | ||||||||||||||||||||||||
|
Shares
issued for cash, net of issue costs
|
187,416 | 187 | 46,850 | - | - | - | - | 47,037 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (96,386 | ) | - | (96,386 | ) | ||||||||||||||||||||||
|
Unrealized
foreign exchange gain
|
- | - | - | - | - | - | 8,258 | 8,258 | ||||||||||||||||||||||||
|
Balance
at December 31, 1997
|
10,684,716 | 10,684 | 343,683 | - | - | (91,530 | ) | 8,258 | 271,095 | |||||||||||||||||||||||
|
Stock
reverse split 3.1
|
(7,123,094 | ) | (7,123 | ) | 7,123 | - | - | - | - | - | ||||||||||||||||||||||
|
Shares
issued
|
7,773,026 | 7,773 | 1,980,833 | - | - | - | - | 1,988,606 | ||||||||||||||||||||||||
|
Unrealized
foreign exchange loss
|
- | - | - | - | - | - | (8,258 | ) | (8,258 | ) | ||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (1,798,830 | ) | - | (1,798,830 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 1998
|
11,334,648 | 11,334 | 2,331,639 | - | - | (1,890,360 | ) | 452,613 | ||||||||||||||||||||||||
|
1998
issuance cancelled
|
(4,800,000 | ) | (4,800 | ) | (1,339,200 | ) | - | - | - | - | (1,344,000 | ) | ||||||||||||||||||||
|
Shares
issue costs
|
500,000 | 500 | 85,000 | - | - | - | - | 85,500 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (307,331 | ) | - | (307,331 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 1999
|
7,034,648 | 7,034 | 1,077,439 | - | - | (2,197,691 | ) | - | (1,113,218 | ) | ||||||||||||||||||||||
|
Shares
issued
|
4,435,570 | - | 1,083,791 | - | - | - | - | 1,083,791 | ||||||||||||||||||||||||
|
Finders’
fees
|
- | - | 48,000 | - | - | - | - | 48,000 | ||||||||||||||||||||||||
|
Share
purchase warrants
|
- | - | 80,000 | - | - | - | - | 80,000 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (547,097 | ) | - | (547,097 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2000
|
11,470,218 | 7,034 | 2,289,230 | - | - | (2,744,788 | ) | - | (448,524 | ) | ||||||||||||||||||||||
|
Stock
reverse split 10.1
|
(10,323,196 | ) | (5,887 | ) | 5,887 | - | - | - | - | - | ||||||||||||||||||||||
|
Shares
issued
|
4,253,617 | 4,254 | 552,106 | - | - | - | - | 556,360 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (297,352 | ) | - | (297,352 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2001
|
5,400,639 | 5,041 | 2,847,223 | - | - | (3,042,140 | ) | - | (189,516 | ) | ||||||||||||||||||||||
|
Shares
issued
|
220,000 | 220 | 21,780 | - | - | - | - | 22,000 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (29,664 | ) | - | (29,664 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2002
|
5,620,639 | 5,621 | 2,869,003 | - | - | (3,071,804 | ) | - | (197,180 | ) | ||||||||||||||||||||||
|
Shares
issued
|
430,000 | 430 | 25,370 | - | - | - | - | 25,800 | ||||||||||||||||||||||||
|
Other
comprehensive loss
|
- | - | - | - | - | 17,920 | (17,920 | ) | - | |||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (57,652 | ) | - | (57,652 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2003
|
6,050,639 | 6,051 | 2,894,373 | - | - | (3,111,536 | ) | (17,920 | ) | (229,032 | ) | |||||||||||||||||||||
|
Shares
issued for services rendered
|
475,000 | 475 | 56,525 | (3,226 | ) | - | - | - | 53,774 | |||||||||||||||||||||||
|
Other
comprehensive loss
|
- | - | - | - | - | - | (9,773 | ) | (9,773 | ) | ||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (134,058 | ) | - | (134,058 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2004
|
6,525,639 | 6,526 | 2,950,898 | (3,226 | ) | - | (3,245,594 | ) | (27,693 | ) | (319,089 | ) | ||||||||||||||||||||
|
Shares
issued for services rendered
|
- | - | - | 3,226 | - | - | - | 3,226 | ||||||||||||||||||||||||
|
Shares
issued for cash
|
1,739,380 | 1,739 | 85,230 | - | - | - | - | 86,969 | ||||||||||||||||||||||||
|
Other
comprehensive loss
|
- | - | - | - | - | - | (6,156 | ) | (6,156 | ) | ||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (70,711 | ) | - | (70,711 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2005
|
8,265,019 | 8,265 | 3,036,128 | - | - | (3,316,305 | ) | (33,849 | ) | (305,761 | ) | |||||||||||||||||||||
|
Other
comprehensive loss
|
- | - | - | - | - | - | (6,380 | ) | (6,380 | ) | ||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (72,398 | ) | - | (72,398 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2006
|
8,265,019 | 8,265 | 3,036,128 | - | - | (3,388,703 | ) | (40,229 | ) | (384,539 | ) | |||||||||||||||||||||
|
Other
comprehensive loss
|
- | - | - | - | - | - | (49,031 | ) | (49,031 | ) | ||||||||||||||||||||||
|
Share
subscription received in advance
|
- | - | - | - | 60,000 | - | - | 60,000 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (107,554 | ) | - | (107,554 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2007
|
8,265,019 | 8,265 | 3,036,128 | - | 60,000 | (3,496,257 | ) | (89,260 | ) | (481,124 | ) | |||||||||||||||||||||
|
Share
issued for subscription recd in 07
|
1,200,000 | 1,200 | 58,880 | - | (60,000 | ) | - | - | - | |||||||||||||||||||||||
|
Common
stock sold at $0.05 per share
|
600,000 | 600 | 29,400 | - | - | - | - | 30,000 | ||||||||||||||||||||||||
|
Share
subscription received in 2008
|
- | - | - | - | 40,000 | - | - | 40,000 | ||||||||||||||||||||||||
|
Other
comprehensive gain
|
- | - | - | - | - | - | 81,146 | 81,146 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (123,823 | ) | - | (123,823 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2008
|
10,065,019 | 10,065 | 3,124,328 | - | 40,000 | (3,620,080 | ) | (8,114 | ) | (453,801 | ) | |||||||||||||||||||||
F-6
|
Deficit
|
||||||||||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||||||||||
|
Additional
|
Common
|
during the
|
Accumulated
|
Stockholders’
|
||||||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Deferred
|
Stock to
|
development
|
Comp.
|
Equity
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Comp
|
be issued
|
stage
|
gain (loss)
|
(Deficit)
|
|||||||||||||||||||||||||
|
Shares
owed at December 31, 2008 issued
|
800,000 | 800 | 39,200 | - | (40,000 | ) | - | - | - | |||||||||||||||||||||||
|
Shares
issued for cash
|
2,250,000 | 2,250 | 42,750 | - | - | - | - | 45,000 | ||||||||||||||||||||||||
|
Shares
issued for accts payable conversion
|
8,254,088 | 8,254 | 156,828 | - | - | - | - | 165,082 | ||||||||||||||||||||||||
|
Shares
issued for notes payable conversion
|
879,454 | 880 | 218,984 | - | - | - | - | 219,864 | ||||||||||||||||||||||||
|
Warrants
issued for services
|
- | - | 238,227 | - | - | - | - | 238,227 | ||||||||||||||||||||||||
|
Warrant
exercise
|
1,500,000 | 1,500 | 223,500 | - | - | - | - | 225,000 | ||||||||||||||||||||||||
|
Shares
sold for cash, not issued at year-end
|
- | - | 66,310 | - | 190 | - | - | 66,500 | ||||||||||||||||||||||||
|
Warrant
exercise, not issued yet at year-end
|
- | - | 418,883 | - | 1,641 | - | - | 420,524 | ||||||||||||||||||||||||
|
Warrants
issued with debt
|
- | - | 581,626 | - | - | - | - | 581,626 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (1,655,978 | ) | - | (1,655,978 | ) | ||||||||||||||||||||||
|
Balance
at December 31, 2009
|
23,748,561 | $ | 23,749 | $ | 5,110,636 | $ | - | $ | 1,831 | $ | (5,276,058 | ) | $ | (8,114 | ) | $ | (147,956 | ) | ||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
F-7
American
Petro-Hunter Inc.
(A
Development Stage Company)
Notes
to Financial Statements
(Expressed
in U.S. Dollars)
December
31, 2009
|
1.
|
Nature
and Continuance of Operations
|
American
Petro-Hunter Inc. (the “Company”) was incorporated in the State of Nevada on
January 24, 1996 as Wolf Exploration Inc. On March 17, 1997, Wolf
Exploration Inc. changed its name to Wolf Industries Inc.; on November 21, 2000,
they changed its name to Travelport Systems Inc., and on August 17, 2001,
changed its name to American Petro-Hunter Inc.
The
Company is evaluating the acquisition of certain natural resource projects with
the intent of developing such projects. The Company focus is
currently in locating and assessing potential acquisition targets, including
real property, oil and gas companies.
Going
Concern
These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) applicable to a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The
Company is at a development stage and has minimal revenues, has limited assets
and has accumulated deficit and comprehensive losses during the development
period of $5,284,172 and requires additional funds to maintain its
operations. Management’s plan in this regard is to raise equity
financing as required. There can be no assurance that sufficient
funding will be obtained. The foregoing matters raise substantial
doubt about the Company’s ability to continue as a going concern. The
condensed financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
Development
Stage Activities
The
Company is in the development stage. We have had minimal revenue from
our current operations. To generate revenue, our new business plan is
to focus development of our natural resource projects. Based upon our
business plan, we are a development stage enterprise. Accordingly, we
present our financial statements in conformity with the accounting principles
generally accepted in the United States of America that apply in establishing
operating enterprises. As a development stage enterprise, we disclose
the deficit accumulated during the development stage and the cumulative
statements of operations and cash flows from our inception to the current
balance sheet date.
|
2.
|
Significant
Accounting Policies
|
The
following is a summary of significant accounting policies used in the
preparation of these financial statements.
Principles
of accounting
These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP).
Income
taxes
The
Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC
740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under ASC 740-10-25, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Revenue
Recognition
It is our
policy that revenues will be recognized in accordance with ASC subtopic 605-10
(formerly SEC Staff Accounting Bulletin (SAB) No. 104, “Revenue
Recognition.”). Under ASC 605-10, product revenues are recognized
when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed and determinable and collectability is reasonably
assured.
F-8
Use
of estimates
The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States, requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Net
loss per share
In
accordance with ASC subtopic 260-10, the basic loss per common share is computed
by dividing net loss available to common stockholders by the weighted average
number of common shares outstanding. Diluted loss per common share is
computed similar to basic loss per common share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive.
Financial
instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, notes payable and loan
guarantee. Unless otherwise noted, it is management’s opinion that
the Company is not exposed to significant interest, or credit risks arising from
these financial instruments. The fair values of these financial
instruments approximate their carrying values because of their relatively
short-term maturities. See Note 5 for further details.
Reclassifications
Certain
comparative figures have been reclassified to conform to the current period’s
presentation.
|
3.
|
Recent
Accounting Pronouncements
|
The FASB
issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent
Events”), incorporating guidance on subsequent events into
authoritative accounting literature and clarifying the time following the
balance sheet date which management reviewed for events and transactions that
may require disclosure in the financial statements. The Company has
adopted this standard. The standard increased our disclosure by requiring
disclosure reviewing subsequent events. ASC 855-10 is included in the
“Subsequent Events” accounting guidance.
In April
2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position
No. FAS 157-4, Determining Fair Value When Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly”). ASC
820-10 provides guidance on how to determine the fair value of assets and
liabilities when the volume and level of activity for the asset/liability has
significantly decreased. FSP 157-4 also provides guidance on
identifying circumstances that indicate a transaction is not
orderly. In addition, FSP 157-4 requires disclosure in interim
and annual periods of the inputs and valuation techniques used to measure fair
value and a discussion of changes in valuation techniques. The
Company determined that adoption of FSP 157-4 did not have a material
impact on its results of operations and financial position.
In
July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No.
(“FIN”) 48, “Accounting
for Uncertainty in Income Taxes”). ASC 740-10 sets forth a
recognition threshold and valuation method to recognize and measure an income
tax position taken, or expected to be taken, in a tax return. The
evaluation is based on a two-step approach. The first step requires
an entity to evaluate whether the tax position would “more likely than not,”
based upon its technical merits, be sustained upon examination by the
appropriate taxing authority. The second step requires the tax
position to be measured at the largest amount of tax benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. In
addition, previously recognized benefits from tax positions that no longer meet
the new criteria would no longer be recognized. The application of
this Interpretation will be considered a change in accounting principle with the
cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. Adoption of this new standard did
not have a material impact on our financial position, results of operations or
cash flows.
In April
2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
07-05, “Determining whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own
Stock”). ASC815-40 applies to any freestanding financial
instruments or embedded features that have the characteristics of a derivative,
and to any freestanding financial instruments that are potentially settled in an
entity’s own common stock. ASC 815-40 is effective for financial
statements issued for fiscal years beginning after December 15,
2008. The adoption of this pronouncement did not have a material
impact on its financial position, results of operations or cash
flows.
F-9
In
June 2009, the FASB issued ASC 105 Accounting Standards
Codification TM and the
Hierarchy of Generally Accepted Accounting Principles. The
FASB Accounting Standards Codification TM (the “Codification”) has become the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in accordance with Generally Accepted Accounting Principles
(“GAAP”). All existing accounting standard documents are superseded
by the Codification and any accounting literature not included in the
Codification will not be authoritative. Rules and interpretive
releases of the SEC issued under the authority of federal securities laws,
however, will continue to be the source of authoritative generally accepted
accounting principles for SEC registrants. Effective
September 30, 2009, all references made to GAAP in our consolidated
financial statements will include references to the new
Codification. The Codification does not change or alter existing GAAP
and, therefore, will not have an impact on our financial position, results of
operations or cash flows.
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, “Consolidation,”
amends the guidance governing the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to consolidate an
entity, by requiring a qualitative analysis rather than a quantitative
analysis. The qualitative analysis will include, among other things,
consideration of who has the power to direct the activities of the entity that
most significantly impact the entity’s economic performance and who has the
obligation to absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. This standard also
requires continuous reassessments of whether an enterprise is the primary
beneficiary of a VIE. FASB ASC 810 also requires enhanced disclosures
about an enterprise’s involvement with a VIE. Topic 810 is effective
as of the beginning of interim and annual reporting periods that begin after
November 15, 2009. This will not have an impact on the Company’s
financial position, results of operations or cash flows.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of
the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods
thereafter. The adoption of FASB ASC No. 860 will not have an impact
on the Company’s financial statements.
International
Financial Reporting Standards
In
November 2008, the Securities and Exchange Commission (“SEC”) issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. Under the proposed
roadmap, the Company would be required to prepare financial statements in
accordance with IFRS in fiscal year 2014, including comparative information also
prepared under IFRS for fiscal 2013 and 2012. The Company is
currently assessing the potential impact of IFRS on its financial statements and
will continue to follow the proposed roadmap for future
developments.
|
4.
|
Investments
in Mineral Properties
|
During
the year ended December 31, 2009, the Company made nine investments in natural
resource projects in the amount of $1,473,663. Seven of those
investments produced “dry holes” and were therefore fully
impaired. During the year ended December 31, 2009, impairment expense
related to these “dry holes” was $765,229. As of December 31, 2009,
the Company has two investments, valued at cost, for a total of
$708,434. Management evaluated both investments as of December 31,
2009 and determined that no impairment was necessary. Those two
investments were:
S&W
Oil & Gas, LLC - Poston Prospect
On May 4,
2009, the Company entered into a binding Letter of Intent (“LOI”) with S&W
Oil & Gas, LLC (“S&W”) to participate in the drilling for oil in the
Poston Prospect #1 Lutters in Southwest Trego County, Kansas (the “Poston
Prospect”). Pursuant to the LOI, the Company paid S&W $64,536 in
exchange for a 25% working interest in the 81.5% net revenue interest in the
Poston Prospect. During the year ended December 31, 2009, an
additional $44,624 was paid for completion of the oil well and for the purchase
of necessary equipment. All of the Company’s revenue for the year
ended December 31, 2009 was generated by this investment.
F-10
S&W
Oil & Gas, LLC – Rooney Prospect
On June
19, 2009, the Company entered into a binding LOI with S&W to participate in
the drilling for oil and natural gas in the Rooney Prospect located in
southwestern Ford County, Kansas. Pursuant to the LOI, the Company
paid S&W a total of $113,333 for land acquisition and leasing costs,
$216,660 for the 3D seismic shoot costs, and $269,281 for completion of the oil
well and the purchase of necessary equipment in exchange for a 50% working
interest in the 81.5 net revenue interest of the project. This
investment started producing income in February of 2010.
|
5.
|
Fair
Value Measurements
|
The
Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair
value of certain of its financial assets required to be measured on a recurring
basis. The adoption of ASC Topic 820-10 did not impact the Company’s
financial condition or results of operations. ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants on
the measurement date. A fair value measurement assumes that the
transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability. The three levels of the fair value
hierarchy under ASC Topic 820-10 are described below:
Level
1 – Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to access.
Level
2 – Valuations based on quoted prices for similar assets and liabilities in
active markets, quoted prices for identical assets and liabilities in markets
that are not active, or other inputs that are observable or can be corroborated
by observable data for substantially the full term of the assets or
liabilities.
Level
3 – Valuations based on inputs that are supportable by little or no market
activity and that are significant to the fair value of the asset or
liability.
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of December 31, 2009:
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
|
Cash
|
$ | 38,021 | $ | - | $ | - | $ | 38,021 | ||||||||
|
Accounts
receivable
|
- | 15,018 | - | 5,018 | ||||||||||||
|
Other receivable
|
- | 13,184 | - | 13,184 | ||||||||||||
|
Accounts payable
|
- | 184,602 | - | 184,602 | ||||||||||||
|
Notes payable
|
- | 35,977 | - | 35,977 | ||||||||||||
|
Loan Guarantee
|
- | 94,860 | - | 94,860 | ||||||||||||
|
Total
|
$ | 38,021 | $ | 333,641 | $ | - | $ | 371,662 | ||||||||
|
6.
|
Debt
and Debt Guarantee
|
Notes
Payable
As of
December 31, 2009, the Company has a note payable of $25,000 bearing interest at
12% per annum collateralized by a general security arrangement over all of the
Company’s assets. The note was payable in full on May 18, 2007 and is
therefore in default as of December 31, 2009. During year ended
December 31, 2009, the Company accrued interest expense of $3,855. As
of December 31, 2009, the balance of the note payable, including accrued
interest, is $35,977.
During
the year ended December 31, 2009, the Company received $218,000 from the
issuance of a convertible note payable. The note paid 6% interest,
was due on April 14, 2011, and was convertible at $0.25 per
share. The note accrued interest of $1,863 before the principle and
accrued interest balance of $219,864 was converted into 879,454 shares of common
stock. As of December 31, 2009, there is nothing due relating on this
note payable.
Convertible
Debentures
In August
and September of 2009, the company received $1,000,000 from an investor to issue
a convertible debenture, bearing interest at a rate of 18% per annum paid
monthly on any unpaid principle balance to the investor, secured by the assets
of the Company. $500,000 of the debenture is due on August 13, 2010
and the other $500,000 is due on September 15, 2010. The debenture
calls for payments of $15,000 per month to the investor until the debenture is
fully paid. The holder of the convertible debenture has the right to
convert any portion of the unpaid principle and/or accrued interest at any time
at the lower of $0.35 per share or a 25% discount to the average closing price
of the five proceeding days. In relation to the debentures, the
Company issued 2,857,142 warrants to purchase common shares of the Company for
$0.50 per share. The warrants have a term of two
years.
F-11
The
warrants issued and beneficial conversion feature associated with the above
convertible debentures were valued using the black schools option pricing model
and bifurcated out of the debenture proceeds and recorded as additional paid in
capital in the amount of $581,626. A discount on the convertible
debenture was recorded in the same amount and will be amortized into interest
expense over the life of the debenture using the interest method. For
the year ended December 31, 2009, $197,605 was amortized into interest expense
in relation to these discounts. As of December 31, 2009, the balance
due on the convertible debentures, net of the discount of $384,021, was
$599,285.
Loan
Guarantee
In 2004,
the Company received a demand for payment from Canadian Western Bank (“CWB”)
pursuant to a guarantee provided by the Company in favor of Calgary Chemical, a
former subsidiary.
The
Company divested itself of Calgary Chemical in 1998 under an agreement with a
former president and purchaser. The agreements included an indemnity
guarantee from the purchaser of Calgary Chemical, whereby the purchaser would
indemnify and save harmless the Company from any and all liability, loss, damage
or expenses.
Upon
receipt of the claim, the Company accrued the amount of the claim since in the
opinion of legal counsel it is more likely than not that CWB would prevail in
this action.
Interest
expense
Interest
expense related to all of the above items was $265,440 for the year ended
December 31, 2009.
|
7.
|
Stockholders’
Equity Transactions
|
Common
Stock
During
the year ended December 31, 2008, the Company issued 1,200,000 shares of common
stock that was owed but not issued at December 31, 2007.
During
the year ended December 31, 2008, the Company issued 600,000 units at a price of
$0.05 per unit. Each unit consisted of one common share and one
three-year warrant exercisable into common shares of the Company at a price at
$0.15 per share.
During
the year ended December 31, 2008, the Company received full payment to purchase
800,000 units at a price of $0.05 per unit. Each unit consisted of
one common share and one three-year warrant exercisable into common shares of
the Company at a price of $0.15 per share. As of December 31, 2008,
these shares had not been issued.
During
the year ended December 31, 2009, the Company issued 800,000 shares of common
stock that was owed but not issued as of December 31, 2009.
During
the year ended December 31, 2009, the Company issued 2,250,000 units at a price
of $0.02 per share for cash.
During
the year ended December 31, 2009, the Company issued 8,254,088 shares at a price
of $0.02 per share to convert $165,082 of accounts payable.
During
year ended December 31, 2009, the Company issued 879,454 shares at a price of
$0.25 per share to covert a note payable balance of $219,864 (See Note
6).
During
year ended December 31, 2009, the Company issued 1,500,000 shares of common
stock in an exercise of 1,500,000 warrants at a price of $0.15 for total
proceeds of $225,000.
During
the year ended December 31, 2009, the Company sold 190,000 shares of common
stock for $66,500 cash. As of December 31, 2009, these shares have
not been issued and are shown as common stock owed but not
issued.
F-12
During
the year ended December 31, 2009, the Company received $420,524 for the exercise
of 1,640,825 warrants to purchase 1,640,825 shares of common
stock. As of December 31, 2009, these shares have not been issued and
are shown as common stock owed but not issued.
As of
December 31, 2009, there are 23,748,561 shares of common stock outstanding and
1,830,825 shares of common stock owed but not issued.
Warrants
As of
December 31, 2007, there were 1,200,000 warrants outstanding at an exercise
price of $0.15.
During
the year ended December 31, 2008, the Company issued 1,600,000 warrants with an
exercise price of $0.15 as detailed above.
During
the year ended December 31, 2009, the Company issued 2,857,142 warrants with a
convertible debenture. These warrants have 2 year terms expiring in
August and September of 2011 and an exercise price of $0.50. See Note
6 for further details.
During
the year ended December 31, 2009, the Company issued 1,672,000 warrants for
services. The warrants had two-year terms and an exercise price of
$0.35. The warrants were valued using the black scholes option
pricing model and valued at $238,227. 800,000 of these warrants were
cancelled during the year when the service was not performed.
During
year ended December 31, 2009, a total of 3,140,825 warrants were exercised into
common shares of the Company at a price of $0.15 and $0.35 per share to a total
of $645,524 cash.
As of
December 31, 2009, there are 331,175 and 2,857,142 warrants outstanding at an
exercise price of $0.15 and $0.50, respectively. These warrants will
expire in the years ending December 31, 2011.
|
8.
|
Income
Taxes
|
The
Company follows ASC subtopic 740-10 (formerly Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes”) for recording the provision for
income taxes. ASC 740-10 requires the use of the asset and liability
method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more
likely than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
The
Company’s effective income tax rate is higher than would be expected if the
federal statutory rate were applied to income before tax, primarily because of
expenses deductible for financial reporting purposes that are not deductible for
tax purposes during the year ended December 31, 2009.
The
Company’s operations for the year ended December 31, 2009 and 2008 resulted in
losses, thus no income taxes have been reflected in the accompanying statements
of operations.
As of
December 31, 2009, the Company has net operating loss carry-forwards of
approximately $4,510,829 (December 31, 2008 - $3,620,000) which may or may not
be used to reduce future income taxes payable. Current Federal Tax Law limits
the amount of loss available to offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount
available to offset future taxable income may be limited. A valuation
allowance has been recorded to reduce the net benefit recorded in the financial
statements related to this deferred asset. The valuation allowance is
deemed necessary as a result of the uncertainty associated with the ultimate
realization of these deferred tax assets.
F-13
|
9.
|
Subsequent
Events
|
In
preparing these financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through March 22, 2010, the
date the financial statements were issued.
For the
period from January 1, 2010 through March 22, 2010, 3,312,000 shares of common
stock were issued for warrant exercises, private equity placements, employment
agreements, and stock that was owed at the end of 2009.
F-14
INDEX
TO EXHIBITS
|
Exhibit Number
|
Name
|
||
|
3.1(1)
|
Amended
and Restated Articles of Incorporation
|
||
|
3.2(1)
|
Bylaws
|
||
|
10.10(2)
|
Management
and Governance Consultant Agreement with Sound Energy Advisors,
LLC
|
||
|
10.11(3)
|
Management
and Governance Consultant Agreement with Chamberlain Capital
Partners
|
||
|
10.12(3)
|
Business
Consultant Agreement with Bakerview Investor Relations,
Inc.
|
||
|
10.13(5)
|
Management
and Governance Consultant Agreement with Robert
McIntosh
|
||
|
10.14(6)
|
Participation
Agreement with Archer Exploration, Inc.
|
||
|
10.15(7)
|
Letter
of Intent with S&W Oil & Gas, LLC dated May 4,
2009.
|
||
|
10.16(8)
|
Participation
Agreement with Archer Exploration, Inc. dated June 4,
2009.
|
||
|
10.17(9)
|
Letter
of Intent with S&W Oil & Gas, LLC dated June 11,
2009.
|
||
|
10.18(10)
|
Letter
of Intent with S&W Oil & Gas, LLC dated June 23,
2009.
|
||
|
10.19(11)
|
Note
Purchase Agreement dated August 13, 2009.
|
||
|
10.20(12)
|
Letter
of Intent with S&W Oil & Gas, LLC dated August 25,
2009.
|
||
|
10.21(13)
|
Participation
Agreement with Archer Exploration, Inc. dated September 8,
2009.
|
||
|
10.22(14)
|
Secured
Convertible Promissory Note dated September 15, 2009
|
||
|
14.1
|
Code
of Ethical Conduct
|
||
|
16(4)
|
Letter
from Berkovits & Company, LLP
|
||
|
21
|
List
of Subsidiaries
|
||
|
31.1
|
Rule
13(a) — 14(a)/15(d) — 14(a) Certification (Principal Executive
Officer)
|
||
|
31.2
|
Rule
13(a) — 14(a)/15(d) — 14(a) Certification (Principal Financial
Officer)
|
||
|
32
|
Section
1350
Certifications
|
||
|
(1)
|
Incorporated
by reference to Form 10-SB12G dated June 19,
1997.
|
|
(2)
|
Incorporated
by reference to Form 10-KSB for the year ended December 31,
2007.
|
|
(3)
|
Incorporated
by reference to Form 10-K for the year ended December 31,
2008.
|
|
(4)
|
Incorporated
by reference to Form 8-K dated March 23,
2009.
|
|
(5)
|
Incorporated
by reference to Form 8-K dated March 27,
2009.
|
|
(6)
|
Incorporated
by reference to Form 8-K dated April 10,
2009.
|
|
(7)
|
Incorporated
by reference to Form 8-K dated May 6,
2009.
|
|
(8)
|
Incorporated
by reference to Form 8-K dated June 5,
2009.
|
|
(9)
|
Incorporated
by reference to Form 8-K dated June 11,
2009.
|
|
(10)
|
Incorporated
by reference to Form 8-K dated June 23,
2009.
|
|
(11)
|
Incorporated
by reference to Form 10-QSB for the period ended June 30,
2009.
|
|
(12)
|
Incorporated
by reference to Form 8-K dated August 27,
2009.
|
|
(13)
|
Incorporated
by reference to Form 8-K dated September 14,
2009.
|
|
(14)
|
Incorporated
by reference to Form 8-K dated September 24,
2009.
|