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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
Amendment No. 1

[X]           ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2009

or

[  ]            TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-137293

PHOENIX ENERGY RESOURCES, INC.
(Exact name of registrant as specified in its charter)

Nevada                                                                                                           20-5408832
(State or other jurisdiction of incorporation or organization)                                          (I.R.S. Employer
Identification No.)

1001 Bayhill Drive, 2nd Floor – Suite 200
San Bruno, California 94066
(Address of principal executive offices)

(650) 616-4123
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Exchange Act: None
 
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[  ] Yes                      [X]  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
[  ] Yes                      [X]  No

Indicate by checkmark 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. [X] Yes   [  ]  No

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s, 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. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer                                            [  ]
Accelerated filer                                                     [  ]
Non-accelerated filer                                              [  ] (Do not check if a smaller reporting company)
Smaller reporting company                                    [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[  ] Yes                      [X]  No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal year: $9,200,000.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 62,700,000 shares of common stock, $0.001 par value, outstanding on October  1, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

NONE.
 
 



 
 
PHOENIX ENERGY RESOURCE CORPORATION
 
TABLE OF CONTENTS

   
                       Page
 
PART I
       
items .     business
   
3
 
item 1a.  risk factors
   
7
 
item 1b.   unresolved staff comments
   
11
 
item 2.     properties
   
11
 
item 3.     legal proceedings
   
11
 
item 4.     submission of matters to a vote of security holders
   
11
 
         
PART II
       
item 5.     market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities
   
11
 
item 6.     selected financial data
   
12
 
item 7.     management’s discussion and analysis of financial condition and results of operation
   
12
 
item 7a.   quantitative and qualitative disclosures about market risk
   
15
 
item 8.      financial statements and supplementary data
   
15
 
item 9.      changes in and disagreements with accountants on accounting and financial disclosure
   
15
 
item 9a(t). controls and procedures
   
15
 
item 9b.      other information
   
15
 
         
PART III
       
item 10.      directors, executive officers and corporate governance
   
16
 
item 11.      executive compensation
   
16
 
item 12.      security ownership of certain beneficial owners and management and related stockholder matters
   
16
 
item 13.      certain relationships and related transactions, and director independence
   
17
 
item 14.      principal accountant fees and services
   
17
 
         
PART IV
       
item 15.      exhibits, financial statement schedules
   
17
 

 


 
 
FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, contained in this report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this report, which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. The factors impacting these risks and uncertainties include, but are not limited to:

·  
estimated quantities and quality of oil and natural gas reserves;
·  
fluctuations in the price of oil and natural gas;

·  
inability to efficiently manage our operations;
·  
the inability of management to effectively implement our strategies and business plans;

·  
potential default under our secured obligations or material debt agreements;
·  
approval of certain parts of our operations by state regulators;

·  
inability to hire or retain sufficient qualified operating field personnel;
·  
inability to attract and obtain additional development capital;

·  
increases in interest rates or our cost of borrowing;
·  
deterioration in general or regional (especially Southern Kentucky) economic conditions;

·  
adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
·  
the occurrence of natural disasters, unforeseen weather conditions, or other events or circumstances that could impact our operations or could impact the operations of companies or contractors we depend upon in our operations;

·  
inability to acquire mineral leases at a favorable economic value that will allow us to expand our development efforts;
·  
inability to achieve future sales levels or other operating results;

·  
adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; and
·  
changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate.

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations.

All references in this report to “we,” “us,” “our,” “company” and “Phoenix Energy” refer to Phoenix Energy Resource Corporation, unless the context requires otherwise. We report our financial information on the basis of a June 30, fiscal year end. We have provided definitions for the oil and natural gas industry terms used in this report in the “Glossary” of this report.

AVAILABLE INFORMATION

We file annual, quarterly and other reports and other information with the SEC.  You can read these SEC filings and reports over the Internet at the SEC’s website at www.sec.gov.  You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm.  Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at Phoenix Energy Resource Corporation, 1001 Bayhill Drive, 2nd Floor – Suite 200, San Bruno, California 94066.

INDUSTRY AND MARKET DATA
 
The market data and certain other statistical information used throughout this report are based on independent industry publications, government publications, reports by market research firms or other published independent sources. In addition, some data are based on our good faith estimates.

PART I
 
Items 1 and 2. Business and Properties.
 
Our Business
 
Phoenix Energy, formerly known as Exotacar, Inc., is an energy acquisition, exploration and development company. In February of 2008, Exotacar, Inc. changed the focus of its business plan from the development of online exotic car sales and entered into the oil and natural gas industry. In conjunction with the change, the Company was renamed Phoenix Energy Resource Corporation.
 
Our principal strategy is to focus on the acquisition of oil and natural gas mineral leases that ideally have existing production and cash flow. Once acquired, we will implement an accelerated development program utilizing capital resources, a regional operating focus, an experienced management and technical team, and enhanced recovery technologies to attempt to increase production and increase returns for our stockholders. Our oil and natural gas acquisition and development activities are currently focused in Southern Kentucky.
 
The Opportunity in Kentucky
 
According to the Kentucky Geological Survey, the Southern region of Kentucky is historically one of the domestic oil producing regions in the United States. In addition to historical oil and natural gas production levels in the region, we believe that a confluence of the following factors in Southern Kentucky and the surrounding region make it an attractive area for oil and natural gas development activities:

·  
Traditional Roll-Up Strategy.  We are seeking to employ a traditional roll-up strategy utilizing a combination of capital resources, operational and management expertise, technology, and strategic partnerships which have experience operating in the region.

·  
Numerous Acquisition Opportunities.  There are many small producers and owners of mineral rights in the region, which afford us opportunities to pursue negotiated lease transactions verses having to competitively bid on fundamentally sound assets.

·  
Fragmented Ownership Structure.  There are opportunities to acquire producing properties at attractive prices due to the current inefficient and fragmented ownership structure.
 
Our Properties
 
 
The table below summarizes our acreage by lease as of June 30, 2009.

Lease Name
 
Undeveloped Acreage
 
   
Gross
   
Net(1)
 
Cornell
   
-
     
-
 
Cornell/Robbins
   
73
     
69
 
     Total
   
73
     
69
 

(1)  
Net acreage is based on our net working interest as of June 30, 2009.


The original amount of acreage under the lease agreement is equal to the following:

Lease Name
 
Undeveloped Acreage
 
             
Cornell
   
225
         
Cornell/Robbins
   
258
         
     Total
   
483
         


The amount of acreage that has lapsed due to exploration and productivity inactivity is equal to the following:
   
Lease Name
 
Lapsed Acreage*
 
   
Gross
       
Cornell
   
225
         
Cornell/Robbins
   
185
         
     Total
   
410
         

*As a result of the financial crisis we were unable to secure the requisite financing needed to properly develop the property under these leases.  The “lapsed acreage” column reflects the acreage amounts that we were unable to develop as a result of the Company’s current inability to finance this development.
Our Business Strategy
 
Our goal is to increase stockholder value by finding and developing oil and natural gas reserves at costs that provide an attractive rate of return on our investments. The principal elements of our business strategy are:

·  
Develop Our Existing Properties. We intend to identify further drilling locations on properties we acquire by utilizing digital spectral satellite maps among other accepted technologies. The structure and the continuous oil accumulation in Southern Kentucky, and the expected long-life production and reserves of the area, are anticipated to enhance opportunities for profitability.

·  
Maximize Operational Control. We seek to operate properties we acquire and maintain a substantial working interest. We believe the ability to control our potential drilling inventory will provide us with the opportunity to more efficiently allocate capital, manage resources, control operating and development costs, and utilize our experience and knowledge of oilfield technologies.

·  
Pursue Selective Acquisitions and Joint Ventures. Due to our local presence in Southern Kentucky, we believe we are well-positioned to pursue selected acquisitions from the fragmented and capital-constrained owners of mineral rights throughout Southern Kentucky.


Our Competitive Strengths
 
We have a number of strengths that we believe will help us successfully execute our strategy:

·  
Acquisition and Development Strategy. We have what we believe to be a relatively low-risk acquisition and development strategy compared to some of our competitors. We will preferably acquire properties that have proven current production, with a projected pay-back within a relatively short period of time, and with potential growth and upside in terms of development, enhancement and efficiency. We also plan to minimize the risk of natural gas and oil price volatility by developing a sales portfolio of pricing for our production as we strive to expand and as market conditions permit.

·  
Experienced Management Team and Strategic Partner with Strong Technical Capability. Our CEO has limited experience in the energy industry, including energy trading and production. However, our strategic partner JMACK Energy, LLC will work closely with management during the initial phases of any major project to ensure its feasibility and to consider the appropriate recovery techniques to be utilized.

·  
Incentivized Management.  The compensation arrangements for our executive officers are weighted toward future performance.

Financing Needed

There are many factors that influence the value or perceived value of a lease. These factors include oil or petroleum prices, scarcity of leases, and owner’s personal perception of value.  In recent months we have seen a significant decline in the price of crude.  Any decline in the price of crude makes development of oil producing property less profitable.  Although this may not directly affect our development costs it does make financing the overall project more difficult because locating sources of capital becomes challenging as profit margins decrease due to lower crude oil prices.  We estimate that we need at least $300,000 to begin developing new lease properties.  To date we have no source for this capital.
 
 
Company History
 
Phoenix Energy Resource Corporation was incorporated in the State of Nevada on June 3, 2005 as Exotacar, Inc. and focused on the development of online exotic automobile sales. This business plan was ultimately abandoned following its unsuccessful implementation. On February 2, 2008 Helvetic Capital Ventures AG, Switzerland acquired 64% of the total outstanding shares of the Company effectuating a change in control. Following the acquisition, we transitioned the business plan focusing on energy resources. Subsequent to the change in control, we changed our name to “Phoenix Energy Resource Corporation”. All of our current operations are conducted through Phoenix Energy Resource Corporation.

Significant Developments in Fiscal 2008 and Fiscal 2009
 
The following is a brief description of our most significant corporate developments that occurred in fiscal 2008 and fiscal 2009:

·  
In February of 2008, 64% of our Company was acquired by Helvetic Capital Ventures AG. and we changed our name
 
 
·  
In March of 2008, we entered into an employment agreement with our new Chief Executive Officer, Mr. Rene Soullier for an initial term of one year with annual compensation of $36,000.
 
 
·  
In June of 2008, we amended our articles of incorporation whereby we changed our name from Exotacar, Inc to Phoenix Energy Resource Corporation; authorized a new class of 5,000,000 shares of preferred, $0.001 par value stock and effectuated a 50:1 forward split of our common stock.

·  
In May 2008, we issued a promissory note to Seymore Investments Limited in the amount of $150,000. The note bears interest at a rate of 10% per annum and matures on May 20, 2011.

·  
In September of 2008, we acquired mineral leases representing a total of 434 net acres located in Allen County Kentucky.

·  
In September of 2008, we entered into an Operating Agreement with JMACK Energy, LLC (“JMACK”), pursuant to which we granted to JMACK a 5% overriding royalty interest of all oil and/or gas produced from all mineral leases currently held by Phoenix Energy.

·  
In February of 2009, we issued a promissory note to Helvetic Capital Ventures AG in the amount of $35,000. The note bears interest at a rate of 4% per annum and matures on February 27, 2012.

·  
In June of 2009, we issued a promissory note to Helvetic Capital Ventures AG in the amount of $50,000, of which we had drawn $15,000. The note bears interest at a rate of 4% per annum and matures on May 31, 2012.

·  
In June of 2009, leases representing 365 net acres purchased as part of the Allen County Kentucky acquisition expired.
 
 
 

 
Relationship with JMACK Energy, LLC
 
In September of 2008, we entered into an operating agreement with Mark Cornell, managing member of JMACK Energy, LLC. This agreement provides that JMACK will provide drilling management and operation of all wells located on our existing leases in Allen County Kentucky. Further, JMACK will consult with us at an executive level regarding field development, acquisition evaluation, identification of additional acquisition opportunities and overall business strategy. JMACK has been in the oil exploration and production business since its incorporation this year and Mark Cornell has been in the business for over 25 years.
 
We believe that this relationship provides us with a competitive advantage when evaluating and sourcing acquisition opportunities. As a long-term producer and oil field service provider, JMACK Energy’s managing member has existing relationships with numerous oil and natural gas producers in Southern Kentucky and is generally aware of existing opportunities to enhance many of these properties through the deployment of capital, and application of enhanced drilling and production technologies. We believe that we will be able to leverage the experience and relationships of Mr. Cornell to compliment our business strategy. To date, Mr. Cornell has helped us identify and evaluate all of our property acquisitions, and has been instrumental in the creation of our development plans of these properties.
 
One of our fundamental goals with respect to the operating arrangement is to align the interests of JMACK with those of ours as much as possible. As a result, the operating agreement provides that we will pay a 5% overriding royalty interest on all oil and gas produced from the aforementioned mineral leases.

Title to Properties
 
Our properties are subject to customary royalty interests, liens under indebtedness, liens incident to operating agreements and liens for current taxes and other burdens, including mineral encumbrances and restrictions. Further, our debt is secured by first and second liens on substantially all of our assets. We do not believe that any of these burdens materially interferes with the use of our properties in the operation of our business.
 
We believe that we have satisfactory title to or rights in all of our producing properties. As is customary in the natural gas and oil industry, minimal investigation of title is made at the time of acquisition of undeveloped properties. In most cases, we investigate title and obtain title opinions from counsel or have title reviewed by professional landsmen only when we acquire producing properties or before we begin drilling operations. However, any acquisition of producing properties without obtaining title opinions are subject to a greater risk of title defects.
 
Sale of Natural Gas and Oil
 
We do not intend to refine our natural gas or oil production. We expect to sell all or most of our production to a small number of purchasers in a manner consistent with industry practices at prevailing rates by means of long-term and short-term sales contracts, some of which may have fixed price components. As of June 30, 2009, we did not have any production; however, we believe that we will be able to find suitable purchasers when, and if, production is commenced.
 
Markets and Marketing
 
The natural gas and oil industry has experienced rising and volatile prices in recent years. As a commodity, global natural gas and oil prices respond to macro-economic factors affecting supply and demand. In particular, world oil prices have risen in response to political unrest and supply uncertainty in Iraq, Venezuela, Nigeria and Iran, and increasing demand for energy in rapidly growing economies, notably India and China. Due to rising world prices and the consequential impact on supply, North American prospects have become more attractive. Escalating conflicts in the Middle East and the ability of OPEC to control supply and pricing are some of the factors negatively impacting the availability of global supply. In contrast, increased costs of steel and other products used to construct drilling rigs and pipeline infrastructure, as well as higher drilling and well-servicing rig rates, negatively impact domestic supply.
 
Our market is affected by many factors beyond our control, such as the availability of other domestic production, commodity prices, the proximity and capacity of natural gas and oil pipelines, and general fluctuations of global and domestic supply and demand. We do not anticipate difficulty in finding additional sales opportunities, as and when needed.
 
Natural gas and oil sales prices are negotiated based on factors such as the spot price for natural gas or posted price for oil, price regulations, regional price variations, hydrocarbon quality, distances from wells to pipelines, well pressure, and estimated reserves. Many of these factors are outside our control. Natural gas and oil prices have historically experienced high volatility, related in part to ever-changing perceptions within the industry of future supply and demand.
 
Competition
 
The natural gas and oil industry is intensely competitive and, as an early-stage company, we must compete against larger companies that may have greater financial and technical resources than we do and substantially more experience in our industry. These competitive advantages may better enable our competitors to sustain the impact of higher exploration and production costs, natural gas and oil price volatility, productivity variances between properties, overall industry cycles and other factors related to our industry. Their advantage may also negatively impact our ability to acquire prospective properties, develop reserves, attract and retain quality personnel and raise capital.
 
Research and Development Activities

We have not spent any material amount of time in the last fiscal year on research and development activities.

Governmental Regulations
 
Regulation of Oil and Natural Gas Production.  Our oil and natural gas exploration, production and related operations, when developed, are subject to extensive rules and regulations promulgated by federal, state, tribal and local authorities and agencies. For example, some states in which we may operate, including Kentucky, require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and natural gas. Such states may also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells. Failure to comply with any such rules and regulations can result in substantial penalties. Moreover, such states may place burdens from previous operations on current lease owners, and the burdens could be significant. The regulatory burden on the oil and natural gas industry will most likely increase our cost of doing business and may affect our profitability. Although we believe we are currently in substantial compliance with all applicable laws and regulations, because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws. Significant expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on our financial condition and results of operations.

Federal Regulation of Natural Gas.  The Federal Energy Regulatory Commission (“FERC”) regulates interstate natural gas transportation rates and service conditions, which may affect the marketing of natural gas produced by us, as well as the revenues that may be received by us for sales of such production. Since the mid-1980’s, FERC has issued a series of orders, culminating in Order Nos. 636, 636-A and 636-B (“Order 636”), that have significantly altered the marketing and transportation of natural gas. Order 636 mandated a fundamental restructuring of interstate pipeline sales and transportation service, including the unbundling by interstate pipelines of the sale, transportation, storage and other components of the city-gate sales services such pipelines previously performed. One of FERC’s purposes in issuing the order was to increase competition within all phases of the natural gas industry. The United States Court of Appeals for the District of Columbia Circuit largely upheld Order 636 and the Supreme Court has declined to hear the appeal from that decision. Generally, Order 636 has eliminated or substantially reduced the interstate pipelines’ traditional role as wholesalers of natural gas in favor of providing only storage and transportation service, and has substantially increased competition and volatility in natural gas markets.
 
The price we may receive from the sale of oil and natural gas liquids will be affected by the cost of transporting products to markets. Effective January 1, 1995, FERC implemented regulations establishing an indexing system for transportation rates for oil pipelines, which, generally, would index such rates to inflation, subject to certain conditions and limitations. We are not able to predict with certainty the effect, if any, of these regulations on our intended operations. However, the regulations may increase transportation costs or reduce well head prices for oil and natural gas liquids.

Environmental Matters
 
Our operations and properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue.
 
These laws and regulations may:

·  
require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities;

·  
limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and

·  
impose substantial liabilities for pollution resulting from its operations, or due to previous operations conducted on any leased lands.
 
The permits required for our operations may be subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce their regulations, and violations are subject to fines or injunctions, or both. In the opinion of management, we are in substantial compliance with current applicable environmental laws and regulations, and have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on us, as well as the oil and natural gas industry in general.
 
The Comprehensive Environmental, Response, Compensation, and Liability Act, as amended (“CERCLA”), and comparable state statutes impose strict, joint and several liability on owners and operators of sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring land owners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act, as amended (“RCRA”), and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.
 
The Federal Water Pollution Control Act of 1972, as amended (“Clean Water Act”), and analogous state laws impose restrictions and controls on the discharge of pollutants into federal and state waters. These laws also regulate the discharge of storm water in process areas. Pursuant to these laws and regulations, we are required to obtain and maintain approvals or permits for the discharge of wastewater and storm water and develop and implement spill prevention, control and countermeasure plans, also referred to as “SPCC plans,” in connection with on-site storage of greater than threshold quantities of oil. The EPA issued revised SPCC rules in July 2002 whereby SPCC plans are subject to more rigorous review and certification procedures. We believe that our operations are in substantial compliance with applicable Clean Water Act and analogous state requirements, including those relating to wastewater and storm water discharges and SPCC plans.
 
The Endangered Species Act, as amended (“ESA”), seeks to ensure that activities do not jeopardize endangered or threatened animal, fish and plant species, nor destroy or modify the critical habitat of such species. Under ESA, exploration and production operations, as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat. ESA provides for criminal penalties for willful violations of the Act. Other statutes that provide protection to animal and plant species and that may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act. Although we believe that our operations will be in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject us to significant expenses to modify our operations or could force us to discontinue certain operations altogether.
 

 
Personnel
 
As of June 30, 2009, we had one full-time employee. As drilling production activities increase, we intend to hire additional technical, operational and administrative personnel as appropriate. We are using and will continue to use the services of independent consultants and contractors to perform various professional services, particularly in the area of land services, reservoir engineering, geology drilling, water hauling, pipeline construction, well design, well-site monitoring and surveillance, permitting and environmental assessment. We believe that this use of third-party service providers may enhance our ability to contain capital costs, general and administrative expenses.

Facilities
 
We currently maintain an office at 1001 Bayhill Drive, 2nd floor-Suite 200, San Bruno, California 94066 at a month to month fee of $190.


GLOSSARY

Term
 
Definition
     
Barrel (bbl)
 
The standard unit of measurement of liquids in the petroleum industry, it contains 42 U.S. standard gallons. Abbreviated to “bbl”.
Basin
 
A depression in the crust of the Earth, caused by plate tectonic activity and subsidence, in which sediments accumulate. Sedimentary basins vary from bowl-shaped to elongated troughs. Basins can be bounded by faults. Rift basins are commonly symmetrical; basins along continental margins tend to be asymmetrical. If rich hydrocarbon source rocks occur in combination with appropriate depth and duration of burial, then a petroleum system can develop within the basin.
BOPD
 
Abbreviation for barrels of oil per day, a common unit of measurement for volume of crude oil. The volume of a barrel is equivalent to 42 U.S. standard gallons.
Carried Working Interest
 
The owner of this type of working interest in the drilling of a well incurs no capital contribution requirement for drilling or completion costs associated with a well and, if specified in the particular contract, may not incur capital contribution requirements beyond the completion of the well.
Completion / Completing
 
A well made ready to produce oil or natural gas.
Costless Collar
 
When viewed against an appropriate index, the parties agree to a maximum price (call option) and a minimum price (put option), through a financially-settled collar. If the average monthly prices are within the collar range there will be no monthly settlement. However, if average monthly prices fluctuate outside the collar, the parties settle the difference in cash.
Development
 
The phase in which a proven oil or natural gas field is brought into production by drilling development wells.
Development Drilling
 
Wells drilled during the Development phase.
Division order
 
A directive signed by the royalty owners verifying to the purchaser or operator of a well the decimal interest of production owned by the royalty owner. The Division Order generally includes the decimal interest, a legal description of the property, the operator’s name, and several legal agreements associated with the process. Completion of this step generally precedes placing the royalty owner on pay status to begin receiving revenue payments.
Drilling
 
Act of boring a hole through which oil and/or natural gas may be produced.
Dry Wells
 
A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
Exploration
 
The phase of operations which covers the search for oil or natural gas generally in unproven or semi-proven territory.
Exploratory Drilling
 
Drilling of a relatively high percentage of properties which are unproven.
Farm out
 
An arrangement whereby the owner of a lease assigns all or some portion of the lease or licenses to another company for undertaking exploration or development activity.
Field
 
An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
Fixed price swap
 
A derivative instrument that exchanges or “swaps” the “floating” or daily price of a specified volume of natural gas, oil or NGL, over a specified period, for a fixed price for the specified volume over the same period (typically three months or longer).
Gathering line / system
 
Pipelines and other facilities that transport oil or natural gas from wells and bring it by separate and individual lines to a central delivery point for delivery into a transmission line or mainline.
Gross acre
 
The number of acres in which the Company owns any working interest.
Gross Producing Well
 
A well in which a working interest is owned and is producing oil or natural gas or other liquids or hydrocarbons. The number of gross producing wells is the total number of wells producing oil or natural gas or other liquids or hydrocarbons in which a working interest is owned.
Gross well
 
A well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned.
Held-By-Production (HBP)
 
Refers to an oil and natural gas property under lease, in which the lease continues to be in force, because of production from the property.
Horizontal drilling
 
A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then turned and drilled horizontally. Horizontal drilling allows the wellbore to follow the desired formation.
In-fill wells
 
In-fill wells refers to wells drilled between established producing wells; a drilling program to reduce the spacing between wells in order to increase production and recovery of in-place hydrocarbons.
Oil and Natural Gas Lease
 
A legal instrument executed by a mineral owner granting the right to another to explore, drill, and produce subsurface oil and natural gas. An oil and natural gas lease embodies the legal rights, privileges and duties pertaining to the lessor and lessee.
Lifting Costs
 
The expenses of producing oil from a well. Lifting costs are the operating costs of the wells including the gathering and separating equipment. Lifting costs do not include the costs of drilling and completing the wells or transporting the oil.
Mcf
 
Thousand cubic feet.
Mmcf
 
Million cubic feet.
Net acres
 
Determined by multiplying gross acres by the working interest that the Company owns in such acres.
Net Producing Wells
 
The number of producing wells multiplied by the working interest in such wells.
Net Revenue Interest
 
A share of production revenues after all royalties, overriding royalties and other nonoperating interests have been taken out of production for a well(s).
Operator
 
A person, acting for itself, or as an agent for others, designated to conduct the operations on its or the joint interest owners’ behalf.
Overriding Royalty
 
Ownership in a percentage of production or production revenues, free of the cost of production, created by the lessee, company and/or working interest owner and paid by the lessee, company and/or working interest owner out of revenue from the well.
Pooled Unit
 
A term frequently used interchangeably with “Unitization” but more properly used to denominate the bringing together of small tracts sufficient for the granting of a well permit under applicable spacing rules.
Proved Developed Reserves
 
Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods. This definition of proved developed reserves has been abbreviated from the applicable definitions contained in Rule 4-10(a)(2-4) of Regulation S-X.
Proved Developed Non-Producing
 
Proved developed reserves expected to be recovered from zones behind casings in existing wells.
Proved Undeveloped Reserves
 
Proved undeveloped reserves are the portion of proved reserves which can be expected to be recovered from new wells on undrilled proved acreage, or from existing wells where a relatively major expenditure is required for completion. This definition of proved undeveloped reserves has been abbreviated from the applicable definitions contained in Rule 4-10(a)(2-4) of Regulation S-X.
PV10
 
PV10 means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the determination date, before income taxes, and without giving effect to non-property related expenses, discounted to a present value using an annual discount rate of 10% in accordance with the guidelines of the SEC. PV10 is a non-GAAP financial measure.
Re-completion
 
Completion of an existing well for production from one formation or reservoir to another formation or reservoir that exists behind casing of the same well.
Reservoir
 
The underground rock formation where oil and natural gas has accumulated. It consists of a porous rock to hold the oil or natural gas, and a cap rock that prevents its escape.
Reservoir Pressure
 
The pressure at the face of the producing formation when the well is shut-in. It equals the shut-in pressure at the wellhead plus the weight of the column of oil and natural gas in the well.
Roll-Up Strategy
 
A “roll-up strategy” is a common business term used to describe a business plan whereby a company accumulates multiple small operators in a particular business sector with a goal to generate synergies, stimulate growth and optimize the value of the individual pieces.
Secondary Recovery
 
The stage of hydrocarbon production during which an external fluid such as water or natural gas is injected into the reservoir through injection wells located in rock that has fluid communication with production wells. The purpose of secondary recovery is to maintain reservoir pressure and to displace hydrocarbons toward the wellbore.
The most common secondary recovery techniques are natural gas injection and waterflooding. Normally, natural gas is injected into the natural gas cap and water is injected into the production zone to sweep oil from the reservoir. A pressure-maintenance program can begin during the primary recovery stage, but it is a form of enhanced recovery.
Shut-in well
 
A well which is capable of producing but is not presently producing. Reasons for a well being shut-in may be lack of equipment, market or other.
Stock Tank Barrel or STB
 
A stock tank barrel of oil is the equivalent of 42 U.S. Gallons at 60 degrees Fahrenheit.
Undeveloped acreage
 
Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.
Unitize, Unitization
 
When owners of oil and/or natural gas reservoir pool their individual interests in return for an interest in the overall unit.
Waterflood
 
The injection of water into an oil reservoir to “push” additional oil out of the reservoir rock and into the wellbores of producing wells. Typically a secondary recovery process.
Water Injection Wells
 
A well in which fluids are injected rather than produced, the primary objective typically being to maintain or increase reservoir pressure, often pursuant to a waterflood.
Water Supply Wells
 
A well in which fluids are being produced for use in a Water Injection Well.
Wellbore
 
A borehole; the hole drilled by the bit. A wellbore may have casing in it or it may be open (uncased); or part of it may be cased, and part of it may be open. Also called a borehole or hole.
Working Interest
 
An interest in an oil and natural gas lease entitling the owner to receive a specified percentage of the proceeds of the sale of oil and natural gas production or a percentage of the production, but requiring the owner of the working interest to bear the cost to explore for, develop and produce such oil and natural gas.
 


 
Item 1A. Risk Factors.
 
Risks Associated with Our Business
 
We have sustained losses, which raises doubt as to our ability to successfully develop profitable business operations.
 
Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing and maintaining a business in the oil and natural gas industries. There is nothing conclusive at this time on which to base an assumption that our business operations will prove to be successful or that we will be able to operate profitably. Our future operating results will depend on many factors, including:

·  
the future prices of natural gas and oil;
·  
our ability to raise adequate working capital;

·  
success of our development and exploration efforts;
·  
demand for natural gas and oil;

·  
the level of our competition;
·  
our ability to attract and maintain key management, employees and operators;

·  
transportation and processing fees on our facilities;
·  
fuel conservation measures;

·  
alternate fuel requirements;
·  
government regulation and taxation;

·  
technical advances in fuel economy and energy generation devices; and
·  
our ability to efficiently explore, develop and produce sufficient quantities of marketable natural gas or oil in a highly competitive and speculative environment while maintaining quality and controlling costs.

To achieve profitable operations, we must, alone or with others, successfully execute on the factors stated above, along with continually developing ways to enhance our production efforts. Despite our best efforts, we may not be successful in our development efforts or obtain required regulatory approvals. There is a possibility that some of our wells may never produce natural gas or oil in sustainable or economic quantities.

Natural gas and oil prices are volatile. This volatility may occur in the future, causing negative change in cash flows which may result in our inability to cover our operating or capital expenditures.
 
Our future revenues, profitability, future growth and the carrying value of our properties is anticipated to depend substantially on the prices we may realize for our natural gas and oil production. Our realized prices may also affect the amount of cash flow available for operating or capital expenditures and our ability to borrow and raise additional capital.

Natural gas and oil prices are subject to wide fluctuations in response to relatively minor changes in or perceptions regarding supply and demand. Historically, the markets for natural gas and oil have been volatile, and they are likely to continue to be volatile in the future. Among the factors that can cause this volatility are:

·  
worldwide or regional demand for energy, which is affected by economic conditions;
·  
the domestic and foreign supply of natural gas and oil;

·  
weather conditions;
·  
natural disasters;

·  
acts of terrorism;
·  
domestic and foreign governmental regulations and taxation;

·  
political and economic conditions in oil and natural gas producing countries, including those in the Middle East and South America;
·  
impact of the U.S. dollar exchange rates on oil and natural gas prices;

·  
the availability of refining capacity;
·  
actions of the Organization of Petroleum Exporting Countries, or OPEC, and other state controlled oil companies relating to oil price and production controls; and

·  
the price and availability of other fuels.

It is impossible to predict natural gas and oil price movements with certainty. Lower natural gas and oil prices may not only decrease our future revenues on a per unit basis but also may reduce the amount of natural gas and oil that we can produce economically. A substantial or extended decline in natural gas and oil prices may materially and adversely affect our future business enough to force us to cease our business operations. In addition, our reserves, financial condition, results of operations, liquidity and ability to finance and execute planned capital expenditures will also suffer in such a price decline. Further, natural gas and oil prices do not necessarily move together.
 
Because we face uncertainties in estimating proven recoverable reserves, you should not place undue reliance on such reserve information.
 
There are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from such reserves. Reserve engineering is a subjective process of estimating underground accumulations of natural gas and oil that can be economically extracted, which cannot be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to these reserves, is a function of the available data, assumptions regarding future natural gas and oil prices, expenditures for future development and exploitation activities, and engineering and geological interpretation and judgment. Reserves and future cash flows may also be subject to material downward or upward revisions based upon production history, development and exploitation activities and natural gas and oil prices. Actual future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of cash flows from those reserves may vary significantly from the assumptions and estimates in our reserve reports. Any significant variance from these assumptions to actual figures could greatly affect our estimates of reserves, the economically recoverable quantities of natural gas and oil attributable to any particular group of properties, the classification of reserves based on risk of recovery, and estimates of the future net cash flows. In addition, reserve engineers may make different estimates of reserves and cash flows based on the same available data.
 
The present value of future net cash flows of proved reserves is not necessarily the same as the current market value of estimated reserves. Estimated discounted future net cash flows from proved reserves is based on prices and costs. However, actual future net cash flows from our natural gas and oil properties also will be affected by factors such as:

·  
Geological conditions;
·  
Assumptions governing future oil and natural gas prices;

·  
Amount and timing of actual production;
·  
Availability of funds;

·  
Future operating and development costs;
·  
Actual prices we receive for natural gas and oil;

·  
Supply and demand for our natural gas and oil;
·  
Changes in government regulations and taxation; and

·  
Capital costs of drilling new wells.

The timing of both production and incurrence of expenses in connection with the development and production of our properties will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with our business or the natural gas and oil industry in general.
 
The SEC permits natural gas and oil companies, in their public filings, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. The SEC’s guidelines strictly prohibit us from including “probable reserves” and “possible reserves” in such filings. We also caution you that the SEC views such “probable” and “possible” reserve estimates as inherently unreliable and these estimates may be seen as misleading to investors unless the reader is an expert in the natural gas and oil industry. Unless you have such expertise, you should not place undue reliance on these estimates. Potential investors should also be aware that such “probable” and “possible” reserve estimates will not be contained in any “resale” or other registration statement filed by us that offers or sells shares on behalf of purchasers of our common stock and may have an impact on the valuation of the resale of the shares. Except as required by applicable law, we undertake no duty to update this information and do not intend to update this information.
 
The differential between the New York Mercantile Exchange, or NYMEX, or other benchmark price of oil and natural gas and the wellhead price we receive could have a material adverse effect on our results of operations, financial condition and cash flows.
 
The prices that we receive for our oil and natural gas production sometimes trade at a discount to the relevant benchmark prices, such as NYMEX, that are used for calculating hedge positions. The difference between the benchmark price and the price we receive is called a differential. We cannot accurately predict oil and natural gas differentials. In recent years for example, production increases from competing Canadian and Rocky Mountain producers, in conjunction with limited refining and pipeline capacity from the Rocky Mountain area, have gradually widened this differential. Increases in the differential between the benchmark price for oil and natural gas and the wellhead price we receive could have a material adverse effect on our results of operations, financial condition and cash flows by decreasing the proceeds we receive for our oil and natural gas production in comparison to what we would receive if not for the differential.
 
The natural gas and oil business involves numerous uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.
 
Our development, exploitation and exploration activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas and oil well does not ensure a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical. In addition to their cost, unsuccessful wells can hurt our efforts to replace reserves.
 
The natural gas and oil business involves a variety of operating risks, including:

·  
unexpected operational events and/or conditions;
·  
unusual or unexpected geological formations;

·  
reductions in natural gas and oil prices;
·  
limitations in the market for oil and natural gas;

·  
adverse weather conditions;
·  
facility or equipment malfunctions;

·  
title problems;
·  
natural gas and oil quality issues;

·  
pipe, casing, cement or pipeline failures;
·  
natural disasters;

·  
fires, explosions, blowouts, surface cratering, pollution and other risks or accidents;
·  
environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases;

·  
compliance with environmental and other governmental requirements; and
·  
uncontrollable flows of oil, natural gas or well fluids.

If we experience any of these problems, it could affect well bores, gathering systems and processing facilities, which could adversely affect our ability to conduct operations. We could also incur substantial losses as a result of:

·  
injury or loss of life;
·  
severe damage to and destruction of property, natural resources and equipment;

·  
pollution and other environmental damage;
·  
clean-up responsibilities;

·  
regulatory investigation and penalties;
·  
suspension of our operations; and

·  
repairs to resume operations.

Because we use third-party drilling contractors to drill our wells, we may not realize the full benefit of worker compensation laws in dealing with their employees. Our insurance does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could impact our operations enough to force us to cease our operations.
 

 
Drilling wells is speculative, often involving significant costs that may be more than our estimates, and may not result in any addition to our production or reserves. Any material inaccuracies in drilling costs, estimates or underlying assumptions will materially affect our business.
 
Developing and exploring for natural gas and oil involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and costs involved in reaching certain objectives. The budgeted costs of drilling, completing and operating wells are often exceeded and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield equipment and related services. Drilling may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas or oil well does not ensure a profit on investment. Exploratory wells bear a much greater risk of loss than development wells. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economic. Our initial drilling and development sites, and any potential additional sites that may be developed, require significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development. If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our business operations as proposed and would be forced to modify our plan of operation.
 
Development of reserves, when established, may not occur as scheduled and the actual results may not be as anticipated. Drilling activity and access to capital may result in downward adjustments in reserves or higher than anticipated costs. Our estimates will be based on various assumptions, including assumptions over which we have control and assumptions required by the SEC relating to natural gas and oil prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. We have control over our operations that affect, among other things, acquisitions and dispositions of properties, availability of funds, use of applicable technologies, hydrocarbon recovery efficiency, drainage volume and production decline rates that are part of these estimates and assumptions and any variance in our operations that affects these items within our control may have a material effect on reserves.  The process of estimating our natural gas and oil reserves is anticipated to be extremely complex, and will require significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Our estimates may not be reliable enough to allow us to be successful in our intended business operations. Our actual production, revenues, taxes, development expenditures and operating expenses will likely vary from those anticipated. These variances may be material.

A significant portion of our potential future reserves and our business plan depend upon secondary recovery techniques to establish production. There are significant risks associated with such techniques.
 
 
We anticipate that a significant portion of our future reserves and our business plan will be associated with secondary recovery projects that are either in the initial stage of implementation or are scheduled for implementation. We anticipate that secondary recovery will affect our reserves and our business plan, and the exact project initiation dates and, by the very nature of waterflood operations, the exact completion dates of such projects are uncertain. In addition, the reserves and our business plan associated with these secondary recovery projects, as with any reserves, are estimates only, as the success of any development project, including these waterflood projects, cannot be ascertained in advance. If we are not successful in developing a significant portion of our reserves associated with secondary recovery methods, then the project may be uneconomic or generate less cash flow and reserves than we had estimated prior to investing the capital. Risks associated with secondary recovery techniques include, but are not limited to, the following:

·  
higher than projected operating costs;
·  
lower-than-expected production;

·  
longer response times;
·  
higher costs associated with obtaining capital;

·  
unusual or unexpected geological formations;
·  
fluctuations in natural gas and oil prices;

·  
regulatory changes;
·  
shortages of equipment; and

·  
lack of technical expertise.

If any of these risks occur, it could adversely affect our financial condition or results of operations.
 
Any acquisitions we complete are subject to considerable risk.
 
Even when we make acquisitions that we believe are good for our business, any acquisition involves potential risks, including, among other things:

·  
the validity of our assumptions about reserves, future production, revenues and costs, including synergies;
·  
an inability to integrate successfully the businesses we acquire;

·  
a decrease in our liquidity by using our available cash or borrowing capacity to finance acquisitions;
·  
a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions;

·  
the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate;
·  
the diversion of management’s attention from other business concerns;

·  
an inability to hire, train or retain qualified personnel to manage the acquired properties or assets;
·  
the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges;

·  
unforeseen difficulties encountered in operating in new geographic or geological areas; and
·  
customer or key employee losses at the acquired businesses.
 
Our decision to acquire a property will depend in part on the evaluation of data obtained from production reports and engineering studies, geophysical and geological analyses and seismic and other information, the results of which are often incomplete or inconclusive.
 
Our reviews of acquired properties can be inherently incomplete because it is not always feasible to perform an in-depth review of the individual properties involved in each acquisition. 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, plugging or orphaned well liability are not necessarily observable even when an inspection is undertaken.
 
We must obtain governmental permits and approvals for drilling operations, which can result in delays in our operations, be a costly and time consuming process, and result in restrictions on our operations.
 
Regulatory authorities exercise considerable discretion in the timing and scope of permit issuances in the region in which we operate. Compliance with the requirements imposed by these authorities can be costly and time consuming and may result in delays in the commencement or continuation of our exploration or production operations and/or fines. Regulatory or legal actions in the future may materially interfere with our operations or otherwise have a material adverse effect on us. In addition, we are often required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that a proposed project may have on the environment, threatened and endangered species, and cultural and archaeological artifacts. Accordingly, the permits we need may not be issued, or if issued, may not be issued in a timely fashion, or may involve requirements that restrict our ability to conduct our operations or to do so profitably.
 
Due to our lack of geographic diversification, adverse developments in our operating areas would materially affect our business.
 
We currently only lease oil and natural gas properties located in Southern Kentucky. As a result of this concentration, we may be disproportionately exposed to the impact of delays or interruptions of production from these properties caused by significant governmental regulation, transportation capacity constraints, curtailment of production, natural disasters, adverse weather conditions or other events which impact this area.

We are not the operator of our properties and we have limited control over the activities on those properties.
 
We are not the operator on our current Project. We have a limited ability to influence or control the operation or future development or the amount of capital expenditures that we can fund with respect to it. In the case of the Cornell and Robbins development, our dependence on the operator, JMACK Energy, limits our ability to influence or control the operation or future development of the project. Such limitations could materially adversely affect the realization of our targeted returns on capital related to exploration, drilling or production activities and lead to unexpected future costs.

We may suffer losses or incur liability for events for which we or the operator of a property have chosen not to obtain insurance.
 
Our operations are subject to hazards and risks inherent in producing and transporting natural gas and oil, such as fires, natural disasters, explosions, pipeline ruptures, spills, and acts of terrorism, all of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our and others’ properties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. In addition, pollution and environmental risks generally are not fully insurable. As a result of market conditions, existing insurance policies may not be renewed and other desirable insurance may not be available on commercially reasonable terms, if at all. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse effect on our business, financial condition and results of operations.
 
Our hedging activities could result in financial losses or could reduce our available funds or income and therefore adversely affect our financial position.
      
To achieve more predictable cash flow and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we have developed derivative arrangement plan that could result in both realized and unrealized hedging losses. As of June 30, 2009 we had not incurred any such losses; furthermore, the company has not entered into any such contracts. The extent of our commodity price exposure is related largely to the effectiveness and scope of our derivative activities. For example, the derivative instruments we may utilize may be based on posted market prices, which may differ significantly from the actual crude oil, natural gas and NGL prices we realize in our operations.
 
Our actual future production may be significantly higher or lower than we estimate at the time we enter into derivative transactions for such period. If the actual amount is higher than we estimate, we will have greater commodity price exposure than we intended. If the actual amount is lower than the nominal amount that is subject to our derivative financial instruments, we might be forced to satisfy all or a portion of our derivative transactions without the benefit of the cash flow from our sale or purchase of the underlying physical commodity, resulting in a substantial diminution of our liquidity. As a result of these factors, our derivative activities may not be as effective as we intend in reducing the volatility of our cash flows, and in certain circumstances may actually increase the volatility of our cash flows.
 
Our business depends in part on gathering and transportation facilities owned by others. Any limitation in the availability of those facilities could interfere with our ability to market our oil and natural gas production and could harm our business.
 
The marketability of our oil and natural gas production will depend in a very large part on the availability, proximity and capacity of pipelines, oil and natural gas gathering systems and processing facilities. The amount of oil and natural gas that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on such systems. The curtailments arising from these and similar circumstances may last from a few days to several months. In many cases, we will be provided only with limited, if any, notice as to when these circumstances will arise and their duration. Any significant curtailment in gathering system or pipeline capacity could significantly reduce our ability to market our oil and natural gas production and harm our business.
 
The high cost of drilling rigs, equipment, supplies, personnel and other services could adversely affect our ability to execute on a timely basis our development, exploitation and exploration plans within our budget.
 
Shortages or an increase in cost of drilling rigs, equipment, supplies or personnel could delay or interrupt our operations, which could impact our financial condition and results of operations. Drilling activity in the geographic areas in which we conduct drilling activities may increase, which would lead to increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. Increased drilling activity in these areas may also decrease the availability of rigs. We do not have any contracts for drilling rigs and drilling rigs may not be readily available when we need them. Drilling and other costs may increase further and necessary equipment and services may not be available to us at economical prices.
 
Our exposure to possible leasehold defects and potential title failure could materially adversely impact our ability to conduct drilling operations.
 
We obtain the right and access to properties for drilling by obtaining oil and natural gas leases either directly from the hydrocarbon owner, or through a third party that owns the lease. The leases may be taken or assigned to us without title insurance. There is a risk of title failure with respect to such leases, and such title failures could materially adversely impact our business by causing us to be unable to access properties to conduct drilling operations.
 
Our reserves are subject to the risk of depletion because many of our leases are in mature fields that have produced large quantities of oil and natural gas to date.
 
Our operations are located in fields in Southern Kentucky. As a result, many of our leases are in, or directly offset, areas that have produced varying quantities of oil and natural gas to date. As such, reserves may be partially or completely depleted by offsetting wells or previously drilled wells, which could significantly harm our business.
 
Our lease ownership may be diluted due to financing strategies we may employ in the future due to our lack of capital.
 
To accelerate our development efforts we plan to take on working interest partners who will contribute to the costs of drilling and completion and then share in revenues derived from production. In addition, we may in the future, due to a lack of capital or other strategic reasons, establish joint venture partnerships or farm out all or part of our development efforts. These economic strategies may have a dilutive effect on our lease ownership and could significantly reduce our operating revenues.
 
We are subject to complex laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing business.
 
Development, production and sale of natural gas and oil in the United States are subject to extensive laws and regulations, including environmental laws and regulations. We may be required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation include, but are not limited to:

·  
location and density of wells;
·  
the handling of drilling fluids and obtaining discharge permits for drilling operations;

·  
accounting for and payment of royalties on production from state, federal and Indian lands;
·  
bonds for ownership, development and production of natural gas and oil properties;

·  
transportation of natural gas and oil by pipelines;
·  
operation of wells and reports concerning operations; and

·  
taxation.

Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations enough to possibly force us to cease our business operations.
  
Our operations may expose us to significant costs and liabilities with respect to environmental, operational safety and other matters.
 
We may incur significant costs and liabilities as a result of environmental and safety requirements applicable to our oil and natural gas exploration and production activities. We may also be exposed to the risk of costs associated with Kentucky Corporation Commission requirements to plug orphaned and abandoned wells on our oil and natural gas leases from wells previously drilled by third parties. In addition, we may indemnify sellers or lessors of oil and natural gas properties for environmental liabilities they or their predecessors may have created. These costs and liabilities could arise under a wide range of federal, state and local environmental and safety laws and regulations, including regulations and enforcement policies, which have tended to become increasingly strict over time. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of cleanup and site restoration costs, liens and to a lesser extent, issuance of injunctions to limit or cease operations. In addition, claims for damages to persons or property may result from environmental and other impacts of our operations.
 
Strict, joint and several liability may be imposed under certain environmental laws, which could cause us to become liable for the conduct of others or for consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. New laws, regulations or enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. If we are not able to recover the resulting costs through insurance or increased revenues, our ability to operate effectively could be adversely affected.
 
Our facilities and activities could be subject to regulation by the Federal Energy Regulatory Commission or the Department of Transportation, which could take actions that could result in a material adverse effect on our financial condition.
 
Although it is anticipated that our natural gas gathering systems will be exempt from FERC and DOT regulation, any revisions to this understanding may affect our rights, liabilities, and access to midstream or interstate natural gas transportation, which could have a material adverse effect on our operations and financial condition. In addition, the cost of compliance with any revisions to FERC or DOT rules, regulations or requirements could be substantial and could adversely affect our ability to operate in an economic manner. Additional FERC and DOT rules and legislation pertaining to matters that could affect our operations are considered and adopted from time to time. We cannot predict what effect, if any, such regulatory changes and legislation might have on our operations, but we could be required to incur additional capital expenditures and increased costs.
 
Although our natural gas sales activities are not currently projected to be subject to rate regulation by FERC, if FERC finds that in connection with making sales in the future, we (i) failed to comply with any applicable FERC administered statutes, rules, regulations or orders, (ii) engaged in certain fraudulent acts, or (iii) engaged in market manipulation, we could be subject to substantial penalties and fines of up to $1.0 million per day per violation.
 
We operate in a highly competitive environment and our competitors may have greater resources than us.
 
The natural gas and oil industry is intensely competitive and we compete with other companies, many of which are larger and have greater financial, technological, human and other resources. Many of these companies not only explore for and produce crude oil and natural gas but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. Such companies may be able to pay more for productive natural gas and oil properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, such companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. If we are unable to compete, our operating results and financial position may be adversely affected.

We may incur substantial write-downs of the carrying value of our natural gas and oil properties, which would adversely impact our earnings.
 
We review the carrying value of our natural gas and oil properties under the full-cost accounting rules of the SEC on a quarterly basis. This quarterly review is referred to as a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects. In calculating future net revenues, current prices and costs used are those as of the end of the appropriate quarterly period. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including the effects of derivatives qualifying as cash flow hedges. Two primary factors impacting this test are reserve levels and current prices, and their associated impact on the present value of estimated future net revenues. Revisions to estimates of natural gas and oil reserves and/or an increase or decrease in prices can have a material impact on the present value of estimated future net revenues. Any excess of the net book value, less deferred income taxes, is generally written off as an expense. Under SEC regulations, the excess above the ceiling is not expensed (or is reduced) if, subsequent to the end of the period, but prior to the release of the financial statements, natural gas and oil prices increase sufficiently such that an excess above the ceiling would have been eliminated (or reduced) if the increased prices were used in the calculations.

We will need additional capital to finance our planned growth, which we may not be able to raise or may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.
 
We have and expect to continue to have substantial capital expenditure and working capital needs. We will need to rely on cash flow from operations and borrowings under our credit facility or raise additional cash to fund our operations, pay outstanding long-term debt, fund our anticipated reserve replacement needs and implement our growth strategy, or respond to competitive pressures and/or perceived opportunities, such as investment, acquisition, exploration, workover and development activities.
 
If low natural gas and oil prices, operating difficulties or other factors, many of which are beyond our control, cause our revenues or cash flows from operations to decrease, we may be limited in our ability to spend the capital necessary to complete our development, production exploitation and exploration programs. If our resources or cash flows do not satisfy our operational needs, we will require additional financing, in addition to anticipated cash generated from our operations, to fund our planned growth. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our acquisition, drilling, development, and exploration activities or be forced to sell some of our assets on an untimely or unfavorable basis.
 
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced, and these newly issued securities might have rights, preferences or privileges senior to those of existing stockholders.
 

 
Our success depends on our key management and professional personnel, including Rene Soullier, the loss of whom would harm our ability to execute our business plan.
 
Our success depends heavily upon the continued contributions of Rene Soullier, whose knowledge, leadership and technical expertise would be difficult to replace, and on our ability to retain and attract experienced engineers, geoscientists and other technical and professional staff. We have entered into an employment agreement with Mr. Soullier.  However, we do not maintain key person insurance on Mr. Soullier. If we were to lose his services, our ability to execute our business plan would be harmed and we may be forced to significantly alter our operations until such time as we could hire a suitable replacement for Mr. Soullier.

Risks Associated with our Common Stock
 
Our common stock is traded on an illiquid market, making it difficult for investors to sell their shares.
 
As of April 18, 2008, our common stock commenced trading on the Over-the-Counter Bulletin Board under the symbol “EXOT” (changed to “PNXE” on July 18, 2008) but trading has been minimal. Therefore, the market for our common stock is limited. The trading price of our common stock could be subject to wide fluctuations. Investors may not be able to purchase additional shares or sell their shares within the time frame or at a price they desire.
 
The price of our common stock may be volatile and you may not be able to resell your shares at a favorable price.
 
Regardless of whether an active trading market for our common stock develops, the market price of our common stock may be volatile and you may not be able to resell your shares at or above the price you paid for such shares. The following factors could affect our stock price:

·  
our operating and financial performance and prospects;
·  
quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues;

·  
changes in revenue or earnings estimates or publication of research reports by analysts about us or the exploration and production industry;
·  
potentially limited liquidity;

·  
actual or anticipated variations in our reserve estimates and quarterly operating results;
·  
changes in natural gas and oil prices;

·  
sales of our common stock by significant stockholders and future issuances of our common stock;
·  
increases in our cost of capital;

·  
changes in applicable laws or regulations, court rulings and enforcement and legal actions;
·  
commencement of or involvement in litigation;

·  
changes in market valuations of similar companies;
·  
additions or departures of key management personnel;

·  
general market conditions, including fluctuations in and the occurrence of events or trends affecting the price of natural gas and oil; and
·  
domestic and international economic, legal and regulatory factors unrelated to our performance.

Our articles of incorporation, bylaws and Nevada Law contain provisions that could discourage an acquisition or change of control of us.
 
Our articles of incorporation authorize our board of directors to issue preferred stock and common stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire control of us. In addition, provisions of the articles of incorporation and bylaws could also make it more difficult for a third party to acquire control of us. In addition, Nevada’s “Combination with Interested Stockholders’ Statute” and its “Control Share Acquisition Statute” may have the effect in the future of delaying or making it more difficult to effect a change in control of us.
 
These statutory anti-takeover measures may have certain negative consequences, including an effect on the ability of our stockholders or other individuals to (i) change the composition of the incumbent board of directors; (ii) benefit from certain transactions which are opposed by the incumbent board of directors; and (iii) make a tender offer or attempt to gain control of us, even if such attempt were beneficial to us and our stockholders. Since such measures may also discourage the accumulations of large blocks of our common stock by purchasers whose objective is to seek control of us or have such common stock repurchased by us or other persons at a premium, these measures could also depress the market price of our common stock. Accordingly, our stockholders may be deprived of certain opportunities to realize the “control premium” associated with take-over attempts.
  
We have no plans to pay dividends on our common stock. You may not receive funds without selling your stock.
 
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements, investment opportunities and restrictions imposed by our debentures and credit facility.
 
We may issue shares of preferred stock with greater rights than our common stock.
 
Although we have no current plans, arrangements, understandings or agreements to issue any preferred stock, our articles of incorporation authorizes our board of directors to issue one or more series of preferred stock and set the terms of the preferred stock without seeking any further approval from our stockholders. Any preferred stock that is issued may rank ahead of our common stock, with respect to dividends, liquidation rights and voting rights, among other things.

Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

 
·
Deliver to the customer, and obtain a written receipt for, a disclosure document;
 
·
Disclose certain price information about the stock;

 
·
Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
 
·
Send monthly statements to customers with market and price information about the penny stock; and

 
·
In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
 

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.  More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission.  Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period then we will be ineligible for quotation on the OTC Bulletin Board.  As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.


 
FINRA sales practice requirements may limit a stockholder's ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
 
 
Item 1B. Unresolved Staff Comments.
 
Not applicable.
 
Item 2. Property.

None.     
 
Item 3. Legal Proceedings.
 
We may become involved in various routine legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there are no material pending legal proceedings to which we are a party or to which any of our property is subject.
 
Item 4. Submission of Matters to a Vote of Security Holders.
 
We did not submit any matters to a vote of our security holders during the year ended June 30, 2009.

PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 

(a) Market Information
 

 
PRICE RANGE OF COMMON STOCK
 
 
As of April 18, 2008, our common stock commenced trading on the OTC.BB under the symbol “EXOT” (changed to “PNXE” on July 18, 2008).  Our common stock has traded infrequently on the OTC.BB, which limits our ability to locate accurate high and low bid prices for each quarter within the last two fiscal years. Therefore, the following table lists the quotations for the high and low bid prices as reported by a Quarterly Trade and Quote Summary Report of the OTC Bulletin Board and Yahoo! Finance for fiscal years 2007, 2008, and 2009. The quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not represent actual transactions.


Fiscal 2008 and 2009                                                                                                                                                      Low                      High           
Quarter ended September 30, 2007                                                                                                                                 $    -                      $    -
Quarter ended December 31, 2007                                                                                                                                  $    -                      $    -
Quarter ended March 31, 2008                                                                                                                                         $0.12                   $0.40
Quarter ended June 30, 2008                                                                                                                                            $0.40                   $0.40
Quarter ended September 30, 2008                                                                                                                                  $0.05                   $0.61
Quarter ended December 31, 2008                                                                                                                                   $0.35                   $1.01
Quarter ended March 31, 2009                                                                                                                                          $0.70                   $1.01
Quarter ended June 30, 2009                                                                                                                                             $0.20                   $1.01
Quarter ended September 30, 2009                                                                                                                                   $0.12               $0.25
Interim period ended December 18, 2009                                                                                                                        $0.05                 $0.25

The last reported sale price of our common stock on the OTC.BB was $0.05 per share on December 18, 2009

(b) Holders of Common Stock
 
      As of June 30, 2009, there were 48 holders of record of our common stock.
 
(c) Dividends

We have never paid or declared any cash dividends on our common stock. We currently intend to retain any future earnings to finance the growth and development of our business and we do not expect to pay any cash dividends on our common stock in the foreseeable future. In addition, we are contractually prohibited by the terms of our outstanding debt from paying cash dividends on our common stock. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments, including the consent of debt holders, if applicable at such time, and other factors our board of directors deems relevant.

(d) Securities Authorized for Issuance under Equity Compensation Plans

None.
 
 
Recent Sales of Unregistered Securities

In November 2008, the Registrant issued 200,000 common shares to the John. W. Robbins Revocable Trust of 2008, John W. Robbins, Trustee for professional services in connection with helping the Registrant find and obtain oil and gas leases. The Shares are valued at $.35 per share (based on November 2008 stock price) yielding an aggregate expense of $70,000. The Registrant relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. The Registrant made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one Offeree, (3) the Offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the Offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the Offeree and the Registrant’s management.

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the fiscal years ended June 30 2009 or 2008.
 
Item 6. Selected Financial Data.
 
Not applicable.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to our financial statements included elsewhere in this report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under ITEM 1A. Risk Factors are elsewhere in this report.

OVERVIEW AND OUTLOOK

As a result of our recent change of control, our business focus has been redirected to the oil and natural gas industry. Our corporate strategy is to continue building value in Phoenix Energy through the development and acquisition of gas and oil assets that exhibit consistent, predictable, and long-lived production.

Results of Operations for the Fiscal Years Ended June 30, 2009 and 2008.

We are in the early stage of developing properties in Kentucky and currently have no production or revenues from these properties. Our operations to date have been limited to technical evaluation of the properties and the design of development plans to exploit the oil and gas resources on those properties as well as seeking financing opportunities to acquire additional oil and gas properties.

We will not have any significant production revenue unless and until we are able to establish commercial production in connection with new drilling activities planned for 2010 or in connection with other acquisition activities.  Accordingly, the oil and gas operations reflected in the fiscal year ended June 30, 2009, we believe are not indicative of future oil and gas operations.
 
Our expenses to date have consisted principally of general and administrative costs associated with evaluating other potential acquisitions and raising capital.  We expect these costs to increase as we proceed with our development plans.  Total operating expenses for the fiscal year ended June 30, 2008 were $61,489 compared to $262,531 for the fiscal year ended June 30, 2009.  We had a net loss of $59,474 or ($0.01) per share for the year ended June 30, 2008 compared to a net loss of $281,230 or less than ($0.01) per share for the year ended June 30, 2009.

Operation Plan

Our plan is to acquire oil and natural gas assets, primarily in the mid-continent region of the United States.  However, over time we may expand our area of operations as opportunities to do so become available.  Once these assets are acquired we plan to continue to focus our efforts on increasing production of oil and natural gas, cash flows and enhancing our net asset value.

We expect to achieve these results by:

·  
Investing additional capital in development drilling and in secondary and tertiary recovery of oil as well as natural gas;
·  
Using the latest technologies available to the oil and natural gas industry in our operations;

·  
Finding additional oil and natural gas reserves on the properties we acquire.

Summary

We have several other projects that are in various stages of discussions and we are continually evaluating oil and gas opportunities in Kentucky.  Once a financial partner is selected we plan to bring multiple acquisitions to our current financial partner for evaluation and financing.  It is our vision to grow the business in a disciplined and well thought-through manner.

In addition to raising additional capital we plan to take on Joint Venture (JV) or Working Interest (WI) partners that will contribute to the capital costs of drilling and completion and then share in revenues derived from production. This economic strategy may allow us to utilize our own financial assets toward the growth of our leased acreage holdings, pursue the acquisition of strategic oil and gas producing properties or companies and generally expand our existing operations.

Because of our limited operating history we have yet to generate any revenues from the sale of oil or natural gas. Our activities have been limited to raising capital, negotiating WI agreements, mineral lease acquisition and preliminary analysis of reserves and production capabilities from our mineral lease acquisitions. Consequently, we have incurred the expenses of start-up.

Our future financial results will depend primarily on: (i) the ability to continue to source and screen potential projects; (ii) the ability to discover commercial quantities of natural gas and oil; (iii) the market price for oil and natural gas; and (iv) the ability to fully implement our exploration and development program, which is dependent on the availability of capital resources. There can be no assurance that we will be successful in any of these respects, that the prices of oil and gas prevailing at the time of production will be at a level allowing for profitable production, or that we will be able to obtain additional funding to increase our currently limited capital resources.


 
Liquidity and Capital Resources
 
Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through debt financing and the issuance of equity securities. In the future we anticipate we will be able to provide some of the necessary liquidity we need by the revenues generated from our net interests in our oil and natural gas production, and sales of reserves in our existing properties, however, if we do not generate sufficient sales revenues we will continue to finance our operations through equity and/or debt financings.

We will actively manage our exposure to commodity price fluctuations by executing derivative transactions to hedge the change in prices of our production, thereby mitigating our exposure to price declines, but these transactions will also limit our earnings potential in periods of rising commodity prices. There also is a risk that we will be required to post collateral to secure our hedging activities and this could limit our available funds for our business activities.

The following table summarizes total current assets, total current liabilities and working capital at June 30, 2009 as compared to June 30, 2008.

   
June 30
2009
   
June 30
2008
   
Increase / (Decrease)
 
                   
Current Assets
 
$
2,496
   
$
148,168
   
$
(145,672
)
                         
Current Liabilities
 
$
30,016
   
$
14,456
   
$
15,560
 
                         
Working Capital
 
$
(27,519
)
 
$
133,712
   
$
(161,241
)

At June 30, 2009 we had not generated significant revenues from operations. In addition, the bulk of our prospective revenue generating assets have expired as of June 30, 2009. To the extent that we are unable to find additional sources of financing we do not expect to generate revenues from operations. As a result, the current notes payable balance with accrued interest will be repaid through the issuance of additional common stock. The repayment of our notes payable through the issuance of common stock would significantly increase the total shares issued and outstanding.

At June 30, 2009 we had a note payable to Seymore Investments totaling $150,000.  The note bears interest at a rate of 10% per annum, is unsecured and matures on May 20, 2011. Further, we have the option to repay the note in shares of our common stock at a 15% discount to the five day average trading price as quote on the Over-the Counter Bulletin Board at the time of conversion. At June 30, 2009 we have accrued interest related to this note in the amount of $20,167.

At June 30, 2009 we had a note payable to Helvetic Capital Ventures totaling $35,000.  The note bears interest at an initial rate of 4% per annum, is unsecured and matures on February 26, 2012. Further, we have the option to repay the note in shares of our common stock at a 15% discount to the five day average trading price as quoted on the Over-the Counter Bulletin Board at the time of conversion. At June 30, 2009 we have accrued interest related to this note in the amount of $482.

At June 30, 2009 we had established a second note payable with Helvetic Capital Ventures totaling $50,000, of which we had used $15,000. The note bears interest at an initial rate of 4% per annum, is unsecured and matures on May 31, 2012. Further, we have the option to repay the note in shares of our common stock at a 15% discount to the five day average trading price as quote on the Over-the Counter Bulletin Board at the time of conversion. At June 30, 2009 we have accrued interest related to this note in the amount of $48.

· The notes are repayable at a floating rate below the then-prevailing market price and, as a result, the lower the stock price at the time of repayment, the more common shares the note holder gets.
· The repayment of the notes in common stock may result in substantial dilution to the interests of other holders of common stock and may further depress the stock price.
· Disclose the amount of shares you would have to issue upon repayment of each note using the closing price of your common stock on June 30, 2009. Disclose the percentage of outstanding shares these shares would represent. Provide the same disclosure with respect to accrued interest payments on the notes if you have the same repayment option for the interest payments.

Discussion of Material Balance Sheet Changes from Fiscal 2008 to Fiscal 2009
 
Our total assets amounted to $148,168 at June 30, 2008 compared to $2,496 at June 30, 2009. Our total liabilities increased from $164,456 at June 30, 2008 to $230,016 at June 30, 2009 primarily as a result of our loan agreement with Helvetic Capital Ventures

Satisfaction of our cash obligations for the next 12 months.
 
A critical component of our operating plan is the ability to obtain additional capital through additional equity and/or debt financing and working interest participants. We have not generated sufficient cash revenues to meet our monthly expenses, we still have negative working capital. In the event we cannot obtain additional capital to pursue our strategic plan, however, this would materially impact our ability to continue our aggressive growth. However, there is no assurance we would be able to obtain such financing on commercially reasonable terms, if at all.
 
  We intend to implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Summary of product research and development that we will perform for the term of our plan.
 
 
We do not anticipate performing any significant product research and development under our plan of operation until such time as we can raise adequate working capital to sustain our operations.

Expected purchase or sale of any significant equipment.
 
We anticipate that we will purchase the necessary production and field service equipment required to produce oil and natural gas during our normal course of operations over the next twelve months. We currently estimate this amount to be approximately $1.5 million.
 
Significant changes in the number of employees.
 
As of June 30. 2009, we had 1 full time employee. As drilling and production activities increase, we intend to hire additional technical, operational and administrative personnel as appropriate. We anticipate offering a number of independent contractors in the field full time employment to help secure a more stable work base. We do not anticipate a material increase in expenses from this initiative, as most of these individuals are already included in our current operating and capital expenses. We are using and will continue to use the services of independent consultants and contractors to perform various professional services, particularly in the area of land services, reservoir engineering, drilling, water hauling, pipeline construction, well design, well-site monitoring and surveillance, permitting and environmental assessment. We believe that this use of third-party service providers may enhance our ability to contain general and administrative expenses.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
Critical Accounting Policies and Estimates
 
Our critical accounting estimates include our oil and gas properties, asset retirement obligations and the value of share-based payments.
 
Oil and Gas Properties:
 
The accounting for our business is subject to special accounting rules that are unique to the gas and oil industry. There are two allowable methods of accounting for oil and gas business activities: the successful efforts method and the full-cost method. We will follow the full-cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We also capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include any costs related to production, general corporate overhead or similar activities.
 
Under the full-cost method, capitalized costs are amortized on a composite unit-of-production method based on proved gas and oil reserves. Depreciation, depletion and amortization expense is also based on the amount of estimated reserves. If we maintain the same level of production year over year, the depreciation, depletion and amortization expense may be significantly different if our estimate of remaining reserves changes significantly. Proceeds from the sale of properties are accounted for as reductions of capitalized costs unless such sales involve a significant change in the relationship between costs and the value of proved reserves or the underlying value of unproved properties, in which case a gain or loss is recognized. The costs of unproved properties are excluded from amortization until the properties are evaluated. We review all of our unevaluated properties quarterly to determine whether or not and to what extent proved reserves have been assigned to the properties, and otherwise if impairment has occurred. Unevaluated properties are assessed individually when individual costs are significant.
 
We will review the carrying value of our gas and oil properties under the full-cost accounting rules of the SEC on a quarterly basis. This quarterly review is referred to as a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects. In calculating future net revenues, current prices and costs used are those as of the end of the appropriate quarterly period. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including the effects of derivatives qualifying as cash flow hedges. Two primary factors impacting this test are reserve levels and current prices, and their associated impact on the present value of estimated future net revenues. Revisions to estimates of gas and oil reserves and/or an increase or decrease in prices can have a material impact on the present value of estimated future net revenues. Any excess of the net book value, less deferred income taxes, is generally written off as an expense. Under SEC regulations, the excess above the ceiling is not expensed (or is reduced) if, subsequent to the end of the period, but prior to the release of the financial statements, gas and oil prices increase sufficiently such that an excess above the ceiling would have been eliminated (or reduced) if the increased prices were used in the calculations.
 
The process of estimating gas and oil reserves is very complex, requiring significant decisions in the evaluation of available geological, geophysical, engineering and economic data. The data for a given property may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history and a continual reassessment of the viability of production under changing economic conditions. As a result, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various properties increase the likelihood of significant changes in these estimates.


 
Asset Retirement Obligations:

The asset retirement obligation relates to the plug and abandonment costs when our wells are no longer useful. We determine the value of the liability by obtaining quotes for this service and estimate the increase we will face in the future. We then discount the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future however we monitor the costs of the abandoned wells and we will adjust this liability if necessary.

Recent Accounting Pronouncements
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment to FASB Statement No. 133.” SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement, which is expected to occur in the first quarter of 2009, is not expected to have a material effect on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.
 
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60.” SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.
 
On May 9, 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.” Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP APB 14-1 will be effective for the Company on January 1, 2009. The adoption of FSP APB 14-1 is not expected to have a material impact on the Company’s consolidated results of operations or its consolidated financial position.

On June 16, 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”, to address the question of whether instruments granted in share-based payment transactions are participating securities prior to vesting. FSP EITF 03-6-1 indicates that unvested share-based payment awards that contain rights to dividend payments should be included in earnings per share calculations. The guidance is effective for fiscal years beginning after December 15, 2008. FSP EITF 03-6-1 will be effective for the Company on January 1, 2009. The adoption of FSP EITF 03-6-1 is not expected to have a material impact on the Company’s consolidated results of operations or consolidated financial position.

In June 2008, the FASB issued EITF Issue 07-5 (EITF 07-5), “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Paragraph 11(a) of SFAS No. 133 “Accounting for Derivatives and Hedging Activities”, specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS No. 133 paragraph 11(a) scope exception. EITF 07-5 will be effective for the Company on January 1, 2009. The adoption of EITF 07-5 is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (FSP 03-6-1). FSP 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method described in SFAS No. 128, “Earnings Per Share”. This FSP will be effective for the Company on January 1, 2009 and requires that all prior-period earnings-per-share data that are presented be adjusted retrospectively. The Company does not expect FSP 03-6-1 to have a material impact on its earnings per share calculations.
 
In October 2008, the FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (FSP 157-3). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. As it relates to the Company’s financial assets and liabilities recognized or disclosed at fair value in the Company’s consolidated financial statements on a recurring basis (at least annually), the adoption of FSP 157-3 did not have a material impact on the Company’s consolidated financial statements.

In November 2008, the EITF reached consensus on Issue No. 08-6, “Equity Method Investment Accounting Considerations” (EITF 08-6), which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. The intent of EITF 08-6 is to provide guidance on (i) determining the initial carrying value of an equity method investment, (ii) performing an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment, (iii) accounting for an equity method investee’s issuance of shares, and (iv) accounting for a change in an investment from the equity method to the cost method. EITF 08-6 is effective for the Company’s year beginning January 1, 2009 and is to be applied prospectively. The adoption of Issue No. 08-6 is not expected to have a material impact on the Company’s consolidated financial position or consolidated results of operations.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) About Transfers of Financial Assets and Interest in Variable Interest Entities” (FSP 140-4). FSP 140-4 requires additional disclosure about transfers of financial assets and an enterprise’s involvement with variable interest entities. FSP 140-4 was effective for the first reporting period ending after December 15, 2008. The adoption of FSP 140-4 did not have any impact on the Company’s consolidated financial statements.

In December 2008, the FASB issued FSP No.132 (R)-1, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (FSP 132R-1). FSP 132R-1 requires enhanced disclosures about the plan assets of a Company’s defined benefit pension and other postretirement plans. The enhanced disclosures required by this FSP are intended to provide users of financial statements with a greater understanding of: (1) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (2) the major categories of plan assets; (3) the inputs and valuation techniques used to measure the fair value of plan assets; (4) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) significant concentrations of risk within plan assets. This FSP will be effective for the Company’s year beginning January 1, 2009 and is not expected to have a material impact on its consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165 is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. SFAS 165 adoption did not have an impact on the Company’s financial statements.

In June 2009, the FASB issued SFAS No. 166, a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transferred of financial assets and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.
In June 2009, the FASB issued SFAS No. 167, a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under SFAS No. 167, determining whether a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SFAS 167 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.

In June 2009, the FASB issued SFAS No. 168, the FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles - a Replacement of FASB Statement No. 162 (“SFAS 168”). This Standard establishes the FASB Accounting Standards Codification™ (the “codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. The codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature.


 
Effects of Inflation and Pricing
 
The oil and natural gas industry is very cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry puts extreme pressure on the economic stability and pricing structure within the industry. Material changes in prices impact revenue stream, estimates of future reserves, borrowing base calculations of bank loans and value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and natural gas companies and their ability to raise capital, borrow money and retain personnel. We anticipate the increased business costs will continue while the commodity prices for oil and natural gas, and the demand for services related to production and exploration, both remain high (from a historical context) in the near term.
 
 
The information to be reported under this item is not required of smaller reporting companies.
 
Item 8. Financial Statements and Supplementary Data.
 
Management Responsibility for Financial Information

We are responsible for the preparation, integrity and fair presentation of our financial statements and the other information that appears in this annual report on Form 10-K. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include estimates based on our best judgment.

We maintain a comprehensive system of internal controls and procedures designed to provide reasonable assurance, at an appropriate cost-benefit relationship, that our financial information is accurate and reliable, our assets are safeguarded and our transactions are executed in accordance with established procedures.

Mantyla McReynolds, LLC, an independent registered public accounting firm, is retained to audit our financial statements. Its accompanying report is based on an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Our financial statements and notes thereto, and other information required by this Item 8 are included in this report beginning on page F-1.
 
Item 9. Changes in and Disagreements With Accountants On Accounting and Financial Disclosure.
 
On May 16, 2008, Registrant’s Board of Directors made the decision to change its auditor.  Instead of Lawrence Scharfman & Co., CPA P.C., the Board of Directors decided to retain Mantyla McReynolds, LLC as its independent auditor to review Registrant’s quarterly reports for the quarter ending March 31, 2008 and to audit Registrant’s financial statements for the year ended June 30, 2008. The former auditor, Lawrence Scharfman & Co., CPA P.C., was dismissed effective on May 14, 2008 upon the change in the Registrant’s management. Registrant does not have an audit committee.

In the audit report on the financial statements for the year ended June 30, 2007, Lawrence Scharfman & Co., CPA P.C. disclosed an uncertainty of the Registrant to continue as a going concern. During the two most recent fiscal years and any subsequent interim period through the date of dismissal, there were no disagreements with the former auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of the former auditor, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its reports.

The Company had not consulted with Mantyla McReynolds, LLC on either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any other matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
 
Item 9A(T). Controls and Procedures.
 
Our Chief Executive and Principal Accounting Officer, Rene Soullier, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our Chief Financial Officer concluded that, as of June 30, 2009, our disclosure controls and procedures are effective in ensuring that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Management’s Report on Internal Control over Financial Reporting

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(c) and (d) of the Exchange Act. Our internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, financial disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable and in accordance with generally accepted accounting principles of the United States of America (GAAP).

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

As part of our compliance efforts relative to Section 404 of the Sarbanes-Oxley Act of 2002, our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2009. In making this assessment, management used the criteria set forth in the Internal Control - Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). We evaluated control deficiencies identified through our test of the design and operating effectiveness of controls over financial reporting to determine whether the deficiencies, individually or in combination, are significant deficiencies or material weaknesses. In performing the assessment, our management has identified one material weakness in internal control over financial reporting existing as of June 30, 2009. Our evaluation of the significance of each deficiency included both quantitative and qualitative factors. Based on that evaluation, the Company’s management concluded that as of June 30, 2009 and as of the date that the evaluation of the effectiveness of our internal controls and procedures was completed, the Company’s internal controls are not effective, for the reason discussed below:

Segregation of Duties
   
    As a result of limited employees within the accounting department we were unable to meet certain segregation of duties criteria and did not have existing resources for creating a compensating control mechanism. As of June 30, 2009, during our evaluation of internal controls our Chief Financial Officer identified the inability to include proper segregation of transaction authorization, transaction processing and custody within our accounting department, resulting in a material weakness in our internal controls over financial reporting. Despite our material weakness regarding our segregation of duties, we believe that our financial statements included in this report fairly present in all material respects the Company's financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

Remediation Initiative

We plan to rectify the segregation of duties weakness through a change in our internal control procedures upon gaining sufficient working capital. We have implemented certain processes whereby we are utilizing outside consultants to provide appropriate checks and balances over all functions that could potentially have a material impact on our financial statements. Further, the consulting firm will assist us in implementing additional controls to improve our overall control processes. In addition, it is our intention to hire a minimum of one qualified accounting individual as soon as the necessary financial resources become available.
 
Other than the weakness identified above and our partial remediation of the weakness, there were no other changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits the company to provide only management’s report in this annual report.
 
Item 9B. Other Information.
 
None.


 
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance.
 
The following table sets forth certain information regarding our current directors and executive officers. Our executive officers serve one-year terms.

Name
Age
Position
 
Board Committee(s)
Rene Soullier
34
President, Chief Executive Officer, Principal Financial and Accounting Officer and Chairman, Director
 
None

Rene Soullier has been our President, Chief Executive Officer and Chairman since March 1, 2008.         

Rene Soullier was born in 1975 in Canada. After graduation in 1993 from Summerland Secondary School, Summerland British Columbia, he went on to graduate from Okanagan University College, British Columbia, with a Bachelor of Science in Natural Sciences.  His focal points, in addition to Biology, were Earth and Environmental Sciences including Geology, Physical Geography, Stream Analysis and Field Techniques.

In 2003 Mr. Soullier joined the research team of Summerland Agricultural Research Station where he stayed until beginning of 2006.  Already in the last months of his research project at the end of 2005 Mr. Soullier was appointed a director of a European based company providing business and management consultancy world-wide.  He has specialized in management consultancy for ecologically oriented companies and structures.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of the date of this report they were all current in their 16(a) reports.

Board of Directors

Our board of directors currently consists of one member. Our directors serve one-year terms.

Committees of the Board of Directors

None.

Code of Ethics

We have not adopted a Code of Business Conduct and Ethics at this time.

Limitation of Liability of Directors
 
            Pursuant to the Nevada Revised Statutes, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.

Nevada Anti-Takeover Law and Charter and By-law Provisions
 
Depending on the number of residents in the state of Nevada who own our shares, we could be subject to the provisions of Sections 78.378 et seq. of the Nevada Revised Statutes which, unless otherwise provided in a company’s articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to us.
 
We are subject to the provisions of Sections 78.411 et seq. of the Nevada Revised Statutes. In general, this statute prohibits a publicly held Nevada corporation from engaging in a “combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the combination or the transaction by which the person became an interested stockholder is approved by the corporation’s board of directors before the person becomes an interested stockholder. After the expiration of the three-year period, the corporation may engage in a combination with an interested stockholder under certain circumstances, including if the combination is approved by the board of directors and/or stockholders in a prescribed manner, or if specified requirements are met regarding consideration. The term “combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 10% or more of the corporation’s voting stock. A Nevada corporation may “opt out” from the application of Section 78.411 et seq. through a provision in its articles of incorporation or by-laws. We have not “opted out” from the application of this section.
 
Apart from Nevada law, however, our articles of incorporation and by-laws do not contain any provisions which are sometimes associated with inhibiting a change of control from occurring (i.e., we do not provide for a staggered board, or for “super-majority” votes on major corporate issues). However, we do have 5,000,000 shares of authorized “blank check” preferred stock, which could be used to inhibit a change in control.
 
Item 11. Executive Compensation.
 
The following table sets forth summary compensation information for the fiscal years ended June 30, 2009, 2008 and 2007 for our Chief Executive Officer. We did not have any other executive officers as of the end of fiscal 2009.

Summary Compensation Table
 
 
 
 
 
Name and Principal Position
 
 
 
 
Fiscal Year
 
 
 
 
Salary
($)
 
 
 
 
Bonus ($)
 
 
 
Option Awards
 ($)
 
All Other Compen-sation
($)
 
 
 
 
Total
($)
             
Rene Soullier
President, CEO, Principal Financial and Accounting Officer
2009
2008
2007
$36,000
$36,000(1)
$-0-
-0-
-0-
-0-
-0-
-0-
-0-
     $-0-
     $-0-
     $-0-
$36,000
$36,000
$-0-

(1)  
Mr. Soullier began receiving compensation as of March 1, 2008. We agreed to pay Mr. Soullier a monthly salary of $3,000. Mr. Soullier agreed to defer his salary until financing was secured. As of June 30, 2008, we accrued $12,000 of Mr. Soullier’s salary. Subsequent to June 30, 2008, Mr. Soullier’s accrued salary was paid and Mr. Soullier is no longer accruing salary.

Outstanding Equity Awards at 2009 Fiscal Year-End

 None.

Potential Payments Upon Termination or Change in Control
 
We have not entered into any compensatory plans or arrangements with respect to our named executive officer, which would in any way result in payments to such officer because of his resignation, retirement, or other termination of employment with us or our subsidiaries, or any change in control of, or a change in his responsibilities following a change in control.

Non-Employee Director Compensation

None.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table presents information, to the best of Phoenix Energy’s knowledge, about the ownership of Phoenix Energy’s common stock on June 30, 2009 relating to those persons known to beneficially own more than 5% of Phoenix Energy’s capital stock and by Phoenix Energy’s named executive officer, directors and directors and executive officers as a group. The percentage of beneficial ownership for the following table is based on 62,700,000 shares of common stock outstanding.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after June 24, 2008 pursuant to options, warrants, conversion privileges or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of Phoenix Energy’s common stock.

 
 
Name and Address of Beneficial Owner, Officer or Director(1)
 
 
 
Number
of Shares
 
Percent of Outstanding Shares of Common Stock(2)
Rene Soullier, President & Chief Executive Officer
 
-0-
 
*
 
Directors and Officers as a Group
 
-0-
 
*
         
   Helvetic Capital Ventures AG (3)
        Sihlamtsstrasse 5
        Zurich, Switzerland CH8002
 
40,000,050
 
64%
 
*Represents beneficial ownership of less than 1%
(1)  
As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security).

(2)  
Figures are rounded to the nearest tenth of a percent.
(3)  
Shares are held in the name of Helvetic Capital Ventures AG. But beneficially owned by Dr, Urs Felder who is the President and sole stockholder of Helvetic Capital Ventures AG.

Item 13. Certain Relationships and Related Transactions, and Director Independence.
 
We were not a party to any transactions or series of similar transactions that have occurred during this fiscal year in which:
     
 
 •
 The amounts involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years; and
 
 •
 A director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.
 
Item 14. Principal Accountant Fees and Services.

MantylaMcReynolds, LLC served as our principal independent public accountants for fiscal 2008 and 2009. Aggregate fees billed to us for the fiscal years ended June 30, 2009 and 2008 by MantylaMcReynolds, LLC and Lawrence Scharfman, CPA were as follows:

 
For the Fiscal Years Ended
June 30,
 
 
2009
 
2008
 
         
(1) Audit Fees(1)
 
$
21,966
   
$
4,000
 
(2) Audit-Related Fees(2)
   
-0-
     
-0-
 
(3) Tax Fees(3)
   
-0-
     
-0-
 
(4) All Other Fees
   
-0-
     
-0-
 
Total fees paid or accrued to our principal accountant
 
$
21,966
   
$
4,000
 

(1)  
Audit Fees include fees billed and expected to be billed for services performed to comply with Generally Accepted Auditing Standards (GAAS), including the recurring audit of the Company’s consolidated financial statements for such period included in this Annual Report on Form 10-K and for the reviews of the consolidated quarterly financial statements included in the Quarterly Reports on Form 10-QSB filed with the Securities and Exchange Commission. This category also includes fees for audits provided in connection with statutory filings or procedures related to audit of income tax provisions and related reserves, consents and assistance with and review of documents filed with the SEC.
(2)  
Audit-Related Fees include fees for services associated with assurance and reasonably related to the performance of the audit or review of the Company’s financial statements. This category includes fees related to assistance in financial due diligence related to mergers and acquisitions, consultations regarding Generally Accepted Accounting Principles, reviews and evaluations of the impact of new regulatory pronouncements, general assistance with implementation of Sarbanes-Oxley Act of 2002 requirements and audit services not required by statute or regulation.
(3)  
Tax fees consist of fees related to the preparation and review of the Company’s federal and state income tax returns.

PART IV
 
Item 15. Exhibits, Financial Statement Schedules.
 
The following information required under this item is filed as part of this report:

(a) 1. Financial Statements

   
Page
Management Responsibility for Financial Information
 
62
Management’s Report on Internal Control Over Financial Reporting
 
63
Index to Financial Statements
 
F-19
Report of Independent Registered Public Accounting Firm
 
F-20
Consolidated Balance Sheets
 
F-21
Consolidated Statements of Operations
 
F-22
Consolidated Statements of Stockholders Equity
 
F-23
Consolidated Statements of Cash Flows
 
F-24

2. Financial Statement Schedules

None.

3. Exhibit Index

Exhibit No.                                           
Description
 
 
10.1         Change of Control Agreement
10.2         Loan Agreement with Seymore
10.3         Assignment of Overriding Royalty Interest ***
10.4         Assignment Oil & Gas Lease ***
10.5         Operating Agreement ***
10.6         Assignment of Overriding Royalty Interest ***
10.7         Assignment Oil & Gas Lease ***
10.8         Loan Agreement with Helvetic

*** As previously filed on the 8-K dated October 21, 2008

 

 
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.
 
 
PHOENIX ENERGY RESOURCES, INC.
 
By: /s/ Rene Soullier                                                                           
                  Rene Soullier, Chief Executive Officer
 
Date:  December 18, 2009
 
Pursuant to the 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.
 
Name
Title
Date
     
/s/ Rene Soullier                                           
Rene Soullier
President, Chief Executive Officer, (Principal Executive Officer), Principal Accounting/Financial Officer, Secretary, Chairman
December 18, 2009




 
Index to Financial Statements
 

Page
Index to Financial Statements                                                                                                                       F-19
Report of Independent Registered Public Accounting Firm                                                                F-20
Consolidated Balance Sheets at June 30, 2009 and 2008                                                                    F-21
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2009 and 2008        F-22
Consolidated Statement of Stockholders’ Equity (Deficit) for the Fiscal Years
Ended June 30, 2009 and 2008                                                                                                              F-23
Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30, 2009 and 2008        F-24
Notes to Consolidated Financial Statements                                                                                            F-25
 
 


 
Report of Independent Registered Public Accounting Firm


Stockholders and Directors
Phoenix Energy Resource Corporation


We have audited the accompanying balance sheets of Phoenix Energy Resource Corporation (an exploration stage company) as of June 30, 2009 and 2008, and the related statements of operations, stockholders’ equity/(deficit), and cash flows for the years ended June 30, 2009 and 2008 and for the period from June 3, 2005 (inception) through June 30, 2009. These financial statements are the responsibility of the Company’s management.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits 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.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits 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 Phoenix Energy Resource Corporation as of June 30, 2009 and 2008 and the results of its operations, stockholders’ equity and cash flows for the years ended June 30, 2009 and 2008 and for the period from June 3, 2005 through June 30, 2009, 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.  The Company is an exploration stage enterprise and as of the date of our report, had not fully implemented its planned principal operations and as such has not generated recurring revenues within its current business plan.  As discussed in Note 8 to the financial statements, the Company has accumulated losses and negative cash flow from operations and a deficit in working capital.  These issues raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regards to these matters are also described in Note 8.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/S/ MantylaMcReynolds, LLC

MantylaMcReynolds, LLC
Salt Lake City, Utah

December 18, 2009
 
 





Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Balance Sheet

   
At June 30,
 
   
2009
   
2008
 
Assets
           
Current assets:
           
Cash
 
$
2,496
   
$
140,576
 
Prepaid expenses
   
-
     
7,592
 
Total current assets
   
2,496
     
148,168
 
                 
Other assets:
               
Capitalized oil and gas properties, full cost method
   
-
     
-
 
                 
Total assets
 
$
2,496
   
$
148,168
 
                 
Liabilities and Stockholders’ Equity (Deficit)
               
Current liabilities:
               
Accounts payable
 
$
1,318
   
$
-
 
Accrued liabilities
   
5,000
     
1,043
 
Accrued interest
   
20,167
     
1,413
 
Accrued interest – related party
   
531
     
-
 
Accrued compensation – related party
   
3,000
     
12,000
 
Total current liabilities
   
30,016
     
14,456
 
                 
Long term liabilities:
               
Note payable
   
150,000
     
150,000
 
Note payable – related party
   
50,000
     
-
 
Total long-term liabilities
   
200,000
     
150,000
 
                 
Total Liabilities
 
$
230,016
   
$
164,456
 
                 
Stockholders’ Equity (Deficit):
               
Preferred stock, $0.001 par value, 5,000,000
               
shares authorized, no shares issued and outstanding
   
-
     
-
 
Common stock, $0.001 par value, 100,000,000 shares authorized;
               
shares issued and outstanding – 62,700,000 at June 30, 2009
               
and 62,500,000 at June 30, 2008
   
62,700
     
62,500
 
Additional paid in capital
   
97,300
     
27,500
 
(Deficit) accumulated during development stage
   
(387,519
)
   
(106,288
)
Total stockholders’ equity (deficit)
   
(227,519
)
   
(16,288
)
                 
Total liabilities and stockholders’ equity (deficit)
 
$
2,496
   
$
148,168
 

The accompanying notes are an integral part of these financial statements
 


 
Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Statements of Operations
 
         
June 30, 2005
 
   
Years Ended June 30,
   
(Inception) to
 
   
2009
   
2008
   
June 30, 2009
 
                   
Revenue
 
$
-
   
$
-
   
$
-
 
                         
                         
Expenses:
                       
Consulting
   
83,060
     
-
     
90,060
 
Executive compensation
   
36,000
     
12,000
     
48,000
 
General and administrative
   
14,847
     
9,414
     
24,585
 
Professional fees
   
62,909
     
40,075
     
114,484
 
Impairment Expense
   
65,069
     
-
     
65,069
 
Other expense
   
646
     
-
     
646
 
Total operating expenses
   
262,531
     
61,489
     
342,844
 
                         
Net operating (loss)
   
(262,531
)
   
(61,489
)
   
(342,844
)
                         
Other income (expense):
                       
Debt forgiveness
   
-
     
3,000
     
3,000
 
Interest expense
   
(19,284
)
   
(1,413
)
   
(20,697
)
Interest income
   
585
     
428
     
1,023
 
Total other income (expense)
   
(18,699
)
   
2,015
     
(16,674
)
                         
Net (loss)
 
$
(281,230
)
 
$
(59,474
)
 
$
(359,518
)
                         
Weighted average number of common shares outstanding – basic and diluted
   
62,700,000
     
58,442,623
         
                         
Net (loss) per share – basic and diluted
 
$
(0.01
)
 
$
(0.01
)
       

 

The accompanying notes are an integral part of these financial statements
 


 
Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Statements of Stockholders’ Equity (Deficit)
                           
Additional
         
Accumulated
   
Total
 
   
Preferred Stock
   
Common Stock
   
Paid-in
   
Subscription
   
Development
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Payable
   
Stage (deficit)
   
Equity
 
 June 3, 2005 – Founders shares
   
-
     
-
   
$
35,000,000
   
$
35,000
     
-
     
-
   
$
(28,000
)
 
$
7,000
 
                                                                 
Net (loss), June 3, 2005 to June 30, 2005
                                                   
(7,000
)
   
(7,000
)
                                                                 
Balance, June 30, 2005
   
-
     
-
     
35,000,000
     
35,000
     
-
     
-
     
(35,000
)
   
-
 
                                                                 
Shares issued for professional services
   
-
     
-
     
2,500,000
     
2,500
     
2,500
     
-
     
-
     
5,000
 
                                                                 
Net (loss), June 30, 2006
   
-
     
-
     
-
     
-
     
-
     
-
     
(5,000
)
   
(5,000
)
                                                                 
Balance, June 30, 2006
   
-
     
-
     
37,500,000
     
37,500
     
2,500
     
-
     
(40,000
)
   
-
 
                                                                 
Shares issued for cash
   
-
     
-
     
2,500,000
     
2,500
     
2,500
     
-
     
-
     
5,000
 
                                                                 
Subscription payable
   
-
     
-
     
-
     
-
     
-
     
27,500
     
-
     
27,500
 
                                                                 
Net (loss), June 30, 2007
   
-
     
-
     
-
     
-
     
-
     
-
     
(6,814
)
   
(6,814
)
                                                                 
Balance, June 30, 2007
   
-
     
-
     
40,000,000
     
40,000
     
5,000
     
27,500
     
(46,814
)
   
25,686
 
                                                                 
Shares issued per subscriptionAgreement
   
-
     
-
     
22,500,000
     
22,500
     
22,500
     
(27,500
)
   
-
     
17,500
 
                                                                 
Net (loss), June 30, 2008
   
-
     
-
     
-
     
-
     
-
     
-
     
(59,474
)
   
(59,474
)
                                                                 
Balance, June 30, 2008
   
-
     
-
     
62,500,000
     
62,500
     
27,500
     
-
     
(106,288
)
   
(16,288
)
                                                                 
Shares issued for cash
   
-
     
-
     
200,000
     
200
     
69,800
     
-
     
-
     
70,000
 
                                                                 
Net (loss), June 30, 2009
   
-
     
-
     
-
     
-
     
-
     
-
     
(281,230
)
   
(281,230
)
                                                                 
 Balance, June 30, 2009
                 
$
62,700,000
   
$
62,700
   
$
97,300
     
-
   
$
(387,518
)
 
$
(227,519
)
 
 

The accompanying notes are an integral part of these financial statements
 


 
Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Statements of Cash Flows

               
June 30, 2005
 
   
Years Ended June 30,
   
(inception) to
 
   
2009
   
2008
   
June 30, 2009
 
Cash flows from operating activities
                 
Net (loss)
 
$
(281,230
)
 
$
(59,474
)
 
$
(359,518
)
Adjustments to reconcile net (loss) to net cash used by operating activities:
                       
Shares issued for services
   
70,000
     
-
     
82,000
 
Prepaid expenses
   
7,592
     
(7,592
)
   
-
 
Accounts payable
   
1,318
     
(4,000
)
   
1,318
 
Accrued liabilities
   
3,957
     
1,043
     
5,000
 
Accrued interest
   
19,284
     
1,413
     
20,697
 
Accrued salaries – related party
   
(9,000
)
   
12,000
     
3,000
 
Lease impairment
   
(65,069
)
           
(65,069
)
Net cash used by operating activities
   
(253,148
)
   
(56,610
)
   
(312,572
)
                         
Cash flows from investing activities
                       
Unevaluated oil and gas properties-purchases
   
65,069
     
-
     
65,069
 
Net cash used by investing activities
   
65,069
     
-
     
65,069
 
                         
Cash flows from financing activities
                       
Proceeds from notes payable
   
50,000
     
150,000
     
200,000
 
Subscription payable
   
-
     
-
     
27,500
 
Restricted cash
   
-
     
27,476
     
27,476
 
Issuance of common stock
   
-
     
17,500
     
22,500
 
Net cash provided by financing activities
   
50,000
     
194,976
     
277,476
 
                         
Net increase in cash
   
(138,080
)
   
138,366
     
29,972
 
Cash, beginning
   
140,576
     
2,210
     
142,786
 
Cash, ending
 
$
2,496
   
$
140,576
   
$
172,758
 
                         
Supplemental disclosures:
                       
Interest paid
 
$
-
   
$
-
   
$
-
 
Income taxes paid
 
$
-
   
$
-
   
$
-
 
                         
Non cash transactions:
                       
Shares issued for services
 
$
70,000
   
$
-
   
$
82,000
 
Shares issued for stock subscription payable
 
$
-
   
$
27,500
   
$
-
 
 
The accompanying notes are an integral part of these financial statements
 


Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Notes to Financial Statements

NOTE 1:                      ORGANIZATION AND NATURE OF BUSINESS

Phoenix Energy, formerly known as Exotacar, Inc., is an energy acquisition, exploration and development company. In February of 2008, Exotacar, Inc. changed the focus of its business plan from the development of online exotic car sales and entered into the oil and natural gas industry. In conjunction with the change, the company was renamed Phoenix Energy Resource Corporation.

Our principal strategy is to focus on the acquisition of oil and natural gas mineral leases that ideally have existing production and cash flow. Once acquired, we will implement an accelerated development program utilizing capital resources, a regional operating focus, an experienced management and technical team, and enhanced recovery technologies to attempt to increase production and increase returns for our stockholders. Our oil and natural gas acquisition and development activities are currently focused in Southern Kentucky.

Our land acquisition and field operations, along with various other services, are primarily outsourced through the use of consultants and drilling partners.  The Company will continue to retain independent contractors to assist in operating and managing the prospects as well as to carry out the principal and necessary functions incidental to the oil and gas business.  With the acquisition of oil and natural gas properties, the Company intends to continue to use both in-house employees and outside consultants to develop and exploit its leasehold interests.

As an independent oil and gas producer, the Company’s future revenue, profitability and rate of growth are substantially dependent on prevailing prices of natural gas and oil.  Historically, the energy markets have been very volatile and it is likely that oil and gas prices will continue to be subject to wide fluctuations in the future.  A substantial or extended decline in natural gas and oil prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows and access to capital, and on the quantities of natural gas and oil reserves that can be economically produced. 

NOTE 2:                      SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

Cash, Cash Equivalents, and Long-Term Investments

The Company considers highly liquid investments with insignificant interest rate risk and original maturities to the Company of three months or less to be cash equivalents.  Cash equivalents consist primarily of interest-bearing bank accounts and money market funds.  Our cash positions represent assets held in checking accounts.  These assets are generally available to us on a daily or weekly basis and are highly liquid in nature.  Due to the balances being less than $250,000, we have FDIC coverage on the entire amount of bank deposits.

Other Property and Equipment

Property and equipment that are not oil and gas properties are recorded at cost and depreciated using the straight-line method over their estimated useful lives.  Expenditures for replacements, renewals, and betterments are capitalized.  Maintenance and repairs are charged to operations as incurred.  Long-lived assets, other than oil and gas properties, are evaluated for impairment to determine if current circumstances and market conditions indicate the carrying amount may not be recoverable.  We have not recognized any impairment losses on non oil and gas long-lived assets.  There was no depreciation expense recognized for the year ended June 30, 2009 since we had no property and equipment that was not oil and gas properties.



Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Notes to Financial Statements
Asset Retirement Obligations

The Company records the fair value of a liability for an asset retirement obligation in the period in which the asset is acquired and a corresponding increase in the carrying amount of the related long-lived asset.  The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.  If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. As of June 30, 2009 we had no asset retirement obligation.
Revenue Recognition and Gas Balancing

We recognize oil and gas revenues from our interests in producing wells when production is delivered to, and title has transferred to, the purchaser and to the extent the selling price is reasonably determinable.  We use the sales method of accounting for gas balancing of gas production and would recognize a liability if the existing proven reserves were not adequate to cover the current imbalance situation.  As of June 30, 2009 and 2008, we had no gas production and no recognized oil and gas revenues.
 
Income Taxes

The Company accounts for income taxes under FASB Statement No. 109, “Accounting for Income Taxes.”  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  SFAS 109 requires the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

Stock Issuance

The Company records the stock-based compensation awards issued to non-employees and other external entities for goods and services at either the fair market value of the goods received or services rendered on the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in EITF No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods, or Services.”

Net Income (Loss) Per Common Share

Net Income (Loss) per common share is based on the Net Income (Loss) divided by weighted average number of common shares outstanding.

Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method.  As the Company has a loss for the periods ended June 30, 2009 and 2008 the potentially dilutive shares are anti-dilutive and are thus not added into the earnings per share calculation.

Full Cost Method

The Company follows the full cost method of accounting for oil and gas operations whereby all costs related to the exploration and development of oil and gas properties are initially capitalized into a single cost center (“full cost pool”).  Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities.  Internal costs that are capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to the production, general corporate overhead or similar activities.  Costs associated with production and general corporate activities are expensed in the period incurred.


 
Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Notes to Financial Statements

As of June 30, 2009 we controlled approximately 69 net acres of leaseholds in Kentucky. See Note 4 for an explanation of activities on these properties.

Proceeds from property sales will generally be credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs.  A significant alteration would typically involve a sale of 25% or more of the proved reserves related to a single full cost pool.

Use of Estimates
 
The preparation of financial statements under generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The most significant estimates relate to proved oil and natural gas reserve volumes, future development costs, estimates relating to certain oil and natural gas revenues and expenses, and deferred income taxes.  Actual results may differ from those estimates.

Impairment

SFAS 144, Accounting for the Impairment and Disposal of Long-Lived Assets, requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Oil and gas properties accounted for using the full cost method of accounting (which we use) are excluded from this requirement but continue to be subject to the full cost method’s impairment rules.

New Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial and Accounting Standards (“SFAS”) No. 141(R), “Business Combinations.”  SFAS 141(R) changes the accounting for and reporting of business combination transactions in the following way:  Recognition with certain exceptions of 100% of the fair values of assets acquired, liabilities assumed, and non controlling interests of acquired businesses; measurement of all acquirer shares issued in consideration for a business combination at fair value on the acquisition date; recognition of contingent consideration arrangements at their acquisition date fair values, with subsequent changes in fair value generally reflected in earnings; recognition of pre-acquisition gain and loss contingencies at their acquisition date fair value; capitalization of in-process research and development (IPR&D) assets acquired at acquisition date fair value; recognition of acquisition-related transaction costs as expense when incurred; recognition of acquisition-related restructuring cost accruals in acquisition accounting only if the criteria in Statement No. 146 are met as of the acquisition date; and recognition of changes in the acquirer’s income tax valuation allowance resulting from the business combination separately from the business combination as adjustments to income tax expense.  SFAS No. 141(R) is effective for the first annual reporting period beginning on or after December 15, 2008 with earlier adoption prohibited.  The adoption of SFAS No. 141(R) will affect valuation of business acquisitions made in fiscal year 2010 and forward.

In December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interest in Consolidated Financial Statements – an Amendment of ARB 51.”  SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  It also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest, and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest.  SFAS 160 is


Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Notes to Financial Statements

effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Earlier adoption is prohibited.  We do not anticipate a material impact upon adoption.

In March 2008, the FSAB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.”  SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows.  SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  This Statement does not impact the financial results as it is disclosure-only in nature.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS No. 165). SFAS No. 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS No. 165 is effective prospectively for interim and annual periods ending after June 15, 2009. The implementation of this standard did not have a material impact on the Company’s financial position and results of operations. The Company has evaluated subsequent events through December 18, 2009, the date of issuance of the Company’s financial position and results of operations.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets” (SFAS No. 166). SFAS No. 166 amends the derecognition guidance in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140). SFAS No. 166 is effective for fiscal years beginning after November 15, 2009. The Company is currently assessing the impact of SFAS No. 166 on its financial position and results of operations.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”). FAS 167 amends FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, (“FIN 46 (R)”) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires a qualitative analysis to determine whether an enterprise’s variable interest gives it a controlling financial interest in a variable interest entity. FAS 167 amends certain guidance in FIN 46(R) for determining whether an entity is a variable interest entity. This statement also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. FAS 167 will be effective as of the beginning of the Company’s 2011 fiscal year. The Company is currently evaluating the impact of the adoption of FAS 167.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (“FAS 168”). Under FAS 168, the FASB Accounting Standards Codification™ (the “Codification”) will become the exclusive source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all then-existing non-SEC accounting and reporting standards, with the exception of certain non-SEC accounting literature which will become non-authoritative. FAS 168 is effective for the Company’s 2010 first fiscal quarter. The adoption of FAS 168 will not have a material impact on the Company’s Financial Statements. All references to U.S. GAAP provided in the notes to the Financial Statements will be updated to conform to the Codification.



 
Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Notes to Financial Statements
 
 
NOTE 3:                      OIL AND GAS PROPERTIES
 
Acquisitions

In September of 2008, we acquired mineral leases representing a total of 483 gross acres located in Allen County Kentucky. As of June 30, 2009 leases representing a total of 411 acres had expired because of exploration and production inactivity, the remaining 72 acres expired September 30, 2009 because of exploration and production inactivity. 
The Company established a valuation allowance for this asset due to the fact that it is unlikely that the company will develop these leases prior to expiration of the lease contact on September 30, 2009.

   
June 30,
 
   
2009
   
2008
 
Oil and Gas Properties, Full Cost Method
           
  Unevaluated Costs, Not Subject to Amortization
 
$
9,763
   
$
-
 
  Less: Valuation Allowance
 
$
(9,763
 
$
-
 
   
$
-
   
$
-
 
 
NOTE 4:                      RELATED PARTY TRANSACTIONS

On February 1, 2008, we entered into an employment agreement with Mr. Soullier, our sole executive officer and director. The initial term of the agreement is one year commencing on March 1, 2008 with annual compensation of $36,000. In addition, we have agreed to provide Mr. Soullier a company vehicle upon securing our initial financing.  The agreement will renew annually and may be terminated by either party with 6 month written notice. Further, Mr. Soullier has agreed to defer his compensation until such point we have obtained sufficient working capital through our financing efforts. As of June 30, 2009 and 2008, we have accrued $0 and $3,000 in executive compensation, respectively.

NOTE 5:                      INCOME TAXES

The Company utilizes the asset and liability approach to measuring deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates in accordance with SFAS No. 109, “Accounting for Income Taxes”.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

In June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes, and Interpretation of FASB Statement No. 109” (FIN 48).  Under FIN 48, tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities.  The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement.  Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.

Upon the adoption of FIN 48, we had no liabilities for unrecognized tax benefits and, as such, the adoption had no impact on our financial statements, and we have recorded no additional interest or penalties.  The adoption of FIN 48 did not impact our effective tax rates.
 

Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Notes to Financial Statements

Our policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense.  For the years ended June 30, 2009 and 2008, we did not recognize any interest or penalties in our Statement of Operations, nor did we have any interest or penalties accrued in our Balance Sheet at June 30, 2009 and 2008 relating to unrecognized benefits.

The provision for income taxes consists of the following:
   
2009
   
2008
 
Current tax
           
Deferred tax benefit
 
$
(95,618
)
 
$
(20,221
)
Benefits of operating loss carryforwards
   
95,618
     
20,221
 
Provision for Income Tax
 
$
-
   
$
-
 

Below is a summary of deferred tax asset calculations on net operating loss carry forward amounts as of June 30, 2009. Currently there is no reasonable assurance that the Company will be able to take advantage of a deferred tax asset. Thus, an offsetting allowance has been established for the deferred asset. Furthermore, the Company has determined that prior net operating loss carry forwards were nullified with the Company’s change in business plan.  The Company’s beginning deferred tax asset and valuation allowance were reduce to zero.

Description
 
NOL Balance
   
Tax
   
Rate
 
Net Operating Loss
   
278,230
   
$
94,598
     
34
%
Accrued compensation – related party
   
3,000
     
1,020
     
34
%
Valuation Allowance
           
(95,618
)
       
Deferred Tax Asset – 6/30/2009
         
$
-
         

The Company has the following operating loss carry forwards available at June 30, 2009:

Operating Losses Expires
 
Amount
 
2022
   
47,474
 
2023
   
230,756
 

Reconciliation between income taxes at the statutory tax rate (34%) and the actual income tax provision for continuing operations follows:

   
2009
   
2008
 
Expected Tax Provision
 
$
(95,618
)
 
$
(20,221
)
Effect of:
               
  Graduated rates
               
  Increase in Valuation allowance
   
95,618
     
20,221
 
Actual Tax Provision
 
$
-
   
$
-
 

NOTE 6:                      STOCKHOLDERS’ EQUITY

The Company is authorized to issue 5,000,000 shares of $0.001 par value preferred stock and 100,000,000 shares of $0.001 par value common stock. On April 17, 2008, our Board of Directors resolved to effectuate a 50:1 forward split of the Company’s common stock.  The Company has retroactively stated all share amounts.
·  
On September 4, 2007, the Company issued 22,500,000 shares [450,000 pre-split] of its $0.001 par value common stock to 47 investors for cash totaling $45,000.
·  
On October 22, 2008, the Company issued 200,000 shares of its common stock as a bonus for services rendered in connection with the acquisition of our mineral leases.
 
 
 

Phoenix Energy Resource Corporation
(formerly Exotacar, Inc.)
(an Exploration Stage Company)
Notes to Financial Statements

NOTE 7:                      NOTES PAYABLE

At June 30, 2009 we had a note payable to Seymore Investments totaling $150,000.  The note bears interest at a rate of 10% per annum, is unsecured and matures on May 20, 2011. Further, we have the option to repay the note in shares of our common stock at a 15% discount to the five day average trading price as quote on the Over-the Counter Bulletin Board at the time of conversion. At June 30, 2009 we have accrued interest related to this note in the amount of $20,167.

At June 30, 2009 we had a note payable to Helvetic Capital Ventures totaling $35,000.  The note bears interest at an initial rate of 4% per annum, is unsecured and matures on February 26, 2012. Further, we have the option to repay the note in shares of our common stock at a 15% discount to the five day average trading price as quoted on the Over-the Counter Bulletin Board at the time of conversion. At June 30, 2009 we have accrued interest related to this note in the amount of $482.

At June 30, 2009 we had established a second note payable with Helvetic Capital Ventures totaling $50,000, of which we had used $15,000. The note bears interest at an initial rate of 4% per annum, is unsecured and matures on May 31, 2012. Further, we have the option to repay the note in shares of our common stock at a 15% discount to the five day average trading price as quote on the Over-the Counter Bulletin Board at the time of conversion. At June 30, 2009 we have accrued interest related to this note in the amount of $48.

· The notes are repayable at a floating rate below the then-prevailing market price and, as a result, the lower the stock price at the time of repayment, the more common shares the note holder gets.
· The repayment of the notes in common stock may result in substantial dilution to the interests of other holders of common stock and may further depress the stock price.
· Disclose the amount of shares you would have to issue upon repayment of each note using the closing price of your common stock on June 30, 2009. Disclose the percentage of outstanding shares these shares would represent. Provide the same disclosure with respect to accrued interest payments on the notes if you have the same repayment option for the interest payments.


NOTE 8:                      GOING CONCERN

The accompanying financial statements have been prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. For the Company to continue as a going concern we must seek additional sources of capital, and must attain future profitable operations. We are currently initiating our business plan and also in the process of raising additional capital. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.  There are pertinent conditions and events giving rise to the assessment of substantial doubt about the entity’s ability to continue as a going concern for a period not to exceed one year from the balance sheet date.

NOTE 9:                    SUBSEQUENT EVENTS

As of June 30, 2009 the Company owned lease(s) representing 72 acres. Under the terms of the lease the Company was required to explore and develop the leased assets within one year of the original lease date. Subsequent to year end, the remaining lease assets had expired as a result of inactivity; therefore, as of September 30, 2009 the Company no longer has ownership of any mineral lease assets.