Attached files
file | filename |
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EX-31.1 - CERTIFICATION - MAVERICK MINERALS CORP | exhibit31-1.htm |
EX-32.1 - CERTIFICATION - MAVERICK MINERALS CORP | exhibit32-1.htm |
EX-10.19 - DEBT SETTLEMENT AGREEMENT - MAVERICK MINERALS CORP | exhibit10-19.htm |
EX-10.20 - DATA PURCHASE AGREEMENT - MAVERICK MINERALS CORP | exhibit10-20.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission File No. 000-25515
MAVERICK MINERALS
CORPORATION
(Exact name of registrant as specified in
its charter)
Nevada | 88-0410480 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2501 Lansdowne Avenue, Saskatoon, Saskatchewan S7J
1H3
(Address of principal executive offices) (zip code)
306.343.5799
(Registrants telephone
number, including area code)
Not Applicable
(Former name, former
address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
[ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [X] |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [
] No [X]
2
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING
THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after
distribution of securities under a plan confirmed by a court.
Yes
[ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common equity as of the latest practicable date: As of August 13, 2010, there were 10,876,646 shares of common stock, par value $0.001, outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
3
MAVERICK MINERALS CORPORATION
(An Exploration
Stage Company)
Consolidated Balance
Sheets
Unaudited
(Expressed in U.S. Dollars)
June 30 | December 31 | |||||
2010 | 2009 | |||||
Current Assets | ||||||
Cash | $ | - | $ | 6,024 | ||
Advances to related party (Note 6) | 17,654 | - | ||||
TOTAL CURRENT ASSETS | 17,654 | 6,024 | ||||
Long term asset | ||||||
Oil and gas leases (Note 3) | 602,229 | 571,195 | ||||
TOTAL ASSETS | $ | 619,883 | $ | 577,219 | ||
Current Liabilities | ||||||
Bank overdraft | $ | 3,345 | $ | - | ||
Accounts payable | 132,728 | 86,025 | ||||
Accrued liabilities | 1,000 | 11,582 | ||||
Convertible debt (Note 5) | 135,625 | 135,625 | ||||
Loans payable (Note 4) | 751,069 | 606,519 | ||||
TOTAL CURRENT LIABILITIES | 1,023,767 | 839,751 | ||||
Long term liabilities | ||||||
Loans payable (Note 4) | 357,750 | 357,750 | ||||
TOTAL LIABILITIES | 1,381,517 | 1,197,501 | ||||
Capital Deficit | ||||||
Capital Stock (Note 7) | ||||||
Common Shares Authorized: | ||||||
750,000,000 common shares at $0.001 par value | ||||||
Issued and fully paid 10,476,721 (2009 -10,476,721) common share | ||||||
Par value | 10,477 | 10,477 | ||||
Additional paid-in capital | 4,604,455 | 4,604,455 | ||||
Deficit, accumulated during the exploration stage | (5,377,439 | ) | (5,236,087 | ) | ||
Accumulated other comprehensive income | 873 | 873 | ||||
TOTAL CAPITAL DEFICIT | (761,634 | ) | (620,282 | ) | ||
TOTAL LIABILITIES AND CAPITAL DEFICIT | $ | 619,883 | $ | 577,219 |
The accompanying notes are an intergral part of these financial
statements
F-1
MAVERICK MINERALS CORPORATION
(An Exploration
Stage Company)
Consolidated Statements of Operations and Comprehensive
Loss
Unaudited
(Expressed in U.S. Dollars)
Cumulative | |||||||||||||||
Date of | |||||||||||||||
(April 21, 2003) | Three Months Ended | Six Months Ended | |||||||||||||
to June 30 | June 30 | June 30 | |||||||||||||
2010 | 2010 | 2009 | 2010 | 2009 | |||||||||||
General and administration expenses | |||||||||||||||
Audit fees | $ | 350,101 $ | 25,916 | $ | 24,890 | 37,436 | 36,616 | ||||||||
Freight | 7,600 | - | - | - | - | ||||||||||
Insurance | 186,297 | - | - | - | - | ||||||||||
Accounting, legal, engineering & consulting | |||||||||||||||
investor relations | 316,273 | 10,656 | 21,288 | 22,180 | 28,738 | ||||||||||
Management fees and stock based compensation (Notes 6 and 8 | 1,001,839 | 22,500 | 22,500 | 45,000 | 45,000 | ||||||||||
Office | 65,323 | 3,299 | 674 | 4,407 | 1,225 | ||||||||||
Telephone and utilities | 83,059 | - | - | - | - | ||||||||||
Transfer agent fees | 23,795 | - | 2,478 | 895 | 2,478 | ||||||||||
Travel | 220,899 | 7,469 | 3,244 | 13,207 | 7,413 | ||||||||||
Wages and benefits | 86,588 | - | - | - | - | ||||||||||
Gain on disposal of assets | (795,231 | ) | - | - | - | - | |||||||||
(1,546,543 | ) | (69,840 | ) | (75,074 | ) | (123,125 | ) | (121,470 | ) | ||||||
Other income (expenses) | |||||||||||||||
Interest expense | (80,507 | ) | (9,841 | ) | - | (19,573 | ) | - | |||||||
Loss on settlement of loans payable (Note 7) | (3,204,100 | ) | - | - | - | (3,132,500 | ) | ||||||||
Gain (loss) on foreign exchange | (8,962 | ) | 2,305 | (3,347 | ) | 1,346 | (3,347 | ) | |||||||
Gain on liabilities write-off | 612,373 | - | - | - | - | ||||||||||
(2,681,196 | ) | (7,536 | ) | (3,347 | ) | (18,227 | ) | (3,135,847 | ) | ||||||
Loss from continuing operations | (4,227,739 | ) | (77,376 | ) | (78,421 | ) | (141,352 | ) | (3,257,317 | ) | |||||
Loss from discontinued operations | (1,149,700 | ) | - | - | - | - | |||||||||
Loss for the period | (5,377,439 | ) | (77,376 | ) | (78,421 | ) | (141,352 | ) | (3,257,317 | ) | |||||
Other Comprehensive Income | |||||||||||||||
Foreign currency translation adjustments | 873 | - | - | - | - | ||||||||||
Comprehensive Loss | $ | (5,376,566 | ) | $ | (77,376 | ) | $ | (78,421 | ) | $ | (141,352 | ) $ | (3,257,317 | ) | |
Loss per share - basic and diluted | ($0.01 | ) | ($0.03 | ) | ($0.01 | ) | ($1.19 | ) | |||||||
Weighted average shares outstanding | 10,476,721 | 2,740,721 | 10,476,721 | 2,740,721 |
The accompanying notes are an intergral part of these financial
statements
F-2
MAVERICK MINERALS CORPORATION
(An Exploration
Stage Company)
Consolidated Statements of Cash
Flows
Unaudited
(Expressed in U.S. Dollars)
Cumulative From | |||||||||
Date of Inception | |||||||||
(April 21, 2003) | Six month period ended | ||||||||
to June 30 | June 30 | ||||||||
2010 | 2010 | 2009 | |||||||
Operating Activities | |||||||||
Net loss for the period | $ | (5,377,439 | ) | $ | (141,352 | ) | $ | (3,257,317 | ) |
Adjustments to reconcile net loss for the period to cash flows used in operating activities | |||||||||
Impairment of investment in oil and gas leases | 419,959 | - | - | ||||||
Gain on disposal of assets | (933,995 | ) | - | - | |||||
Gain on liabilities write-off | (612,373 | ) | - | - | |||||
Stock based compensation | 239,880 | - | - | ||||||
Depreciation | 277,578 | - | - | ||||||
Shares issued for services | 105,000 | - | - | ||||||
Loss on settlement of loan payable | 3,204,100 | - | 3,132,500 | ||||||
Changes in non-cash working capital items | |||||||||
Advances to related party | (17,654 | ) | (17,654 | ) | - | ||||
Accounts payable | 1,693,087 | 46,703 | 24,630 | ||||||
Accrued liabilities | 1,000 | (10,582 | ) | 462 | |||||
Cash used in operating activities | (1,000,857 | ) | (122,885 | ) | (99,725 | ) | |||
Investing Activities | |||||||||
Investment in oil and gas leases | (867,188 | ) | (31,034 | ) | - | ||||
Purchase of property and equipment | (311,367 | ) | - | - | |||||
Proceeds on disposal of property and equipment | - | - | |||||||
Cash used in investing activities | (1,178,555 | ) | (31,034 | ) | - | ||||
Financing Activities | |||||||||
Proceeds from convertible debt | 35,625 | - | - | ||||||
Proceeds from bank overdraft | 3,345 | 3,345 | - | ||||||
Repayment of loans payable | (70,000 | ) | - | - | |||||
Shares issued for cash | 53,850 | - | - | ||||||
Proceeds from loans payable | 2,155,719 | 144,550 | 99,725 | ||||||
Cash provided by financing activities | 2,178,539 | 147,895 | 99,725 | ||||||
Decrease in cash during the period | (873 | ) | (6,024 | ) | - | ||||
Effect of cumulative currency translation | 873 | - | - | ||||||
Cash, beginning of the period | - | 6,024 | - | ||||||
Cash, end of the period | $ | - | $ | - | $ | - | |||
Supplemental Cash Flow information | |||||||||
Interest paid | $ | 35,000 | $ | - | $ | - | |||
Non-cash investing and financing activities: | |||||||||
Impairment in oil and gas leases | 419,959 | - | - | ||||||
Investment in oil and gas leases in exchange for notes payable to Veneto | 1,455,000 | ||||||||
Transfer of leases in settlement of notes payable | 1,455,000 | - | - | ||||||
Assignment of accounts payable from transfer of leases | 193,764 | - | - | ||||||
Settlement of loan payable | 719,200 | - | 447,500 | ||||||
Forgiveness of related party balances payable | 1,027,791 | - | - | ||||||
Forgiveness of loan payable | 311,400 | - | - |
The accompanying notes are an intergral part of these financial
statements
F-3
MAVERICK MINERALS CORPORATION
(An Exploration Stage Company)
Statement of Changes in Capital Deficit
For the Period From date of inception on April 21, 2003 to June 30,
2010
(Expressed in U.S. Dollars)
(Unaudited)
Number of | Par Value | Additional | Share | Other | Total | ||||||||||||||||
Common | @$0.001 | Paid-in | Subscription | Accumulated | Comprehensive | Capital | |||||||||||||||
Shares | Per Share | Capital | Receivable | Deficit | Loss | Deficit | |||||||||||||||
Balance, April 21, 2003 | 10 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
Adjustment for the issuance of | |||||||||||||||||||||
common stock on recapitalization | 3,758,040 | 3,758 | (3,758 | ) | - | - | - | - | |||||||||||||
3,758,050 | 3,758 | (3,758 | ) | - | - | - | - | ||||||||||||||
Adjustment to capital deficit of the | |||||||||||||||||||||
Company at the recapitalization date | 417,603 | 418 | (945,307 | ) | - | - | - | (944,889 | ) | ||||||||||||
4,175,653 | 4,176 | (949,065 | ) | - | - | - | (944,889 | ) | |||||||||||||
Shares issued for management services (Note 7) | 150,000 | 150 | 104,850 | - | - | - | 105,000 | ||||||||||||||
Currency translation adjustment | - | - | - | - | - | 873 | 873 | ||||||||||||||
Net loss for the period | - | - | - | - | (626,985 | ) | - | (626,985 | ) | ||||||||||||
Balance, December 31, 2003 | 4,325,653 | 4,326 | (844,215 | ) | - | (626,985 | ) | 873 | (1,466,001 | ) | |||||||||||
Shares issued for cash (Note 7) | 1,000,000 | 1,000 | 24,000 | - | - | - | 25,000 | ||||||||||||||
Shares subscribed but unissued | - | 27,500 | - | - | - | - | 27,500 | ||||||||||||||
Forgiveness of related party balances payable | - | - | 1,027,791 | - | - | - | 1,027,791 | ||||||||||||||
Net income for the year | - | - | - | - | 71,698 | - | 71,698 | ||||||||||||||
Balance, December 31, 2004 | 5,325,653 | 32,826 | 207,576 | - | (555,287 | ) | 873 | (314,012 | ) | ||||||||||||
Shares subscribed but unissued | - | (27,500 | ) | - | - | - | - | (27,500 | ) | ||||||||||||
Shares issued for cash (Note 7) | 2,750,000 | 2,750 | 24,750 | - | - | - | 27,500 | ||||||||||||||
Cancellation of shares (Note 7) | (5,437,932 | ) | (5,438 | ) | 5,438 | - | - | - | - | ||||||||||||
Compensation expense on share cancellation (Note 7) | - | - | 44,720 | - | - | - | 44,720 | ||||||||||||||
Shares issued for loan payable settlement (Note 7) | 89,500 | 90 | 125,211 | - | - | - | 125,300 | ||||||||||||||
Shares issued for cash (Note 7) | 7,500 | 8 | 743 | - | - | - | 750 | ||||||||||||||
Stock based compensation | - | - | 140,438 | - | - | - | 140,438 | ||||||||||||||
Net loss for the year | - | - | - | - | (1,036,098 | ) | - | (1,036,098 | ) | ||||||||||||
Balance, December 31, 2005 | 2,734,721 | 2,735 | 548,875 | - | (1,591,385 | ) | 873 | (1,038,902 | ) | ||||||||||||
Shares issued for cash (Note 7) | 6,000 | 6 | 594 | (600 | ) | - | - | - | |||||||||||||
Stock based compensation | - | - | 11,401 | - | - | - | 11,401 | ||||||||||||||
Net loss for the year | - | - | - | - | (128,774 | ) | - | (128,774 | ) | ||||||||||||
Balance, December 31, 2006 | 2,740,721 | 2,741 | 560,870 | (600 | ) | (1,720,159 | ) | 873 | (1,156,275 | ) | |||||||||||
Net loss for the year | - | - | - | - | (192,410 | ) | - | (192,410 | ) | ||||||||||||
Balance, December 31, 2007 | 2,740,721 | 2,741 | 560,870 | (600 | ) | (1,912,569 | ) | 873 | (1,348,685 | ) | |||||||||||
Share subscriptions paid (Note 7) | - | - | - | 600 | - | - | 600 | ||||||||||||||
Net income for the year | - | - | - | - | 109,951 | - | 109,951 | ||||||||||||||
Balance, December 31, 2008 | 2,740,721 | 2,741 | 560,870 | - | (1,802,618 | ) | 873 | (1,238,134 | ) | ||||||||||||
Cancellation of shares (Note 7) | (2,000,000 | ) | (2,000 | ) | 2,000 | - | - | - | - | ||||||||||||
Shares issued for loan payable settlement (Note 7) | 8,950,000 | 8,950 | 3,571,050 | - | - | - | 3,580,000 | ||||||||||||||
Shares issued for loan payable settlement (Note 7) | 436,000 | 436 | 217,564 | - | - | - | 218,000 | ||||||||||||||
Shares issued for consulting services (Note 7) | 350,000 | 350 | 209,650 | - | - | - | 210,000 | ||||||||||||||
Stock based compensation (Note 8) | - | - | 43,321 | - | - | - | 43,321 | ||||||||||||||
Net loss for the year | - | - | - | - | (3,433,469 | ) | - | (3,433,469 | ) | ||||||||||||
Balance, December 31, 2009 | 10,476,721 | 10,477 | 4,604,455 | - | (5,236,087 | ) | 873 | (620,282 | ) | ||||||||||||
Net loss for the period | - | - | - | - | (141,352 | ) | - | (141,352 | ) | ||||||||||||
Balance, June 30, 2010 | 10,476,721 | $ | 10,477 | $ | 4,604,455 | $ | - | $ | (5,377,439 | ) | $ | 873 | $ | (761,634 | ) |
The accompanying notes are an integral part of these financial
statements
F-4
MAVERICK MINERALS CORPORATION |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
June 30, 2010 |
(Expressed in U.S. Dollars) |
(Unaudited) |
Note 1. | NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN |
Maverick Minerals Corporation (the Company) was incorporated on August 27, 1998 under the Company Act of the State of Nevada, U.S.A. to pursue opportunities in the business of franchising fast food distributor systems. On May 23, 2001, the Company changed its direction to the energy and mineral resource fields, as an exploration stage company, and still is an exploration stage company.
On April 21, 2003 the Company closed a transaction, as set out in the Purchase Agreement (the Agreement) with UCO Energy Corporation (UCO) to purchase the outstanding equity of UCO. To facilitate the transaction, the Company consolidated its share capital at a ratio of one for five. Subsequent to the share consolidation, the Company issued 3,758,040 common shares in exchange for all the issued and outstanding common shares of UCO. As a result of the transaction, the former shareholders of UCO held approximately 90% of the issued and outstanding common shares of the Company. The acquisition of UCO was recorded as a reverse acquisition for accounting purposes as a recapitalization of UCO. A net distribution of $944,889 was recoded in connection with the common stock of the Company for the acquisition of UCO in respect of the Companys net liabilities at the acquisition date. The Company had minimal assets and had liabilities owing to suppliers as well as amounts owing under agreements with third parties as well as related parties and as there were no other business interests, the Company was acting as a public shell company. The financial statements are now presented as a continuation of UCO. UCO was in the business of pursuing opportunities in the coal mining industry. The Company has since disposed of its mining interests and is currently an exploration stage company engaged in the acquisition, exploration, and development of prospective oil and gas properties. The Companys current business focus is to implement the terms of the Farmout Agreement (Note 3).
These accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As at June 30, 2010, the Company has negative working capital of $1,006,113 (December 31, 2009 - $833,727), and has an accumulated deficit of $5,377,439 at June 30, 2010. The continuation of the Company is dependent upon obtaining a successful new exploration project, the continuing support of creditors and stockholders as well as achieving and maintaining a profitable level of operations. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Management anticipates that it requires approximately $680,000 and approximately an additional $3,306,100 in estimated expenditures related to the oil and gas leases (Note 3) over the twelve months ending June 30, 2011 to continue operations. The majority of this anticipated requirement will be funded by the $1,000,000 revolving loan the Company obtained during the year ended December 31, 2009 which bears interest at an annual rate of 8% and funded by future equity issuances and for debt financing. In addition to funding the Companys general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,006,113. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company plans to raise necessary cash through equity issuances and/or debt financing. Amounts raised will be used to continue the development of the Company's explorations activities, and for other working capital purposes.
Management cannot provide any assurances that the Company will be successful in any of its plans. Although there are no assurances that management's plans will be realized, management believes that the Company will be able to continue operations in the future. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
F-5
MAVERICK MINERALS CORPORATION |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
June 30, 2010 |
(Expressed in U.S. Dollars) |
(Unaudited) |
Note 2. | INTERIM FINANCIAL STATEMENTS |
The interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2009. The Company follows the same accounting policies in the preparation of interim reports.
Results of the operations for the interim periods are not indicative of future results.
(a) | New Accounting Pronouncements |
ASC 810. The FASB issued ASC 810, Consolidation. The standard requires all entities to report noncontrolling (minority) interests as equity in consolidated financial statements. ASC 810 eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. The adoption of this standard did not have a material impact on our consolidated financial statements. |
|
ASC 815. The FASB issued ASC 815, Derivatives and Hedging, which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under ASC 815 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. ASC 815 is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption of this standard did not have a material impact on our consolidated financial statements |
|
ASC 820-10 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. |
|
As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). |
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ASC 855. The FASB issued Statement of ASC 855 (prior authoritative literature: FAS No. 165, Subsequent Events) which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. ASC 855 provides guidance on the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted ASC 855 during the first quarter of fiscal 2010, and its application had no impact on our companys condensed consolidated financial statements. |
F-6
MAVERICK MINERALS CORPORATION |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
June 30, 2010 |
(Expressed in U.S. Dollars) |
(Unaudited) |
Note 2. | INTERIM FINANCIAL STATEMENTS - continued |
ASU 2010-06. The FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic 820)Fair Value Measurements and Disclosures (ASU 2010-06), to add additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3. Certain provisions of this update will be effective for us in fiscal 2011 and we are currently evaluating the impact of the pending adoption of this standards update on our consolidated financial statements.
ASU 2010-09. The FASB issued ASU 2010-09, Subsequent Events. ASU 2010-09 was issued to amend ASC 855 to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. This change is intended to alleviate potential conflicts with current SEC guidance. The provisions of ASU 2010-09 are effective upon issuance. The adoption of ASC 855 and ASU 2010-09 did not have a material impact on the Company's financial statements.
Note 3. | OIL AND GAS LEASES |
On December 14, 2009, the Company entered into a farm-out agreement (the Farmout Agreement) with Southeastern Pipe Line Company (SEPL) pursuant to which the Company acquired the right to earn an interest in certain oil and gas mineral leases located in Fort Bend and Wharton Counties, Texas (collectively, the Leases) and to the lands covered thereby subject to certain conditions, including the following:
i) | Payment of a non-refundable fee of $350,000 to SEPL (paid); |
|
ii) | Commencement of continuous and actual drilling operations on an oil or gas well to a good and workmanlike manner with due diligence and to a depth sufficient for testing on the undeveloped Leases on or prior to December 14, 2010; |
|
iii) | Completion of drilling on every drillable tract of the undeveloped Leases prior to commencing drilling operations on the developed Leases; |
|
iv) | Completion of the drilling of at least four wells on the undeveloped acreage, to a good and workmanlike manner with due diligence and to a depth sufficient for testing, and commence commercial production on such wells within 120 days after completion of drilling with the option to pay $250,000 per well to opt out of the requirement to drill up to two of the four wells; |
|
v) | Upon earning the interest in the Leases, The Company agrees to enter into a Joint Operating Agreement to govern operations by the parties on the Leases, and SEPL agrees to assign its 100% interest in the Leases to The Company subject to reserving an overriding royalty interest equal to the difference between all the existing lease burdens of record in effect as of October 1, 2009 and 30%, thereby delivering to The Company a 70% net revenue interest in the Leases; and |
|
vi) | The Company granting an option to SEPL pursuant to which SEPL may after all drilling and completion cost have been recovered by The Company, back-in a 25% of eight-eighths working interest (subject to proportionate reduction if The Companys acreage covers less than the entirety of the mineral interest under the proration spacing unit drilled), on a well-by-well basis. |
Pursuant to the terms of the Farmout Agreement, if the Company fails to commence the drilling operations on the first test well by December 14, 2010, the agreement terminates immediately and the Company forfeits the deposit. Provided the Company establishes commercial production and meets the requirements for the first well tested, the Company will have an option to develop additional wells within 180 days after the completion of the first well tested or subsequent wells tested. Also, pursuant to the terms of the agreement the Company agreed to indemnify SEPL and its affiliates from all claims arising from the drilling or operations of the first test well or any subsequent wells tested.
F-7
MAVERICK MINERALS CORPORATION |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
June 30, 2010 |
(Expressed in U.S. Dollars) |
(Unaudited) |
Note 3. | OIL AND GAS LEASES - continued |
In connection with these leases the Company issued 3,500,000 shares (Note 7) as payment for geological consulting services.
Closing of the transactions contemplated in the Farmout Agreement occurred on December 14, 2009. Net carrying costs as at June 30, 2010 and December 31, 2009:
June 30, | December 31, | ||||||
2010 | 2009 | ||||||
Deposit on oil and gas leases | $ | 350,000 | $ | 350,000 | |||
Consulting costs | 210,000 | 210,000 | |||||
Legal costs | 11,195 | 11,195 | |||||
Geologist services | 31,034 | - | |||||
Interest in Oil & Gas leases | $ | 602,229 | $ | 571,195 |
Note 4. | LOANS PAYABLE |
The Company has the following loans payable:
June 30, | December 31, | ||||||
2010 | 2009 | ||||||
Art Brokerage Current(1) | $ | 731,069 | $ | 586,519 | |||
Mr. Alonzo B. Leavell(1) | 20,000 | 20,000 | |||||
751,069 | 606,519 | ||||||
Senergy Partners LLC(2) | 357,750 | 357,750 | |||||
$ | 1,108,819 | $ | 964,269 |
(1) These amounts are unsecured, bear no interest, with no specific terms of repayment. | |
(2) This credit facility is unsecured, bears interest at 8% per annum, maturing on December 31, 2012 (see Note 7(b)). The remaining amount available under this credit facility is $650,000 as at June 30, 2010. |
Note 5. | CONVERTIBLE DEBT |
a) | On November 26, 2009, the Company issued a convertible note in the amount of $100,000 to a related party to settle an outstanding payable of $100,000. This convertible note is due on demand, and bears interest at 8% per annum. The debt is convertible into common shares at a conversion rate of $0.30 per share. |
b) | On December 11, 2009, the Company issued a convertible note in the amount of $35,625. This convertible note is due on June 11, 2010 and bears interest at 8% per annum. The debt is convertible into common shares at $0.75 per share. The Company has the right to prepay any portion of the principal amount of this debenture without prior written consent on the holder (Note 9). |
Both convertible notes are accounted for in accordance with ASC 470-20 which requires the Company to classify as equity any amounts representing a beneficial conversion feature. As both conversion prices exceed the fair value of the underlying common shares on the issue date, no beneficial conversion feature is recognized under ASC 470-20 and the entire proceeds are classified as debt until such time as they are converted to equity. Accordingly, the convertible notes are presented on the consolidated balance sheets as a liability. No convertible notes discount is recognized.
F-8
MAVERICK MINERALS CORPORATION |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
June 30, 2010 |
(Expressed in U.S. Dollars) |
(Unaudited) |
Note 5. | CONVERTIBLE DEBT - continued |
June 30, | December 31, | ||||||
2010 | 2009 | ||||||
Issuance of convertible note (a) | $ | 100,000 | $ | 100,000 | |||
Issuance of convertible note (b) | 35,625 | 35,625 | |||||
$ | 135,625 | $ | 135,625 |
Note 6. | RELATED PARTY TRANSACTIONS |
On June 5, 2005, the Company entered into a management agreement with its chief executive officer (CEO). The agreement was for a term of two years with an annual fee of $90,000 and expired on May 31, 2007. A new management agreement has not been signed and it has been assumed that the previous management agreement is still in effect until a new agreement has been entered into.
Management fees of $45,000 were charged to expense in these financial statements for the six month period ended June 30, 2010 (June 30, 2009 - $45,000).
During the three and six month period ended June 30, 2010 the Company advanced $17,654 to a related party to pay for future expenses incurred by the individual on behalf of the Company. The advances are non-interest bearing and have no specific terms of repayment.
Note 7. | SHARE CAPITAL |
As explained in Note 1, on April 21, 2003 the Company issued 3,758,040 common shares in exchange for all the issued and outstanding common shares of UCO.
In July 2003, the Company issued 150,000 common shares to the Companys CEO in exchange for management services. The transaction was recorded at the quoted market price of $0.07 per common share and resulted in compensation expense of $105,000. No consideration was received by the Company in the exchange of shares for management services.
In June 2004, the Company issued 1,000,000 common shares at a price of $0.25 for proceeds of $25,000.
In January 2005, the Company issued 2,750,000 common shares at a price of $0.01 for proceeds of $27,500.
In June 2005, the Company cancelled 5,437,932 common shares, under an agreement with certain stockholders, which included the former stockholders of UCO, and two other stockholders including the CEO of the Company. The former stockholders of UCO surrendered the majority of the shares which was approximately 95% of the total common shares that they held at the time.
As a result of the share cancellation, one single common stockholder emerged as the majority stockholder with approximately 76% of the total issued and outstanding common shares. In addition, the CEOs percentage common share holding increased and resulted in compensation expense of $44,720.
In July 2005, the Company issued 89,500 common shares at a price of $0.60 to settle an amount owing with respect to a loan payable. The transaction was recorded at the quoted market price of $1.40 and resulted in a loss on settlement of loan payable of $71,600.
In September 2005, the Company issued 7,500 common shares at a price of $0.10 for cash proceeds of $750 in relation to the exercise of stock options.
In April 2006, the Company issued 6,000 common shares at a price of $0.10 for $600 in relation to the exercise of stock options.
F-9
MAVERICK MINERALS CORPORATION |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
June 30, 2010 |
(Expressed in U.S. Dollars) |
(Unaudited) |
Note 7. | SHARE CAPITAL - continued |
In 2007 and 2008 there were no share
capital transactions.
On February 2, 2009 a major shareholder returned to treasury 2,000,000 common shares of the Company for nil consideration in contemplation of further share issuances (as described below).
(a) | The Company entered into a loan agreement with Senergy on February 13, 2009, pursuant to which the Company established an unsecured revolving loan of up to $1,000,000 (the Credit Facility). The outstanding principal amount of the Credit Facility together with all the accrued and unpaid interest and all other amounts outstanding there under are due and payable in full on December 31, 2012, the maturity date. Outstanding principal under the Credit Facility bears interest at an annual rate of 8%. |
|
(b) | In connection with the Company entering into the Credit Facility and Debt Settlement Agreement with Senergy, the Company entered into an Assignment and Assumption Agreement with Senergy and Art Brokerage, Inc. (ABI) dated February 13, 2009, pursuant to which ABI assigned to Senergy all of its right, title and interest to a debt (the Assigned Debt) of $447,500 owed by the Company to ABI |
|
(c) | On February 13, 2009, the Company entered into a debt settlement and subscription agreement (the Debt Settlement Agreement) with Senergy in consideration of Senergy entering into the Credit Facility. Pursuant to the terms of the Debt Settlement Agreement, the company agreed to issue to Senergy 8,950,000 shares of the Company common stock in settlement of a $447,500 debt owed to Senergy. |
As a result of these transactions, Senergy acquired 8,950,000 shares or 92.3% of the Companys issued and outstanding common stock. The Company issued 8,950,000 common shares to settle an amount owing with respect to a loan payable totaling $447,500. The transaction was recorded at the quoted market price of $0.40 and resulted in a loss on settlement of loan payable of $3,132,500.
On August 11, 2009 the Company's articles of incorporation were amended and restated to increase the number of authorized shares of its common stock from 100,000,000 to 750,000,000. In addition the Company's articles of incorporation were amended and restated to authorize 100,000,000 shares of preferred stock with a par value of $0.001, which may be divided into and issued in series, with such designations, rights, qualifications, preferences, limitations and terms as fixed and determined by the Company's board of directors.
On September 24, 2009, the Company issued a further 436,000 shares to settle $218,000 owed to ABI. The transaction was recorded at the quoted market price of $0.30 and was treated as a capital transaction which resulted in a charge to equity of $218,000.
On December 11, 2009, the Company issued 175,000 shares each to two consultants, (350,000 shares total) for geological consulting services. The transactions were recorded at the quoted market price of $0.60 per share for total consideration of $210,000 which was capitalized to Oil and Gas Leases on the balance sheet (Note 3).
Effective December 31, 2009, the Company effected a ten (10) for one (1) reverse stock split of the Companys issued and outstanding shares of common stock. Shares and per share amounts have been retroactively restated to reflect the reverse stock split.
For the six-month period ended June 30, 2010 there were no share capital transactions.
F-10
MAVERICK MINERALS CORPORATION |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
June 30, 2010 |
(Expressed in U.S. Dollars) |
(Unaudited) |
Note 8.
STOCK OPTION PLAN
Stock options
The stock option plan of the Company provides for the granting of up to 3,000,000 stock options to key employees, directors and consultants, of common shares of the Company. Under the stock option plan, the granting of incentive and non-qualified stock options, exercise prices and terms are determined by the Board of Directors.
On June 1, 2009, the Companys board of directors adopted the 2009 Stock Option Plan. The purpose of the 2009 stock option plan is to retain the services of valued key employees and consultants of the Company. Under the plan, the plan administrator is authorized to grant stock options to acquire up to a total of up to 75,000,000 shares of common stock.
During the year ended December 31, 2009, there were 115,000 options granted to directors and 30,000 options granted to consultants. All options granted were fully vested at the date of issuance which resulted in a stock-based compensation expense of $43,321 being charged to operations during the year ended December 31, 2009.
These options are exercisable at a price of $0.40 per option and expire on December 31, 2012. No options were exercised, cancelled or expired in 2009. The fair value of these options granted was approximately $0.30 per share on the grant date in 2009.
There were no stock options granted for the six-month periods ended June 30, 2010 and June 30, 2009.
The following is a summary of the status of the Companys stock options as of June 30, 2010 and the stock option activity during the six months ended June 30, 2010:
Number of | ||||
Options | ||||
Outstanding at December 31, 2008 | - | |||
Granted | 145,000 | |||
Outstanding at December 31, 2009 and June 30, 2010 | 145,000 |
Note 9. | SUBSEQUENT EVENTS |
On July 26, 2010, the Company entered into a Debt Settlement and Subscription Agreement with David Steiner Primary Trust (the Trust), pursuant to which the Company agreed to issue 49,884 shares of its common stock to the Trust in settlement of all amounts owing to the Trust under the Convertible Debenture dated December 11, 2009 in the principal amount of $35,625 and outstanding interest to July 19, 2010 of $1,778
On July 27, 2010, the Company entered into a Data Purchase Agreement with two individuals (the Vendors) whereby the Company would purchase data relating to its Leases (see Note 3). As consideration for the purchase of this data the Company would issue 350,000 shares of its common stock (175,000 to each individual).
F-11
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward Looking Statements
This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or managements plans and objectives for our future operations. In some cases, you can identify forward-looking statements by terminology such as may, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled Risk Factors and the risks set out below, any of which may cause our or our industrys 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. These risks include, by way of example and not in limitation:
- risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;
- results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with our expectations;
- mining and development risks, including risks related to accidents, equipment breakdowns, labour disputes or other unanticipated difficulties with or interruptions in production;
- the potential for delays in exploration or development activities or the completion of feasibility studies;
- risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;
- risks related to commodity price fluctuations;
- the uncertainty of profitability based upon our history of losses;
- risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration and development projects;
- risks related to environmental regulation and liability;
- risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;
- risks related to tax assessments;
- political and regulatory risks associated with mining development and exploration; and
- other risks and uncertainties related to our prospects, properties and business strategy.
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.
Forward looking statements are made based on managements beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to common stock refer to the common shares in our capital stock.
4
As used in this quarterly report, the terms we, us, our, the Company and Maverick mean Maverick Minerals Corporation and our subsidiary, Eskota Energy Corporation, unless otherwise indicated.
Recent Corporate Developments
Since the commencement of our second quarter ended June 30, 2010, we experienced the following significant corporate developments:
1. |
Effective July 26, 2010, we entered into a Debt Settlement and Subscription Agreement with David Steiner Primary Trust (the Trust), pursuant to which we agreed to issue 49,884 shares of our common stock to Steiner in settlement of all amounts owing to the Trust under the Convertible Debenture dated December 11, 2009 in the principal amount of $35,625 and outstanding interest to July 19, 2010 of $1,778. The shares were issued to the Trust on July 26, 2010 pursuant to Regulation D of the Securities Act of 1933 on the basis that the Trust represented that it was an accredited investor as such term is defined in Rule 501 of Regulation D and/or Section 4(2) of the Securities Act of 1933. |
2. |
On July 27, 2010, the Company entered into a data purchase agreement (the Agreement) with two individuals (collectively the Vendors), pursuant to which the Company agreed to purchase from the Vendors geologic data relating to certain oil and gas mineral leases located in Texas, including among other things: electric logs, seismic work, seismic reprocessing, data from the Texas Railroad Commission. In consideration for the acquisition of the geologic data from the Vendors the Company agreed to issue an aggregate of 350,000 shares of the common stock of the Company to the Vendors. The shares were issued to the Vendors on July 27, 2010 pursuant to Regulation D of the Securities Act of 1933 on the basis that each of them represented that they were an accredited investor as such term is defined in Rule 501 of Regulation D and/or Section 4(2) of the Securities Act of 1933. |
Our Current Business
We are currently an exploration stage company engaged in the acquisition, exploration, and development of prospective oil and gas properties. Our current business focus is to implement the terms of the Farmout Agreement pursuant to which we intend to earn an interest in certain oil and gas mineral leases located in Fort Bend and Wharton Counties, Texas owned by Southeastern Pipe Line Company (SEPL). Subject to receipt of additional financing our initial operations during the next quarter are to locate suitable locations to drill, drilling, and determining if an initial test well is viable. If the well is viable and we can develop the well, we intend to drill an initial test well and to earn an interest in the mineral leases subject to the Farmout Agreement. If the well is not viable, we intend to plug the well. Our anticipated 2010 drilling program is expected to target the Wilcox Trend, a vast depositional sand zone with a history of natural gas and condensate production. The Wilcox Trend is articulated into the upper, middle, and lower Wilcox. We intend to target the middle Wilcox to a depth of between 12,500 and 13,500 feet.
Concurrent with our entry into the Farmout Agreement, we acquired from a consulting geologist, detailed proprietary geology on the property subject to the Farmout Agreement. The dataset includes seismic and geological interpretations of the underlying geology from historic data. In addition, we obtained access to log data from a well drilled to 12,200 feet in 2003 on the Farmout acreage.
Farm-out Agreement with Southeastern Pipe Line Company
On December 14, 2009, we entered into a farm-out agreement with Southeastern Pipe Line Company pursuant to which we acquired the right to earn an interest in certain oil and gas mineral leases located in Fort Bend and Wharton Counties, Texas (collectively, the Leases) and to the lands covered thereby subject to certain conditions, including the following:
(i) |
Payment of a non-refundable fee of $350,000 to SEPL (the Fee); | |
(ii) |
Commencement of continuous and actual drilling operations on an oil or gas well (the Initial Test Well) to an objective formation (as such term is defined in the agreement) on the undeveloped Leases on or prior to December 14, 2010 (the Completion Date); |
5
(iii) |
Completion of drilling on every drillable tract of the undeveloped Leases prior to commencing drilling operations on the developed Leases; | |
(iv) |
Completion of the drilling of at least four wells on the undeveloped acreage to the objective formation and commence commercial production on such wells within 120 days after completion of drilling with the option to pay $250,000 per well to opt out of the requirement to drill up to two of the four wells; | |
(v) |
Upon earning the interest in the Leases, Maverick agrees to enter into a Joint Operating Agreement in the form of AAPL 610 Model Form 1989 with 2005 COPAS accounting procedure to govern operations by the parties on the Leases, and SEPL agrees to assign its 100% interest in the Leases to Maverick subject to reserving an overriding royalty interest equal to the difference between all the existing lease burdens of record in effect as of October 1, 2009 and 30%, thereby delivering to Maverick a 70% net revenue interest in the Leases; and | |
(vi) |
Maverick granting an option to SEPL pursuant to which SEPL may after all drilling and completion cost have been recovered by Maverick, back-in a 25% of eight-eighths working interest (subject to proportionate reduction if Mavericks acreage covers less than the entirety of the mineral interest under the proration spacing unit drilled), on a well-by-well basis. |
Pursuant to the terms of the Farmout Agreement if we fail to commence the drilling operations on the Initial Test Well by the Completion Date the agreement terminates immediately and the Company forfeits the Fee. Provided we establish commercial production and meet the earning requirements for the Initial Test Well, we have an option to develop additional wells (Subsequent Wells) within one hundred and eighty days after the completion of the Initial Test Well, substitute Initial Test Well or a Subsequent Well. Also, pursuant to the terms of the agreement we agreed to indemnify SEPL and its affiliates from all claims arising from the drilling or operations of the Initial Test Well or any Subsequent Well.
General
The following is a discussion and analysis of our plan of operation for the three and six month period ended June 30, 2010, and the factors that could affect our future financial condition. This discussion and analysis should be read in conjunction with our consolidated unaudited financial statements and the notes thereto included elsewhere in this quarterly report. Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles. All references to dollar amounts in this section are in United States dollars unless expressly stated otherwise.
Plan of Operation
We are currently an exploration stage company engaged in the acquisition, exploration, and development of prospective oil and gas properties. Our current business focus is to implement the terms of the Farmout Agreement pursuant to which we intend to earn an interest in certain oil and gas mineral leases located in Fort Bend and Wharton Counties, Texas owned by SEPL. Subject to receipt of additional financing our initial operations during the next quarter are to locate suitable locations to drill, drilling, and determining if an initial test well is viable. If the well is viable and we can develop the well, we intend to drill an initial test well and to earn an interest in the mineral leases subject to the Farmout Agreement. If the well is not viable, we intend to plug the well. Our anticipated 2010 drilling program is subject to obtaining additional financing and is expected to target the Wilcox Trend, a vast depositional sand zone with a history of natural gas and condensate production. The Wilcox Trend is articulated into the upper, middle, and lower Wilcox. We intend to target the middle Wilcox to a depth of between 12,500 and 13,500 feet. Additionally we expect to continue to evaluate a number of joint venture opportunities in the oil and gas sector in the next twelve months.
Our estimated expenses over the next twelve months are as follows:
6
Cash Requirements during the Next Twelve Months
Expense | ($) | |
Cost to drill and complete Initial Well | 2,750,000 | |
Consulting and Due Diligence | 240,000 | |
Professional Fees | 130,000 | |
Joint Venture Programs | 500,000 | |
Total | 3,620,000 |
To date we have funded our operations primarily with loans from shareholders. In addition to funding our general, administrative and corporate expenses we are obligated to address certain current liabilities. We will need to raise additional funds to meet these current liabilities. To raise these funds we may be required to increase shareholder loans, incur new borrowings or issue new equity which may be dilutive to existing shareholders. Other than our agreement with Senergy Partners LLC, we currently have no agreement in place to raise funds for current liabilities and no guarantee can be given that we will be able to raise funds for this purpose on terms acceptable to our company. Failure to raise funds for general, administrative and corporate expenses and current liabilities could result in a severe curtailment of our operations.
Any advance in the oil and gas development strategy set-out herein will require additional funds. These funds may be raised through equity financing, debt financing or other sources which may result in further dilution of the shareholders percentage ownership in the Company.
On February 13, 2009, we entered into a loan agreement with Senergy Partners LLC (Senergy), a private Nevada limited liability corporation, pursuant to which the Company received a revolving loan of up to US$1,000,000 (the Credit Facility). The outstanding principal amount of the Credit Facility together with all accrued and unpaid interest and all other amounts outstanding thereunder are due and payable in full on December 31, 2012, the maturity date. Outstanding principal under the Credit Facility bears interest at an annual rate of 8%. As a condition of the Credit Facility, the Company agreed to use funds received under the Credit Facility solely for the purpose of funding ongoing general and administrative expenses, consulting and due diligence expenses, or professional fees and joint venture programs. As at June 30, 2010, the Company has drawn $350,000 on the credit facility with Senergy.
In consideration of Senergy entering into the Credit Facility, the Company agreed to enter into a debt settlement and subscription agreement (the Debt Settlement Agreement) with Senergy dated as of February 13, 2009. Pursuant to the terms of the Debt Settlement Agreement, the Company agreed to issue to Senergy 8,950,000 post-split shares of its common stock at a deemed price of US$0.05 per share in settlement of a US$447,500 debt owed to Senergy.
RESULTS OF OPERATIONS
Three and Six Month Summary
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | ||||
Expenses | 69,840 | 75,074 | 123,125 | 121,470 | ||||||||
Other expenses | 7,536 | - | 18,227 | - | ||||||||
Net Loss | $ | 77,376 | $ | 75,074 | 141,352 | $ | 121,470 |
Revenue
We had no operating revenues for the three and six month periods ended June 30, 2010 and 2009. We anticipate that we will not generate any revenues until we generate additional financing to support our planned operations in connection with the Farmout Agreement with SEPL.
7
Operating Costs and Expenses
The major components of our expenses for the quarter are outlined in the table below:
Three Months Ended | Six Months Ended | |||||||||||
June 30 | June 30 | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
Management Fees and stock based compensation | $ | 22,500 | $ | 22,500 | $ | 45,000 | $ | 45,000 | ||||
Professional Fees | 36,572 | 46,178 | 59,616 | 65,354 | ||||||||
Transfer Agent Fees | - | 2,478 | 895 | 2,478 | ||||||||
Travel | 7,469 | 3,244 | 13,207 | 7,413 | ||||||||
Office | 3,299 | 674 | 4,407 | 1,225 | ||||||||
Total Expenses | $ | 69,840 | $ | 75,074 | $ | 123,125 | $ | 121,470 |
General and Administrative Expenses
The $5,234 decrease in our general and administrative expenses for the three month period ended June 30, 2010 as compared to the same period in fiscal 2009 was primarily due to a decrease in professional fees associated with preparing and reviewing our periodic reports required under the Securities Exchange Act of 1934.
The $1,655 increase in our general and administrative expenses for the six month period ended June 30, 2010 as compared to the same period in fiscal 2009 was primarily due to an increase in travel expenditures associated with the negotiation of the Farmout Agreement with SEPL.
Liquidity and Capital Resources
Working Capital
June 30, 2010 | December 31, 2009 | |||||
Current Assets | $ | 17,654 | $ | 6,024 | ||
Current Liabilities | 1,023,767 | 839,751 | ||||
Working Capital Deficiency | $ | (1,006,113 | ) | $ | (833,727 | ) |
Cash Flows
Six Months Ended | Six Months Ended | |||||
June 30, 2010 | June 30, 2009 | |||||
Cash used in Operating Activities | $ | (122,885 | ) | $ | (99,725 | ) |
Cash used by Investing Activities | (31,034 | ) | - | |||
Cash provided by Financing Activities | 147,895 | 99,725 | ||||
Net Decrease in Cash | $ | (6,024 | ) | $ | - |
Funding for operating and investing activities was provided by both non-interest bearing and interest bearing advances from lenders. On July 19, 2010, we entered into a Debt Settlement and Subscription Agreement with David Steiner Primary Trust (Steiner), whereby we agreed to issue 49,884 shares of our common stock to Steiner in settlement of the Convertible Debenture dated December 11, 2009 in the principal amount of $35,625 and outstanding interest to July 19, 2010 of $1,778.
We had a cash balance of $Nil and negative working capital of $1,006,113 as of June 30, 2010 compared to cash of $6,024 and negative working capital of $833,727 as of December 31, 2009. We anticipate that we will incur approximately $3,620,000 for operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. Accordingly, we will need to obtain additional financing in order to complete our full business plan.
8
Discontinued Operations
In March 2006, management determined to not proceed further with the Eskota Leases and entered into negotiations with Veneto to relieve the Company of their obligation under the note payable to Veneto. As a result, revenues, cost of goods sold, and gains and losses associated with the property have been reflected as income (loss) from discontinued operations on the accompanying financial statements.
In July, 2006, Veneto and Eskota entered into a Mutual Release agreement releasing Eskota of its note payable in the amount of $1,400,000, and in return Eskota assigned and transferred back to Veneto all its right, title and interest in the unitized lease, as well as the rights to the Knox Lease. In addition, Veneto assumed responsibility of all payables owing in relation to the properties, and any future obligations related to the properties. As a result, Eskota recorded a net gain of $138,764 on the assumption of payables by Veneto, and was reflected as income from discontinued operations in previous years financial statements.
Loans Payable
The Company has the following loans payable. These amounts are unsecured, bear no interest, with no specific terms of repayment.
June 30, 2010 | December 31, 2009 | |||||
Art Brokerage Current(1) | $ | 731,069 | $ | 586,519 | ||
Mr. Alonzo B. Leavell(1) | 20,000 | 20,000 | ||||
Senergy Partners LLC(2) | 357,750 | 357,750 | ||||
$ | 1,108,819 | $ | 964,268 |
Notes | |
(1) |
These amounts are unsecured, bear no interest, with no specific terms of repayment. |
(2) |
This amount is unsecured, bears interest at 8% per annum, maturing on December 31, 2012. |
Going Concern
The audited financial statements accompanying our annual report on Form 10-K for the year ended December 31, 2009 have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As of June 30, 2010, we had cash of $Nil and we estimate that we will require approximately $3,620,000 for costs associated with our plan of operation over the next twelve months. Accordingly, we do not have sufficient funds for planned operations and we will be required to raise additional funds.
These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors report on the December 31, 2009 and 2008 consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Future Financings
We had a cash balance of $Nil and negative working capital of $1,006,113 as of June 30, 2010 compared to cash of $6,024 and negative working capital of $833,727 as of December 31, 2009. and we estimate that we will require approximately $3,620,000 for costs associated with our plan of operation over the next twelve months. Accordingly, although we have access to additional funds through our line of credit with Senergy, we do not have sufficient funds for planned operations and we will be required to raise additional funds for operations. We anticipate continuing to rely on equity sales of our common shares or shareholder loans in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned activities.
9
Off-Balance Sheet Arrangements
We have no 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 are material to stockholders.
Risks And Uncertainties
Much of the information included in this quarterly report includes or is based upon estimates, projections or other forward looking statements. Such forward looking statements include any projections and estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
Such estimates, projections or other forward looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward looking statements.
We are an exploration stage company implementing a new business plan.
We are an exploration stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects. If we do discover oil or gas resources in commercially exploitable quantities on any of our properties, we will be required to expend substantial sums of money to establish the extent of the resource, develop processes to extract it and develop extraction and processing facilities and infrastructure. If we discover a major reserve, there can be no assurance that such a reserve will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis. If we cannot raise the necessary capital or complete the necessary facilities and infrastructure, our business may fail. There is no assurance that we will be able to drill an initial test well on the property subject to the Farmout Agreement within the timeline set out in the agreement or at all. Failure to do so will result in the loss of all our interest in the Farmout Agreement with SEPL.
We have had negative cash flows from operations and if we are not able to obtain further financing, our business operations may fail.
We had a negative working capital of $1,006,113 as of June 30, 2010. We do not expect to generate any revenues for the foreseeable future. Accordingly, we will require additional funds, either from equity or debt financing, to maintain our daily operations and to develop any wells under the Farmout Agreement. Obtaining additional financing is subject to a number of factors, including market prices for oil and gas, investor acceptance of our interest pursuant to the Farmout Agreement, and investor sentiment. Financing, therefore, may not be available on acceptable terms, if at all. The most likely source of future funds presently available to us is through the sale of equity capital. Any sale of share capital, however, will result in dilution to existing shareholders. If we are unable to raise additional funds when required, we may be forced to delay our plan of operation and our entire business may fail.
We currently do not generate revenues, and as a result, we face a high risk of business failure.
The only interest in property we have is pursuant to the Farmout Agreement. From the date of our incorporation, we have primarily focused on the location and acquisition of mineral and oil and gas properties. We have not generated any revenues to date. In order to generate revenues, we will incur substantial expenses in the evaluation and development of the Initial Well. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from our activities, our entire business may fail. There is no history upon which to base any assumption as to the likelihood that we will be successful in our plan of operation, and we can provide no assurance to investors that we will generate any operating revenues or achieve profitable operations.
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Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
At June 30, 2010, we had an accumulated deficit of $5,377,439 and a negative working capital of $1,006,113. These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors report on our consolidated financial statements for the year ended December 31, 2009. Although our consolidated financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business.
If we are required for any reason to repay our outstanding secured convertible debentures or any other indebtedness, we would be required to deplete our working capital, if available, or raise additional funds.
If we are required to repay the secured convertible debentures or any other indebtedness for any reason, we would be required to use our limited working capital and raise additional funds. If we are unable to repay the secured convertible debentures or any other indebtedness when required, we may be required to sell substantial assets of our company. In addition, the lenders could commence legal action against our company and foreclose on all of our assets to recover the amounts due. Any such sale or legal action would require our company to curtail or possibly cease our operations.
Market conditions or operation impediments may hinder our access to oil and gas markets or delay our potential production.
Our ability to develop the farmout acreage depends in part upon the availability, proximity and capacity of pipelines, natural gas gathering systems and processing facilities. This dependence is heightened where this infrastructure is less developed. Therefore, even if drilling results are positive in certain areas of our oil and gas properties, a new gathering system may need to be built to handle the potential volume of oil and gas produced. We might be required to shut in wells, at least temporarily, for lack of a market or because of the inadequacy or unavailability of transportation facilities. If that were to occur, we would be unable to realize revenue from those wells until arrangements were made to deliver production to market.
Even if we are able to establish any oil or gas reserves on the farmout acreage, our ability to produce and market oil and gas is affected and also may be harmed by:
- inadequate pipeline transmission facilities or carrying capacity;
- government regulation of natural gas and oil production;
- government transportation, tax and energy policies;
- changes in supply and demand; and
- general economic conditions.
The potential profitability of oil and gas ventures depends upon factors beyond the control of our company.
The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.
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Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas, which may be acquired or discovered, will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.
Oil and gas operations are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.
Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations, which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages, which it may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.
Exploratory drilling involves many risks and we may become liable for pollution or other liabilities, which may have an adverse effect on our financial position.
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labour, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.
Shortages of rigs, equipment, supplies and personnel could delay or otherwise adversely affect our cost of operations or our ability to operate according to our business plans.
If drilling activity increases worldwide, a shortage of drilling and completion rigs, field equipment and qualified personnel could develop. These costs have recently increased sharply and could continue to do so. The demand for and wage rates of qualified drilling rig crews generally rise in response to the increasing number of active rigs in service and could increase sharply in the event of a shortage. Shortages of drilling and completion rigs, field equipment or qualified personnel could delay, restrict or curtail our exploration and development operations, which could in turn harm our operating results.
The geographic concentration of all of our properties in Texas subjects us to an increased risk of loss of revenue or curtailment of production from factors affecting those areas.
The geographic concentration of all of our leasehold interests in Texas means that our properties could be affected by the same event should the regions experience:
- severe weather;
- delays or decreases in production, the availability of equipment, facilities or services;
- delays or decreases in the availability of capacity to transport, gather or process production; or
- changes in the regulatory environment.
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The oil and gas exploration and production industry is historically a cyclical industry and market fluctuations in the prices of oil and gas could adversely affect our business.
Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include:
- weather conditions in the United States and wherever our property interests are located;
- economic conditions, including demand for petroleum-based products, in the United States and the rest of the world;
- actions by OPEC, the Organization of Petroleum Exporting Countries;
- political instability in the Middle East and other major oil and gas producing regions;
- governmental regulations, both domestic and foreign;
- domestic and foreign tax policy;
- the pace adopted by foreign governments for the exploration, development, and production of their national reserves;
- the price of foreign imports of oil and gas;
- the cost of exploring for, producing and delivering oil and gas;
- the discovery rate of new oil and gas reserves;
- the rate of decline of existing and new oil and gas reserves;
- available pipeline and other oil and gas transportation capacity;
- the ability of oil and gas companies to raise capital;
- the overall supply and demand for oil and gas; and
- the availability of alternate fuel sources.
Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes will directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment.
Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and the development and exploitation of projects. We expect that commodity prices will continue to fluctuate significantly in the future.
Our interests are held in the form of leases that we may be unable to retain.
The interest in our property are held under leases and working interests in leases. If we or the holder of a lease fails to meet the specific requirements of the lease regarding delay or non-payment of rental payments or we or the holder of the lease fail to meet the minimum level of evaluation some or all of our leases may terminate or expire. There can be no assurance that any of the obligations required to maintain each lease will be met. The termination or expiration of our leases or the working interests relating to leases may reduce our opportunity to exploit a given prospect for oil production and thus have a material adverse effect on our business, results of operation and financial condition.
Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.
The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States, Canada, or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitability.
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If we are unable to hire and retain key personnel, we may not be able to implement our plan of operation and our business may fail.
Our success will be largely dependent on our ability to hire and retain highly qualified personnel. This is particularly true in the highly technical businesses of mineral and oil and gas exploration. These individuals may be in high demand and we may not be able to attract the staff we need. In addition, we may not be able to afford the high salaries and fees demanded by qualified personnel, or we may fail to retain such employees after they are hired. At present, we have not hired any key personnel. Our failure to hire key personnel when needed will have a significant negative effect on our business.
Because our executive officers do not have formal training specific to oil and gas exploration, there is a higher risk our business will fail.
While Robert Kinloch, our director and one of our executive officer, has experience managing a mineral exploration company, he does not have formal training as a geologist. Donald Kinloch does not have formal training specific to mineral and gas exploration. Accordingly, our management may not fully appreciate many of the specific requirements related to working within the mining and oil and gas industry. Our management decisions may not take into account standard engineering or managerial approaches commonly used by such companies. Consequently, our operations, earnings, and ultimate financial success could be negatively affected due to our managements lack of experience in the industry.
Our executive officers have other business interests, and as a result, they may not be willing or able to devote a sufficient amount of time to our business operations, thereby limiting the success of our company.
Robert Kinloch presently spends approximately 60% of his business time and Donald Kinloch presently spends approximately 20% of his business time on business management services for our company. At present, both Robert and Donald Kinloch spend a reasonable amount of time in pursuit of our companys interests. Due to the time commitments from Robert and Donald Kinlochs other business interests, however, they may not be able to provide sufficient time to the management of our business in the future and our business may be periodically interrupted or delayed as a result of their other business interests.
Risks Relating to Our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 750,000,000 shares of common stock with a par value of $0.001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will reduce the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Our common stock is illiquid and shareholders may be unable to sell their shares.
There is currently a limited market for our common stock and we can provide no assurance to investors that a market will develop. If a market for our common stock does not develop, our shareholders may not be able to re-sell the shares of our common stock that they have purchased and they may lose all of their investment. Public announcements regarding our company, changes in government regulations, conditions in our market segment or changes in earnings estimates by analysts may cause the price of our common shares to fluctuate substantially. In addition, stock prices for junior oil and gas companies fluctuate widely for reasons that may be unrelated to their operating results. These fluctuations may adversely affect the trading price of our common shares.
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Penny stock rules will limit the ability of our stockholders to sell their stock.
The Securities and Exchange Commission has adopted regulations which generally define penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customers confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholders 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 customers financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. 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 its shares.
Because of the early stage of development and the nature of our business, our securities are considered highly speculative.
Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We are engaged in the business of identifying, acquiring, exploring and developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas. Accordingly, we have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stocks price. This may never happen and investors may lose all of their investment in our company.
15
Risks Related to Our Company
Our by-laws contain provisions indemnifying our officers and directors.
Our by-laws provide the indemnification of our directors and officers to the fullest extent legally permissible under the Nevada corporate law against all expenses, liability and loss reasonably incurred or suffered by him in connection with any action, suit or proceeding. Furthermore, our by-laws provide that our board of directors may cause our company to purchase and maintain insurance for our directors and officers, and we have implemented director and officer insurance coverage.
Our by-laws do not contain anti-takeover provisions and thus our management and directors may change if there is a take-over of our company.
We do not currently have a shareholder rights plan or any anti-takeover provisions in our by-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company. If there is a take-over of our company, our management and directors may change.
Because most of our directors and officers are residents of other countries other than the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our directors and officers.
Most of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4T. Controls and Procedures.
As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and to ensure that such information is accumulated and communicated to our company's management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) lack of a sufficient number of independent directors for our board and audit committee. We currently have no independent director on our board, which is comprised of one director. As a publicly-traded company, we strive to have a majority of our board of directors be independent; (ii) inadequate segregation of duties and effective risk assessment; and (iii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2010, subject to obtaining additional financing: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely effected in a material manner.
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It should be noted that while our management believes our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
There were no changes in our internal control over financial reporting during the three month period ended June 30, 2010 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS.
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Since the commencement of our second quarter ended June 30, 2010, we completed the following sales of unregistered securities:
1. Effective July 26, 2010, we entered into a Debt Settlement and Subscription Agreement with David Steiner Primary Trust (the “Trust”), pursuant to which we agreed to issue 49,884 shares of our common stock to Steiner in settlement of all amounts owing to the Trust under the Convertible Debenture dated December 11, 2009 in the principal amount of $35,625 and outstanding interest to July 19, 2010 of $1,778. The shares were issued to the Trust on July 26, 2010 pursuant to Regulation D of the Securities Act of 1933 on the basis that the Trust represented that it was an “accredited investor” as such term is defined in Rule 501 of Regulation D and/or Section 4(2) of the Securities Act of 1933.
2. On July 27, 2010, the Company entered into a data purchase agreement (the “Agreement”) with two individuals (collectively the “Vendors”), pursuant to which the Company agreed to purchase from the Vendors geologic data relating to certain oil and gas mineral leases located in Texas, including among other things: electric logs, seismic work, seismic reprocessing, data from the Texas Railroad Commission. In consideration for the acquisition of the geologic data from the Vendors the Company agreed to issue an aggregate of 350,000 shares of the common stock of the Company to the Vendors. The shares were issued to the Vendors on July 27, 2010 pursuant to Regulation D of the Securities Act of 1933 on the basis that each of them represented that they were an “accredited investor” as such term is defined in Rule 501 of Regulation D and/or Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. (REMOVED AND RESERVED).
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
Exhibit | |
Number | Description |
3.1 |
Amended and Restated Articles (incorporated by reference from our Form 10-Q Quarterly report, filed on August 14, 2009) |
3.2 |
Bylaws (incorporated by reference from our Form 10SB Registration Statement, filed on August 8, 1999) |
3.3 |
Amended Bylaws (incorporated by reference from our Annual Report on Form 10-KSB, filed on April 24, 2008) |
4.1 |
Specimen Stock Certificate (incorporated by reference from our Form 10-SB Registration Statement, filed on August 8, 1999) |
10.1 |
Non-Qualified Stock Option Plan (incorporated by reference from our Form S-8 Registration Statement, filed on September 12, 2002) |
10.2 |
Mutual Release Agreement between Eskota Energy Corporation and Veneto Exploration, LLC and Assignment of Oil and Gas Leases dated July 6, 2006 (incorporated by reference from our Quarterly Report on Form 10-QSB for the period ended June 30, 2006) |
10.3 |
Purchase Agreement between Maverick Minerals Corporation, UCO Energy Corporation and the shareholders of UCO Energy, dated April 21, 2003 (incorporated by reference from our Annual Report on Form 10-KSB filed on May 19, 2004) |
10.4 |
Loan Agreement and Civil Action Covenant between Art Brokerage Inc., Eskota Energy Corporation and Maverick Minerals Corporation (incorporated by reference from our Quarterly Report on Form 10- QSB for the period ended June 30, 2006) |
10.5 |
Loan Agreement between Alonzo B. Leavell and Maverick Minerals Corporation dated July 20, 2005 (incorporated by reference from our Quarterly Report on Form 10-QSB for the period ended June 30, 2006) |
10.6 |
Loan Agreement between Alonzo B. Leavell and Maverick Minerals Corporation dated April 27, 2005 (incorporated by reference from our Quarterly Report on Form 10-QSB for the period ended June 30, 2006) |
10.7 |
Management Agreement dated as at March 5, 2003 between Maverick Minerals Corp. and Robert Kinloch (incorporated by reference from our Quarterly Report on Form 10-QSB for the period ended June 30, 2006) |
10.8 |
Management Agreement dated as at June 1, 2005 between Maverick Minerals Corp. and Robert Kinloch (incorporated by reference from our Quarterly Report on Form 10-QSB for the period ended June 30, 2006) |
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Exhibit | |
Number | Description |
10.9 | Deed of Release dated November 31, 2008 with Pride of Aspen LLC (incorporated by reference from our Current Report on Form 8-K filed on December 3, 2008) |
10.10 | Assignment and Assumption Agreement dated February 10, 2009 among Art Brokerage, Inc., Senergy Partners LLC and Maverick Minerals Corp. (incorporated by reference from our Current Report on Form 8-K filed on February 20, 2009) |
10.11 | Loan Agreement dated as of February 13, 2009 between Maverick Minerals Corp. and Senergy Partners LLC (incorporated by reference from our Annual Report on Form 10-K filed on April 13, 2009) |
10.12 | Debt Settlement and Subscription Agreement dated as of February 13, 2009 between Maverick Minerals Corp. and Senergy Partners LLC (incorporated by reference from our Current Report on Form 8-K filed on February 20, 2009) |
10.13 | 2009 Stock Option Plan (incorporated by reference from our Form 10-Q Quarterly report, filed on August 14, 2009) |
10.14 | Debt Settlement and Subscription Agreement dated as of September 24, 2009 between Maverick Minerals Corp. and The Art Brokerage Inc. (incorporated by reference from our Form 10-Q Quarterly report, filed on November 16, 2009) |
10.15 | Farmout Agreement dated as of December 7, 2009 between Southeastern Pipe Line Company and Maverick Minerals Corporation (incorporated by reference from our Form 8-K Current report, filed on December 18, 2009) |
10.16 | Subscription Agreement between Maverick Minerals Corporation and Robert Kinloch dated November 26, 2009 (incorporated by reference from our Form 8-K Current report, filed on December 10, 2009) |
10.17 | Convertible Debenture dated November 26, 2009 (incorporated by reference from our Form 8-K Current report, filed on December 10, 2009) |
10.18 | Subscription Agreement and Convertible Debenture dated December 17, 2009 between Maverick Minerals Corporation and David Steiner (incorporated by reference from our Annual Report on Form 10-K, filed on April 15, 2010) |
10.19* | |
10.20* | |
14.1 | Code of Ethics (incorporated by reference from our Annual Report on Form 10-KSB, filed on April 24, 2008) |
21.1 | List of Subsidiaries (incorporated by reference from our Annual Report on Form 10-K, filed on April 15, 2010) |
31.1* | |
32.1* |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAVERICK MINERALS CORPORATION
By | /s/ Robert Kinloch | |
Robert Kinloch | ||
President, Chief Executive Officer and Chief Financial Officer | ||
(Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer) | ||
Date: | August 12, 2010 |