UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________.
Commission File Number 0-33027.
HOUSTON AMERICAN ENERGY CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 76-0675953
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
801 Travis Street, Suite 2020, Houston, Texas 77002
(Address of principal executive offices)(Zip Code)
(713) 222-6966
(Registrant's telephone number, including area code)
(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 [ ]
As of May 14, 2004, we had 19,563,089 shares of $.0001 par value Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
HOUSTON AMERICAN ENERGY CORP.
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FORM 10-QSB
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of March 31, 2004. . . . . . . . . . . . . . . . . 3
Statements of Operations for the quarter
ended March 31, 2004 and March 31, 2003 . . . . . . . . . . . . . 4
Statements of Cash Flows for the quarter
ended March 31, 2004 and March 31, 2003 . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 7
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . . 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 11
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
HOUSTON AMERICAN ENERGY CORP.
BALANCE SHEET
March 31, 2004
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 531,245
Accounts receivable 75,073
Prepaid expenses 144,338
------------
Total current assets 750,656
------------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties - full cost method
Costs subject to amortization 1,737,568
Costs not being amortized 264,778
Furniture and equipment 10,878
------------
Total property, plant and equipment 2,013,224
Accumulated depreciation and depletion (825,651)
------------
Total property, plant and equipment, net 1,187,573
------------
OTHER ASSETS 3,167
------------
Total Assets $ 1,941,396
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 165,217
Accrued interest on shareholder's loan 4,400
------------
Total current liabilities 169,617
------------
LONG-TERM DEBT:
Notes payable to principal shareholder 1,000,000
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 100,000,000 shares
Authorized; 19,563,089 shares outstanding 19,563
Additional paid-in capital 2,438,182
Accumulated deficit (1,685,966)
------------
Total stockholders' equity 771,779
------------
Total liabilities and stockholders' equity $ 1,941,396
============
The accompanying notes are an integral part of these financial statements
3
HOUSTON AMERICAN ENERGY CORP.
STATEMENT OF OPERATIONS
(Unaudited)
For the Quarter Ended March 31,
------------------------------
2004 2003
-------------- --------------
Revenue
Oil and gas $ 122,808 $ 44,075
Interest 2,766 -
-------------- --------------
Total revenue 125,574 44,075
-------------- --------------
Expenses of operations
Lease operating expense 53,642 15,646
Joint venture expenses - 20,158
General and administrative expense
Accounting and legal 20,318 28,736
Rent 10,372 9,636
Shareholder relations 2,442 5,319
Travel and meals 2,730 -
Registration fees 2,413 362
Telephone and fax 1,250 1,838
Dues and subscription 4,019 1,639
Miscellaneous 2,214 3,767
Depreciation and depletion 22,806 6,808
Interest expense 18,000 33,334
-------------- --------------
Total expenses 140,206 127,243
-------------- --------------
Net loss $ 14,632 $ 83,168
============== ==============
Basic and diluted loss per share $ 0.00 $ 0.01
============== ==============
Basic and diluted weighted average shares 19,509,304 13,870,254
============== ==============
The accompanying notes are an integral part of these financial statements
4
HOUSTON AMERICAN ENERGY CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Quarter Ended March 31,
------------------------------
2004 2003
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from operations $ (14,632) $ (83,168)
Adjustments to reconcile net loss
to net cash from operations
Depreciation and depletion 22,806 6,535
Non-cash expenses - 4,890
Changes in operating assets and liabilities:
(Increase) in accounts receivable (9,070) (20,877)
(Increase) decrease in prepaid expense (138,400) 1,381
(Increase) decrease in other assets 36,863 -
Increase in accounts payable and accrued expenses 89,453 85,413
-------------- --------------
Net cash provided (used) by operations (12,980) (5,826)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of properties and assets (210,391) (434,777)
-------------- --------------
Net cash used by investing activities (210,391) (434,777)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 91,193 325,000
Loans from shareholders - 127,000
-------------- --------------
Net cash provided by financing activities 91,193 452,000
-------------- --------------
Increase (decrease) in cash and equivalents (132,178) 11,397
Cash, beginning of period 663,422 939
-------------- --------------
Cash, end of period $ 531,245 $ 12,336
============== ==============
SUPPLEMENT CASH FLOW INFORMATION:
Interest paid $ 18,000 $ -
============== ==============
SUPPLEMENT NON-CASH INVESTING AND
FINANCING ACTIVITIES
Notes payable for oil and gas properties and expense $ - $ 5,000
============== ==============
Stock issued for oil and gas activity $ 47,500 $ -
============== ==============
The accompanying notes are an integral part of these financial statements
5
HOUSTON AMERICAN ENERGY CORP.
Notes to Financial Statements
March 31, 2004
(Unaudited)
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Houston American Energy
Corp., a Delaware corporation (the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. They do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for a complete financial presentation. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation, have been included in the
accompanying unaudited financial statements. Operating results for the periods
presented are not necessarily indicative of the results that may be expected for
the full year.
These financial statements should be read in conjunction with the financial
statements and footnotes, which are included as part of the Company's Form
10-KSB for the year ended December 31, 2003.
NOTE 2. - CHANGES IN PRESENTATION
Certain financial presentations for the periods presented for 2003 have been
reclassified to conform to the 2004 presentation.
NOTE 3. - COMMON STOCK
During the quarter ended March 31, 2004, the Company issued 227,983 shares of
its common stock for cash consideration of $91,193. In addition, in conjunction
with an agreement with an individual to assist the Company in locating viable
oil and gas prospects, the Company (1) issued 50,000 shares of its common stock,
which were valued at $47,500, and (2) granted an interest equal to 10% of the
Company's interest from any prospects generated by the individual's contacts.
NOTE 4. - CONTINGENCY
During the quarter ended March 31, 2004, the Company was named as defendant in a
suit filed in the United States Bankruptcy Court for the Southern District of
Texas. The plaintiff alleges that expenses relating to the formation and
operation of the Company were paid by Moose Oil and Gas or Moose Operating
Company, that interests in certain oil and gas properties were transferred to
the Company from Moose Oil and Gas or Moose Operating Company and that the
alleged payments and transfers constituted fraudulent transfers and voidable
preferences. The plaintiff seeks to recover all properties alleged to have been
wrongfully transferred as well as costs of suit and other relief. The Company
believes that the action is without merit and intends to vigorously contest the
same.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD-LOOKING INFORMATION
This Form 10-QSB quarterly report of Houston American Energy Corp. (the
"Company") for the three months ended March 31, 2004, contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which are intended to be covered by the safe harbors created
thereby. To the extent that there are statements that are not recitations of
historical fact, such statements constitute forward-looking statements that, by
definition, involve risks and uncertainties. In any forward-looking statement,
where the Company expresses an expectation or belief as to future results or
events, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will be achieved or accomplished.
The following are factors that could cause actual results or events to differ
materially from those anticipated, and include, but are not limited to: general
economic, financial and business conditions; the Company's ability to minimize
expenses and exposures related to its oil and gas properties in which other
companies have control over the operations conducted on such properties; changes
in and compliance with governmental laws and regulations, including various
state and federal environmental regulations; the Company's current dependency on
John F. Terwilliger, its sole director and executive officer, to continue
funding the Company's operations and, to the extent he should ever become
unwilling to do so, the Company's ability to obtain additional necessary
financing from outside investors and/or bank and mezzanine lenders; and the
ability of the Company to generate sufficient revenues to cover operating losses
and position it to achieve positive cash flow.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. The
Company believes the information contained in this Form 10-QSB to be accurate as
of the date hereof. Changes may occur after that date, and the Company will not
update that information except as required by law in the normal course of its
public disclosure practices.
The oil and gas industry is subject to volatile price movements based on various
factors including supply and demand and other factors beyond the control of the
Company. While the industry has generally benefited from higher prices during
the past two years, sudden and/or sustained decreases in energy prices can
occur, which could limit our ability to fund planned levels of capital
expenditures.
Additionally, the following discussion regarding the Company's financial
condition and results of operations should be read in conjunction with the
financial statements and related notes contained in Item 1 of Part 1 of this
Form 10-QSB, as well as the financial statements in Item 7 of Part II of the
Company's Form 10-KSB for the fiscal year ended December 31, 2003.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The Company believes certain critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its financial statements. A description of the Company's
critical accounting policies is set forth in the Company's Form 10-KSB for the
year ended December 31, 2003. As of, and for the quarter ended, March 31, 2004,
there have been no material changes or updates to the Company's critical
accounting policies other than the following updated information relating to
Unevaluated Oil and Gas Properties:
7
UNEVALUATED OIL AND GAS PROPERTIES. Unevaluated oil and gas properties not
subject to amortization include the following at March 31, 2004:
March 31,2004
-------------
Acquistion costs $ 128,555
Evalution costs 136,223
-------------
Total $ 264,778
=============
The carrying value of unevaluated oil and gas prospects include $55,371 expended
for properties in the South American country of Colombia at March 31, 2004. We
are maintaining our interest in these properties and development has or is
anticipated to commence within the next twelve months.
CURRENT YEAR DEVELOPMENTS
A test well in San Patricio County, Texas, the Saint Paul Prospect Garza #1, was
drilled in January 2004 and completed as a natural gas well. Natural gas sales
from the well began March 1, 2004 and production from the well totaled 11,330
mcf gross for the one month of operations during the current quarter. The
Company holds a 5% working interest in the well.
Drilling of three offset wells on the Cara Cara concession in Colombia was
completed with production commencing on the Jaguar #2 in March 2004 and the
Bengala #2 in April 2004. The third well, the Cara Cara #1 is shut in pending
evaluation. The Company holds a 1.59% working interest in each of the wells.
Drilling of 13,500 test well, the LaFurs #F-16, in Vermillion Parish, Louisiana
commenced, and expected to be completed, in May 2004. The Company holds a 3%
working interest in the well.
The Company has agreed to participate in the Crowley Prospect, a 620 acre
prospect, in Acadia Parish, Louisiana. Tests are planned in a series of sands
that have produced downdip and nearby. The Company will own a 3% working
interest in the well and the prospect. No schedule has as yet been set for
drilling of the prospect.
RESULTS OF OPERATIONS
Oil and Gas Revenues. Total oil and gas revenues increased $78,733 to $122,808
in the three months ended March 31, 2004 when compared to the three months ended
March 31, 2003. The increase in revenue is due to (1) increased production
resulting from the development of the Columbian fields and the new domestic
wells that have come on line during 2003 and the first quarter of 2004 and (2)
increases in oil prices. The Company had interests in 3 producing wells in
Columbia and 6 producing wells in the U.S. during the 2004 quarter as compared
to 2 producing wells in Columbia and 1 producing well in the U.S. during the
2003 quarter. Average prices from sales were $26.89 per barrel of oil and $5.24
per mcf of gas during the 2004 quarter as compared to $18.92 per barrel of oil
and $5.28 per mcf of gas during the 2003 quarter.
Columbia U.S. Total
--------- ------- -------
2004 Quarter
Oil sales $ 47,100 $ 2,656 $49,756
Gas sales - 73,052 73,052
2003 Quarter
Oil sales 20,914 - 20,914
Gas sales - 23,160 23,160
8
Lease Operating Expenses. Lease operating expenses, excluding joint venture
expenses relating to our Columbian operations discussed below, increased 41% to
$53,642 in the 2004 quarter from $37,996 in the 2003 quarter. The increase in
lease operating expenses was attributable to the increase in the number of wells
(6) operated during the 2004 period. Following is a summary comparison of lease
operating expenses for the periods.
Columbia U.S. Total
--------- ------ -------
2004 Quarter $ 47,786 $5,856 $53,642
2003 Quarter 12,228 3,358 15,646
Joint Venture Expenses. Adjustment made by the operator reduced our share of
the cost to operate the Columbian Joint Venture to $0 for the first quarter of
2004. During the same period in 2003 joint venture expense was $20,158.
Depreciation and Depletion Expense. Depreciation and depletion expense was
$22,193 and $3,767 for the quarter ended March 31, 2004 and 2003 respectively.
The increase is due to increase in domestic and Columbian production.
Interest Expense. Interest expense was reduced by $15,334 to $18,000 when
compared to first quarter of 2003. The reduction in interest expense was
attributable to reduced debt relating to the conversion of certain debt to
equity in 2003 and a reduction in the interest rate.
General and Administrative Expenses. General and administrative expense
decreased by 11% to $45,758 during the first quarter 2004 from $51,297 in the
first quarter 2003. The reduction in general and administrative expense was
primarily attributable to ongoing cost control measures and related principally
to a reduction in professional fees and reduced shareholder relations costs.
FINANCIAL CONDITION
Liquidity and Capital Resources. At March 31, 2004 we had a cash balance of
$531,245 and working capital of $581,039 compared to a cash balance of $663,422
and working capital of $654,451 at December 31, 2003. Part of that working
capital for March 31, 2004 consisted of prepaid drilling cost and prepaid legal.
The joint venture agreement covering the Columbian operation requires the
prepayment of drilling cost. As of March 31, 2004 we had prepaid drilling costs
on the Tambaqui #2 of approximately $120,000. This well is scheduled to be
drilled in the second quarter of 2004. The Company paid a retainer of $20,000
for legal costs associated with claims against the Company arising from the
bankruptcy of Moose Oil Company. The Company believes there is no merit to the
claims made against the Company.
As discussed in our prior financial statements, our revenue was insufficient to
cover our costs and expenses. In addition to the income received from our
wells, certain significant shareholders, including John F. Terwilliger, our sole
director and executive officer, have previously provided us the funds needed to
continue our development and operations. Our current business plan projects
positive cash flows from operation by the second quarter of fiscal 2004 and
management anticipates raising any necessary funds for major capital
expenditures from outside investors or commercial bank or mezzanine lenders.
During the quarter ended March 31, 2004, the Company issued 227,983 shares of
its common stock for cash consideration of $91,193. In addition, the Company
issued 50,000 shares of its common stock, which were valued at $47,500, to an
individual to help locate viable oil and gas prospects.
Loans from shareholders totaled $1,000,000 at March 31, 2004.
9
Capital and Exploration Expenditures and Commitments. Our principal capital and
exploration expenditures relate to our ongoing efforts to acquire, drill and
complete prospects. Historically, we have funded our capital and exploration
expenditures from funds borrowed from John F. Terwilliger, our principal
shareholder and officer. With the receipt of additional equity financing in
2003, we expect that future capital and exploration expenditures will be funded
principally through additional stock offerings, mezzanine loans, funds on hand
and funds generated from operations.
During the first quarter of 2004, we invested approximately $257,000 for the
acquisition and development of oil and gas properties, consisting of (1)
acquisition of a 3% interest in the North Freshwater Bayou Field in Louisiana,
(2) acquisition of a 100% interest in the South Sibley Prospect, (3) a 50%
interest in the Southern Star Wharton Prospect, (4) consulting fee in forming
the joint venture with a private company and (5) drilling and/or completing
expenses for the Jaguar #2 Bengala #1 and Cara Cara #1 wells in Colombia.
Our only material contractual obligations requiring determinable future payments
on our part are a note payable to our principal shareholder and our lease
relating to our executive offices which were unchanged when compared to the 2003
Form 10-K.
In addition to the contractual obligations requiring that we make fixed
payments, in conjunction with our efforts to secure oil and gas prospects,
financing and services, we have, from time to time, granted overriding royalty
interests (ORRI) in various properties, and may grant ORRIs in the future,
pursuant to which we will be obligated to pay a portion of our interest in
revenues from various prospects to third parties.
At March 31, 2004, we had two revenue producing wells in Columbia, three revenue
producing wells in south Texas, one revenue producing wells in south Louisiana
and one producing well in Oklahoma. Preliminary indications are that these
wells will more than double current monthly revenue at the current equivalent
per barrel price in the mid-thirty dollar range.
Management anticipates that our current financing strategy of private debt and
equity offerings, combined with an expected increase in revenues, will meet our
anticipated objectives and business operations for the next 12 months.
Management continues to evaluate producing property acquisitions as well as a
number of drilling prospects. Subject to our ability to obtain adequate
financing at the applicable time, we may enter into definitive agreements on one
or more of those projects.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements or guarantees of third party
obligations at March 31, 2004.
INFLATION
We believe that inflation has not had a significant impact on our operations
since inception.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures under the supervision and with the participation of our chief
executive officer ("CEO") who also serves as chief financial officer. Based on
this evaluation, our management, including the CEO, concluded that our
disclosure controls and procedures were effective. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal control subsequent to the evaluation.
10
PART II
ITEM 1. LEGAL PROCEEDINGS
During the quarter ended March 31, 2004, the Company was named as defendant in a
suit styled Alan Gerger, Trustee for the Substantially Consolidated Bankruptcy
------------------------------------------------------------------
Estate of Moose Oil and Gas Company and Moose Operating Company v. John
-----------------------------------------------------------------------
Terwilliger, Marlin Data Research, Inc. and Houston American Energy Corp., filed
-------------------------------------------------------------------------
in the United States Bankruptcy Court for the Southern District of Texas. The
plaintiff alleges that expenses relating to the formation and operation of the
Company were paid by Moose Oil and Gas or Moose Operating Company, that
interests in certain oil and gas properties were transferred to the Company from
Moose Oil and Gas or Moose Operating Company and that the alleged payments and
transfers constituted fraudulent transfers and voidable preferences. The
plaintiff seeks to recover all properties alleged to have been wrongfully
transferred as well as costs of suit and other relief. The Company believes
that the action is without merit and intends to vigorously contest the same.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 2004, the Company issued 227,983 shares of
its common stock to 4 investors for cash consideration of $91,193. In addition,
the Company issued 50,000 shares of its common stock, which were valued at
$47,500, to an individual to help locate viable oil and gas prospects.
The issuances of the shares of our common stock described above were pursuant to
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as amended and related state private offering exemptions. The
purchasers were Accredited Investors as defined in the Securities Act who took
the shares for investment purposes without a view to distribution and had access
to information concerning the Company and its business prospects, as required by
the Securities Act.
In addition, there was no general solicitation or advertising in connection with
the issuance of the shares. All certificates for our shares contain a
restrictive legend. Finally, our stock transfer agent has been instructed not to
transfer any of such shares, unless such shares are registered for resale or
there is an exemption with respect to their transfer.
No commissions were paid in connection with the issuances described above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
31.1 Certification of CEO and CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
HOUSTON AMERICAN ENERGY CORP.
Date: May 14, 2004 By: /s/ John Terwilliger
-------------------------
John Terwilliger
CEO and President
12