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 EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 August 10, 2004, we had 19,663,089 shares of $.0001 par value Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
HOUSTON AMERICAN ENERGY CORP.
-----------------------------
FORM 10-QSB
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Balance Sheet as of June 30, 2004 . . . . . . . . . . . . . . 3
Statements of Operations for the three months and six months
ended June 30, 2004 and June 30, 2003 . . . . . . . . . . . 4
Statements of Cash Flows for the six months
ended June 30, 2004 and June 30, 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 . . . . . . . . . . . . . . . . 11
PART II OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 11
Item 6.Exhibits and Reports on Form 8-K . . . . . . . . . . . . 12
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
HOUSTON AMERICAN ENERGY CORP.
BALANCE SHEET
June 30, 2004
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 258,011
Accounts receivable 133,046
Prepaid expenses 190,274
-------------
Total current assets 581,331
-------------
PROPERTY, PLANT AND EQUIPMENT:
Oil and gas properties - full cost method
Costs subject to amortization 1,967,800
Costs not being amortized 265,933
Furniture and equipment 10,878
-------------
Total property, plant and equipment 2,244,611
Accumulated depreciation and depletion (858,088)
-------------
Total property, plant and equipment, net 1,386,523
-------------
OTHER ASSETS 3,166
-------------
Total Assets $ 1,971,020
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 98,552
-------------
Total current liabilities 98,552
-------------
LONG-TERM LIABILITIES:
Notes payable to principal shareholder 1,000,000
Reserve for plugging costs 17,121
-------------
Total long-term liabilities 1,017,121
-------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 100,000,000 shares
Authorized; 19,663,089 shares outstanding 19,663
Additional paid-in capital 2,541,082
Accumulated deficit (1,705,398)
-------------
Total stockholders' equity 855,347
-------------
Total liabilities and stockholders' equity $ 1,971,020
=============
The accompanying notes are an integral part of these financial statements
3
HOUSTON AMERICAN ENERGY CORP.
STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
------------------------ ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenue:
Oil and gas $ 303,548 $ 104,396 $ 166,561 $ 60,321
Interest 4,302 - 1,537 -
----------- ----------- ----------- -----------
Total revenue 307,850 104,396 168,098 60,321
----------- ----------- ----------- -----------
Expenses of operations:
Lease operating expense 119,497 65,472 51,676 49,826
Joint venture expenses 6,048 31,581 6,048 11,423
General and administrative
Expense:
Accounting and legal 56,178 38,140 35,860 9,404
Rent 19,761 19,544 9,389 9,908
Shareholder relations 21,980 11,636 19,537 6,318
Travel and meals 9,570 2,188 6,840 144
Registration fees 3,238 362 825 -
Telephone and fax 2,494 3,728 1,245 1,890
Dues and subscription 5,702 2,125 1,684 486
Miscellaneous 8,357 5,445 6,144 3,724
Depreciation and depletion 57,493 17,818 34,687 11,010
Interest expense 31,600 70,531 13,600 37,197
----------- ----------- ----------- -----------
Total expenses 341,918 268,570 187,535 141,330
----------- ----------- ----------- -----------
Net loss $ 34,068 $ 164,174 $ 19,437 $ 81,009
=========== =========== =========== ===========
Basic and diluted loss per share $ 0.00 $ 0.01 $ 0.00 $ 0.01
=========== =========== =========== ===========
Basic and diluted weighted
average shares 19,536,060 14,233,942 19,565,279 14,616,133
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
4
HOUSTON AMERICAN ENERGY CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30,
---------------------------------------
2004 2003
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from operations $ (34,068) $ (164,175)
Adjustments to reconcile net loss
to net cash from operations
Depreciation and depletion 55,993 17,818
Non-cash expenses 18,666 4,541
Changes in operating assets and liabilities:
(Increase) in accounts receivable (67,043) (45,990)
(Increase) decrease in prepaid expense (98,502) 4,263
(Increase) decrease in other assets 36,863 1,578
Increase in accounts payable and accrued expenses 33,265 206,038
------------------ -------------------
Net cash provided (used) by operations (54,826) 24,073
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of properties and assets (441,778) (572,820)
------------------ -------------------
Net cash used by investing activities (441,778) (572,820)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 91,193 392,233
Loans from shareholders - 194,200
------------------ -------------------
Net cash provided by financing activities 91,193 586,433
------------------ -------------------
Increase (decrease) in cash and equivalents (405,411) 37,686
Cash, beginning of period 663,422 941
------------------ -------------------
Cash, end of period $ 258,011 $ 38,627
================== ===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 36,000 $ -
SUPPLEMENTAL NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued for financial public relations 103,000 -
Stock issued for oil and gas activity 47,500 7,611
The accompanying notes are an integral part of these financial statements
5
HOUSTON AMERICAN ENERGY CORP.
Notes to Financial Statements
June 30, 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 six months ended June 30, 2004, the Company (1) issued 227,983 shares
of its common stock for cash consideration of $91,193, (2) in conjunction with
an agreement with an individual to assist the Company in locating viable oil and
gas prospects, issued 50,000 shares of its common stock, valued at $47,500, and
granted an interest equal to 10% of the Company's interest in any prospects
generated by the individual's contacts, and (3) issued 100,000 shares of its
common stock, valued at $103,000, for financial public relations services over a
six month period.
NOTE 4. - CONTINGENCY
During the six months ended June 30, 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
FORWARD-LOOKING INFORMATION
This Form 10-QSB quarterly report of Houston American Energy Corp. (the
"Company") for the six months ended June 30, 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; results
of drilling activities; 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 six months ended, June 30, 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 June 30, 2004:
ACQUISTION COSTS $ 230,696
EVALUTION COSTS 35,237
---------------
TOTAL $ 265,933
===============
CURRENT YEAR DEVELOPMENTS
Through August 9, 2004, the Company has drilled three on-shore domestic wells as
follows:
- 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. The Company holds a 5%
working interest in the well.
- A test well in Vermillion Parish, Louisiana, the LaFurs #F-16, was drilled
in May 2004 and completed as a natural gas well. Natural gas sales from the
well are expected to begin in August 2004. The Company holds a 3% working
interest in the well.
- Drilling of a test well, the Baronet #1, on the 620-acre Crowley Prospect
in Acadia Parish, Louisiana, commenced in June 2004 to test a series of
sands that have produced downdip and nearby. The well is expected to reach
its target depth by September 2004. The Company holds a 3% working interest
in the well.
Through August 9, 2004, the Company has drilled five international wells in
Columbia as follows:
- Drilling of four offset wells on the Cara Cara concession in Colombia was
completed with production commencing on the Jaguar #2 in March 2004, the
Bengala #2 in April 2004 and the Jaguar #6 is expected to begin production
in August 2004. The fourth well, the Cara Cara #1 is shut in pending
evaluation. The Company holds a 1.59% working interest in each of the
wells.
- An oil well, the Tambaqui #2, was drilled and successfully completed under
the Company's Tambaqui Association Contract in Columbia and began
production in June 2004. The Company holds a 12.6% working interest and an
11.59% net revenue interest in the well.
The Company and its partners plan to drill up to five additional wells on the
Cara Cara concession through the end of 2004.
RESULTS OF OPERATIONS
Oil and Gas Revenues. Total oil and gas revenues increased $199,152 to $303,548
in the six months ended June 30, 2004 when compared to the six months ended June
30, 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 six months of 2004 and (2) increases
in oil prices. The Company had interests in four producing wells in Columbia and
five producing wells in the U.S. during the 2004 period as compared to two
producing wells in Columbia and three producing wells in the U.S. during the
2003 period. Average prices from sales were $28.43 per barrel of oil and $5.10
per mcf of gas during the six months ended June 30, 2004 as compared to $21.11
per barrel of oil and $5.24 per mcf of gas during the same period in 2003.
Following is a summary comparison, by region, of oil and gas sales for the
periods.
8
Columbia U.S. Total
--------- -------- --------
2004 Period
Oil sales $ 149,358 $ 8,067 $157,425
Gas sales - 146,123 146,123
2003 Period
Oil sales 79,592 - 79,592
Gas sales - 24,803 24,803
Lease Operating Expenses. Lease operating expenses, excluding joint venture
expenses relating to our Columbian operations discussed below, increased 83% to
$119,497 in the 2004 six month period from $65,472 in the 2003 period. The
increase in lease operating expenses was attributable to the increase in the
number of wells operated during the 2004 period. Following is a summary
comparison of lease operating expenses for the periods.
Columbia U.S. Total
--------- ------- --------
2004 Period $ 98,084 $21,413 $119,497
2003 Period 57,198 8,274 65,472
Joint Venture Expenses. Joint venture expenses, representing our allocable share
of administrative expenses from our Colombian joint venture, totaled $6,048 for
the six months ended June 30, 2004. During the same period in 2003 joint venture
expense was $31,581.
Depreciation and Depletion Expense. Depreciation and depletion expense was
$57,493 and $17,818 for the six months ended June 30, 2004 and 2003
respectively. The increase is due to the increase in domestic and Columbian
production and increased investment in oil and gas properties.
Interest Expense. Interest expense totaled $31,600 for the six months ended June
30, 2004 as compared to $70,531 for the 2003 period. 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
increased by 53% to $127,280 during the first six months of 2004 from $83,168 in
the 2003 period. The increase in general and administrative expense was
primarily attributable to (1) increased professional fees ($18,038) arising
principally from litigation commenced during the 2004 period and (2) increased
shareholder relations costs ($10,344) relating to a six month financial public
relations contract entered into during the period and running through the fourth
quarter of 2004.
FINANCIAL CONDITION
Liquidity and Capital Resources. At June 30, 2004, we had a cash balance of
$258,011 and working capital of $482,779 compared to a cash balance of $663,422
and working capital of $654,451 at December 31, 2003. Part of that working
capital for June 30, 2004 consisted of prepaid drilling cost, prepaid legal fees
and prepaid financial public relations fees. Prepaid drilling cost, totaling
$81,577 at June 30, 2004, consisted of $53,457 relating to the Baronet #1 well
and $28,120 relating to the LaFur #16 well, both of which were completed
subsequent to June 30, 2004. Prepaid legal expenses, totaling $20,000 at June
30, 2004, relate to litigation against the Company under the Moose Oil Company
bankruptcy. The Company believes there is no merit to the claims made against
the Company. Prepaid financial public relations expense, totaling $85,835 at
June 30, 2004, relates to the issuance of 100,000 shares of common stock, valued
at $103,000, for public relations services over a six month period beginning in
the second quarter and ending in the fourth quarter of 2004.
9
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. At current production levels and
prices, our operations are self-supporting from a cash flow standpoint.
Management anticipates raising any necessary funds for major capital
expenditures from outside investors or commercial bank or mezzanine lenders.
During the six months ended June 30, 2004, the Company (1) issued 227,983 shares
of its common stock for cash consideration of $91,193, (2) in conjunction with
an agreement with an individual to assist the Company in locating viable oil and
gas prospects, issued 50,000 shares of its common stock, valued at $47,500, and
granted an interest equal to 10% of the Company's interest in any prospects
generated by the individual's contacts, and (3) issued 100,000 shares of its
common stock, valued at $103,000, for financial public relations services over a
six month period.
Loans from shareholders totaled $1,000,000 at June 30, 2004.
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, and from sales of common stock. 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 half of 2004, we invested approximately $489,278 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) acquisition
of 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, Cara Cara #1, Tambaqui #2 and
Jaguar #6 wells in Colombia and the Garza #1, LaFurs #F-16 and Baronet #1 in the
U.S.
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. As of June 30, 2004, we had
granted ORRIs to affiliates, including our President, ranging from 1.0% to
4.02166% of our interest in selected properties.
At June 30, 2004, we had four revenue producing wells in Columbia, three revenue
producing wells in south Texas, one revenue producing well in south Louisiana
and one producing well in Oklahoma.
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.
10
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements or guarantees of third party
obligations at June 30, 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.
PART II
ITEM 2. CHANGES IN SECURITIES
During the quarter ended June 30, 2004, the Company issued 100,000 shares of its
common stock, valued at $103,000, to a company as payment for services under a
six-month financial public relations contract.
The issuance of the shares of our common stock described above was 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 shares
were issued to a single investor 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.
11
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
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.
By: /s/ John Terwilliger
John Terwilliger
CEO and President
Date: August 11, 2004
12