HIMALAYA TECHNOLOGIES, INC - Quarter Report: 2015 April (Form 10-Q)

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 30, 2015

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

For the transition period from ________________ to _______________

333-147501
 (Commission file number)

HOMELAND RESOURCES LTD.
 (Exact name of registrant as specified in its charter)

(877) 503-4299
 (Registrant’s 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  [X]   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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 36,082,036 shares of Common Stock, $0.0001 par value, as of June 18, 2015.

HOMELAND RESOURCES LTD.

PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and nine months ended April 30, 2015 are not necessarily indicative of the results that can be expected for the year ending July 31, 2015.

As used in this Quarterly Report, the terms "we,” "us,” "our,” and “Homeland” mean Homeland Resources Ltd. unless otherwise indicated. All dollar amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.

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HOMELAND RESOURCES LTD.
BALANCE SHEETS

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HOMELAND RESOURCES LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)

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HOMELAND RESOURCES LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION                       

NOTE 2 – GOING CONCERN

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 4 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 5 – ACQUISITION AGREEMENT

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 6 - FAIR VALUE MEASUREMENTS

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 7 – INCOME (LOSS) PER SHARE

NOTE 8 – CRUDE OIL AND NATURAL GAS PROPERTIES 

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 9 – ASSET RETIREMENT OBLIGATIONS

NOTE 10 – NOTES PAYABLE

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 11 –STOCKHOLDERS’ (DEFICIT)

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 12 – WARRANTS

NOTE 13 – STOCK OPTIONS

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

NOTE 14 – RELATED PARTY TRANSACTIONS

NOTE 15 – SUBSEQUENT EVENTS

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HOMELAND RESOURCES, LTD
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
APRIL 30, 2015

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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q constitute "forward-looking statements."  These statements, identified by words such as “plan,” "anticipate," "believe," "estimate," "should," "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under the caption “Part II – Item 1A. Risk Factors” and elsewhere in this Quarterly Report. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents, particularly our Annual Reports, our Quarterly Reports and our Current Reports we file from time to time with the United States Securities and Exchange Commission (the “SEC”).  Copies of all of our filings with the SEC may be accessed by visiting the SEC site (http://www.sec.gov) and performing a search of our electronic filings.

Introduction

The following discussion and analysis summarizes our plan of operation for the next twelve months, our results of operations for the three and nine months ended April 30, 2015, and changes in our financial condition from July 31, 2014. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2014 filed with the SEC on November 11, 2014.

General

We were organized under the laws of the State of Nevada on July 8, 2003.  We are an independent crude oil and natural gas exploration company, and we have participated in various exploration and seismic programs. 

Until fiscal 2009, our focus was on our undeveloped mineral interests and the acquisition and exploration of mineral properties. We no longer hold any interests in any mining or mineral claims.  In fiscal 2010, we began to focus on our crude oil and natural gas interests

In April 2010, we acquired working interests in a seismic exploration program as well as a drilling program in crude oil and natural gas properties located in Oklahoma, as further described below. Our present plan of operation is to continue to maintain our working interests existing crude oil and natural gas properties, while continuing to pursue other opportunities as described further below.

Acquisition Agreement

On January 15, 2015, we entered into a letter agreement (the “Letter Agreement”) with TeleSecurity Sciences Inc. (“TSS”), under which we agreed to purchase $7,500,000 of TSS’s common stock and were granted a warrant to purchase an additional $7,500,000 of TSS common stock.  Upon completion of its stock purchases, including exercise of the warrants, we will own 50% of the capital stock of TSS.  In addition, upon completion of the stock purchases, it is the intention of the parties that the parties enter into a business combination transaction which would result in a combination of the two companies with our shareholders owning 50% of the capital stock of the combined companies.  TSS is a Delaware corporation, based in Nevada, engaged in the development of advanced imaging systems and devices for both the medical and security fields.

Under the terms of the Letter Agreement, which was scheduled to close on February 15, 2015, we will purchase 743,373 shares of the common stock of TSS (representing approximately 25% of TSS’s outstanding common stock) and a warrant (the “A” Warrant) to purchase an additional 743,373 shares of common stock of TSS (approximately 25%).  Of the shares to be acquired, 99,116 shares will be fully paid with the payment of $1,000,000 in cash at the closing and 644,257 (the “Partially Paid Shares”) will be partially paid for at closing.  We will pay for the Partially Paid Shares by making 20 payments of $300,000 per month commencing April 15, 2015, and a final payment of $500,000 on December 15, 2016.  A proportionate amount of the Partially Paid Shares will become fully paid with each payment.

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The “A” Warrant will be exercisable until January 15, 2017.  Exercise of the “A” Warrant will be subject to the purchase price for the Partially Paid Shares being fully paid.  We will exercise the “A” Warrant by paying $2,000,000 in cash to TSS, together with a $5,500,000 secured promissory note (the “Promissory Note”) bearing interest at 5% per annum and payable in 11 monthly installments of $500,000 plus accrued interest.

At closing, we will also acquire an additional warrant (the “B” Warrant) entitling us to purchase a number of shares of common stock of TSS equal to 50% of the amount of shares issued by TSS to third parties prior to a business combination with us as a result of the exercise of stock options or warrants of TSS (other than the warrants issued to us).  The purpose of the “B” Warrant is to protect us from dilution accruing from the exercises of outstanding options and warrants of TSS prior to a business combination between the parties.  The exercise price of the “B” Warrant will be equal to 50% of the aggregate exercise price paid to TSS by third parties exercising options or warrants.  Exercise of the “B” Warrant will be subject to the purchase price for the Partially Paid Shares being fully paid, and the “A” Warrant being exercised and the Promissory Note being fully paid.

Upon the purchase price for the Partially Paid Shares being fully paid, the “A” Warrant being exercised and the Promissory Note being fully paid, we and TSS have agreed to use the best efforts to enter into and cause each parties respective shareholders to approve a business combination between the parties (the “Business Combination”) on terms (without taking into account shares issuable on exercise of options and warrants outstanding) that would result in an entity (the “Resulting Entity”) being owned 50% by our shareholders and 50% by TSS shareholders.  During the first year following the Business Combination, TSS shall be entitled to nominate three of the Resulting Entity’s five directors and the Chief Executive Officer of TSS would be appointed to as the Chairman of the Board and Chief Executive Officer of the resulting entity combined entity.

As of February 15, 2015, we failed to close on the initial purchase of shares per the terms in the January 15, 2015 Letter Agreement. On March 10, 2015, an Extension of the closing and payment dates under the Letter Agreement (“Extension”) was executed. In connection with the Extension the initial closing was extended from February 15, 2015 to May 15, 2015, and all other payment dates were also moved forward 90 days. In connection with the execution of the Extension the Company paid $19,000 of TSS’s legal costs related to the Extension.

On May 15, 2015, we further extended the closing date and payment dates under the terms of the March 10, 2015 extension to the Letter Agreement dated January 15, 2015 with TSS.  In connection with this second Extension, we agreed to pay TSS $5,000, the parties agreed to extend the extended closing date from May 15, 2015 to July 15, 2015, and all other closing and payment dates were also deferred 60 days.

Crude Oil and Natural Gas Properties

“Bbl” is defined herein to mean one stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.

“Mcf” is defined herein to mean one thousand cubic feet of natural gas at standard atmospheric conditions.

Washita Bend 3D Exploration Project   

In April 2010, we acquired a 5% working interest in the Washita Bend 3D Exploration Project for a total buy-in cost of $46,250.  The project provided for the acquisition of approximately 135 miles of 3D seismic data to identify drillable prospects in a study area comprising 119,680 acres in Oklahoma.  The Washita prospect area was located in Cleveland, Garvin, McCain and Pottawatomie Counties, Oklahoma.  In May 2013, drilling commenced on the first of an anticipated 8-well Phase-I exploration program.  

Results of the Phase-1 exploration program were largely uneconomic. Of the six wells in which we participated in drilling activities five were deemed to be uneconomic. We failed to participate in the drilling of the remaining two wells in the Phase-1 program inasmuch we have forfeited our right to seismic data gathered in connection with the program.

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During the fiscal year ended of July 31, 2014, we recorded total impairment expense of $770,631 of which $463,550 related to the relative value of seven wells worth of seismic data, forfeited due to our failure to participate in the drilling of a total of eight wells in the Phase-I exploration program as described above. Additional impairment expense of $307,081was incurred in connection with capitalized costs exceeding ceiling test limits.

2010–1 Drilling Program

In April 2010, we acquired a 5% working interest in the 2010-1 Drilling Program located in Garvin County, Oklahoma for total buy-in costs of $39,163. Of the four wells in which we participated related to this program, three wells went on production, and we maintain a working interest in two of these wells.

Loans

August Share Issuance

On various dates in August, 2014, we issued 20,061,828 shares of its common stock to settle $1,063,277 in principal and accrued interest. The conversion of the notes payable into shares of our common stock has resulted in a loss on conversion of $4,629,257 related to the market value of the common stock on the dates of conversion relative to the prescribed number of shares to be issued in the conversion agreements executed by the respective note holders.

September Convertible Note

On September 8, 2014, we issued a convertible promissory note in the principal amount of $88,500. Under the terms of the convertible note, we agreed to repay the principal amount of $88,500 plus interest accrued at a rate of 8% per annum on June 12, 2015. On December 31, 2014, we borrowed and agreed to repay $33,000 plus interest accrued at a rate of 8% from the same lender with the note maturing on October 1, 2015. We retained the right to prepay the principal and accrued interest on both notes in full upon giving three trading days prior written notice by paying a premium of 15% if paid within 30 days of the issue date increasing by 5% per month to a maximum of 40% if paid within 180 days following the issue date, after which we have no further rights of prepayment of the convertible notes.

At any time commencing 180 days from the date of issuance of the convertible note, the lender has the right to convert all or any portion of the outstanding and unpaid principal amount and interest of the convertible note into shares of our common stock at a conversion price equal to 61% of the average of the lowest five closing bid prices for our common stock during the 10 trading days prior to the conversion date, subject to a limitation that the lender and its affiliates cannot at any time hold, as a result of conversion, more than 4.9% of our outstanding common stock.

On March 13, 2015, we issued 189,155 shares of our common stock at $0.0793 per share related to the conversion of $15,000 in principal of our September 8, 2014 convertible note payable.

On April 16, 2015, we issued 421,053 shares of our common stock at a discounted price of $0.0482 per share related to the conversion of $20,000 in principal of our September 8, 2014 convertible note payable.

The convertible note contains anti-dilutive provisions and restrictions on us completing dilutive financing or sales of all or substantially all of our assets, it also includes customary conditions, representations and warranties.

In the event that we default in the payment of any amount due under the convertible note, the unpaid amount shall bear interest at 22% per annum and defaults under certain provisions of the agreement can result in additional penalties of 50% or 100% of the amount outstanding with the higher amount applicable to situations where we refuse or hinder the issuance of shares on conversion of the note or any portion thereof.

On June 12, 2015, our September 8, 2014 convertible note payable matured. The principal balance of $53,500 and accrued interest became past due and in default.

December Convertible Note

On December 30, 2014, we issued a convertible promissory note in the principal amount of $25,000. Under the terms of the convertible note, we agreed to repay the principal amount of $25,000 plus accrued interest at a rate of 8% per annum due on December 23, 2015. We retained the right to prepay the principal and accrued interest on both notes in full upon giving three trading days prior written notice by paying a premium of 15% if paid within 30 days of the issue date increasing by 6% per month to a maximum of 45% if paid within 180 days following the issue date, after which we have no further rights of prepayment of the convertible notes.

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At any time commencing 180 days from the date of issuance of the convertible note, the lender has the right to convert all or any portion of the outstanding and unpaid principal amount and interest of the convertible note into shares of our common stock at a conversion price equal to 61% of the average of the lowest five closing bid prices for our common stock during the 10 trading days prior to the conversion date, subject to a limitation that the lender and its affiliates cannot at any time hold, as a result of conversion, more than 9.9% of our outstanding common stock.

The convertible note contains restrictions on completing sales of all or substantially all of our assets.  It also includes customary conditions, representations and warranties.

In the event that we default in the payment of any amount due under the convertible note, the unpaid amount shall bear interest at 24% per annum and defaults under certain provisions of the agreement can result in additional penalties of 50% of the amount outstanding.  

January Convertible Note

On January 22, 2015, we issued a convertible promissory note in the principal amount of $70,000. Under the terms of the convertible note, we agreed to repay the principal amount of $70,000 plus interest at a rate of 10% per annum in five equal installments of $14,000, plus accrued interest commencing on July 22, 2015. We have the right, subject to certain condition, to prepay the outstanding balance by paying a premium of 25%.

At any time commencing from the date of issuance of the convertible note, the lender has the right to convert all or any portion of the outstanding and unpaid principal amount and interest of the convertible note into shares of our common stock at a conversion price of $0.30, subject to adjustment. Conversion is subject to a limitation that the lender and its affiliates cannot at any time hold, as a result of conversion, more than 4.99% of our outstanding common stock. 

In connection with the issuance of this note we issued to the lender warrants to purchase 175,000 shares of our common stock at $0.20 per share. The warrants are exercisable immediately and for a period of five years from the date of issuance and contain a cashless exercise provision at April 30, 2015 and has been included in accrued liabilities on our balance sheet.

March Convertible Note

On March 6, 2015, we issued a convertible promissory note in the principal amount of $16,500. Under the terms of the convertible note, we agreed to repay the principal amount of $16,500 plus accrued interest at a rate of 8% per annum due on December 10, 2015. The note contains terms comparable to our September 8, 2014 and December 31, 2014 convertible notes payable as described elsewhere herein. The borrowing was effective March 19, 2015.

We retained the right to prepay the principal and accrued interest upon giving three trading days prior written notice by paying a premium of 15% if paid within 30 days of the issue date increasing by 5% per month to a maximum of 40% if paid within 180 days following the issue date, after which we have no further rights of prepayment of the convertible note.

At any time commencing 180 days from the date of issuance of the convertible note, the lender has the right to convert all or any portion of the outstanding and unpaid principal amount and interest of the convertible note into shares of our common stock at a conversion price equal to 61% of the average of the lowest five closing bid prices for our common stock during the 10 trading days prior to the conversion date, subject to a limitation that the lender and its affiliates cannot at any time hold, as a result of conversion, more than 4.99% of our outstanding common stock.

The convertible note contains restrictions on completing sales of all or substantially all of our assets.  It also includes customary conditions, representations and warranties.

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In the event that we default in the payment of any amount due under the convertible note, the unpaid amount shall bear interest at 22% per annum and defaults under certain provisions of the agreement can result in additional penalties of 50% of the amount outstanding.

Stock Unit Sale

On March 27, 2015, we issued an aggregate of 1,500,000 units (each a "Unit") at a price of $0.12 per Unit to non-U.S. persons for gross proceeds of $180,000 pursuant to the provisions of Regulation S promulgated under of the Securities Act of 1933, as amended.  Each Unit is comprised of one share of our common stock and one share purchase warrant (each a “Warrant”), with each Warrant entitling the holder to purchase an additional share of our common stock at an exercise price of  $0.25 per share for a period expiring March 27, 2016.

Subsequent to April 30, 2015 the exercise price of the 1,500,000 warrants associated with our common stock unit sales was temporarily reduced from $0.25 to $0.03 for the period June 1, 2015 through June 15, 2015. The warrants were exercised for gross proceeds of $45,000. In connection therewith we plan to issue 1,500,000 shares of common stock.

Results of Operations

Crude Oil and Natural Gas

The following table sets forth summary information regarding crude oil and natural gas production, average sales prices and average production costs for the three and nine months ended April 30, 2015 and 2014. We determined the BOE using the ratio of six Mcf of natural gas to one BOE. The ratios of six Mcf of natural gas to one BOE does not assume price equivalency and, given price differentials, the price for a BOE for natural gas may differ significantly from the price for a barrel of oil.

Three months ended April 30, 2015 compared to the three months ended April 30, 2014.

Revenues - We recognized $2,768 in revenues during the three months ended April 30, 2015, compared with $8,757 for the three months ended April 30, 2014.  The decrease in revenue during fiscal 2015 is primarily attributable to decreased crude oil production volumes resulting primarily from the sale of our interests in a producing well effective November 1, 2013, coupled with natural decline curves in wells in which we retain a working interest, and significant decreases in realized oil prices.  In addition to the decreases in crude oil sales revenue were decreases in natural gas sales volumes. Decreased gas sales volumes result from the natural decline curves in wells in which we retain a working interest.

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For the three months ended April 30, 2015, we incurred a net loss of $451,781 as compared to a net loss of $751,844 for the three months ended April 30, 2014.  The decrease in net loss is attributable to a non-recurring loss on impairment recorded in the prior period, offset by decreases in revenue during the period as discussed above, increases in derivative expense of $14,389 and change (income) in fair value of derivative liabilities of $164,042, and increases in general and administrative expenses of $488,937, partially offset by a decrease in depletion, depletion and accretion of $21,859.

Expenses - The major components of our operating expenses for the three months ended April 30, 2015 and 2014 are outlined in the table below:

During the three months ended April 30, 2015, we incurred operating expenses of $537,968 as compared to $745,015 during the three months ended April 30, 2014, resulting in a decrease of $207,047.  The decrease in direct costs is primarily attributable to the following:

General and Administrative Expense – General and Administrative Expense increased to $534,260 as compared to $45,323 in the corresponding prior period. The increase related primarily to increases in share based compensation, consulting fees, legal expense, and directors fees. The increase in share based compensation relates to options issued to management and consultants under the 2015 and 2014 Stock Option Plans.  Increased consulting fees during the current period relate to ongoing activities related to our acquisition agreement with TSS and the execution of a Fiscal Advisory Agreement. Increased legal expense during the current period relates to increased utilization related to out 5-to-1 reverse stock split, adoption of our 2014 and 2015 Stock Incentive Plans and ongoing activities related acquisition agreement with TSS. Increased directors fees during the current period relate to the appointment of new officers and directors in July, 2014.

These increases were offset by:

Lease Operating Expense – Lease operating expense decreased to $1,400 during the three months ended April 30, 2015, from $1,846 for the three months ended April 30, 2014. The decrease is primarily attributable to decreased operating charges from the operator of our wells. On a BOE basis, Lease Operating Expense increased to $18.77 per BOE from $7.12 per BOE as the result of decreased production volumes to which we would allocate recurring monthly lease operating expenses such as electric, maintenance and transportation charges.

Depreciation, Depletion and Accretion (“DDA”) – DDA decreased to $2,308 as compared to $24,167 in the corresponding prior period, DDA decreased primarily as the result of the disposition of our interest in a producing well effective November 1, 2013, and in turn the relief of the corresponding amount of proved reserves, coupled with decreased production volumes.

Impairment of oil and gas properties  - Impairment charges of $nil as compared to $663,179 in the corresponding prior period impairment expense consisted of $463,550, the relative value of seven wells worth of data, related to forfeiture of seismic data for our failure to participate in the drilling of the remaining two wells in the Phase-1 exploration program, and $199,629 related to the book basis of properties which exceeded the total amount of the present value of future net revenue and the cost of properties not being amortized (net of impairment).

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Consulting Expenses - Decreases in related party consulting fees to $nil as compared to $10,500 in the corresponding period. Decreased related party consulting expense relates to the decreased utilization of certain parties whom had been classified as related in prior reporting periods.

Other Income (Expenses) – We recognized $83,419 in other income during the three months ended April 30, 2015, as compared to other expenses of $15,586 during the three months ended April 30, 2014, resulting in a change of $99,005.  The change in other income (expenses) is attributable to derivative expense recorded on the notes payable issued during the current period, and fair value adjustments of the derivative liabilities, as well as increased interest expense due to amortization of debt discounts associated with the new convertible notes.

Nine months ended April 30, 2015 compared to the nine months ended April 30, 2014.

Revenues - We recognized $13,415 in revenues during the nine months ended April 30, 2015, compared with $68,673 for the nine months ended April 30, 2014.  The decrease in revenue during fiscal 2015 is primarily attributable to decreased crude oil production volumes resulting primarily from the sale of our interests in a producing well effective November 1, 2013, coupled with natural decline curves in wells in which we retain a working interest, and decreases in realized oil prices.  In addition to the decreases in crude oil sales revenue were decreases in natural gas sales volumes. Decreased gas sales volumes result from the natural decline curves in wells in which we retain a working interest.

For the nine months ended April 30, 2015, we incurred a net loss of $5,689,503 as compared to a net loss of $723,067 for the nine months ended April 30, 2014.  The increase in net loss of $4,966,436 is primarily attributable to the gain on conveyance recorded in the prior period offset by the loss on conversion of notes payable of $4,629,257, decreases in revenue during the period as discussed above, increases in derivative expense of $96,301 and change (income) in fair value of derivative liabilities of $105,975, and increases in general and administrative expenses of $826,895, partially offset by a decrease in depletion, depletion and accretion.

Expenses - The major components of our expenses for the nine months ended April 30, 2015 and 2014 are outlined in the table below:

During the nine months ended April 30, 2015, we incurred operating expenses of $957,546 as compared to $877,676 during the nine months ended April 30, 2014, resulting in an increase of $79,870.  The increase in direct costs is primarily attributable to the following:

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Lease Operating Expense – Lease operating expense increased to $7,457 during the nine months ended April 30, 2015, from $5,548 for the nine months ended April 30, 2014. The increase is primarily attributable to increased electric charges from the operator of our wells. On a BOE basis, Lease Operating Expense increased to $28.68 per BOE from $5.58 per BOE as the result of decreased production volumes to which we would allocate recurring monthly lease operating expenses such as electric, maintenance and transportation charges.

General and Administrative Expense – General and administrative expense increased to $941,475 as compared to $114,580 in the corresponding prior period, related primarily to increases in share based compensation, consulting fees, legal expense, and directors fees. The increase in share based compensation relates to options issued to management and consultants under the 2015 and 2014 Stock Option Plans.  Increased consulting fees during the current period relate to ongoing activities related to our potential pending transaction with TSS, and the execution of a Fiscal Advisory Agreement. Increased legal expense during the current period relates to increased utilization related to out 5-to-1 reverse stock split, adoption of 2014 and 2015 Stock Incentive Plans and ongoing activities related to our potential pending transaction with TSS. Increased directors fees during the current period relate to the appointment of new officers and directors in July, 2014.

These increases were partially offset by:

Depreciation, Depletion and Accretion (“DDA”) – DDA decreased to $8,614 as compared to $62,869 in the corresponding prior period, DDA, decreased primarily as the result of the disposition of our interest in a producing well effective November 1, 2013, and in turn the relief of the corresponding amount of proved reserves, coupled with decreased production volumes.

Impairment of oil and gas properties  - Impairment charges of $nil as compared to $663,179 in the corresponding prior period impairment expense consisted of $463,550, the relative value of seven wells worth of data, related to forfeiture of seismic data for our failure to participate in the drilling of the remaining two wells in the Phase-1 exploration program, and $199,629 related to the book basis of properties which exceeded the total amount of the present value of future net revenue and the cost of properties not being amortized (net of impairment).

Consulting Expenses - Decreases in related party consulting fees to $nil as compared to $31,500 in the corresponding period. Decreased related party consulting expense relates to the decreased utilization of certain parties whom had been classified as related in prior reporting periods.

Other Income (Expenses) – We incurred $4,745,372 in other expenses during the nine months ended April 30, 2015, as compared to $62,042 during the nine months ended April 30, 2014, resulting in an increase of $4,683,330.  The increase in other expenses is attributable to the loss on conversion of notes payable of $4,629,257, derivative expense recorded on the notes payable issued during the current period of $96,301, and fair value adjustments (income) of the derivative liabilities of $105,975, as well as increased interest expense due to amortization of debt discounts associated with the new convertible notes.

Liquidity and Capital Resources

Working Capital

Working Capital - At April 30, 2015, we had cash of $9,405 and our current liabilities exceeded our current assets by $738,764, as compared to cash of $10,721 and current liabilities which exceeded our current assets by $1,417,635 at July 31, 2014.  The decrease in our working capital deficit relates primarily to the conversion of notes payable during the current period, as well as decreased cash balances resulting from losses incurred through operations. 

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Cash Flows

Net Cash Provided By (Used in) Operating Activities. The changes in net cash used in operating activities for the nine months ended April 30, 2015 and 2014 are attributable to our net income adjusted for non-cash charges as presented in the statements of cash flows and changes in working capital as discussed above.

Net Cash Provided By (Used in) Investing Activities. Net cash used in investing activities for the nine months ended April 30, 2015 and 2014 was related to our expenditures on crude oil and natural gas properties as well as our participation in drilling and seismic programs, offset by proceeds received from the conveyance of our working interests in crude oil and natural gas properties.

Net Cash Provided by Financing Activities.  On September 8, 2014, we issued a convertible promissory note in the principal amount of $88,500. Under the terms of the convertible note, we agreed to repay the principal amount of $88,500 plus interest accrued at a rate of 8% per annum on June 12, 2015.  The Convertible Note matured on June 12, 2015, and the remaining principal balance of $53,500 and accrued interest is past due and in default. On December 31, 2014, we borrowed and agreed to repay $33,000 plus interest accrued at a rate of 8% from the same lender with the note maturing on October 1, 2015. We retained the right to prepay the principal and accrued interest on both notes in full upon giving three trading days prior written notice by paying a premium of 15% if paid within 30 days of the issue date increasing by 5% per month to a maximum of 40% if paid within 180 days following the issue date, after which we have no further rights of prepayment of the convertible notes.  On December 30, 2014, we issued a convertible promissory note in the principal amount of $25,000. Under the terms of the convertible note, we agreed to repay the principal amount of $25,000 plus accrued interest at a rate of 8% per annum due on December 23, 2015. We retained the right to prepay the principal and accrued interest on both notes in full upon giving three trading days prior written notice by paying a premium of 15% if paid within 30 days of the issue date increasing by 6% per month to a maximum of 45% if paid within 180 days following the issue date, after which we have no further rights of prepayment of the convertible notes.  On January 22, 2015, we issued a convertible promissory note in the principal amount of $70,000. Under the terms of the convertible note, we agreed to repay the principal amount of $70,000 plus interest at a rate of 10% per annum in five equal installments of $14,000, plus accrued interest commencing on July 22, 2015. We have the right, subject to certain condition, to prepay the outstanding balance by paying a premium of 25%.  On March 6, 2015, we issued a convertible promissory note in the principal amount of $16,500. Under the terms of the convertible note, we agreed to repay the principal amount of $16,500 plus accrued interest at a rate of 8% per annum due on December 10, 2015. The borrowing was effective March 19, 2015. We retained the right to prepay the principal and accrued interest on the note in full upon giving three trading days prior written notice by paying a premium of 15% if paid within 30 days of the issue date increasing by 6% per month to a maximum of 45% if paid within 180 days following the issue date, after which we have no further rights of prepayment of the convertible note.

We anticipate that we may be required to make additional expenditures related to our remaining ownership interests in our crude oil and natural gas properties.   As of April 30, 2015, our cash balance was $7,405, and such cash may not be sufficient to meet our ongoing operations.  If we exhaust all our cash, are unable to arrange for new financing, or do not pay our share of potential operating program costs, we may be forced to further reduce our ownership interests in our crude oil and natural gas properties and or forfeit our rights to our acquired interests.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of April 30, 2015.

Going Concern

In its report prepared in connection with our fiscal year 2014 financial statements, our independent registered public accounting firm included an explanatory paragraph stating that, because we had an accumulated deficit of $1,583,589, a working capital deficit of $1,417,635 and a stockholders’ deficit of $1,373,419 at July 31, 2014, there was substantial doubt about our ability to continue as a going concern.  At April 30, 2015, our accumulated deficit was $7,273,092, a working capital deficit of $738,764 and our stockholder’s deficit amounted to $702,894.  Our continued existence will depend in large part upon our ability to raise sufficient additional capital, we will need to raise equity or borrow additional capital. If additional financing is not available, we will be compelled to reduce the scope of our business activities further.  If we are unable to fund our operating cash flow needs and planned capital investments, it may be necessary to sell all or a portion of our remaining interests in our crude oil and natural gas properties. These factors among others may indicate that we may be unable to continue in existence. Management believes that they can be successful in obtaining debt and/or equity financing which will enable us to continue in existence and establish itself as a going concern.

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Forward Looking Statements

Certain statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases and oral statements made by our officials to analysts and shareholders in the course of presentations about the Company, constitute “forward-looking statements.”   Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements.  Such factors include, among other things: (1) the prices of oil and gas; (2) general economic and business conditions; (3) interest rate changes; (4) the relative stability of the debt and equity markets; (5) government regulations particularly those related to the natural resources industries; (6) required accounting changes; (7) disputes or claims regarding our property interests; and (8) other factors over which we have little or no control.

Item 3.      Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4.      Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rules 13a-15(e) and 15(d)-15(e) as of April 30, 2015 (“Evaluation Date”). Based upon that evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date as a result of the material weaknesses in internal control over financial reporting discussed in our Annual Report on Form 10-K for the year ended July 31, 2014 (the “2014 Annual Report”).

Notwithstanding the assessment that our internal controls over financial reporting were not effective and that there were material weaknesses as identified in our 2014 Annual Report, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2015, report fairly present our financial condition, results of operations and cash flows in all material respects.

Changes in Internal Controls

There were no changes in our internal control over financial reporting during the fiscal quarter ended April 30, 2015, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.       Legal Proceedings

None.

Item 1A. Risk Factors

The following are some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in our forward-looking statements. We may encounter risks in addition to those described below.  Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.

We have an operating deficit and have incurred losses since inception.

To date, our operations have not been profitable and we may never be able to achieve profitability.

There is no assurance that we will be able to close our transaction with TSS.

There is no assurance that we will be able to close the transactions contemplated by the Letter Agreement with TSS, as amended. If we are unable to close the transactions by July 15, 2015, we may incur additional expenses related to the extension of the Letter Agreement or the proposed transactions may be terminated. 

If we are able to close our transaction with TSS, there is no assurance that our new business will be successful.

In the event that we are able to close the transactions contemplated by the Letter Agreement with TSS, there is no assurance that we will be successful in the business venture of developing advanced imaging systems and devices for both the medical and security fields.

Our future performance depends upon our ability to obtain capital to find or acquire additional oil and natural gas reserves that are economically recoverable.

Unless we successfully replace the reserves that we produce, our reserves will decline, resulting eventually in a decrease in oil and natural gas production and lower revenues and cash flows from operations.  The business of exploring for, developing or acquiring reserves is capital intensive.  Our ability to make the necessary capital investment to maintain or expand our oil and natural gas reserves is limited by our relatively small size.  Further, we may commence drilling operations on our properties and any other properties that we acquire in an effort to increase production, which would require more capital than we have available from cash flow from operations or our existing debt facilities.  In such case, we would be required to seek additional sources of financing or limit our participation in the additional drilling.  In addition, our drilling activities are subject to numerous risks, including the risk that no commercially productive oil or gas reserves will be encountered.

The successful implementation of our business plan is subject to risks inherent in the oil and gas business, which if not adequately managed could result in additional losses.

Our oil and gas operations will be subject to the economic risks typically associated with exploitation and development activities, including the necessity of making significant expenditures to locate and acquire properties and to drill development wells. In addition, the availability of drilling rigs and the cost and timing of drilling, completing and, if warranted, operating wells is often uncertain.  In conducting exploitation and development activities, the presence of unanticipated formation pressure or irregularities in formations, miscalculations or accidents may cause our exploitation, development and, if warranted, production activities to be unsuccessful.  This could result in a total loss of our investment in a particular well.  If exploitation and development efforts are unsuccessful in establishing proved reserves and development activities cease, the amounts accumulated as unproved costs will be charged against earnings as impairments.

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In addition, the availability of a ready market for our oil and gas production depends on a number of factors, including the demand for and supply of oil and gas and the proximity of reserves to pipelines and other facilities.  Our ability to market such production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities, in most cases owned and operated by third parties.  A failure to obtain such services on acceptable terms could materially harm our proposed oil and gas business.  We may be required to shut in wells for lack of a market or because of inadequacy or unavailability of pipelines or gathering system capacity.  If that occurs, we would be unable to realize revenue from those wells until arrangements are made to deliver such production to market.

Our future performance is dependent upon our ability to identify, acquire and develop oil and gas properties, the failure of which could result in under use of capital and losses.

The future performance of our oil and gas business will depend upon an ability to identify, acquire and develop oil and gas reserves that are economically recoverable.  Success will depend upon the ability to acquire working and net revenue interests in properties upon which oil and gas reserves are ultimately discovered in commercial quantities, and the ability to develop prospects that contain proven oil and gas reserves to the point of production.  Without successful acquisition, exploitation, and development activities, we will not be able to develop oil and gas reserves or generate revenues.  There are no assurances oil and gas reserves will be identified or acquired on acceptable terms, or that oil and gas deposits will be discovered in sufficient quantities to enable us to recover our exploitation and development costs or sustain our business.

The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities, and other factors.  Such assessments are necessarily inexact and their accuracy inherently uncertain.  In addition, no assurances can be given that our exploitation and development activities will result in the discovery of any reserves.  Operations may be curtailed, delayed or canceled as a result of lack of adequate capital and other factors, such as lack of availability of rigs and other equipment, title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, or unusual or unexpected formation pressures, and or work interruptions.  In addition, the costs of exploitation and development may materially exceed our initial estimates.

The oil and gas exploration and production industry historically is 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, but are not limited to:

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.  Commodity prices are expected to continue to fluctuate significantly in the future.

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Hedging transactions may limit potential gains on increases to oil and gas prices.

We do not have any hedging positions at this time.  If we do enter into hedging transactions, they will likely be for a portion of our expected production for the purpose of reducing the risk of fluctuations in oil and gas prices.  Although these hedging transactions would be expected to provide us with some protection in the event of a decrease in oil and gas prices, they would also be expected to limit our potential gains in the event that oil and gas prices increase.  If we choose not to engage in hedging arrangements in the future, we may be more adversely affected by changes in oil and natural gas prices than our competitors, who may or may not engage in hedging arrangements.

We may encounter difficulty in obtaining equipment and services.

Higher oil and natural gas prices and increased oil and natural gas drilling activity generally stimulate increased demand and result in increased prices and unavailability for drilling rigs, crews, associated supplies, equipment and services.  While we have recently been successful in acquiring or contracting for services, we could experience difficulty obtaining drilling rigs, crews, associated supplies, equipment and services in the future.  These shortages could also result in increased costs or delays in timing of anticipated development or cause interests in oil and natural gas leases to lapse.  We cannot be certain that we will be able to implement our drilling plans or at costs that will be as estimated or acceptable to us.

Our ability to produce oil and gas from our oil and gas assets may be adversely affected by a number of factors outside of our control.

The business of exploring for and producing oil and gas involves a substantial risk of investment loss.  Drilling oil and gas wells involves the risk that the wells may be unproductive or that, although productive, the wells may not produce oil or gas in economic quantities.  Other hazards, such as unusual or unexpected geological formation pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well.  Adverse weather conditions can also hinder drilling operations.  A productive well may become uneconomic if excessive water or other deleterious substances are encountered that impair or prevent the production of oil or gas from the well.  In addition, production from any well may be unmarketable if it is contaminated with water or other deleterious substances. There can be no assurance that oil and gas will be produced from the properties in which we have interests.  In addition, the marketability of oil and gas that may be acquired or discovered may be influenced by numerous factors beyond our control.  These factors include the proximity and capacity of oil and gas, gathering systems, pipelines and processing equipment, market fluctuations in oil and natural gas prices, taxes, royalties, land lease tenure, allowable production volumes, and environmental protection regulations.

If we are unable to maintain our working interests in leases, our business will be adversely affected.

Our oil and gas assets are held under oil and gas leases.  A failure to meet the specific requirements of each lease may cause that lease to terminate or expire.  There are no assurances the obligations required to maintain those leases will be met and that we will be able to meet the rental obligations under federal, state and private oil and gas leases.  If we are unable to make rental payments and satisfy any other conditions on a timely basis, we may lose our rights in the properties that we may acquire.

Title deficiencies could render our leases worthless.

The existence of a material title deficiency can render a lease worthless and can result in a large expense to our business.  In acquiring oil and gas leases or undivided interests in oil and gas leases we may forgo the expense of retaining lawyers to examine the title to the oil or gas interest to be placed under lease or already placed under lease.  Instead, we may rely upon the judgment of oil and gas landmen who perform the field work in examining records in the appropriate governmental office before attempting to place under lease specific oil or gas interest. This is customary practice in the oil and gas industry.  As a result, we may be unaware of deficiencies in the marketability of the title to the lease.  Such deficiencies could render the lease worthless.

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If we fail to maintain adequate operating insurance, our business could be materially and adversely affected.

Our oil and gas operations are subject to risks inherent in the oil and gas industry, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution, earthquakes and other environmental risks.  These risks could result in substantial losses due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage, and suspension of operations.  We could be liable for environmental damages caused by previous property owners.  As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could have a material adverse effect on our financial condition and results of operations.  Any prospective drilling contractor or operator which we hire will be required to maintain insurance of various types to cover its operations with policy limits and retention liability customary in the industry.  We maintain well control, re-drill, environmental cleanup, and liability insurance on all of our field production and future drilling operations.  However, the occurrence of a significant adverse event on such prospects that would happen to be not fully covered by insurance could result in the loss of all or part of our investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations.

Complying with environmental and other government regulations could be costly and could negatively impact prospective production.

The oil and gas business is governed by numerous laws and regulations at various levels of government.  These laws and regulations govern the operation and maintenance of our facilities, the discharge of materials into the environment and other environmental protection issues.  Such laws and regulations may, among other potential consequences, require that we acquire permits before commencing drilling and restrict the substances that can be released into the environment with drilling and production activities.  Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties.  Prior to commencement of drilling operations, we may secure limited insurance coverage for sudden and accidental environmental damages as well as environmental damage that occurs over time.  However, we do not believe that insurance coverage for the full potential liability of environmental damages is available at a reasonable cost.  Accordingly, we could be liable, or could be required to cease production on properties, if environmental damage occurs.

The costs of complying with environmental laws and regulations in the future may harm our business.  Furthermore, future changes in environmental laws and regulations could occur, resulting in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations.

The oil and gas industry is highly competitive, and we may not have sufficient resources to compete effectively.

The oil and gas industry is highly competitive.  We will be competing with oil and natural gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than it does, as well as companies in other industries supplying energy, fuel and other needs to consumers.  Larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel.  They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices for oil and gas more easily than we can.  Competitors may be able to pay more for oil and gas leases and properties and may be able to define, evaluate, bid for and purchase a greater number of leases and properties than we can.  Further, these companies may enjoy technological advantages and may be able to implement new technologies more rapidly than we can.  Our ability to acquire oil and gas properties will depend upon its ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment.

We have never paid dividends and do not intend to pay any in the foreseeable future, which may delay or prevent recovery of your investment.

We have never paid any cash dividends and currently do not intend to pay any dividends in the foreseeable future.  If we do not pay dividends, this may delay or prevent recovery of your investment.  To the extent that we require additional funding currently not provided for in our financing plan, it is possible that our funding sources might prohibit the payment of dividends.

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The trading price of our common stock may be volatile, with the result that an investor may not be able to sell any shares acquired at a price equal to or greater than the price paid by the investor.

Our common stock is quoted on the OTCQB under the symbol "HMLA.”  Companies quoted on the OTCQB have traditionally experienced extreme price and volume fluctuations.  In addition, our stock price may be adversely affected by factors that are unrelated or disproportionate to our operating performance.  Market fluctuations, as well as general economic, political and market conditions such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock.  As a result of this potential price and volume volatility, an investor may have difficulty selling any of our common stock that they acquire that a price equal or greater than the price paid by the investor.

Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.  Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.

Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities.  The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them.  As long as the trading price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Securities Exchange Act of 1934 (the “Exchange Act”).  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.  These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds

None.

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Item 3.       Defaults Upon Senior Securities

None.

Item 4.       Mine Safety Disclosures

Not applicable.

Item 5.       Other Information

Not applicable.

Item 6.       Exhibits

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*In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

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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.

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