T-REX OIL, INC. - Annual Report: 2006 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
[X] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2006
[
] 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 000-51425
RANCHER
ENERGY CORP.
(Exact
name of registrant as specified in its charter)
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NEVADA
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98-0422451
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1050
17th
Street, Suite 1700
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Denver,
Colorado
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80265
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (303)
629-1122
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
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Title
of each class
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Common
Stock, par value $0.00001
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Indicate
by check mark if the registrant is a well-known seasoned issuer as defined
in
Rule 405 of the Securities Act. Yes [
] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes [
] No [X]
Check
whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter periods 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 if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the Act).
Large
accelerated filer [ ] Accelerated filer [
] Non-accelerated
filer [X]
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No
[X]
The
aggregate market value of the common stock held by non-affiliates of the
registrant, as of June 15, 2006, was approximately $37,380,000
based on the closing bid of $1.335 for the registrant’s common stock as reported
by the OTC Bulletin Board. Shares of common stock held by each director, each
officer named in Item 11, and each person who owns 10% or more of the
outstanding common stock have been excluded from this calculation in that such
persons may be deemed to be affiliates.
As
of
June 15, 2006 the registrant had 29,500,000 shares of common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE—NONE
Transitional
Disclosure Format. Yes [
] No [X]
FOR
THE FISCAL YEAR ENDED MARCH 31, 2006
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i
Forward-Looking
Statements
We
have
included in this report, statements which are intended as “forward-looking
statements” under the Private Securities Litigation Reform Act of 1995. These
include statements that are not simply a statement of historical fact but
describe what we “believe”, “anticipate”, or “expect” will occur. We caution you
not to place undue reliance on the forward-looking statements made in this
report. Although we believe these statements are reasonable, there are many
factors, which may affect our expectation of our operations. These factors
include, among other things, the following:
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general
economic conditions;
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the
market price of, and demand for, oil and
gas;
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our
ability to service future
indebtedness;
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our
success in completing exploration and development
activities;
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expansion
and other development trends of the oil and gas
industry;
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our
accumulated deficit;
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acquisitions
and other business opportunities that may be presented to and pursued
by
us;
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our
ability to integrate our acquisitions into our company structure;
and
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changes
in laws, regulations and taxation.
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ii
Background.
Rancher
Energy Corp. (the “Company”, “Rancher Energy”, “we” or “us”) was formed on
February 4, 2004 and is incorporated in the State of Nevada. We are an
independent energy company formed for the purpose of engaging in the
development, production, and marketing of oil and gas in North America.
The
Company’s current operations are focused in two basins in the Rocky Mountain
Region of the United States--the Powder River Basin in central Wyoming and
the Crazy Mountain Basin in central Montana. Led by an experienced management
team, Rancher Energy is working to enhance shareholder value by identifying
and
developing diversified oil and gas assets across North America, particularly
in
the Rocky Mountains.
Rancher
Energy's prospects in Wyoming and Montana are strategic acquisitions that will
be developed through the application of scientific expertise, and the latest
technology and drilling techniques, to enhance recovery and achieve the most
effective results possible. Rancher Energy intends to specialize in using modern
exploration and recovery techniques on older, historically productive fields
with proven in-place oil and gas reserves. Higher oil and gas prices and
advances in technology such as 3-D seismic data, directional drilling, and
CO2
injection make these assets an attractive source of potentially recoverable
oil
and gas reserves.
From
its
inception until June 2006, the Company, then known as Metalex Resources, Inc.
“(Metalex”), was primarily engaged in the exploration for gold mineral deposits
and reserves in British Columbia, Canada. Metalex found no commercially
exploitable deposits or reserves of gold. On April 19, 2006, Metalex announced
that it had changed its name to Rancher Energy and its new business direction
as
an oil and gas exploration and production company focusing on geologic business
in the Rocky Mountains.
The
Burke Ranch Field.
On
June
21, 2006, the Company acquired the
Burke
Ranch Field, an oil prospect consisting of approximately 1,921 acres in the
Powder River Basin in Natrona County, Wyoming. The prospect is located
approximately 25 miles north of Casper, Wyoming, in the central region of the
state. Rancher Energy holds a 89.80% working interest (73.68% net revenue
interest) before payout, which reverts to a 49.90% working interest (36.94%
net
revenue interest) after payout. The prospect was acquired through an assignment
of an agreement with Hot Springs Resources, Ltd. (“HSR”) from an unaffiliated
party, for $250,000 cash payable within 90 days from June 21, 2006 and a 4%
overriding royalty interest on production attributable to the Company’s interest
to the unaffiliated third party.
In
addition, within one calendar year at our sole cost, risk and expense we are
obligated to conduct or cause to be conducted a 3-D seismic survey over the
property and we must pay for all processing, analysis, and interpretation of
the
3-D seismic data acquired as a result of the seismic survey. We expect the
total
cost of the seismic program to be approximately $320,000.
We
must
also select an engineering firm to perform certain engineering studies on the
property and prepare a development plan. The scope and substance of the studies
and plan shall be at our direction, provided that we must confer with HSR prior
to providing or revising any instructions to the engineering firm. We are solely
responsible for the costs incurred in the preparation of the studies and plan.
See Other Recent Events for the selection of NITEC LLC (“NITEC”) to conduct this
work.
HSR
must
cause to be conducted operations and purchases of equipment necessary to install
a submersible pump, cable and if needed a motor in Well 9 on the property and,
complete any tubing repairs that may be necessary in respect of Well 9-17.
We
are solely responsible for all costs and expenses relating to such operations,
provided that if the costs and expenses respecting Well 9 or Well 9-17 exceed
$50,000 then HSR is solely responsible for all costs
and
expenses exceeding $50,000, provided further however, that if, due to wellbore
integrity problems, equipment failures or sticking of equipment or tools in
the
wellbore or other problems beyond the anticipation or control of the parties,
the costs of operations respecting either or both Well 9 and Well 9-17 are
anticipated to exceed $75,000 in the aggregate, then the parties shall determine
whether they wish to proceed and if so they shall jointly (each as to a 50%
share) pay for any costs in excess of $75,000. If HSR fails to complete the
operations described above within one year, we shall have no further obligations
with respect to these operations.
If,
after
the acquisition, processing, analysis and interpretation of the seismic data
described above, we and HSR mutually agree, in good faith, based upon such
seismic data and analysis thereof, that a well should be drilled to test the
Tensleep Formation (the “Tensleep Well”) on the property, we must at our sole
cost drill and log (or cause the drilling and logging of) such a well of such
a
depth to test the entire Tensleep Formation, and, if, after logging, a
completion of such a well for production is justified, as determined mutually
by
the parties, then HSR must pay 50% of the costs of such completion and we pay
the remaining 50%. If such well thereafter produces petroleum substances, we
will share in the production from such well on the basis of the fractions
described below, until the costs of such well and its completion have been
recovered out of the production of petroleum substances from such
well.
Prior
to
Cost Recoupment Fractions:
| HSR: | Amount of completion costs paid by HSR divided by | |
| Total of all drilling, logging and competition costs paid by HSR and Rancher | ||
| Rancher: | Amount of drilling, logging and completion costs paid by Rancher divided by | |
| Total of all drilling, logging and completion costs paid by HSR and Rancher |
Upon
recoupment of such drilling, logging and completion costs, we will share in
the
production from such well on an equal, 50-50 basis.
Finally,
if production of petroleum substances from the property exceeds 20 barrels
of
oil per day (6mcf of natural gas shall equal 1 barrel of oil) for a continuous
period of no less than 30 days, then we must each month thereafter for a period
of 12 months pay to HSR out of our net share of the proceeds from the sale
of
petroleum substances produced from the property a payment of $5,000 (for an
aggregate payment obligation of $60,000).
The
Burke
Ranch Field was discovered in 1953 by the Houston Oil Company, and has continued
to be developed since its discovery. According to the Wyoming Oil and Gas
Conservation Commission, approximately 6.5 million barrels of oil have been
produced from the Burke Ranch Field as of September 2005.
A
third
party geological assessment by Merschat Minerals LLC dated September 2005,
(the
“Merschat Assessment”) estimates that the Burke Ranch Field has approximately 13
million barrels of oil still in place. The
Burke
Ranch Field production and development history is similar to many other fields
in Wyoming where primary and secondary (waterflood) production removes roughly
one-half of the original oil in place.
The
Merschat Assessment estimates that potential remaining oil reserves in the
Dakota Formation at the Burke Ranch Field total 6.5 million barrels of oil.
This
prospect
holds strong tertiary (third stage) potential for extracting potential in-place
resources. Additional reserve recovery methods recommended by the Merschat
Assessment include carbon dioxide flooding—a process estimated to recover up to
30% of remaining oil in place (approximately 2 million barrels of oil) in the
Burke Ranch Field. Other more conventional recommended methods to recover the
oil in place include infill drilling and horizontal drilling.
The
location of the Burke Ranch Field has several built-in advantages, with basic
infrastructure already in place—pipelines, power, roads, etc.
Because
the Burke Ranch Field is within an established producing unit, lease expirations
are of little concern. Another benefit of this prospect is its moderate depth
of
approximately 6,500 feet to the Dakota pay zone. The Merschat Assessment also
suggests that the Dakota Formation might hold potential reserves at deeper
levels, and should be assessed further.
The
Company recently successfully bid for and has the right to acquire an additional
8,183 acres contiguous and/or adjacent to its Burke Ranch Field. These leases,
together with the Burke Ranch Field’s original 1,921 acres, will increase the
total acreage of the Company’s Burke Ranch Field more than five times (5X) to
10,104 acres (see “Other Recent Events”, below). The
Company also recently entered
into an agreement with NITEC to perform a reservoir engineering study on the
Company's Burke Ranch Field in order to ascertain the field’s remaining
recoverable oil (see “Other Recent Events”, below).
The
Broadview Dome Prospect.
On
June
6, 2006, the Company acquired the
Broadview Dome Prospect, located approximately 25 miles northwest of Billings,
Montana. This natural gas prospect involves approximately 7,600 acres. Rancher
Energy holds a 100% working interest (80.00% net revenue interest) until payout,
and 55.00% working interest (40.00% net revenue interest) after payout. The
prospect was acquired through an assignment from an unaffiliated party for
$250,000 cash payable within 90 days from June 6, 2006 and a 4% overriding
royalty interest attributable to the Company’s interest to the unaffiliated
third party.
Under
a
subsequent Exploration and Development Agreement entered into on June 15,
2006 (the “Agreement”) with Big Snowy Resources, LP (“BSR”) the
leaseholder of the property, we are obligated to arrange as soon as practicable
and pay for a 3-D seismic program covering 4 square miles on the property.
We
estimate the total cost of the seismic program to be approximately
$200,000.
Within
30
days from the 3-D seismic program completion date, we must give written notice
to BSR of our intention to drill based on the 3-D and propose a drilling
location (the “Test Well”). Our failure to provide a notice prior to expiration
of the 30 day period shall be deemed an election by us to terminate the
Agreement with no further obligations or liabilities. If we elect not to
terminate the Agreement, we have 120 days to spud the Test Well. The Test Well
will be drilled at our sole cost. The well must be drilled to the deepest
horizon indicated as hydrocarbon bearing by the 3-D seismic.
Upon
receipt by BSR of the final seismic interpretation and notice of drilling
location, BSR will assign to us a 55.00% working interest in the spacing unit
of
the Test Well. Upon drilling and completion of the test well, BSR will assign
us
a 55.00% working interest (40.00% net revenue interest) in all lands owned
by
BSR in the area covered by the Agreement.
If
the
Test Well is commercial, we are entitled to 100% of the net revenue from the
Test Well until payout of our costs. After payout, the revenue from the Test
Well will be distributed in proportion to the working interest shares of BSR
and
us.
We
also
must use our commercially reasonable efforts to obtain required government
and
administrative regulatory approvals and other necessary consents for the
construction and operation of a pipeline of approximately 12 miles in length,
in
Stillwater County, Montana (the “Pipeline”), to transport gas from the Test
Well, and other wells producing in commercial quantities on the property in
which we and BSR have a joint working interest (the “Joint Wells”) to a gas
transmission line.
If
we are
able to secure all such required approvals and consents we are obligated within
18 months thereafter to finance, construct, operate, and maintain the Pipeline,
or instead of constructing the Pipeline, make mutually acceptable arrangements
to transport all produced gas from the Joint Wells to market.
Upon
payout of our costs in the Pipeline, we must assign 20% of our right, title
and
interest in the Pipeline to BSR. We have granted BSR an option to purchase
an
additional 25% of our Pipeline (the “Pipeline Option”). The Pipeline Option may
be exercised incrementally by BSR where the minimum percentage of such
increments is 1%. If BSR exercises the Pipeline Option, it must do so
within 18 months of the completion of construction of the Pipeline (after which
the Pipeline Option automatically terminates).
The
Broadview Dome Prospect is close to existing regional pipelines, and is in
an
area of the state actively experiencing commercial gas production activity.
The
Yellowstone-Stillwater county line splits the prospect from north to south.
The
topography reflects the structure on the surface, with dipping strata in all
directions from the top of the dome. South Comanche Creek runs from west to
east
separating two distinct structures, one on the north and one on the
south.
The
Broadview Dome Prospect is an up dip test of the Frontier Sand located on a
small anticlinal feature, which is on the southeastern edge of the larger
Hailstone Dome. The sharp flextures created by this structure have resulted
in
the formation of many northeast southwest trending normal faults. These faults
have truncated the structure, creating the potential for Amsden, Swift, and
Madison formation fault bounded reservoirs.
Other
Recent Events.
On
June
9, 2006, the Company entered into a loan agreement (the “$500K Loan Agreement”)
with Venture Capital First LLC (“Venture Capital”) to borrow from Venture
Capital the principal amount of $500,000 (the “$500K Loan”) for the Company’s
working capital purposes to be repaid in full plus six percent (6%) interest
on
the principal amount on or before December 9, 2006. The $500K Loan Agreement
provides that Venture Capital has the option to convert all or a portion of
the
$500K Loan into shares of common stock of the Company, either (i) at a price
per
share equal to the closing price of the Company’s shares on the OTC Bulletin
Board on the day preceding notice from Venture Capital of its intent to convert
all or a portion of the Loan into shares of the Company, or (ii) in the event
the Company is offering shares or units to the general public, at the price
such
shares or units are being offered to the general public.
On
June
8, 2006, the Company entered into an agreement with NITEC to perform a reservoir
engineering study (the “NITEC Study”) on the Company's Burke Ranch Field in
order to ascertain the field’s remaining recoverable oil. NITEC estimates that
it will take it three to four months to complete the NITEC Study at a cost
of
approximately $95,000.
On
June
6, 2006, at the Wyoming BLM auction, the Company successfully bid for and has
the right to acquire an additional 8,183 acres contiguous and/or adjacent to
its
Burke Ranch Field (the “BLM Leases”). The BLM Leases will be acquired for a
total cost of $143,237 or an average cost of approximately $16.00 an acre,
excluding first annual rental payments of $12,275 and administration fees of
$910, and the closing is expected to occur in approximately 90 days. The BLM
Leases, together with the Burke Ranch Field’s original 1,921 acres, will
increase the total acreage of the Company’s Burke Ranch Field more than five
times (5X) to 10,104 acres.
On
June
6, 2006, the Company entered into a loan agreement (the “$150K Loan Agreement”)
with Enerex Capital Corp. (“Enerex”) to borrow from Enerex Capital the principal
amount of $150,000 (the “$150K Loan”) for the Company’s working capital purposes
to be repaid in full plus 2% interest on the principal amount on or before
June
30, 2006. The $150K Loan Agreement provides that Enerex has the option to
convert all or a portion of the $150K Loan into shares of common stock of the
Company, either (i) at a price per share equal to the closing price of the
Company’s shares on the OTC Bulletin Board on the day preceding notice from
Enerex of its intent to convert all or a portion of the $150K Loan into shares
of the Company, or (ii) in the event the Company is offering shares or units
to
the general public, at the price such shares or units are being offered to
the
general public.
On
May
15, 2006, the Company entered into an employment agreement with John Works
(the
“Works Employment Agreement”) wherein we engaged Mr. Works as our president,
chief executive officer, and a director. The term of the Works Employment
Agreement is two years beginning May 15, 2006. We will pay Mr. Works $12,500
per
month, reimburse Mr. Works for out-of-pocket expenses incurred by him up to
$10,000 per month, an automobile allowance of $400 per month, and a parking
allowance of $150 per month. Further, we will pay Mr. Works a minimum of $950
per month to maintain an office in Denver, Colorado. In addition to the
foregoing, we have granted Mr. Works an option to acquire restricted shares
of
the Company’s common stock at a price of $0.00001 per share as follows: (i)
1,000,000 shares on the execution of the employment agreement, (ii) 1,000,000
shares from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares per
completed quarter of service, (iii) 1,000,000 shares from June 1, 2007 to May
31, 2008 at the rate of 250,000 shares per completed quarter of service, and
(iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at the rate of 250,000
shares per completed quarter of service. In the
event
the
agreement is terminated, Mr. Works will be entitled to purchase all shares
that
have vested, and all unvested shares will be forfeited.
On
May
15, 2006, Andrei Stytsenko resigned as the Company’s principal executive officer
but would remain with the Company both as a director and as Vice
President--Production. Mr. Stytsenko’s resignation was not as a result of any
disagreement with the Company but rather as the result of the change of
direction and focus of the Company from the exploration and development of
gold
mineral deposits and reserves in British Columbia, Canada to an
oil
and gas exploration and production company with its primary operations in the
Rocky Mountain Region of the United States.
On
April
11, 2006, the Company amended its Articles of Incorporation and changed its
name
from Metalex to Rancher Energy. On April 18, 2006 the Company’s common stock
began trading on the OTC Bulletin Board under our new symbol
“RNCH”.
Business
Strategy.
The
Company’s objective is to develop natural oil and gas reserves, production, and
revenues through a strategy that includes the following key
elements:
Pursue
Attractive Reserve and Leasehold Acquisitions. To
date,
acquisitions have been critical in establishing our asset base. We believe
that
we are well positioned, given our initial success in identifying and quickly
closing on attractive opportunities in the Powder River and the Crazy Mountain
Basins, to effect opportunistic acquisitions that can provide upside potential,
including long-term drilling inventories and undeveloped leasehold positions
with attractive return characteristics. Our focus is to acquire assets that
provide the opportunity for developmental drilling, the drilling of extensional
step out wells, and use of state-of-the art enhanced oil recovery techniques,
which we believe provide us with significant upside potential while not exposing
us to the risks associated with drilling new field wildcat wells in frontier
basins.
Pursuit
of Selective Complementary Acquisitions. We
will
seek to acquire long-lived producing properties with a high degree of operating
control, or oil and gas entities that are known to be competent in the
area, that offer opportunities profitably to develop oil and gas
reserves.
Drive
Growth Through Technology and Drilling. We
plan
to supplement our long-term reserve and production growth through the use of
3-D
seismic and reservoir geology experts, coupled with strategically-focused
drilling operations.
Maximize
Operational Control. To
date,
we do not own any assets where we are not the operator. It is strategically
important to our future growth and maturation as an independent exploration
and
production company to be able to continue to serve as operator of our properties
when possible, as that will enable us to exert greater control over costs and
timing in and manner of our exploration, development, and production
activities.
Operate
Efficiently, Effectively, and Maximize Economies of Scale Where Practical.
Our
objective is to generate profitable growth and high returns for our
stockholders, and we expect that our cost structure will benefit from economies
of scale and our continuing cost management initiatives as we grow. As we manage
our growth, we will actively focus on reducing lease operating expenses, general
and administrative costs, and finding and development costs. In addition, our
acquisition efforts will be geared toward pursuing opportunities that fit well
within our existing operations, or in areas where the Company is establishing
new operations, or where we believe that a base of existing production will
produce an adequate foundation for economies of scale necessary to grow a
business within a geography or business segment.
Governmental
Regulation.
The
Company’s business and the oil and gas industry in general are heavily
regulated. The availability of a ready market for oil and gas production depends
on several factors beyond the Company’s control. These factors include
regulation of oil and gas production, federal and state regulations governing
environmental quality and pollution control, the amount of oil and gas available
for sale, the availability of adequate pipeline and other transportation and
processing facilities, and the marketing of competitive fuels. State and federal
regulations generally are intended to prevent waste of oil and gas, protect
rights to produce oil and gas between owners in a common reservoir, and control
contamination of the environment. Pipelines are subject to the jurisdiction
of
various federal, state, and local agencies.
The
Company believes that it is in substantial compliance with such statutes, rules,
regulations, and governmental orders, although there can be no assurance that
this is or will remain the case. Failure to comply with such laws and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases our cost of doing business and affects our
profitability. Although we believe we are in substantial compliance with all
applicable laws and regulations, such laws and regulations are frequently
amended or reinterpreted so we are unable to predict the future cost or impact
of complying with such laws and regulations.
The
following discussion of the regulation of the oil and gas industry in the United
States and is not intended to constitute a complete discussion of the various
statutes, rules, regulations, and environmental orders to which the Company’s
operations may be subject.
Regulation
of Oil and Gas Exploration and Production.
The
Company’s oil and gas operations will be subject to various types of regulation
at the federal, state, and local levels. Prior to commencing drilling activities
for a well, the Company (or its operating subsidiaries, operating entities,
or
operating partners) must procure permits and/or approvals for the various stages
of the drilling process from the applicable federal, state, and local agencies
in the state in which the area to be drilled is located. Such permits and
approvals include those for the drilling of wells, maintaining bonding
requirements in order to drill or operate wells, and regulating the location
of
wells, the method of drilling and casing wells, the surface use and restoration
of properties on which wells are drilled, the plugging and abandoning of wells,
and the disposal of fluids used in connection with oil and gas operations.
The
Company’s operations are also subject to various conservation laws and regulations.
These include the regulation of the size of drilling and spacing units or
proration units, and the density of wells which may be drilled, and the
unitization or pooling of oil and gas properties. In this regard, some states
allow the forced pooling or integration of tracts to facilitate exploration
while other states rely primarily or exclusively on voluntary pooling of lands
and leases. In areas where pooling is voluntary, it may be more difficult to
form units, and therefore, more difficult to develop a project if the operator
owns less than 100% of the leasehold. In addition, state conservation laws
may
establish maximum rates of production from oil and gas wells, generally prohibit
the venting or flaring of natural gas and impose certain requirements regarding
the ratability of production.
The
effect of these regulations may limit the amount of oil and gas the Company
can
produce from its wells and may limit the number of wells or the locations at
which the Company can drill. The regulatory burden on the oil and gas industry
increases the Company’s costs of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently
expanded, amended, and reinterpreted, the Company is unable to predict the
future cost or impact of complying with such regulations.
Oil
and Gas Marketing and Transportation.
Federal
legislation and regulatory controls have historically affected the price of
oil
and gas and the manner in which production is transported and marketed. Under
the Natural Gas Act of 1938, the Federal Energy Regulatory Commission (“FERC”)
regulates the interstate sale for resale of natural gas and the transportation
of natural gas in interstate commerce, although facilities used in the
production or gathering of natural gas in interstate commerce are generally
exempted from FERC jurisdiction. Effective January 1, 1993, the Natural Gas
Wellhead Decontrol Act deregulated natural gas prices for all “first sales” of
natural gas, which definition will cover all sales of our own production. In
addition, as part of the broad industry restructuring initiatives described
below, FERC has granted to all producers such as us a “blanket certificate of
public convenience and necessity” authorizing the sale of gas
for
resale
without further FERC approvals. As a result, all natural gas that we produce
in
the future may now be sold at market prices, subject to the terms of any private
contracts that may be in effect.
Natural
gas sales prices nevertheless continue to be affected by intrastate and
interstate gas transportation regulation, because the prices that companies
such
as ours receive for our production are affected by the cost of transporting
the
gas to the consuming market. Through a series of comprehensive rulemakings,
beginning with Order No. 436 in 1985 and continuing through Order No. 636 in
1992 and Order No. 637 in 2000, FERC has adopted regulatory changes that have
significantly altered the transportation and marketing of natural gas. These
changes were intended by FERC to foster competition by, among other things,
transforming the role of interstate pipeline companies from wholesale marketers
of gas to the primary role of gas transporters, and by increasing the
transparency of pricing for pipeline services. FERC has also developed
rules governing the relationship of the pipelines with their marketing
affiliates, and implemented standards relating to the use of electronic data
exchange by the pipelines to make transportation information available on a
timely basis and to enable transactions to occur on a purely electronic
basis.
In
light
of these statutory and regulatory changes, most pipelines have divested their
gas sales functions to marketing affiliates, which operate separately from
the
transporter and in direct competition with all other merchants, and most
pipelines have also implemented the large-scale divestiture of their gas
gathering facilities to affiliated or non-affiliated companies. Interstate
pipelines thus now generally provide unbundled, open and nondiscriminatory
transportation and transportation-related services to producers, gas marketing
companies, local distribution companies, industrial end users, and other
customers seeking such services. Sellers and buyers of gas have gained direct
access to the particular pipeline services they need, and are better able to
conduct business with a larger number of counterparties.
Environmental
Regulations.
The
Company’s operations are subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental protection. Public interest in the protection
of the environment has increased dramatically in recent years. The trend of
more
expansive and stricter environmental legislation and regulations could continue.
To the extent laws are enacted or other governmental action is taken that
restricts drilling or imposes environmental protection requirements that result
in increased costs to the oil and gas industry in general, the business and
prospects of the Company could be adversely affected.
The
nature of the Company’s business operations results in the generation of wastes
that may be subject to the Federal Resource Conservation and Recovery Act
(“RCRA”) and comparable state statutes. The U.S. Environmental Protection Agency
(“EPA”) and various state agencies have limited the approved methods of disposal
for certain hazardous and non-hazardous wastes. Furthermore, certain wastes
that
may be generated by the Company’s operations that are currently exempt from
treatment as “hazardous wastes” may in the future be designated as “hazardous
wastes”, and therefore be subject to more rigorous and costly operating and
disposal requirements.
Stricter
standards in environmental legislation may be imposed on the industry in the
future. For instance, legislation has been proposed in Congress from time to
time that would reclassify certain exploration and production wastes as
“hazardous wastes” and make the reclassified wastes subject to more stringent
handling, disposal, and clean-up restrictions. If such legislation were to
be
enacted, it could have a significant impact on our operating costs, as well
as
on the oil and gas industry in general. Compliance with environmental
requirements generally could have a materially adverse effect upon our capital
expenditures, earnings, or competitive position.
The
Comprehensive Environmental Response, Compensation, and Liability Act
(“CERCLA”), also known as the “Superfund” law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to be responsible for the release of a “hazardous substance”
into the environment. These persons include the present or past owners or
operators of the disposal site or sites where the release occurred and the
companies that transported or arranged for the disposal of the hazardous
substances at the site where the release occurred. Under CERCLA, such persons
may be subject to joint and several liability for the costs of cleaning up
the
hazardous substances that have been released into the environment, for damages
to natural resources, and for the costs of certain health studies. It is not
uncommon for neighboring landowners and other third parties to
file
claims for personal injury and property damages allegedly caused by the release
of hazardous substances or other pollutants into the environment. Furthermore,
although petroleum, including natural gas and crude oil, is exempt from CERCLA,
at least two courts have ruled that certain wastes associated with the
production of crude oil may be classified as “hazardous substances” under CERCLA
and thus such wastes may become subject to liability and regulation under
CERCLA. State initiatives further to regulate the disposal of crude oil and
gas
wastes are also pending in certain states, and these various initiatives could
have adverse impacts on our business.
In
August 2005, the Energy Policy Act of 2005 was enacted (the “Energy Act”).
The Energy Act contains certain provisions that facilitate oil and gas leasing
and permitting on federal lands. The Energy Act also provides for certain
incentives for oil and gas production.
The
Company’s operations may be subject to the Clean Air Act (the “CAA”) and
comparable state and local requirements. Amendments to the CAA were adopted
in
1990 and contain provisions that may result in the gradual imposition of certain
pollution control requirements with respect to air emissions from the operations
of the Company. The EPA and states have been developing regulations to implement
these requirements. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment
in
connection with maintaining or obtaining operating permits and approvals
addressing other air emission-related issues.
The
Federal Water Pollution Control Act (the “FWPCA” or the “Clean Water Act”) and
resulting regulations, which are implemented through a system of permits, also
govern the discharge of certain contaminants into waters of the United States.
Sanctions for failure to comply strictly with the Clean Water Act are generally
resolved by payment of fines and correction of any identified deficiencies.
However, regulatory agencies could require the Company to cease construction
or
operation of certain facilities that are the source of water discharges and
compliance could have a materially adverse effect on our capital expenditures,
earnings, or competitive position.
Operating
Hazards and Insurance.
The
Company’s exploration and production operations include a variety of operating
risks, including the risk of fire, explosions, above-ground and underground
blowouts, craterings, pipe failure, casing collapse, abnormally pressured
formations, and environmental hazards such as oil and gas leaks, ruptures,
and
discharges of toxic gas, the occurrence of any of which could result in
substantial losses to the Company due to injury and loss of life, severe damage
to and destruction of property, natural resources and equipment, pollution
and
other environmental damage, clean-up responsibilities, regulatory investigation,
penalties, and suspension of operations.
Any
significant problems related to its facilities could adversely affect the
Company’s ability to conduct its operations. In accordance with customary
industry practice, the Company maintains or will attempt to obtain insurance
against some, but not all, potential risks; however, there can be no assurance
that such insurance will be adequate to cover any losses or exposure for
liability. The occurrence of a significant event not fully insured against
could
materially adversely affect the Company’s operations and financial condition.
The Company cannot predict whether insurance will be available at premium levels
that justify its purchase or whether insurance will be available at
all.
Employees.
At
present, the Company has two full time employees. One employee is Mr. John
Works, our President, Chief Executive Officer and Chief Financial Officer,
and
the other is Mr. Andrew Casazza, our manager of finance and operations.
We
presently do not have pension, health, annuity, insurance, profit sharing,
or
similar benefit plans; however, we may adopt such plans in the future. We have
a
stock option plan under which options have been granted to Mr. Works. See Item
11 “Executive Compensation” below.
The
Company’s employees are not covered by a collective bargaining agreement. The
Company considers relations with its employees to be excellent.
To
inform
readers of our future plans and business strategies, this report contains
statements concerning our future performance, intentions, objectives, plans
and
expectations that are or may be deemed to be “forward-looking statements”. Our
ability to do this has been fostered by the Private Securities Litigation Reform
Act of 1995, which provides a “safe harbor” for forward-looking statements to
encourage companies to provide prospective information so long as those
statements are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed in the statements. Such factors affecting us include, but are
not limited to, the following:
We
have incurred losses to date, we expect future losses, and we may never become
profitable.
The
Company has incurred losses in the past. We incurred net losses from continuing
operations for the years ended March 31, 2006, 2005, and 2004 of $124,453,
$27,154, and $375,000, respectively. In addition, we had an accumulated deficit
of $526,607 at March 31, 2006. We may fail to achieve significant revenues
or
profitability. There can be no assurance of when, if ever, we will be profitable
or whether we will be able to maintain profitability.
Our
auditors have issued a going concern opinion, hence there is substantial
uncertainty that we will continue operations.
Our
auditors have issued a going concern opinion. This means that there is
substantial doubt that we can continue as an ongoing business for the next
twelve months. The financial statements do not include any adjustments that
might result from the uncertainty about our ability to continue in business.
As
such we may have to cease operations and our shares could become worthless.
See
Item 8 “Financial Statements and Supplementary Data”.
We
lack an operating history, have never had any revenues, have no immediate
prospects for revenues, and have losses which we expect to continue.
We
were
incorporated in February 2004 and we have not realized any revenues to date.
We
have no operating history upon which an evaluation of our future success or
failure can be made. Based upon our current plans, we expect to incur operating
losses in future periods. This will occur because there are expenses associated
with the start-up nature of our oil and gas acquisition and development
business. As a result, continuing to incur expenses while failing to generate
revenue would have a material adverse effect on our financial condition and
results of operations.
If
we are unable to obtain additional funding our business operations will be
harmed.
We
believe that our current cash position and estimated 2007 cash from our
operations will not be sufficient to meet our current estimated general and
administrative, operating, and capital expenditures through the end of fiscal
year 2007. As a result, the Company will require additional funding. We do
not
know if additional financing will be available when needed, or if it is
available, if it will be available on acceptable terms. Insufficient funds
may
prevent us from implementing our business strategy.
Our
business depends on the level of activity in the oil and gas industry, which
is
significantly affected by volatile energy prices.
Our
business depends on the level of activity in oil and gas exploration,
development, and production in markets worldwide. Oil and gas prices, market
expectations of potential changes in these prices, and a variety of political
and economic and weather-related factors significantly affect this level of
activity. Oil and gas prices are extremely volatile and are affected by numerous
factors, including:
|
•
|
worldwide
demand for oil and gas;
|
|
|
|
•
|
the
ability of OPEC to set and maintain production levels and pricing;
|
|
|
•
|
the
level of production in non-OPEC countries;
|
|
|
•
|
the
policies of the various governments regarding exploration and development
of their oil and gas reserves;
|
|
|
•
|
local
weather;
|
|
|
•
|
fluctuating
pipeline takeaway capacity;
|
|
|
•
|
advances
in exploration and development technology;
|
|
|
•
|
the
political environment surrounding the production of oil and
gas;
|
|
|
•
|
level
of consumer product demand; and
|
|
|
•
|
the
price and availability of alternative
fuels.
|
Our
proposed operations are subject to certain hazards inherent in drilling for
oil
or gas, such as blowouts, reservoir damage, loss of production, loss of well
control, punchthroughs, craterings, or fires. The occurrence of these events
could result in the suspension of drilling operations, weather, equipment
shortages, damage to or destruction of the equipment involved, and injury or
death to rig personnel. Operations also may be suspended because of machinery
breakdowns, abnormal drilling conditions, failure of subcontractors to perform
or supply goods or services, or personnel shortages. Damage to the environment
could also result from our operations, particularly through oil spillage or
extensive uncontrolled fires. We may also be subject to damage claims by other
oil and gas companies.
Although
we intend to maintain insurance in the areas in which we operate, pollution
and
environmental risks generally are not fully insurable. Our insurance policies
and contractual rights to indemnity may not adequately cover our losses, and
we
do not have insurance coverage or rights to indemnity for all risks. If a
significant accident or other event occurs and is not fully covered by insurance
or contractual indemnity, it could adversely affect our financial position
and
results of operations.
Our
current properties are located in the Rocky Mountains, making us vulnerable
to
risks associated with operating in one major geographic
area.
Our
current activities are focused on the Rocky Mountain region of the United
States, which means our properties are geographically concentrated in that
area.
As a result, we may in the future be disproportionately exposed to the impact
of
delays or interruptions of production from these wells caused by significant
governmental regulation, transportation capacity constraints, curtailment of
production, or interruption of transportation of oil and gas produced from
the
wells in these basins.
Competition
in the oil and gas industry is intense, which may adversely affect our ability
to succeed.
The
oil
and gas industry is intensely competitive, and we compete with other companies
that are significantly larger and have greater resources. Many of these
companies not only explore for and produce oil and gas, but also carry on
refining operations and market petroleum and other products on a regional,
national, or worldwide basis. These companies may be able to pay more for
productive oil and gas properties and exploratory prospects or define, evaluate,
bid for, and purchase a greater number of properties and prospects than our
financial or human resources permit. Our larger competitors may be able to
absorb the burden of present and future federal, state, local, and other laws
and regulations more easily than we can, which would adversely affect our
competitive position. Our ability to acquire additional properties and to
discover reserves in the future will be dependent upon our ability to evaluate
and select suitable properties and to consummate transactions in a highly
competitive environment.
If
oil and gas prices decrease, we may be required to take write-downs of the
carrying values of our oil and gas properties.
Generally
accepted accounting principles require that we periodically review the carrying
value of our oil and gas properties for possible impairment. Based on specific
market factors and circumstances at the time of the prospective impairment
reviews, and the continuing evaluation of development plans, production data,
economics and other factors, we may be required to write down the carrying
value
of our oil and gas properties. A write-down constitutes a non-cash charge to
earnings. We may incur impairment charges in the future, which could have
material adverse effect on our results of operations in the periods
taken.
Our
operations are affected from time to time in varying degrees by governmental
laws and regulations. We may be required to make significant capital
expenditures to comply with governmental laws and regulations. It is also
possible that these laws and regulations may in the future add significantly
to
our operating costs or may significantly limit drilling activity. Failure
to comply with these laws and regulations may result in the suspension or
termination of our operations and subject us to administrative, civil and
criminal penalties, including assessment of natural resource
damage.
There
are risks associated with forward-looking statements made by us and actual
results may differ.
Some
of
the information in this 10-K contains forward-looking statements that involve
substantial risks and uncertainties. These statements can be identified by
the
use of forward-looking words such as “may”, “will”, “expect”, “anticipate”,
“believe”, “estimate”, and “continue”, or similar words. Statements that contain
these words should be read carefully because they:
•
discuss
our future expectations,
•
contain
projections of our future results of operations or of our financial condition,
and
•
state
other “forward-looking” information.
The
Company believes it is important to communicate our expectations. However,
there
may be events in the future that we are not able to accurately predict and/or
over which we have no control. The risk factors listed in this section, other
risk factors about which we may not be aware, as well as any cautionary language
in this 10-K, provide examples of risks, uncertainties, and events that may
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements. The occurrence of the events described in
these risk factors could have an adverse effect on our business, results of
operations, and financial condition.
Our
stock price and trading volume may be volatile, which could result in losses
for
our stockholders.
The
equity trading markets may experience periods of volatility, which could result
in highly variable and unpredictable pricing of equity securities. The
market price of our common stock could change in ways that may or may not be
related to our business, our industry, or our operating performance and
financial condition. In addition, the trading volume in our common stock
may fluctuate and cause significant price variations to occur. Some of the
factors that could negatively affect our share price or result in fluctuations
in the price or trading volume of our common stock include:
|
·
|
actual
or anticipated quarterly variations in our operating
results;
|
|
·
|
changes
in expectations as to our future financial performance or changes
in
financial estimates, if any, of public market
analysts;
|
|
·
|
announcements
relating to our business or the business of our
competitors;
|
|
·
|
conditions
generally affecting the oil and gas
industry;
|
|
·
|
the
success of our business strategy;
and
|
|
·
|
the
operating and stock price performance of other comparable
companies.
|
Many
of
these factors are beyond our control, and we cannot predict their potential
effects on the price of our common stock. We cannot assure that the market
price of our common stock will not fluctuate or decline significantly in the
future. In addition, the stock markets in general can experience
considerable price and volume fluctuations.
NASD
sales practice requirements limit a stockholders' ability to buy and sell our
stock.
The
National Association of Securities Dealers, Inc. (“NASD”) has adopted rules that
require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer’s financial status, tax status, investment
objectives, and other information. Under interpretations of these rules, the
NASD believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. The NASD
requirements make it more difficult for broker-dealers to recommend that their
customers buy our common stock, which has the effect of reducing the level
of
trading activity and liquidity of our common stock. Further, many brokers charge
higher transactional fees for penny stock transactions. As a result, fewer
broker-dealers are willing to market in our common stock, reducing a
stockholders' ability to resell shares of our common stock.
We
do not expect to pay dividends in the foreseeable future. As a result, holders
of our common stock must rely on stock appreciation for any return on their
investment.
We
do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Any payment of cash dividends will also depend on our financial condition,
results of operations, capital requirements, and other factors and will be
at
the discretion of our board of directors. Accordingly, holders of our common
stock will have to rely on capital appreciation, if any, to earn a return on
their investment in our common stock. Furthermore, we may in the future become
subject to contractual restrictions on, or prohibitions against, the payment
of
dividends, by our finance providers or otherwise.
None.
During
the fiscal year ending March 31, 2006, the Company did not own or operate any
oil or gas properties. As a result, we had no production data nor net wells
drilled, and no developed or undeveloped acreage, to report in this Form 10-K.
As described in “Part 1--Recent Events”, the Company has acquired the rights to
one property in each of two basins in the Rocky Mountain Region of the United
States--the Burke Ranch Field in the Powder River Basin located in central
Wyoming, and the Broadview Dome Prospect in the Crazy Mountain Basin located
in
central Montana.
Our
executive office is located in Denver, Colorado where we lease our offices
from
an unaffiliated third party for $950 per month. The term of such lease is on
a
month to month basis with no minimum term nor expiration date.
We
are
not a party to any legal proceedings.
No
matters were submitted to a vote of our security holders during the fourth
quarter of fiscal year 2006.
Rancher
Energy’s common stock is quoted on the OTC Bulletin Board under the symbol
“RNCH”.
The
following table sets forth, on a per share basis, the high and low closing
prices for the periods indicated:
|
|
|
|
|
||||
|
Calendar
quarter ended:
|
|
High
|
|
Low
|
|
||
|
June
30, 2006 (through June 15)
|
|
$
|
1.50
|
|
$
|
.52
|
|
|
March
31, 2006
|
|
$
|
3.00
|
|
$
|
.30
|
|
|
December
31, 2005
|
|
$
|
none
|
|
$
|
none
|
|
|
September
30, 2005
|
|
$
|
none
|
|
$
|
none
|
|
|
June
30, 2005
|
|
$
|
none
|
|
$
|
none
|
|
On
April
22, 2005 the SEC declared effective our Form SB-2 Registration Statement, file
number 333-116307, permitting us to offer up to 28,000,000 shares of common
stock at $0.007 per share. There was no underwriter involved in this public
offering.
Of
the
29,500,000 shares of the Company’s common stock outstanding as of June 15, 2006,
a total of 1,500,000 shares were owned by Mr. Works and Mr. Stytsenko and may
only be resold in compliance with Rule 144 of the Securities Act of 1933.
As
of
June 15, 2006, there were 20 holders of record of the Company’s common stock and
an undetermined number of beneficial owners whose shares are held by
CEDE & Co.
The
Company has not paid any dividends on its common stock since inception, and
the
Company does not anticipate declaration or payment of any dividends at any
time
in the foreseeable future.
Repurchases
of Equity Securities.
During
the quarter ended March 31, 2006 the registrant did not repurchase any of its
equity securities; however, on March 8, 2006, Andrei Stytsenko, our former
President and a current director, donated 69,500,000 shares of our common stock
to our treasury for no consideration.
Recent
Issuances of Unregistered Securities.
During
the fourth quarter of fiscal year 2006, there were no issuances of unregistered
securities by the Company.
Equity
Compensation Plan Information.
The
Company does not have an equity compensation plan, however see “Executive
Compensation” under Item 11 below for information concerning a stock option plan
we have adopted for our Chief Executive Officer.
Use
of Proceeds.
On
April
22, 2005, we completed our public offering and sold 28,000,000 shares of common
stock and raised $200,000. There was no underwriter involved in our public
offering. The proceeds from the offering were partially used during this year
ended March 31, 2006 for general operating expenses, accounting, and consulting
fees. The balance is available for use as set forth in the Use of Proceeds
section of our Form SB-2 registration statement.
The
following amounts were paid from the proceeds of the offering through March
31,
2006:
|
Accounting
and legal fees
|
$
|
66,604
|
||
|
Accounts
payable
|
51,904
|
|||
|
Operating
expenses
|
44,589
|
|||
|
Total
|
$
|
163,097
|
||
Subsequent
to March 31, 2006, we changed the direction and focus of our business from
an
exploratory stage mining business to the oil and gas business. We had no
revenues from our exploratory stage mining activities and we relinquished our
mining claims. The financial results of these activities are reflected below
in
Item 8 “Financial Statements and Supplementary Data” and are incorporated by
reference in response to this Item 6.
The
following discussion and analysis should be read in conjunction with the
Company’s financial statements and the related notes. This discussion is
intended to provide investors with an understanding of the Company’s past
performance, financial condition, and prospects. The following topics will
be
discussed and analyzed:
|
·
|
overview
of our business;
|
|
·
|
results
of operations and comparison of results between years;
|
|
·
|
outlook
for fiscal 2007;
|
|
·
|
liquidity
and capital resources;
|
|
·
|
subsequent
events;
|
|
·
|
critical
accounting policies and estimates; and
|
|
·
|
recent
accounting pronouncements.
|
Overview
Rancher
is an independent energy company which intends to engage in the development,
production, and marketing of oil and gas in North America. Prior to April 18,
2006 the Company, then known as Metalex Resources, Inc. (“Metalex”) was
primarily engaged in the exploration and development of a gold prospect in
British Columbia, Canada. Metalex found no commercially exploitable deposits
or
reserves of gold. During April 2006 the shareholders voted to change the name
of
the Company to Rancher Energy Corp. Since April, 2006 the Company has named
a
new president and is actively pursuing oil and gas prospects in the Rocky
Mountain region. We plan to generate revenues by the production of oil and
gas
from properties which we have under contract, independently, or with other
parties. During June, 2006 we entered into agreements to acquire interests
in
two different prospects—1) up to a 89.82% working interest in the Burke Ranch
Field in the Powder River Basin in central Wyoming on 1,921 gross acres (1,713
net to the Company) and 2) a separate acreage prospect of over 7,600 gross
acres
(4,180 net to the Company’s 55.00% working interest) in the Broadview Dome
Prospect in the Crazy Mountain Basin in central Montana.
At
March
31, 2006, the Company did not own or operate any oil or gas properties. As
a
result, we had no production data, net wells drilled and no developed or
undeveloped acreage to report in this 10-K.
Results
of Operations During Fiscal Year 2006 Compared to Fiscal Year
2005
The
Company’s net loss increased from $27,154 for the year ended March 31, 2005 to
$124,453 for the year ended March 31, 2006. Legal and accounting fees increased
to $47,809 from $8,795 in 2006 due to increased activity for the Company,
including $20,000 paid to the Company’s previous securities attorney in
conjunction with registration of the Company’s securities. In addition, the
increase in activity resulted in increased auditing and review fees.
Mining
exploration expenses of $50,000 were recognized in the year ended March 31,
2006
which related to expenditures on a mining project that the Company abandoned
subsequent to year end.
Outlook
for Fiscal 2007
The
following summarizes the goals and objectives for the Company for the year
ending March 31, 2007:
|
·
|
Begin
its exploration and development program on Burke Ranch as required
by the
Participation Agreement, which includes completing a 3-D seismic
survey on
approximately 4,480 acres, selecting an engineering firm to perform
engineering studies on the property and prepare a development plan,
and
performing remedial work on two wells currently in
production.
|
|
·
|
Begin
its exploration and development plan on the Broadview Dome as required
by
its exploration and development agreement, which includes, at a minimum,
completing a 3-D seismic survey on the 2,560
acres.
|
|
·
|
Finalize
the additional agreements with third parties to provide the financing
for
the exploration and development
programs.
|
|
·
|
Prepare
and finalize a registration statement to register securities that
may be
issued.
|
|
·
|
Build
up the operating capabilities of the
Company.
|
|
·
|
Pursue
additional asset and project opportunities that are accretive to
shareholder value.
|
Liquidity
and Capital Resources.
At
March
31, 2006 the Company had a working capital surplus of $44,011. Subsequent to
year end, through two separate transactions, the Company borrowed $650,000.
The
first amount advanced to the Company ($150,000) will be repaid out of the
proceeds of the second amount advanced ($500,000). Accordingly, at June 26,
2006
the Company has approximately $300,000 cash in the bank after $143,000 paid
for
leases acquired adjacent to Burke Ranch, repayment of the $150,000 note and
overhead through June 26, 2006. Pursuant to the Burke Ranch Unit Purchase and
Participation Agreement (Exhibit 10.3), the Company may receive up to a $71,500
payment within 30 days if the seller of the Burke Ranch property elects to
purchase up to 50% of the $143,000 leases purchased.
Currently
the Company is spending approximately $50,000 per month on consultants,
salaries, and other general and administrative expenses. In addition, the
Company has agreed to pay $500,000 in cash within the next ninety days for
the
initial payments required under the two acquisition agreements and it estimates
the initial exploration phase costs to be $750,000. The Company is currently
negotiating with Enerex, and others, for the sale of Company Common stock units.
The Company expects that its current cash balances, combined with the sale
of
Company common stock units, if completed, will meet its capital needs for fiscal
year 2007.
The
Company will require additional financing during fiscal year 2007 if the Company
identifies other acquisitions that meet its investment and operational strategy
or if the Company’s exploration program is successful, resulting in a
development program. Such additional financing may be in the form of debt or
equity or a combination of both (see “Sources and Uses of Funds”,
below).
Sources
and Uses of Funds.
Historically,
the Company’s primary source of liquidity has been cash provided by equity
offerings, and or debt convertible into equity from its existing capital
providers. As discussed above, the Company plans to issue common share units
during fiscal 2007. If its exploration program and/or acquisition programs
are
successful the Company will be required to obtain additional financing which
may
be debt or equity or a combination of both.
Cash
Flows and Capital Expenditures.
During
the year ended March 31, 2006 the Company expended $124,000 in its operating
activities, primarily to finance its unsuccessful efforts to explore for hard
minerals and overhead costs. This amount compares to $25,000 used in operating
activities in fiscal year 2005.
Commitments.
Pursuant
to the terms of the purchase of the Burke Ranch and Broadview Dome agreements,
the Company will be required to pay, by September 20, 2006, $250,000 for each
property for a total consideration of $500,000.
In
addition, the Company estimates that it will cost an additional $750,000 to
meet
its minimum 3-D seismic and rework obligations under such agreements.
Income
Taxes, Net Operating Losses, and Tax Credits.
At
March
31, 2006 the Company has a net operating loss carry forward for U.S. income
tax
purposes of $163,500. The
Company has established a valuation allowance for deferred taxes that reduces
its net deferred tax assets, as management currently believes that these losses
will not be utilized in the near term. The allowance recorded was $55,500 and
$13,500 for fiscal years 2006 and 2005, respectively.
Subsequent
Events.
The
Burke Ranch Field.
Subsequent
to March 31, 2006, on June 21, 2006, the Company acquired the
Burke
Ranch Field, an oil prospect consisting of approximately 1,921 acres in the
Powder River Basin in Natrona County, Wyoming. The prospect is located
approximately twenty-five (25) miles north of Casper, Wyoming, in the central
region of the state. Rancher will acquire up to a 89.82% working interest before
payout, which reverts to a 49.90% working interest after payout.
The
terms
of the agreement include the Company paying $250,000 within ninety days of
the
agreement date, completing a 3-D seismic survey on the acreage within one year
of signing, selecting an engineering firm to perform engineering studies and
to
prepare a development plan for Burke Ranch and the purchase of certain equipment
and completion of repairs on wells currently existing on the property within
30
days of closing.
The
Company recently successfully bid for and has the right to acquire an additional
8,183 acres contiguous and/or adjacent to its Burke Ranch Field. These leases,
together with the Burke Ranch Field’s original 1,921 acres, will increase the
total acreage of the Company’s Burke Ranch Field more than five times (5X) to
10,104 acres (see “Other Recent Events”, below).
The
Company also recently entered
into an agreement with NITEC to perform reservoir engineering studies on the
Company's Burke Ranch Field, as required by the agreement, in order to ascertain
the field’s remaining recoverable oil (see “Other Subsequent Events”, below).
The
Broadview Dome Prospect.
On
June
21, 2006, the Company acquired the
Broadview Dome Prospect, located approximately 25 miles northwest of Billings,
Montana, in the Crazy Mountain Basin. This natural gas prospect involves
approximately 7,600 acres. Rancher Energy holds a 100.00% working interest
until
payout, and 55.00% working interest after payout.
The
terms
of the agreement to acquire Broadview Dome include the completion of a 3-D
seismic survey on the acreage as soon as possible.
Other
Subsequent Events.
On
May
15, 2006, the Company entered into an employment contract with John Works
wherein we engaged Mr. Works as our president, chief executive officer, and
a
director. The term of the agreement is two (2) years beginning May 15, 2006.
We
will pay Mr. Works $12,500 per month, reimburse Mr. Works for out-of-pocket
expenses incurred by him up to $10,000 per month, an automobile allowance of
$400 per month, and a parking allowance of $150 per month. Further, we will
pay
Mr. Works a minimum of $950 per month to maintain an office in Denver, Colorado.
In addition to the foregoing, we have granted Mr. Works an option to acquire
restricted shares of our common stock at a price of $0.00001 per share as
follows: (i) 1,000,000 shares on the execution of the employment agreement,
(ii)
1,000,000 shares from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares
per completed quarter of service, (iii) 1,000,000 shares from June 1, 2007
to
May 31, 2008 at the rate of 250,000 shares per completed quarter of service,
and
(iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at the rate of 250,000
shares per completed quarter of service. In the event the agreement is
terminated, Mr. Works will be entitled to purchase all shares that have vested,
and all unvested shares will be forfeited.
On
May
15, 2006, the Company announced that Andrei Stytsenko resigned as the Company’s
principal executive officer but would remain with the Company both as a board
member and as Vice President--Production. Mr. Stytsenko’s resignation was not as
a result of any disagreement with the Company but rather as the result of the
change of direction and focus of the Company from the exploration and
development of gold mineral deposits and reserves in British Columbia, Canada
to
its
new
business direction as an oil and gas exploration and production company focusing
primarily on the Rocky Mountain Region of the United States.
On
June
6, 2006, the Company entered into a loan agreement (the “$150K Loan Agreement”)
with Enerex Capital Corp. (“Enerex”) to borrow from Enerex Capital the principal
amount of $150,000 (the “$150K Loan”) for the
Company’s
working capital purposes to be repaid in full plus two percent (2%) interest
on
the principal amount on or before June 30, 2006. The $150K Loan Agreement
provides that Enerex has the option to convert all or a portion of the $150K
Loan into shares of common stock of the Company, either (i) at a price per
share
equal to the closing price of the Company’s shares on the OTC Bulletin Board on
the day preceding notice from Enerex of its intent to convert all or a portion
of the Loan into shares of the Company, or (ii) in the event the Company is
offering shares or units to the general public, at the price such shares or
units are being offered to the general public.
On
June
6, 2006, at the Wyoming BLM auction, the Company successfully bid for and has
the right to acquire an additional 8,183 acres contiguous and/or adjacent to
its
Burke Ranch Field (the “BLM Leases”). The BLM Leases will be acquired for a
total cost of $143,237 or an average cost of approximately $16.00 an acre,
excluding first annual rental payments of $12,275 and administration fees of
$910, and the closing is expected to occur in approximately 90 days. The BLM
Leases, together with the Burke Ranch Field’s original 1,921 acres, will
increase the total acreage of the Company’s Burke Ranch Field more than five
times (5X) to 10,104 acres.
On
June
9, 2006, the Company entered into a loan agreement (the “$500K Loan Agreement”)
with Venture Capital First LLC (“Venture Capital”) to borrow from Venture
Capital the principal amount of $500,000 (the “$500K Loan”) for the Company’s
working capital purposes to be repaid in full plus six percent (6%) interest
on
the principal amount on or before December 9, 2006. The $500K Loan Agreement
provides that Venture Capital has the option to convert all or a portion of
the
$500K Loan into shares of common stock of the Company, either (i) at a price
per
share equal to the closing price of the Company’s shares on the OTC Bulletin
Board on the day preceding notice from Venture Capital of its intent to convert
all or a portion of the Loan into shares of the Company, or (ii) in the event
the Company is offering shares or units to the general public, at the price
such
shares or units are being offered to the general public.
Critical
Accounting Policies and Estimates.
The
discussion and analysis of the Company’s financial condition and results of
operations were based upon the consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses. Significant accounting policies
are
described in Note 2 to the financial statements. In response to SEC Release
No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical
Accounting Policies”, the Company has identified certain of these policies as
being of particular importance to the portrayal of the financial position and
results of operations and which require the application of significant judgment
by management. The Company analyzes our estimates, including those related
to
oil and gas reserves, bad debts, oil and gas properties, marketable securities,
income taxes, derivatives, and contingencies, and bases those estimates on
historical experience and various other assumptions that management believes
are
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The Company believes the
following critical accounting policies affect the more significant judgments
and
estimates used in the preparation of the financial statements.
Full
Cost Method of Accounting.
For
its
oil and gas exploration and producing activities, the Company will use the
full
cost method of accounting for its oil and gas properties. Accordingly, all
costs
related to the acquisition, exploration and development of both proved and
unproved properties will be capitalized. The Company's properties are expected
to be located within the continental United States, which will constitute one
cost center. The amortization of proved oil and gas properties will be
calculated using the units-of-production method, based on proved reserves of
oil
and gas. The costs of unproved properties will be excluded from amortization
pending a determination of the existence of proved reserves. Such unproved
properties will be assessed periodically for impairment. The amount of
impairment, if any, will be added to the costs being amortized.
Capitalized
costs, less related accumulated amortization, may not exceed the sum of: (1)
the
present value of future net revenues from estimated production of proved oil
and
gas reserves; (2) the cost of properties not being amortized; and (3) the lower
of cost or estimated fair value of unproved properties included in the costs
being amortized.
Reserve
Estimates.
Estimates
of oil and gas reserves, by necessity, are projections based on geologic and
engineering data, and there are uncertainties inherent in the interpretation
of
such data as well as the projection of future rates of production and the timing
of development expenditures. Reserve engineering is a subjective process of
estimating underground accumulations of oil and gas that are difficult to
measure. The accuracy of any reserve estimate is a function of the quality
of
available data, engineering and geological interpretation, and judgment.
Estimates of economically recoverable oil and gas reserves and future net cash
flows necessarily depend upon a number of variable factors and assumptions,
such
as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies,
and assumptions governing future oil and gas prices, future operating costs,
severance taxes, development costs, and workover gas costs, all of which may
in
fact vary considerably from actual results. The future drilling costs associated
with reserves assigned to proved undeveloped locations may ultimately increase
to an extent that these reserves may be later determined to be uneconomic.
For
these reasons, estimates of the economically recoverable quantities of oil
and
gas attributable to any particular group of properties, classifications of
such
reserves based on risk of recovery, and estimates of the future net cash flows
expected therefrom may vary substantially. Any significant variance in the
assumptions could materially affect the estimated quantity and value of the
reserves, which could affect the carrying value of oil and gas properties and/or
the rate of depletion of the oil and gas properties.
Stock
Based Compensation.
Other
than the stock option plan described above under “Other Subsequent Events”, the
Company has not yet adopted a Long-Term Incentive plan under which the Company
would issue performance share units convertible into common shares of the
Company subject to vesting on the basis of the achievement of specified
performance targets.
Recently
Issued Accounting Standards and Pronouncements
In
March
2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an
Amendment of FASB Statement No.140”. This statement requires an entity to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
any of the following situations: a transfer of the servicer’s financial assets
that meets the requirements for sale accounting; a transfer of the servicer’s
financial assets to a qualifying special - purpose entity in a guaranteed
mortgage securitization in which the transferor retains all of the resulting
securities and classifies them as either available-for-sale securities or
trading securities in accordance with the FASB statement No. 115; or an
acquisition or assumption of an obligation to service a financial asset that
does not relate to financial assets of the servicer or its consolidated
affiliates. The statement also requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value, if
practicable and permits an entity to choose either the amortization or fair
value method for subsequent measurement of each class of servicing assets and
liabilities. This statement is effective for fiscal years beginning after
September 15, 2006, with early adoption permitted as of the beginning of an
entity’s fiscal year. Management believes the adoption of this statement will
have no immediate impact on the Company’s financial condition or results of
operations.
In
February 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
Instruments, and an Amendment of FASB Standards No. 133 and 140”, (Hereinafter
SFAS No. 155”). This statement established the accounting for certain
derivatives embedded in other instruments. It simplifies accounting for certain
hybrid financial instruments by permitting fair value re-measurement for any
hybrid instrument that contains an embedded derivative that otherwise would
require bifurcation under SFAS No. 133, as well as eliminating a restriction
on
the passive derivative instruments that a qualify special purpose entity (“SPE”)
may hold under SFAS No. 140. This statement allows a public entity to
irrevocably elect to initially and subsequently measure a hybrid instrument
that
would require to be separated into a host contract and derivative in its
entirety at fair value (with changes in fair value recognized in earnings)
so
long as that instrument is not designated as a hedging instrument pursuant
to
the statement. SFAS No. 140 previously prohibited a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. This
statement is effective for fiscal years beginning after September 15, 2006,
with
early adoption permitted as of the beginning of an entity’s fiscal year.
Management
believes the adoption of this statement will have no immediate impact on the
Company’s financial condition or results of operations.
In
May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections—a replacement of APB Opinion No. 20 and FASB Statement
No. 3 (“Statement 154”). SFAS 154 requires retrospective application to
prior periods’ financial statements for changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 also requires that a change in
depreciation, amortization, or depletion method for long-lived, non-financial
assets be accounted for as a change in accounting estimate affected by a change
in accounting principle. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15,
2005. The implementation of SFAS 154 is not expected to have a material impact
on our condensed consolidated results of operations, financial position or
cash
flows.
In
December 2004, the FASB issued SFAS No. 153 “Exchanges of Non-monetary
Assets—an amendment of APB Opinion No. 29”. This Statement amended APB
Opinion No. 29 to eliminate the exception for non-monetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The Company
believes the impact of this new standard will not have a material impact upon
the Company’s financial position, results of operations or cash flows. SFAS 153
is effective for all reporting periods beginning after June 15,
2005.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123 (revised 2004), “Share-Based Payment”. SFAS No. 123R replaced SFAS No. 123
and superseded APB 25. SFAS No. 123R will require compensation cost related
to
share-based payment transactions to be recognized in financial statements.
As
permitted by SFAS No. 123, the Company elected to follow the guidance of APB
25,
which allowed companies to use the intrinsic value method of accounting to
value
their share-based payment transactions with employees. Based on this method,
the
Company did not recognize compensation expense in its financial statements
as
the stock options granted had an exercise price equal to the fair market value
of the underlying Common Stock on the date of the grant. SFAS No. 123R requires
measurement of the cost of share-based payment transactions to employees at
the
fair value of the award on the grant date and recognition of expense over the
requisite service or vesting period. SFAS No. 123R requires implementation
using
a modified version of prospective application, under which compensation expense
for the unvested portion of previously granted awards and all new awards will
be
recognized on or after the date of adoption. SFAS No. 123R also allows companies
to adopt SFAS No. 123R by restating previously issued financial statements,
basing the amounts on the expense previously calculated and reported in their
pro forma footnote disclosures required under SFAS No. 123. The provisions
of
SFAS No. 123R will be adopted by the Company effective January 1, 2006, using
the modified prospective application method. The effect of the adoption of
SFAS
No. 123R is expected to be significant to future financial statements as a
result of applying the current fair value recognition provisions of SFAS No.
123. The amount of unvested stock compensation as of March 31, 2006 is $00,000,
which will be recorded in future periods as earned.
In
February 2005, the staff of the SEC sent a letter to oil and gas
registrants regarding situations that require additional financial statement
disclosures, pending final resolution of accounting treatment. The following
are
items related to registrants using the successful efforts method of accounting:
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•
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Companies
may enter concurrent commodity buy/sale arrangements, or transactions
in
contemplation of other transactions, often to assure that the commodity
is
available at a specific location. Pending resolution of accounting
questions with the Emerging Issues Task Force, the staff of the SEC
has
requested additional disclosures for any such material arrangements,
including separate disclosure on the face of the income statement
of any
related proceeds and costs reported on a gross basis. These disclosures
are not applicable, since the Company has not entered any transactions
of
this nature.
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•
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Statement
of Financial Accounting Standards No. 19, Financial Accounting and
Reporting by Oil and Gas Producing Companies, specifies that drilling
costs for completed exploratory wells should be expensed if the related
reserves cannot be classified as proved within one (1) year unless
certain
criteria are met. In April 2005, the FASB issued FASB Staff Position
19-1, Accounting for Suspended Well Costs. FSP 19-1 provides guidance
for
evaluating whether sufficient progress is being made to determine
whether
reserves can be classified as proved. FSP 19-1 is effective for all
reporting periods beginning after April 4, 2005,
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however,
early application is permitted. Pending adoption of FSP 19-1, the
staff of
the SEC has requested additional disclosures be included in registrants’
financial statements regarding their accounting policy for capitalization
of exploratory drilling costs, as well as disclosure of capitalized
exploratory drilling cost amounts included in the financial statements.
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We
currently do not invest in derivative financial instruments, interest rate
swaps
or other similar investments to alter interest rate exposure or for any other
purpose.
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Financial
Statements
and
Report
of Independent Registered Public Accounting Firm
March
31, 2006, 2005, and 2004
RANCHER
ENERGY CORP.
Table
of Contents
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See
pages attached to this report
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Report
of Independent Registered Public Accounting Firm
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F-1
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| Consolidated Financial Statements |
F-2
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Consolidated
Balance Sheets
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F-3
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Consolidated
Statements of Operations and Comprehensive Loss
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F-4
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Consolidated
Statements of Changes in Stockholders' (Deficit) Equity
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F-5
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Consolidated
Statements of Cash Flows
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F-6
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Notes
to Consolidated Financial Statements
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F-7
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To
the
Board of Directors
Rancher
Energy Corp.
(fka
Metalex Resources, Inc.)
Spokane,
Washington
We
have
audited the accompanying balance sheets of Rancher Energy Corp. (fka Metalex
Resources, Inc. and a Nevada corporation and an exploration stage company)
as of
March 31, 2006 and 2005, and the related statements of operations, stockholder’s
deficit and cash flows for the periods then ended and for the period from
February 4, 2004 (inception) through March 31, 2006. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with auditing standards of the Public
Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of Rancher Energy Corp. as of
March
31, 2006 and 2005, and the results of its operations, stockholder’s deficit and
cash flows for the periods then ended and for the period from February
4, 2004
(inception) through March 31, 2006 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company’s operating losses raise substantial doubt about its
ability to continue as a going concern. Management’s plans regarding those
matters also are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/
Williams
&
Webster,
P.S.
Williams
& Webster, P.S.
Certified
Public Accountants
Spokane,
Washington
June
19,
2006
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RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.
|
|||||||
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(AN
EXPLORATION STAGE COMPANY)
|
|||||||
|
March
31,
|
|||||||
|
2006
|
2005
|
||||||
|
ASSETS
|
|||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
46,081
|
$
|
4,060
|
|||
|
Total
Current Assets
|
46,081
|
4,060
|
|||||
|
EQUIPMENT,
net
|
384
|
511
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Software,
net
|
261
|
178
|
|||||
|
TOTAL
ASSETS
|
$
|
46,557
|
$
|
4,749
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
477
|
$
|
795
|
|||
|
Payroll
taxes payable
|
1,593
|
108
|
|||||
|
Advances
from officers
|
-
|
30,000
|
|||||
|
Total
Current Liabilities
|
2,070
|
31,903
|
|||||
|
COMMITMENTS
AND CONTINGENCIES
|
-
|
-
|
|||||
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
|||||||
|
Common
stock, 100,000,000 shares authorized, $0.00001
|
|||||||
|
par
value, 28,500,0000 and 70,000,000 shares issued and
outstanding
|
285
|
700
|
|||||
|
Additional
paid-in capital
|
570,809
|
374,300
|
|||||
|
Accumulated
deficit during exploration stage
|
(526,607
|
)
|
(402,154
|
)
|
|||
|
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIT)
|
44,487
|
(27,154
|
)
|
||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
$
|
46,557
|
$
|
4,749
|
|||
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RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
||||||||||
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(AN
EXPLORATION STAGE COMPANY)
|
||||||||||
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From
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||||||||||
|
February
4, 2004
|
||||||||||
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Years
Ended
|
(Inception)
to
|
|||||||||
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March
31,
|
March
31,
|
|||||||||
|
2006
|
2005
|
2006
|
||||||||
|
REVENUE
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
OPERATING
EXPENSES
|
||||||||||
|
Legal
and accounting fees
|
47,809
|
8,795
|
66,604
|
|||||||
|
Mining
exploration expense
|
50,000
|
-
|
51,904
|
|||||||
|
Consulting
fees
|
-
|
-
|
363,096
|
|||||||
|
Depreciation
|
213
|
201
|
414
|
|||||||
|
Other
general and administrative expenses
|
26,431
|
18,158
|
44,589
|
|||||||
|
TOTAL
EXPENSES
|
124,453
|
27,154
|
526,607
|
|||||||
|
LOSS
FROM OPERATIONS
|
(124,453
|
)
|
(27,154
|
)
|
(526,607
|
)
|
||||
|
INCOME
TAXES
|
-
|
-
|
-
|
|||||||
|
NET
LOSS
|
$
|
(124,453
|
)
|
$
|
(27,154
|
)
|
$
|
(526,607
|
)
|
|
|
BASIC
AND DILUTED
|
||||||||||
|
NET
LOSS PER SHARE
|
$
|
nil
|
$
|
nil
|
||||||
|
WEIGHTED
AVERAGE SHARES
|
||||||||||
|
OUTSTANDING
USED IN BASIC AND
|
||||||||||
|
DILUTED
PER SHARE CALCULATION
|
32,819,623
|
70,000,000
|
||||||||
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
||||||||||||||||
|
(AN
EXPLORATION STAGE COMPANY)
|
||||||||||||||||
|
Common
Stock
|
|
|
|
|||||||||||||
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Stockholders'
Equity
(Deficit)
|
||||||||||||
|
Stock
issued for repayment of expenses
and
consulting services
|
70,000,000
|
$
|
700
|
$
|
374,300
|
$
|
-
|
$
|
375,000
|
|||||||
|
Net
loss for the year ended, March 31, 2004
|
-
|
-
|
-
|
(375,000
|
)
|
(375,000
|
)
|
|||||||||
|
Balance,
March 31, 2004
|
70,000,000
|
700
|
374,300
|
(375,000
|
)
|
-
|
||||||||||
|
Net
loss for the year ended March 31, 2005
|
-
|
-
|
-
|
(27,154
|
)
|
(27,154
|
)
|
|||||||||
|
Balance,
March 31, 2005
|
70,000,000
|
700
|
374,300
|
(402,154
|
)
|
(27,154
|
)
|
|||||||||
|
Common
stock issued for cash at $0.07 per share
net of offering costs of $3,906
|
28,000,000
|
280
|
195,814
|
-
|
196,094
|
|||||||||||
|
Shares
returned from founding stockholder in reorganization
|
(69,500,000
|
)
|
(695
|
)
|
695
|
-
|
-
|
|||||||||
|
Net
loss for the year ended, March 31, 2006
|
-
|
-
|
(124,453
|
)
|
(124,453
|
)
|
||||||||||
|
Balance,
March 31, 2006
|
28,500,000
|
$
|
285
|
$
|
570,809
|
$
|
(526,607
|
)
|
$
|
44,487
|
||||||
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
||||||||||
|
(AN
EXPLORATION STAGE COMPANY)
|
||||||||||
|
From
|
||||||||||
|
February
4,
|
||||||||||
|
2004
|
||||||||||
|
Years
Ended
|
(Inception)
to
|
|||||||||
|
March
31,
|
March
31,
|
|||||||||
|
2006
|
2005
|
2006
|
||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||
|
Net
loss
|
$
|
(124,453
|
)
|
$
|
(27,154
|
)
|
$
|
(526,607
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used by
|
||||||||||
|
operating
activities:
|
||||||||||
|
Expenses
paid by shareholder
|
-
|
-
|
11,904
|
|||||||
|
Common
stock issued for services
|
-
|
-
|
363,096
|
|||||||
|
Depreciation
|
213
|
201
|
414
|
|||||||
|
Increase
(decrease) in accounts payable
|
(318
|
)
|
795
|
477
|
||||||
|
Increase
in payroll taxes payable
|
465
|
1,108
|
1,593
|
|||||||
|
Net
cash used by operating activities
|
(124,073
|
)
|
(25,050
|
)
|
(149,123
|
)
|
||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||
|
Purchase
of equipment
|
-
|
(890
|
)
|
(890
|
)
|
|||||
|
Net
cash used by investing activities
|
-
|
(890
|
)
|
(890
|
)
|
|||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||
|
Proceeds
from sale of common stock
|
196,094
|
-
|
196,094
|
|||||||
|
Proceeds
from shareholder loan
|
-
|
30,000
|
30,000
|
|||||||
|
Payment
of shareholder loan
|
(30,000
|
)
|
-
|
(30,000
|
)
|
|||||
|
Net
cash used by financing activities
|
166,094
|
30,000
|
196,094
|
|||||||
|
INCREASE
IN CASH AND CASH EQUIVALENTS:
|
||||||||||
|
Change
in cash
|
42,021
|
4,060
|
46,081
|
|||||||
|
Beginning
of period
|
4,060
|
-
|
-
|
|||||||
|
End
of period
|
$
|
46,081
|
$
|
4,060
|
$
|
46,081
|
||||
|
SUPPLEMENTAL
CASH FLOW DISCLOSURE:
|
||||||||||
|
Interest
paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Income
taxes paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
NON-CASH
INVESTING AND FINANCING TRANSACTIONS:
|
||||||||||
|
Common
stock issued for services
|
$
|
-
|
$
|
-
|
$
|
363,096
|
||||
|
Common
stock issued for expenses paid by shareholder
|
$
|
-
|
$
|
-
|
$
|
11,904
|
||||
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
|
(AN
EXPLORATION STAGE COMPANY)
|
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Metalex
Resources, Inc. (“Metalex”) was incorporated on February 4, 2004 under the laws
of the State of Nevada for the purpose of acquiring, exploring and developing
mining properties. On April 18, 2006 Metalex changed its name to Rancher
Energy
Corp. (hereinafter the “Company”) and announced that the Company changed its
business plan and focus from mining to becoming an independent oil and gas
exploration and production company that concentrates on applying secondary
and
tertiary recovery technology to older, historically productive fields primarily
in North America. See Note 7 regarding additional events that occurred
subsequent to year end.
The
Company's fiscal year end is March 31.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of the Company is presented to
assist
in understanding the financial statements. The financial statements and notes
are representations of the Company's management which is responsible for
their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America, and have been
consistently applied in the preparation of the financial
statements.
Accounting
Method
The
Company uses the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America.
Basic
and Diluted Loss Per Share
Loss
per
share was computed by dividing the net loss by the weighted average number
of
shares outstanding during the period. The weighted average number of shares
was
calculated by taking the number of shares outstanding and weighting them
by the
amount of time that they were outstanding. Basic and diluted loss per share
were
the same, as there were no common stock equivalents outstanding.
Cash
and Cash Equivalents
For
purposes of the Statement of Cash Flows, the Company considers all short-term
debt securities purchased with a maturity of three months or less to be cash
equivalents.
Compensated
Absences
Currently,
the Company has two employees, but presently does not offer compensated
absences. The Company may change its policy to recognize the costs of
compensated absences in the future.
Derivative
Instruments
The
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB No. 133",
and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging
Activities" and SFAS No. 149, “Amendment of Statement 133 on Derivative and
Hedging Activities”, which is effective for the Company at inception. These
statements establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. They require that an entity recognize
all
derivatives as either assets or liabilities in the consolidated balance sheet
and measure those instruments at fair value.
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
|
(AN
EXPLORATION STAGE COMPANY)
|
|
NOTES
TO FINANCIAL
STATEMENTS
|
If
certain conditions are met, a derivative may be specifically designated
as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the
fair
value of the hedged asset or liability that are attributable to the hedged
risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
At
March
31, 2006 and 2005, the Company had not engaged in any transactions that would
be
considered derivative instruments or hedging activities.
Exploration
Stage Activities and Costs
The
Company was in the exploration stage at March 31, 2006 and had not yet realized
any revenues from its planned operations. In accordance with accounting
principles generally accepted in the United States of America, the Company
expensed mining exploration costs as incurred. Exploration costs expensed
during
the years ended March 31, 2006 was $50,000. The Company had no exploration
stage
expenses for the year ended March 31, 2005.
Subsequent
to the date of financials, the Company changed its business plan and focus
from
mineral exploration to oil and gas exploration and ceased the above exploration
activities.
Fair
Value of Financial Instruments
The
carrying amounts for cash and payables approximate their fair
value.
Foreign
Currency Valuation
Assets
and liabilities of the Company's foreign operations are translated into U.S.
dollars at year-end exchange rates, and revenue and expenses are translated
at
the average exchange rates during the period. The net effect of exchange
differences arising from currency translation will be disclosed as a separate
component of stockholders' equity. Realized gains and losses from foreign
currency transactions are reflected in the results of operations.
Going
Concern
As
shown
in the accompanying financial statements, the Company has no revenues, has
incurred a net loss of $526,607 for the period from February 4, 2004 (inception)
through March 31, 2006 and has an accumulated deficit. These factors indicate
that the Company may be unable to continue in existence. The financial
statements do not include any adjustments related to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue
in
existence. The Company’s management believes that its receipt of funds
subsequent to March 31, 2006 from a private financing agreement will generate
sufficient cash for the Company to continue to operate based on current expense
projections. The Company anticipates it will require over $1,500,000 to close
on
the acquisition of oil and gas properties, conduct exploration activities
and
continue operations in the fiscal year 2007.
Impaired
Asset Policy
In
August
2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (hereinafter “SFAS No. 144"). SFAS No. 144 replaced SFAS No.
121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of”. This standard establishes a single accounting model
for long-lived assets to be disposed of by sale, including discontinued
operations. SFAS No. 144 requires that these long-lived assets be measured
at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or discontinued operations. This statement is effective
beginning for fiscal years after December 15, 2001, with earlier application
encouraged. The Company has adopted this statement and it has had no immediate
impact on the financial statements at March 31, 2006 and 2005.
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
|
(AN
EXPLORATION STAGE COMPANY)
|
|
NOTES
TO FINANCIAL
STATEMENTS
|
Use
of
Estimates
The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
Provision
for Taxes
Income
taxes are provided based upon the liability method of accounting pursuant
to
Statement of Financial Accounting Standards, FAS No. 109, "Accounting for
Income
Taxes" (hereafter “SFAS No. 109”). Under this approach, deferred income taxes
are recorded to reflect the tax consequences on future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year end. A valuation allowance is recorded against deferred
tax
assets if management does not believe the Company has met the "more likely
than
not" standard imposed by SFAS No. 109 to allow recognition of such an
asset.
The significant components of the deferred tax assets at March 31, 2006 and 2005 were as follows:
|
2006
|
2005
|
||||||
|
Net
operating loss carryforward:
|
$
|
163,500
|
$
|
39,700
|
|||
|
Deferred
tax asset
|
55,500
|
13,500
|
|||||
|
Deferred
tax asset valuation allowance
|
$
|
(55,500
|
)
|
$
|
(13,500
|
)
|
|
|
Net
deferred tax asset
|
$
|
--
|
$
|
--
|
|||
At
March
31, 2006, the Company has net operating loss carryforwards of approximately
$163,500, which expire in the years 2024 and 2025. The Company recognized
$363,096 of losses from the issuance of common stock for services in 2004,
which
were not deductible for tax purposes and are not included in the calculation
of
the deferred tax assets.
At
March
31, 2006, the Company had net deferred tax assets of approximately $55,500
principally arising from net operating loss carryforwards for income tax
purposes. As management of the Company cannot determine that it is more likely
than not that the Company will realize the benefit of the net deferred tax
asset, a valuation allowance equal to the net deferred tax asset has been
established at March 31, 2006. The change in valuation allowance from March
31,
2005 to March 31, 2006 was $42,000.
Oil
and Gas Properties
For
its
oil and gas exploration and producing activities, the Company will use the
full
cost method of accounting. Accordingly, all costs related to the acquisition,
exploration and development of both proved and unproved properties will be
capitalized. The Company's properties are expected to be located within the
continental United States, which will constitute one cost center. The
amortization of proved oil and gas properties will be calculated using the
units-of-production method, based on proved reserves of oil and gas. The
costs
of unproved properties will be excluded from amortization pending a
determination of the existence of proved reserves. Such unproved properties
will
be assessed periodically for impairment. The amount of impairment, if any,
will
be added to the costs being amortized.
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
|
(AN
EXPLORATION STAGE COMPANY)
|
|
NOTES
TO FINANCIAL
STATEMENTS
|
Capitalized
costs, less related accumulated amortization, may not exceed the sum of:
(1) the
present value of future net revenues from estimated production of proved
oil and
gas reserves; (2) the cost of properties not being amortized; and (3) the
lower
of cost or estimated fair value of unproved properties included in the
costs
being amortized.
Normal
dispositions of oil and gas properties will be accounted for as adjustments
to
capitalized costs, with no gain or loss recognized until all costs are
recovered. A gain or loss is recognized on the sale of oil and gas properties
only when significant reserves are involved, or when the proceeds from
unproved
property sales exceed the capitalized costs not subject to amortization
at the
date of sale.
Recently
Issued Accounting Pronouncements
In
March
2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an
Amendment of FASB Statement No.140”. This statement requires an entity to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
any of the following situations: a transfer of the servicer’s financial assets
that meets the requirements for sale accounting; a transfer of the servicer’s
financial assets to a qualifying special - purpose entity in a guaranteed
mortgage securitization in which the transferor retains all of the resulting
securities and classifies them as either available-for-sale securities or
trading securities in accordance with the FASB statement No. 115; or an
acquisition or assumption of an obligation to service a financial asset that
does not relate to financial assets of the servicer or its consolidated
affiliates. The statement also requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value,
if
practicable and permits an entity to choose either the amortization or fair
value method for subsequent measurement of each class of servicing assets
and
liabilities. This statement is effective for fiscal years beginning after
September 15, 2006, with early adoption permitted as of the beginning of
an
entity’s fiscal year. Management believes the adoption of this statement will
have no immediate impact on the Company’s financial condition or results of
operations.
In
February 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
Instruments, and an Amendment of FASB Standards No. 133 and 140”, (Hereinafter
SFAS No. 155”). This statement established the accounting for certain
derivatives embedded in other instruments. It simplifies accounting for certain
hybrid financial instruments by permitting fair value re-measurement for
any
hybrid instrument that contains an embedded derivative that otherwise would
require bifurcation under SFAS No. 133, as well as eliminating a restriction
on
the passive derivative instruments that a qualify special purpose entity
(“SPE”)
may hold under SFAS No. 140. This statement allows a public entity to
irrevocably elect to initially and subsequently measure a hybrid instrument
that
would require to be separated into a host contract and derivative in its
entirety at fair value (with changes in fair value recognized in earnings)
so
long as that instrument is not designated as a hedging instrument pursuant
to
the statement. SFAS No. 140 previously prohibited a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. This
statement is effective for fiscal years beginning after September 15, 2006,
with
early adoption permitted as of the beginning of an entity’s fiscal year.
Management believes the adoption of this statement will have no immediate
impact
on the Company’s financial condition or results of operations.
In
May
2005, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 154, “Accounting Changes and Error Corrections”
(hereinafter “SFAS No. 154”) which replaces Accounting Principles Board Opinion
No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in
Interim Financial Statements— An Amendment of APB Opinion No. 28”. SFAS No. 154
provides guidance on accounting for and reporting changes in accounting
principle and error corrections. SFAS No. 154 requires that changes in
accounting principle be applied retrospectively to prior period financial
statements and is effective for fiscal years beginning after December 15,
2005.
Management does not expect SFAS No. 154 to have a material impact on the
company’s financial position, results of operations, or cash flows.
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
|
(AN
EXPLORATION STAGE COMPANY)
|
|
NOTES
TO FINANCIAL
STATEMENTS
|
NOTE
3 - MINING CLAIMS
In
February 2004, the Company, through its former president, acquired for
$1,904
($2,500 CDN), 100% of the rights, title and interest in four mining claims
in
the Yalakom River Valley in British Columbia, Canada. The claims were recorded
in Mr. Stytsenko’s name. Title to the claims was expected to be conveyed to a
wholly owned subsidiary corporation of the Company if mineralized material
was
discovered. The wholly owned subsidiary corporation would not be incorporated
unless mineralized material was discovered.
With
the
subsequent change in its business plan and focus (see Notes 1 and 7), the
Company will not continue with any exploration of this property and has
chosen
to abandon it entirely.
NOTE
4 - COMMON STOCK
The
Company is authorized to issue 100,000,000 shares of $0.00001 par value common
stock. All shares have equal voting rights, are non-assessable and have one
vote
per share. Voting rights are not cumulative and, therefore, the holders of
more
than 50% of the common stock could, if they choose to do so, elect all of
the
directors of the Company.
On
February 5, 2004, a total of 70,000,000 shares of restricted common stock
were
issued to the Company’s president. There was no public offering of any
securities. The aforementioned shares were issued in payment of legal fees
of
$10,000, consulting fees of $363,096, and $1,904 for purchase of mining claims.
These shares were issued pursuant to exemption from registration contained
in
Section 4 (2) of the Securities Act of 1933.
During
the three months ended June 30, 2005 the Company issued 28,000,000 shares
of
common stock for cash in the amount of approximately $0.007 per share, or
$200,000 before offering costs of $3,906.
During
the year ended March 31, 2006, the Company approved a 13-for-1 stock dividend
which is being treated as a 14-for-1 forward stock split for accounting
purposes. All share amounts in the financial statements have been restated
to
reflect this split.
In
March
2006, in anticipation of certain management changes and reorganization of
the
Company’s activities, the Company’s president and majority shareholder returned
69,500,000 shares of his common stock and retained 500,000 shares of common
stock. The restructuring of the capital structure of the Company was in
anticipation of a change to the Company’s direction and business focus. There
was no established secondary market for the Company’s common stock and the
cancellation only had the effect of reducing the shares issued for the
president’s initial investment of $375,000 in 2004.
NOTE
5 - RELATED PARTY TRANSACTIONS
The
Company occupied office space provided by its executive administrator at
no
charge through the end of March 2006. The value of this space is not considered
materially significant for financial reporting purposes. Additionally, the
Company’s former president has advanced funds to the Company to pay $11,904 of
initial legal fees and mining claims. The funds advanced were repaid as part
of
the original stock issuance transaction. See Note 4.
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
|
(AN
EXPLORATION STAGE COMPANY)
|
|
NOTES
TO FINANCIAL
STATEMENTS
|
During
the year ended March 31, 2005, an officer advanced money to the Company in
the
amount of $30,208 to pay accounting fees and to provide operating capital.
During the year ended March 31, 2006, the Company repaid to the officer $32,112,
which included an overpayment of $1,904 for the costs of the initial staking
fees at the mining site that had already been repaid to the officer. (See
Note
4.) The Company discovered this oversight and the Company officer repaid
the
overpayment during the year ended March 31, 2006.
NOTE
6 - COMMITMENTS AND CONTINGENCIES
Mining
and Oil and Gas Industries
Through
the end of fiscal 2006, the Company was engaged in the exploration and
development of mineral properties. At present, there are no feasibility studies
establishing proven and probable reserves.
Although
the minerals exploration and mining industries are inherently speculative
and
subject to complex environmental regulations, the Company was unaware of
any
pending litigation or of any specific past or prospective matters which could
impact its mining claims at March 31, 2006 or 2005.
Subsequent
to the date of the financials, the Company changed its focus from mineral
exploration to oil and gas exploration and production. At this time the Company
is unaware of any pending litigation or of any specific past or prospective
matters which could impair the value of its oil and gas properties acquired
subsequent to March 31, 2006.
NOTE
7. SUBSEQUENT EVENTS
Change
of Direction and Focus
On
May
15, 2006, the Company announced that Andrei Stytsenko resigned as the Company’s
principal executive officer but would remain with the Company both as a board
member and as vice president of production. Mr. Stytsenko’s resignation was not
as a result of any disagreement with the Company but rather as the result
of the
change of direction and focus of the Company from the exploration and
development of gold mineral deposits and reserves in British Columbia, Canada
to
its new business direction as an oil and gas exploration and production company
focusing primarily on the Rocky Mountain Region of the United States.
On
May
15, 2006, the Company entered into an employment contract with its new president
and chief executive officer. and agreed to pay the executive a minimum of
$950
per month to maintain an office in Denver, Colorado. In addition, the Company
granted the executive an option to acquire restricted shares of its common
stock
at a price of $0.00001 per share as follows: (i) 1,000,000 shares on the
execution of the employment agreement, (ii) 1,000,000 shares from June 1,
2006
to May 31, 2007 at the rate of 250,000 shares per completed quarter of service,
(iii) 1,000,000 shares from June 1, 2007 to May 31, 2008 at the rate of 250,000
shares per completed quarter of service, and (iv) 1,000,000 shares from June
1,
2008 to May 31, 2009 at the rate of 250,000 shares per completed quarter
of
service. In the event the agreement is terminated, the executive will be
entitled to purchase all shares that have vested, and all unvested shares
will
be forfeited.
Property
Acquisitions
The
Burke Ranch Field
Subsequent
to March 31, 2006, on June 21, 2006, the Company acquired the Burke Ranch
Field,
an oil prospect consisting of approximately 1,921 acres in the Powder River
Basin in Natrona County, Wyoming. The prospect is located approximately
twenty-five (25) miles north of Casper, Wyoming, in the central region of
the
state. The Company will acquire up to an 89.82% interest before payout, which
reverts to a 49.90% interest after payout.
|
RANCHER
ENERGY CORP.
(FKA
METALEX RESOURCES, INC.)
|
|
(AN
EXPLORATION STAGE COMPANY)
|
|
NOTES
TO FINANCIAL
STATEMENTS
|
The
terms
of the agreement include the Company paying $250,000 within ninety days of
the
agreement date, completing a 3-D seismic survey on the acreage within one
year
of signing, selecting an engineering firm to perform engineering studies
and to
prepare a development plan for the Burke Ranch Field, and the purchase of
certain equipment and completion of repairs on wells currently existing on
the
property within 30 days of closing.
The
Company also recently entered into an agreement with NITEC LLC to perform
reservoir engineering studies on the Company's Burke Ranch Field, as required
by
the agreement, in order to ascertain the field’s remaining recoverable
oil.
The
Broadview Dome Prospect
On
June
21, 2006, the Company acquired the Broadview Dome Prospect, located
approximately 25 miles northwest of Billings, Montana, in the Crazy Mountain
Basin. This natural gas prospect involves approximately 7,600 acres. Rancher
Energy holds a 100.00% working interest until payout, and 55.00% working
interest after payout.
Other
Subsequent Events
On
June
6, 2006, the Company entered into a loan agreement (with Enerex Capital Corp.
(“Enerex”) to borrow from Enerex Capital the principal amount of $150,000 (the
“$150K Loan”) for the Company’s working capital purposes to be repaid in full
plus two percent (2%) interest on the principal amount on or before June
30,
2006. The $150K loan agreement provides that Enerex has the option to convert
all or a portion of the $150K Loan into shares of common stock of the Company,
either (i) at a price per share equal to the closing price of the Company’s
shares on the NASDAQ on the day preceding notice from Enerex of its intent
to
convert all or a portion of the loan into shares of the Company, or (ii)
in the
event the Company is offering shares or units to the general public, at the
price such shares or units are being offered to the general public.
On
June
6, 2006, at the Wyoming BLM auction, the Company successfully bid for and
has
the right to acquire an additional 8,183 acres contiguous and/or adjacent
to its
Burke Ranch Field (the “BLM Leases”). The BLM Leases will be acquired for a
total cost of $143,237 or an average cost of approximately $16.00 an acre,
excluding first annual
rental payments of $12,275 and administration fees of $910, and the closing
is
expected to occur in approximately 90 days. The BLM Leases, together with
the
Burke Ranch Field’s original 1,921 acres, will increase the total acreage of the
Company’s Burke Ranch Field more than five times (5X) to 10,104 acres.
On
June
9, 2006, the Company entered into a loan agreement with Venture Capital First
LLC (“Venture Capital”) to borrow from Venture Capital the principal amount of
U.S. $500,000 (the “$500K Loan”) for the Company’s working capital purposes to
be repaid in full plus six percent (6%) interest on the principal amount
on or
before December 9, 2006. The $500K loan agreement provides that Venture Capital
has the option to convert all or a portion of the $500K Loan into shares
of
common stock of the Company, either (i) at a price per share equal to the
closing price of the Company’s shares on the NASDAQ on the day preceding notice
from Venture Capital of its intent to convert all or a portion of the loan
into
shares of the Company, or (ii) in the event the Company is offering shares
or
units to the general public, at the price such shares or units are being
offered
to the general public.
None.
Disclosure
Controls and Procedures.
Our
management, as required by Rule 13a-15(b) and Rule 15d-15(e) of the Securities
Exchange Act of 1934, the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, is responsible for establishing and
maintaining effective disclosure controls and procedures, as defined under
Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of March
31,
2006, an evaluation was performed under the supervision and with the
participation of our management, including the Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our design and
operation of the Company’s disclosure controls and procedures pursuant to Rule
13a-15 under the Securities Exchange Act of 1934 as of the year ending March
31,
2006. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of such
period, our disclosure controls and procedures are effective to provide
reasonable assurance that information we are required to disclose in reports
that we file or submit under the Exchange Act as of March 31, 2006 were
effective in ensuring information required to be disclosed in this Annual Report
on Form 10-K was recorded, processed, summarized, and reported on a timely
basis., and reported within the time periods specified in the SEC’s rules and
forms, and that such information was accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
None.
Directors
and Executive Officers.
Directors,
executive officers, and significant employees of the Company, and their
respective ages and positions with the Company, are as follows:
|
Name
|
|
Age
|
|
Position
|
|
John
Works
|
|
51
|
|
President,
Chief Executive Officer, Chief Financial Officer and a
director
|
|
Andrei
Stytsenko
|
40
|
Vice
President—Production and a director
|
||
|
|
|
JOHN
WORKS brings
over 23 years of experience in the global oil and gas industry as a corporate
executive, investment banker, and lawyer focusing on originating, structuring,
financing, and implementing domestic and international oil and gas projects.
Before
joining Rancher Energy, Mr. Works was the founder and Managing Director of
Emerging Markets Finance International, LLC (EMFI) of Denver, Colorado where
the
firm is positioned as a leading emerging markets international financial advisor
and arranger, with oil and gas projects as its core area of expertise. In 2005
Mr. Works served as President and Chief Operating Officer of American
International Depository and Trust, a specialized financial institution
providing foreign clients with traditional depository banking and trust services
as well as privacy and protection features typically provided by offshore
financial institutions and private banks. In 2001 Mr. Works served as Senior
Vice President and Head of International Producer Finance at Shell Capital,
The
Shell Group’s venture capital affiliate, in Houston, Texas. Prior to Shell
Capital, from 1999-2001 Mr. Works was President and CEO of The Rompetrol
Group in Bucharest, Romania, Romania's largest privately-owned oil and gas
company. From 1997-1999 Mr. Works was Senior Vice President and Deputy Head
of
Project Finance Advisory at the ABN Amro bank in Amsterdam, the Netherlands,
where he originated and executed international oil and gas project advisory
and
finance transactions involving the bank and capital markets, multilateral and
export credit agencies, and mergers and acquisitions. From 1996-1997 Mr. Works
was Vice President, Emerging Markets, Former Soviet Union, at J.P. Morgan's
investment banking unit in London, England where he was responsible for client
relationships and transaction execution for oil and gas projects in Russia
and
Central Asia. From 1990-1996 Mr. Works was Vice President and Legal Relationship
Manager in J.P. Morgan’s New York office for the bank’s business units involved
in U.S. and global project advisory and mergers and acquisitions assignments
where he assisted in analyzing, structuring, drafting, negotiating, and closing
U.S. and international mergers and acquisitions, divestitures, restructurings,
and recapitalizations.
Mr.
Works
began his career in 1982 as a corporate finance attorney with several Wall
Street firms including Shearman and Sterling and Cahill Gordon and Reindel
in
New York. Mr. Works was educated at the University of Denver College Of Law
(J.D. 1982), the Institut d'Etudes Politiques de Paris (Certificat d'Etudes
Politiques 1978), the Université de Paris-IV (Sorbonne) (Certificat de Langue
Française 1977), and the University of Kansas (B.A. 1977). Mr. Works is a U.S.
national and is fluent in English and French. He currently resides in Denver,
Colorado.
ANDREI
STYTSENKO was until
recently
the President and a Director of the mineral exploration company Metalex
Resources, Mr. Stytsenko previously was secretary and member of the board of
directors of Aberdene Mines Limited. From 1985 to 1996, Mr. Stytsenko was the
managing supervisor for Ivano Frankovski Drilling Company, located in North
Russia. Mr. Stytsenko’s responsibilities included exploratory oil and gas
drilling at depths in excess of up to 10,000 feet. From 1997 until 1998, Mr.
Stytsenko was field supervisor for Booker Gold Exploration where his
responsibilities included core loding, assaying, and mapping. Mr. Stytsenko
earned a certificate of Overhaul Well Drilling Operations from the Nadvirnyansk
Industrial Training Center in April 1993. In addition, Mr. Stytsenko obtained
a
Certificate of Contemporary Training for Production and Exploration Drilling
Operator. Further, Mr. Stytsenko completed a 5 year program, which by North
American Standards, is the equivalent to a Masters degree, receiving a diploma
in Mining/Drilling Engineering from the Ivano-Frankovski State Technical Oil
and
Gas University in Russia, specializing in Oil and Gas Well Drilling in June
1996.
All
directors serve as directors for a term of one year or until his successor
is
elected and qualified. All officers hold office until the first meeting of
the
board of directors after the annual meeting of stockholders next following
his
election or until his successor is elected and qualified. A director or officer
may also resign at any time.
Committees
of the Board of Directors.
At
present, the Company does not have an independent audit committee of its Board
of Directors. It is anticipated that independent board members will be appointed
and that an audit committee will be formed during the current fiscal year.
Code
of Ethics.
The
Company has adopted a Code of Ethics and Business Conduct (the “Code of Ethics”)
that applies to all of the officers, directors, and employees of the Company.
The Code of Ethics will, in the near future, be posted on our website
(www.rancherenergy.com).
We
will disclose on our website any future waivers of, or amendments to, our Code
of Ethics.
Compliance
with Section 16(a) of the Exchange Act.
Section
16(a) of the Securities Exchange Act of 1934 requires that the Company’s
directors and certain of its officers to file reports of ownership and changes
of ownership of the Company’s common stock with the SEC and NASDAQ. Based solely
on copies of such reports provided to the Company, the Company believes that
all
directors and officers filed on a timely basis all such reports required of
them
with respect to stock ownership and changes in ownership during fiscal year
2006.
The
following table sets forth information concerning the compensation received
by
Mr. Works and Mr. Stytsenko:
Summary
Compensation Table
|
|
|
Annual
Compensation
|
Long
Term Compensation
|
|||||
|
|
|
|
Awards
|
Payouts
|
|
|||
|
Name
and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual
Compen-
sation
($)
|
Restricted
Stock
awards
|
Securities
Underlying
Options
SARs
(#)
|
LTIP
Payouts
($)
|
All
Other
Compensation
|
|
John
Works, CEO
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Andrei
Stytsenko, Vice President
|
2006
2005
2004
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
Options/SARs
Grants During Last Fiscal Year.
There
were no options granted to the Company’s named executive officers during the
fiscal year ended March 31, 2006, however see “Employment Contract”
below.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value.
|
|
|
|
|
|
|
Number
of
|
|
|
|
||||
|
|
|
Shares
|
|
|
|
Securities
|
|
Value
of
|
|
||||
|
|
|
Acquired
|
|
|
|
Underlying
|
|
Unexercised
|
|
||||
|
|
|
On
|
|
Value
|
|
Unexercised
|
|
In-the-money
|
|
||||
|
Name
|
|
Exercise
|
|
Realized
|
|
Options
|
|
Options
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
John
Works
|
|
|
0
|
|
|
0
|
0(1)
|
$
|
0
|
|
|||
|
Andrei
Stytsenko
|
|
|
0
|
|
|
0
|
0
|
$
|
0
|
|
|||
__________________
(1) See
“Employment Contract” below
Employee
Pension, Profit Sharing, or Other Retirement Plans.
None.
Compensation
of Directors.
The
Company does not yet pay its directors any compensation for serving on the
Company’s board of directors.
Employment
Contract.
Subsequent
to March 31, 2006, on May 15, 2006, the Company entered into an employment
agreement (the “Works Employment Agreement”) with John Works wherein we engaged
Mr. Works as our president, chief executive officer, and a director. The term
of
the Works Employment Agreement is two years beginning May 15, 2006. We will
pay
Mr. Works $12,500 per month, reimburse Mr. Works for out-of-pocket expenses
incurred by him up to $10,000 per month, an automobile allowance of $400 per
month, and a parking allowance of $150 per month. Further, we will pay Mr.
Works
a minimum of $950 to maintain an office in Denver, Colorado. In addition to
the
foregoing, we have granted Mr. Works an option to acquire restricted shares
of
our common stock at a price of $0.00001 per share as follows: (i) 1,000,000
shares on the execution of the Works Employment Agreement, (ii) 1,000,000 shares
from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares per completed
quarter of service, (iii) 1,000,000 shares from June 1, 2007 to May 31, 2008
at
the rate of 250,000 shares per completed quarter of service, and (iv) 1,000,000
shares from June 1, 2008 to May 31, 2009 at the rate of 250,000 shares per
completed quarter of service. In the event the Works Employment Agreement is
terminated, Mr. Works will be entitled to purchase all shares that have vested,
and all unvested shares will be forfeited.
The
following table sets forth, as of June 20, 2006, the number of and percent
of
the Company’s common stock beneficially owned by persons or groups known by us
to own beneficially five percent or more of the Company’s common stock:
|
Name
and Address of Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership
|
|
Percent
of Class
|
|
|
|
|
|
|
|
John
Works, President and Chief Executive Officer
|
|
1,000,000
(direct)
|
|
3.4%
|
|
3445
South Columbine Circle
|
|
|
|
|
|
Englewood,
Colorado 80113
|
|
|
|
|
|
|
|
|
|
|
|
Andrei
Stytsenko
|
|
500,000
(direct)
|
|
1.7%
|
|
203-17711
64th
Avenue
|
|
|
|
|
|
Edmonton,
Alberta
|
|
|
|
|
|
Canada
T5T 2J9
|
|
|
|
|
|
Horatio
Valdes
|
|
1,750,000
(1)
|
|
5.9%
|
|
Calle
1RA Edificio Villa Gabriella Apt. 6-B
|
|
|
|
|
|
Panama
City, Republic of Panama
|
|
|
|
|
___________________
(1) The
Company has not received copies of Schedules 13-D or 13G filed by any person
indicating ownership of more than 5% of the Company’s securities. Based solely
on a June 20, 2006 stockholders' list, no holder other than Mr. Valdes is shown
as owning of record more than 5% of the Company’s securities, other than the
nominee CEDE & Co.
The
following table sets forth, as of June 20, 2006, the number of and percent
of
the Company’s common stock beneficially owned by (a) all directors and nominees,
naming them, (b) the named executive officers, and (c) the Company’s directors
and executive officers as a group, without naming them:
|
Name
and Address of Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership
|
|
Percent
of Class
|
|
|
|
|
|
|
|
John
Works
|
|
1,000,000
(direct)
|
|
3.4%
|
|
3445
South Columbine Circle
|
|
|
|
|
|
Englewood,
Colorado 80113
|
|
|
|
|
|
|
||||
|
Andrei
Stytsenko
|
|
500,000
(direct)
|
|
1.7%
|
|
203-17711
64th
Avenue
|
|
|
|
|
|
Edmonton,
Alberta
|
|
|
|
|
|
Canada
T5T 2J9
|
||||
|
|
||||
|
All
executive officers and
|
|
|
|
|
|
directors
as a group (2 persons)
|
|
1,500,000
|
|
5.1%
|
Transactions
Involving Mr. Works.
Subsequent
to March 31, 2006, on May 15, 2006, the Company entered into an employment
agreement with John Works (the “Works Employment Agreement”) wherein we engaged
Mr. Works as our president, chief executive officer, and a director. The term
of
the Works Employment Agreement is two years beginning May 15, 2006. We will
pay
Mr. Works $12,500 per month, reimburse Mr. Works for out-of-pocket expenses
incurred by him up to $10,000 per month, an automobile allowance of $400 per
month, and a parking allowance of $150 per month. Further, we will pay Mr.
Works
a minimum of $950 per month to maintain an office in Denver, Colorado. In
addition to the foregoing, we have granted Mr. Works an option to acquire
restricted shares of our common stock at a price of $0.00001 per share as
follows: (i) 1,000,000 shares on the execution of the Works Employment
Agreement, (ii) 1,000,000 shares from June 1, 2006 to May 31, 2007 at the rate
of 250,000 shares per completed quarter of service, (iii) 1,000,000 shares
from
June 1, 2007 to May 31, 2008 at the rate of 250,000 shares per completed quarter
of service, and (iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at
the
rate of 250,000 shares per completed quarter of service. In the event the Works
Employment Agreement is terminated, Mr. Works will be entitled to purchase
all
shares that have vested, and all unvested shares will be forfeited.
Audit
and Non-Audit Fees.
Aggregate
fees for professional services rendered for the Company by Williams and Webster,
P.S. as of or for the two fiscal years ended March 31, 2006 and 2005,
respectively, are set forth below:
|
|
|
Fiscal
Year
2006
|
|
Fiscal
Year
2005
|
|
||
|
|
|
|
|
||||
|
Audit
Fees
|
|
$
|
12,205
|
|
$
|
5,295
|
|
|
Audit-Related
Fees
|
|
-
|
|
-
|
|
||
|
Tax
Fees
|
|
-
|
|
-
|
|
||
|
T
|
|
$
|
12,205
|
|
$
|
5,295
|
|
Audit
Fees--Aggregate
fees for professional services rendered by Williams and Webster, P.S. in
connection with its audit of the Company’s consolidated financial statements for
the fiscal years 2006 and 2005 and the quarterly reviews of the Company’s
financial statements included in Forms 10-Q.
Audit-Related
Fees--These
were primarily related to SEC filings.
Tax
Fees--These
were related to tax compliance and related tax services.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of
Independent Auditors.
At
present the Company has no audit committee and the fees and nature of the
services of its registered independent public accountant are approved by the
Company’s board of directors.
(a) Financial
Statements and Financial Statement Schedules.
(1) Financial
Statements are set forth in Item 8 of this report.
(2) No
Financial Statement Schedules are included herein because such schedules are
not
applicable, are not required, or because the required financial information
is
included in the Financial Statements or notes thereon.
(b) Exhibits.
|
Exhibit
No.
|
Description
|
||
|
|
|
|
|
|
3.1
|
Articles
of Incorporation of Rancher Energy Corp.(1)
|
||
|
|
|
|
|
|
3.2
|
Bylaws
of Rancher Energy.(1)
|
||
|
4.1
|
Specimen
Stock Certificate.(1)
|
|
|
|
|
|
|
|
|
10.1
|
Employment
Agreement dated June 1, 2006 between Rancher Energy Corp. and John
Works.(2)
|
||
|
10.2
|
Broadview
Dome Prospect Exploration and Development Agreement dated June 15,
2006
between Big Snowy Resources and Rancher Energy Corp.
(2)
|
||
|
10.3
|
Burke
Ranch Unit Purchase and Participation Agreement dated February 6,
2006
between Hot Springs Resources LTD. and PIN Petroleum Partners
LTD.(2)
|
||
|
10.4a
|
$500K
Loan Agreement dated June 9, 2006 between Rancher Energy and Venture
Capital(3)
|
||
|
|
|
|
|
|
10.4b
|
$150K
Loan Agreement dated June 6, 2006 between Rancher Energy Corp. and
Enerex
Capital.(2)
|
||
|
|
|
|
|
|
10.5
|
Work
Study Contract with NITEC LLC dated June 7, 2006 between Rancher
Energy
Corp. and NITEC LLC.(2)
|
|
|
|
|
|
||
| 10.6 | PIN Resources Assignment dated June 21, 2006 of an agreement between PIN Resources and Hot Springs Resources, Ltd. dated February 6, 2006.(2) | ||
|
|
|
||
| 10.8 | PIN Resources Assignment dated June 6, 2006 of rights under an Exploration and Development Agreement dated June 15, 2006 with Big Snowy Resources, Inc.(2) | ||
|
14.1
|
Code of Ethics and Business Conduct.(4) | ||
| 31 |
Certification
by Chief Executive Officer and Chief Financial Officer pursuant to
Sarbanes-Oxley Section 302.(2)
|
||
| 32 |
Certification
by Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.
C. Section 1350.(2)
|
||
__________________
(1) Included
as an exhibit to Registration Statement No. 333-116307 on Form SB-2 filed by
the
registrant on June 7, 2005 and incorporated herein by reference.
(2) Filed
herewith.
(3) Included
as Exhibit 10.7 to Form 8-K filed by the registrant on June 9, 2006 and
incorporated herein by reference.
(4) Included
as Exhibit 14.1 to Form 10-KSB filed by the registrant on July 8,
2005.
(c) No
financial statements have been excluded pursuant to Rule
14a-3(b).
RANCHER
ENERGY CORP.
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
| RANCHER ENERGY CORP. | ||
| |
|
|
| Date: June 28, 2006 | By: | /s/ John Works |
|
John
Works, President, Principal Executive Officer, Secretary, Treasurer,
Principal Financial Officer,
and Principal
Accounting Officer
|
||
Pursuant
to the requirements of the Exchange Act, this report has been signed below
by
the following persons on behalf of the registrant and in the capacities and
on
the dates indicated.
| |
|
|
| Date: June 28, 2006 | By: | /s/ John Works |
|
John
Works, President, Principal Executive Officer, Secretary, Treasurer,
Principal Financial Officer,
and Principal Accounting
Officer
|
||
| |
|
|
| Date: June 28, 2006 | By: | /s/ Andrei Stytsenko |
|
Andrei
Stytsenko, a director
|
||
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
||
|
|
|
|
|
|
3.1
|
Articles
of Incorporation of Rancher Energy Corp.(1)
|
||
|
|
|
|
|
|
3.2
|
Bylaws
of Rancher Energy.(1)
|
||
|
4.1
|
Specimen
Stock Certificate.(1)
|
|
|
|
|
|
|
|
|
10.1
|
Employment
Agreement dated June 1, 2006 between Rancher Energy Corp. and John
Works.(2)
|
||
|
10.2
|
Broadview
Dome Prospect Exploration and Development Agreement dated June
15, 2006
between Big Snowy Resources and Rancher Energy Corp.
(2)
|
||
|
10.3
|
Burke
Ranch Unit Purchase and Participation Agreement dated February
6, 2006
between Hot Springs Resources LTD. and PIN Petroleum Partners
LTD.(2)
|
||
|
10.4a
|
$500K
Loan Agreement dated June 9, 2006 between Rancher Energy and Venture
Capital(3)
|
||
|
|
|
|
|
|
10.4b
|
$150K
Loan Agreement dated June 6, 2006 between Rancher Energy Corp.
and Enerex
Capital.(2)
|
||
|
|
|
|
|
|
10.5
|
Work
Study Contract with NITEC LLC dated June 7, 2006 between Rancher
Energy
Corp. and NITEC LLC.(2)
|
|
|
|
|
|
||
| 10.6 | PIN Resources Assignment dated June 21, 2006 of an agreement between PIN Resources and Hot Springs Resources, Ltd. dated February 6, 2006.(2) | ||
|
|
|
||
| 10.8 | PIN Resources Assignment dated June 6, 2006 of rights under an Exploration and Development Agreement dated June 15, 2006 with Big Snowy Resources, Inc.(2) | ||
|
14.1
|
Code of Ethics and Business Conduct.(4) | ||
| 31 |
Certification
by Chief Executive Officer and Chief Financial Officer pursuant
to
Sarbanes-Oxley Section 302.(2)
|
||
| 32 |
Certification
by Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.
C. Section 1350.(2)
|
||
__________________
(1) Included as an exhibit to Registration Statement No. 333-116307 on Form SB-2 filed by the registrant on June 7, 2005 and incorporated herein by reference.
(2) Filed
herewith.
(3) Included
as Exhibit 10.7 to Form 8-K filed by the registrant on June 9, 2006 and
incorporated herein by reference.
(4) Included
as Exhibit 14.1 to Form 10-K filed by the registrant on July 8,
2005.