APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 15, 2010, 123,245,000 shares of common stock, $0.01 par value, were outstanding.
Table of Contents
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Part I. Financial Information
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Item 1. Financial Statements (unaudited)
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Consolidated Balance Sheets at June 30, 2010 and December 31, 2009 (unaudited)
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2
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Consolidated Statements of Expenses for the Three Months and Six Months Ended June 30, 2010 and 2009 and the Cumulative Period from January 1, 2009 through June 30, 2010 (unaudited)
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3
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 and the Cumulative Period from January 1, 2009 through June 30, 2010 (unaudited)
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4
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Notes to Consolidated Financial Statements (unaudited)
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5
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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6
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Item 4T. Controls and Procedures
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10
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Part II. Other Information
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Item 1. Legal Proceedings
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10
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Item 1A. Risk Factors
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10
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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10
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Item 6. Exhibits
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11
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Signatures
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11
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Part I Financial Information
Item 1. Financial Statements
ASHERXINO CORPORATION
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30,
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December 31,
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2010
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2009
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ 6,977
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$ 16,285
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Total current assets
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6,977
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16,285
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Long term assets
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Oil and Gas Asset, accounted for under the Full Cost method of accounting, Unevaluated property excluded from amortization
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53,750
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53,750
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Total assets
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$ 60,727
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$ 70,035
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LIABILITIES AND SHAREHOLDERS' DEFICIT
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Current liabilities:
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Accrued liabilities
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$238,157
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$ 231,841
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Notes payable, net of discount of $11,440
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18,560
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-
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Indebtedness to related party
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75,048
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58,815
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Total current liabilities
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331,765
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290,656
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Commitments and contingencies
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Shareholders' Deficit:
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Common stock, $0.01 par value. Authorized 300,000,000; 123,245,000 and 121,000,000 issued and outstanding
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1,232,450
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1,210,000
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Additional paid-in capital
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8,572,150
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8,411,100
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Accumulated deficit
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(9,420,587)
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(9,420,587)
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Deficit accumulated after entering the exploration stage
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(655,051)
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(421,134)
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Total shareholders' deficit
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(271,038)
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(220,621)
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Total liabilities and shareholders' deficit
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$ 60,727
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$ 70,035
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ASHERXINO CORPORATION
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF EXPENSES
(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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Cumulative Period from January 1, 2009through June 30, 2010
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2010
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2009
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2010
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2009
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General and administrative expenses:
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Legal and consulting
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$
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171,423
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$
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97,851
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$
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171,423
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$
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104,851
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$
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362,260
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Travel
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779
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127
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9,877
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177
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84,533
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Other
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28,896
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24,377
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41,518
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59,351
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192,211
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Total general and administrative expenses
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201,098
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122,355
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222,818
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164,379
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639,004
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Loss from operations
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(201,098)
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(122,355)
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(222,818)
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(164,379)
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(639,004)
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Net realized loss from sale of trading securities
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-
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-
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-
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(1,958)
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(1,958)
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Interest expense
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(5,579)
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(33)
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(11,099)
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(33)
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(14,089)
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Loss before income taxes
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(5,579)
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(33)
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(11,099)
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(1,991)
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(16,047)
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Net loss
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$
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(206,677)
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$
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(122,388)
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$
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(233,917)
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$
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(166,370)
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$
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(655,051)
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Basic and diluted loss per common share
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$
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(0.00)
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$
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(0.00)
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$
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(0.00)
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$
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(0.01)
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Weighted average common shares outstanding (basic and diluted)
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121,754,440
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31,000,000
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121,359,696
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21,781,232
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ASHERXINO CORPORATION
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended
June 30,
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Cumulative Period from January 1, 2009 through June 30, 2010
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2010
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2009
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$
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(233,917)
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$
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(166,370)
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$
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(655,051)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation, depletion and amortization
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-
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525
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2,306
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Common stock issued for services
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171,500
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12,647
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184,147
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Amortization of discount
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560
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-
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560
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Realized loss on trading securities
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-
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1,958
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1,958
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Changes in operating assets and liabilities:
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Accounts payable
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6,316
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114,176
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238,157
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Net cash provided by (used in) operating activities
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(55,541)
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(37,064)
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(227,923)
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CASH FLOWS FROM INVESTING ACTIVITIES
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Proceeds from sale of investments
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15,436
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Net cash provided by investing activities
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-
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15,436
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15,436
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from indebtedness to related party
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23,983
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17,900
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93,462
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Payments on indebtedness to related party
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(7,750)
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-
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(7,750)
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Proceeds from notes payable
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18,000
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-
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18,000
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Proceeds from sale of common stock
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12,000
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-
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112,000
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Net cash provided by financing activities
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46,233
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17,900
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215,712
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Net increase (decrease) in cash
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(9,308)
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(3,728)
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3,225
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Cash at beginning of period
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16,285
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3,752
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3,752
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Cash at end of period
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$
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6,977
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$
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24
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$ |
6,977
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SUPPLEMENTAL DISCLOSURES
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Interest paid in cash
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$
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-
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$
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-
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Income taxes paid in cash
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$
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-
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$
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-
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ASHERXINO CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The unaudited consolidated financial statements of AsherXino Corporation have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report filed with the SEC on Form 10-K on April 15, 2010. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended December 31, 2009, as reported on Form 10-K, have been omitted.
Note 2 – Going Concern
As reflected in the accompanying financial statements, we had a working capital deficit of $324,788, negative cash flows from operations of $55,541, and an accumulated deficit of $10,075,638, at June 30, 2010, which raise substantial doubt about our ability to continue as a going concern. Management plans to raise funds through the issuance of debt or the sale of common stock.
Our ability to continue as a going concern is dependent on our ability to raise capital through the issuance of debt or the sale of common stock. If we do not raise capital sufficient to fund our business plan, AsherXino may not survive. The financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.
Note 3 – Notes Payable
During June 2010, we executed two notes payable agreements and received $15,000 in proceeds for each agreement. Each investor received a notes payable with a face value of $15,000 which matures one year from the date of issuance and has a stated interest rate of 18% and as part of the purchase agreement each investor also received 100,000 shares of our common stock. We measured the fair value of the notes payable and the common stock on the date of commitment and allocated the proceeds received between the notes payable and common stock based on their relative fair values of the respective instruments which resulted in the following allocation:
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Equity
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$ 12,000
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Debt
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18,000
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Total
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$ 30,000
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The discount arising from this transaction was recorded at the inception of the notes and is amortized using the effective interest rate method over the life of the notes, 12 months. The effective interest rate of the notes is 76%.
Note 4 - Equity
During the six months ended June 30, 2010, we issued 2,045,000 shares of common stock for services. Because there was no public market for our common stock at the time of issuance, the stock was valued at fair value of $.10 per share using the most recent sales price of stock to a private investor.
As discussed above in Note 3, during the six months ended June 30, 2010, we issued 200,000 shares of common stock to investors in conjunction with notes payable.
Note 5 – Related Party Transactions
From time to time, our officers and directors advance funds to us for working capital and receive repayments of such funds. As of June 30, 2010 and December 31, 2009, respectively, the total amount due to related parties was $75,048 and $58,815 is unsecured, bears no interest and is due on demand.
Note 6 – Subsequent Events
In July 6, 2010 we entered into an equity line of credit agreement with an investor, Dutchess Opportunity Fund II, LP. Under the terms of the agreement, Dutchess must purchase, when we furnish a put notice to them, up to 35,000,000 shares of our common stock at 95% of the volume weighted average price for the five days prior to the put date. The number of shares puttable at any given time is 200% of average daily volume for 3 prior trading days times average three day closing price of common stock prior to the notice date or shares resulting in proceeds of $500,000. We are obligated to register 35,000,000 shares under the agreement and we may not put shares to Dutchess until the registration statement is effective. In conjunction with the agreement, we paid Dutchess $5,000. In July 2010, we paid Dutchess an additional $5,000, which were expensed as incurred.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
The Company is including the following cautionary statement to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. This quarterly report on Form 10-Q contains “forward looking statements” (as that term is defined in Section 27A(i)(1) of the Securities Act of 1933), including statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Such forward looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward looking statements. Some of the factors that could cause actual results to differ materially from those expressed in such forward looking statements are set forth in the section entitled “Risk Factors” and elsewhere throughout this Form 10-Q. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, but there can be no assurance that our expectations, beliefs or projections will result or be achieved or accomplished. We have no obligation to update or revise forward looking statements to reflect the occurrence of future events or circumstances.
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Since we had no business operations from 2003 until our acquisition of the Asher Assets in June 2009 and because we are an exploration stage company and therefore have no income from operations, this discussion involves only the plan of operation.
In June 2009, our Board of Directors decided to enter into the business of owning and operating oil and gas assets by acquiring certain oil related assets. Our immediate objective is to create value from the production and exploration opportunities in our significant working interest in OPL 2012 by embarking on a work program that will include drilling operations and the hiring of about fifty to one hundred full-time employees. We intend to finance its operations through a combination of debt and equity financing. In addition, management may decide to farm-out or sell some of our interest in OPL 2012 to finance the development of the block. We also intend to acquire additional leaseholds in and operatorships of offshore blocks in Nigeria and Ghana. In the long term, we aim to acquire and exploit the prolific oil and gas deposits across the Gulf of Guinea and worldwide.
We currently have few capital resources and we are unlikely to generate significant revenues for some time. This raises substantial doubt about our ability to continue as a going concern. See Note 2 to our Financial Statements in Item 1. Without realization of additional capital, it would be unlikely that we could continue as a going concern. However, management has been in discussions with several financial institutions (i.e. banks, private equity funds, sovereign funds, energy companies and other corporate entities) to procure funding for the development of OPL 2012 through the issuance of debt and/or equity. Based on these discussions management anticipates obtaining sufficient funding to perform our obligations related to OPL 2012 over the next year.
Management is in the process of concluding financing arrangements with financial institutions in Nigeria who are finalizing their due diligence and economic modeling for the project. Management anticipates raising sufficient funds to pay the $12,500,000 signature bonus to the Nigerian government and the $10,000,000 farm-in fee to our local partner in the near future.
Upon the payment of the signature bonus, the development of OPL 2012 will take place in two phases over a three year period, as discussed in our Form 10-K filed on April 15, 2010.
Results of Operations
Our expenses, and loss from operations, increased approximately 64%, from $122,355 to $201,098 during the three months ended June 30, 2009 and June 30, 2010, respectively. Our expenses for the three months ended June 30, 2010 consisted mainly of stock awards to consultants. Our expenses for the three months ended June 30, 2009 consisted mainly of legal and professional cost associated with the preparation and filing of a registration statement. The increase was mainly attributable to the increased consulting fees.
Our expenses, and loss from operations, increased approximately 36%, from $164,379 to $222,818 during the six months ended June 30, 2009 and June 30, 2010, respectively. Our expenses for the six months ended June 30, 2010 consisted mainly of stock awards to consultants. Our expenses for the three months ended June 30, 2009 consisted mainly of legal and professional cost associated with the preparation and filing of a registration statement. The increase was mainly attributable to the increased consulting fees.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated and combined financial statements in this report using accounting principles that are generally accepted in the United States (“GAAP”). GAAP represents a comprehensive set of accounting and disclosure rules and requirements. We must make judgments, estimates, and in certain circumstances, choices between acceptable GAAP alternatives as we apply these rules and requirements. The most critical estimate we make is the engineering estimate of proved oil and gas reserves. This estimate affects the application of the successful efforts method of accounting, the calculation of depreciation, depletion, and amortization of oil and gas properties and the estimate of the impairment of our oil and gas properties. It also affects the estimated lives used to determine asset retirement obligations. In addition, the estimates of proved oil and gas reserves are the basis for the related standardized measure of discounted future net cash flows.
Revenue Recognition
We recognize oil and gas revenue from interests in producing wells as the oil and gas is sold. Revenue from the purchase, transportation, and sale of natural gas is recognized upon completion of the sale and when transported volumes are delivered. We recognize revenue related to gas balancing agreements based on the entitlement method.
Oil and Gas Exploration and Development
Oil and gas exploration and development costs are accounted for using the full cost method of accounting.
Oil and Natural Gas Properties
We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center on a country by country basis. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.
Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization. We evaluate unevaluated properties for impairment at least annually.
Capitalized costs included in the amortization base are depleted using the units of production method based on proved reserves. Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.
The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.
Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.
Asset Retirement Obligations and Environmental Costs
We record the fair value of legal obligations to retire and remove long-lived assets in the period in which the obligation is incurred (typically when the asset is installed at the production location). When the liability is initially recorded, we capitalize this cost by increasing the carrying amount of the related properties, plants and equipment. Over time the liability is increased for the change in its present value, and the capitalized cost in properties, plants and equipment is depreciated over the useful life of the related asset.
Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and do not have a future economic benefit, are expensed. Liabilities for environmental expenditures are recorded on an undiscounted basis (unless acquired in a purchase business combination) when environmental assessments or cleanups are probable and the costs can be reasonably estimated. Recoveries of environmental remediation costs from other parties, such as state reimbursement funds, are recorded as assets when their receipt is probable and estimable.
Liquidity and Capital Resources
As a new company with plans for major development activity, we will be reliant upon funding to fully implement our business plans and expand our business. There can be no assurance that we will be able to obtain the necessary funding on commercially reasonable terms in a timely fashion, especially given the current global economy. Failure to receive the funding could have a material adverse effect on our business, prospects, and financial condition.
We intend to raise financing in the form of floating rate indebtedness and/or equity to pay the $12,500,000 signature bonus and $10,000,000 farm-in fee for our leasehold interest in Oil Prospecting License (OPL) 2012, and we expect to require further debt and/or equity financing in the amount of $218,000,000 to $262,500,000 to exploit OPL 2012. Accordingly, if market interest rates (principally LIBOR) rise, our financing expenses could increase which could have an adverse effect on our results of operations and financial condition. The size of our indebtedness may restrict our growth. We will need to use a portion of our cash flow to pay principal and interest on such indebtedness, which may delay or even prevent us from pursuing certain new business opportunities. Some loan agreements may contain restrictive covenants which may impair our operating flexibility. Failure to meet certain financial covenants could cause us to violate the terms of loan agreements obtained in the future, if any, and thereby result in acceleration of our indebtedness, impair our liquidity and limit our ability to raise additional capital. Our failure to make required debt payments could result in an acceleration of our indebtedness, and, if unpaid, a judgment in favor of such lender would be senior to the rights of holders of our common stock. A judgment creditor would have the right to foreclose on any of our assets resulting in a material adverse effect on our business, operating results or financial condition and the possible loss of all value in our common stock.
As reflected in the accompanying financial statements, we had a working capital deficit and an accumulated deficit at June 30, 2010, which raise substantial doubt about our ability to continue as a going concern. Management plans to raise funds through the issuance of debt or the sale of common stock.
Our ability to continue as a going concern is dependent on our ability to raise capital through the issuance of debt or the sale of common stock. If we do not raise capital sufficient to fund our business plan, AsherXino may not survive. The financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.
Item 4T. Controls and procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of certain members of our management, including our Chief Executive Officer and interim Chief Financial Officer, we completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In light of the material weaknesses discussed below, which have not been fully remediated as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and interim Chief Financial Officer concluded, after the evaluation described above, that our disclosure controls were not effective. As a result of this conclusion, the consolidated financial statements for the period covered by this report were prepared with particular attention to the material weaknesses previously disclosed. Accordingly, management believes that the consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented.
Internal Control over Financial Reporting
In connection with our evaluation of our disclosure controls and procedures that occurred during our last fiscal quarter, we identified no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
For information regarding our legal proceedings see Item 3 of our Annual Report on Form 10-K filed on April 15, 2010. There have been no material changes from the risk factors previously disclosed in such Annual Report.
Item 1A. Risk Factors
For information regarding our risk factors see the risk factors disclosed in Item 1A of our registration Annual Report on Form 10-K filed on April 15, 2010. There have been no material changes from the risk factors previously disclosed in such Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During June 2010, we sold 200,000 shares of unregistered common stock to two private investors. These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter, in these transactions. The transactions did not involve a public offering. The investors had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities. The investors were knowledgeable about our operations and financial condition.
During June 2010, we issued 2,045,000 shares of unregistered common stock to five consultants. These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter, in these transactions. The transactions did not involve a public offering. The consultants had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities. The consultants were knowledgeable about our operations and financial condition.
Item 6. Exhibits
Exhibit 31.1 - Certification of Chief Executive Officer of AsherXino Corporation required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification of Chief Financial Officer of AsherXino Corporation required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 - Certification of Chief Executive Officer of AsherXino Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
Exhibit 32.2 - Certification of Chief Financial Officer of AsherXino Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.