The accompanying notes to the financial statements are an integral part of these statements.
1. Nature of Operations and Basis of Presentation
Nature of Operations
Alamo Energy Corp. is an early stage oil and gas company focused on exploration and production of oil and natural gas.
Alamo Energy Corp. (the Company) was incorporated as Alamo Oil Limited, a UK corporation (Alamo Oil) on September 1, 2009. On November 18, 2009 (the Closing Date), a series of transactions ensued whereby Alamo Oil completed an Asset Purchase and Sale Agreement (the Asset Purchase Agreement) with Green Irons Holdings Corporation (Green Irons). Following the closing of the Asset Purchase Agreement and pursuant to the Plan of Merger (the Merger), effective as of November 19, 2009, the assets of Alamo Oil were acquired by Green Irons and a wholly-owned subsidiary of Green Irons was then merged with Green Irons, and Green Irons changed its name to Alamo Energy Corp. For accounting purposes, the Asset Purchase Agreement and Merger was treated as a reverse merger and a recapitalization of Alamo Oil. As part of the Merger, the Company paid the former CEO of Green Irons $61,073 and assumed $18,792 of Green Irons’ liabilities associated with the merger in exchange for the cancellation of 138,499,980 (4,616,666 pre-split) shares of common stock held by Green Irons’ former CEO. The former CEO also agreed to forgive any debt due to him by the Company.
In addition, on the Closing Date, the Company acquired various oil and gas property rights in Texas valued at $300,000 in exchange for 10,500,000 (350,000 pre-split) shares of the Company’s common stock. Effective November 19, 2009, the Company effectuated a thirty-for-one split (the Stock Split) of the authorized number of shares of its common stock and all of its then-issued and outstanding common stock, par value $0.001 per share.
Basis of Presentation
The unaudited financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended October 31, 2010 are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further information, these unaudited financial statements and the related notes should be read in conjunction with the Company's audited financial statements as of April 30, 2010.
Exploration Stage
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America, and are expressed in United States dollars. The Company has not produced significant revenues from its principal business and is in the exploration stage company as defined by ASC 915, Development Stage Entities.
The Company is engaged in the acquisition, exploration, development and producing of oil and gas properties. As of October 31, 2010, the Company owns a 75% working interest in oil and gas properties in Frio County, Texas, a 16% working interest in certain oil and gas leases in Adair County, Kentucky, a 50% working interest in certain leases in Ritchie County, West Virginia, and farm-in and participation rights agreements in onshore oil and gas properties in the UK.
The Company’s success will depend in large part on its ability to obtain and develop oil and gas interests within the United States and other countries. There can be no assurance that oil and gas properties obtained by the Company will contain reserves or that properties with reserves will be profitable to extract. The Company will be subject to local and national laws and regulations which could impact our ability to execute our business plan.
As discussed in Note 6, the accompanying financial statements have been prepared assuming the Company will continue as a going concern.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.
Revenue Recognition
Working interest, royalty and net profits, are recognized as revenue when oil and gas are sold. The Company records the sale of its interests in prospects generally as a reduction to the cost pool without gain or loss recognition unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to a cost center. A significant alternation would typically involve a sale of 25% or more of the proved reserves related to a single full cost pool. All terms of the sale are to be finalized and price readily determinable.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. Accounts are guaranteed by Federal Deposit Insurance Corporation (FDIC) up to $250,000. At October 31, 2010, the Company had no deposits in excess of the FDIC insured limits. The Company has not experienced any losses in such accounts.
The Company collects its receivables on its working interests in oil and gas properties from the well operators. As such, the Company generally has relatively few customers. These receivables are unsecured and the Company performs ongoing credit evaluations of the well operators’ financial condition whenever necessary. Bad debt is recognized on an account-by-account review after all means of collection have been exhausted and recovery is not probable. There has been no bad debt expense for the period ended October 31, 2010.
Oil and Gas Properties
The Company follows the full cost method of accounting for its investments in oil and gas properties. Under the full cost method, all costs associated with the exploration of properties are capitalized into appropriate cost centers within the full cost pool. Internal costs that are capitalized are limited to those costs that can be directly identified with acquisition, exploration, and development activities undertaken and do not include any costs related to production, general corporate overhead, or similar activities. Cost centers are established on a country-by-country basis.
Capitalized costs within the cost centers are amortized on the unit-of-production basis using proved oil and gas reserves. The cost of investments in unproved properties and major development projects are excluded from capitalized costs to be amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such a determination is made, the properties are assessed annually to ascertain whether impairment has occurred. The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that the well is dry.
For each cost center, capitalized costs are subject to an annual ceiling test, in which the costs shall not exceed the cost center ceiling. The cost center ceiling is equal to i) the present value of estimated future net revenues computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus ii) the cost of properties not being amortized; plus iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less iv) income tax effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a cost center, less related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately disclosed during the period in which the excess occurs.
Fair Value of Financial Instruments
The Company has determined the estimated fair value of its financial instruments using available market information and appropriate valuation methodologies. Due to their short-term maturity, the fair value of financial instruments classified as current assets and current liabilities approximates their carrying values.
Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed in the same way as basic earnings (loss) per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive.
Recent Accounting Pronouncements
In May 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB issued ASU 2010-17, Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Fixed Assets
Fixed assets are carried at cost less a provision for depreciation on a straight-line basis over their estimated useful lives as follows:
Computer equipment
|
3 years
|
|
3. Fixed Assets
Fixed assets consist of the following:
|
|
September 30, 2010
|
|
|
April 30, 2010
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$ |
5,297 |
|
|
$ |
- |
|
Less: Accumulated depreciation
|
|
|
110 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,186 |
|
|
$ |
- |
|
4. Oil and Gas Properties
On November 18, 2009, the Company acquired various oil and gas property rights in Frio County, Texas, with a fair value of $300,000, in exchange for 10,500,000 (350,000 pre-split) shares of the Company’s common stock.
On March 4, 2010, the Company entered into an operating agreement (the “Operating Agreement”) with Boardman Energy Partners, LLC (“Boardman”), for the purchase of participation rights with regard to Boardman’s operation of wells in the Taylor TDS Five Well Program (“Program”) located on the H.V. Taylor Lease in the Middle Eastern section of the Gradyville Quadrangle, Adair County, Kentucky, for the purpose of oil and gas exploration and development. Boardman is the operator of the project with full control of all operations. The Operating Agreement provides for the Company's purchase of fractional undivided working interests (“Units”) in the operation of the wells drilled and operated under the Operating Agreement. Each Unit gives the purchaser the participation rights and revenue interests in the operation of the Program, at the rate of 2.0% working interest and 1.5% net revenue interest per Unit purchased.
The Operating Agreement is subject to an Addendum (Operating Agreement Addendum), referencing the incorporation of the subscription agreement concerning the purchase of the participation rights set forth in the Operating Agreement. The Operating Agreement Addendum sets forth the representation Boardman had met the escrow conditions as of September 12, 2009 such that the funds received from the Company would be immediately available for use.
In conjunction with the Operating Agreement, the Company entered into a Subscription and Customer Agreement (“Subscription Agreement”) with Third Coast Energy & Development, LLC, (“Third Coast”) as consideration for the Company's participation in the Operating Agreement, in the amount of $303,986. The Company purchased eight Units at the rate of $37,996 per Unit in the Program described above. The Units have not been registered with any federal or state agency, and in accordance with applicable securities laws, may not be freely transferred except in accordance with such laws.
In May 2010, the Company entered into a participation agreement with Allied Energy, Inc. (“Allied”), pursuant to which the Company acquired an undivided 50% working interest in the Florence Valentine Lease and a working interest and net revenue interest in the Valentine #1 re-entry well. This well is located on approximately 115 acres in Ritchie County, West Virginia within the Burning Springs Anticline. Allied is the operator of the project with full control of all operations. The Company paid the total drilling and completion costs of $153,500 to earn in the Valentine #1 re-entry well and the Florence Valentine lease a before payout working interest of 70% and net revenue interest of 59.08 (70% x 84.4%) and an after payout working interest of 50% and net revenue interest of 42.2% (50% x 84.4%).
On August 4, 2010, The Company entered into a Participation Agreement (the “Agreement”) with Allied Energy, Inc. (“Allied”), which the Company acquired an undivided fifty percent (50%) working interest in the M. Dillon Lease (the “Lease”) and a working interest and net revenue interest in the Dillon #1 re-entry well (“Well”). The Well is located on approximately 204 acres in Pleasants County, West Virginia. Allied is the operator of the project with full control of all operations. The Company paid the total drilling and completion costs of $179,125 to earn in the Well and Lease a before payout working interest of seventy percent (70%) and net revenue interest of 59.08 (70% x 84.4%) and an after payout working interest of fifty percent (50%) and net revenue interest of 42.2% (50% x 84.4%). The Agreement also provides that the Company shall have the option to participate in the re-entry of sixteen additional wells owned by Allied in West Virginia.
On September 3, 2010, the Company entered into a Subscription Agreement (the “Agreement”) with Berry Resources, Inc. (“Berry”), to purchase 6.5 units of the Berry Prospect #22-A, which includes two (2) wells to be drilled in North Central, Pickett County, Tennessee, in exchange for the Company’s cash payment of $97,500. Each unit is equal to approximately 3.33% working interest or approximately 2.33% net revenue interest in each of the two (2) wells to be drilled in North Central, Pickett County, Tennessee. The Agreement also provides for Berry and the Company to enter into an operating agreement whereby Berry will be designated the operator of the well.
The following table presents information regarding the Company’s net costs incurred in the purchase of proved and unproved properties and in exploration and development activities:
|
|
October 31,
2010
|
|
|
April 30,
2010
|
|
Property acquisition costs:
|
|
|
|
|
|
|
Proved
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Unproved
|
|
|
769,940
|
|
|
|
303,968
|
|
Exploration costs
|
|
|
110,646
|
|
|
|
39,361
|
|
Development costs
|
|
|
-
|
|
|
|
-
|
|
Totals
|
|
$
|
1,180,586
|
|
|
$
|
643,329
|
|
As of October 31 and April 30, 2010, the Company’s unproved properties consist of leasehold acquisition and exploration costs in the following geographical areas:
|
|
October 31,
2010
|
|
|
April 30,
2010
|
|
Kentucky
|
|
$
|
303,968
|
|
|
$
|
303,968
|
|
West Virginia
|
|
|
332,625
|
|
|
|
-
|
|
Tennesee
|
|
|
97,500
|
|
|
|
-
|
|
Texas
|
|
|
35,847
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
769,940
|
|
|
$
|
300,968
|
|
The following table sets forth a summary of oil and gas property costs not being amortized as of October 31, 2010, by the year in which such costs were incurred:
Costs Incurred During Fiscal Years Ended April 30
|
|
|
|
Balance
10/31/10
|
|
|
2011
|
|
|
2010
|
|
|
Prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs
|
|
$
|
437,315
|
|
|
$
|
133,347
|
|
|
$
|
303,968
|
|
|
$
|
-
|
|
Exploration costs
|
|
|
332,625
|
|
|
|
332,625
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
769,940
|
|
|
$
|
465,972
|
|
|
$
|
303,968
|
|
|
$
|
-
|
|
The Company believes that the majority of its unproved costs will become subject to depletion within the next five to ten years, by proving up reserves relating to the acreage through exploration and development activities, by impairing the acreage that will expire before the Company explore or develop it further, or by making decisions that further exploration and development activity will not occur.
4. Senior Secured Convertible Promissory Note and Warrants
In connection with the Asset Purchase Agreement, on November 18, 2009, the Company entered into a Note and Warrant Purchase Agreement with one investor pursuant to which the investor agreed to lend up to $2,000,000 to the Company in multiple installments in exchange for senior secured convertible promissory notes (the Notes) that mature November 18, 2012, convertible at any time at the option of the holder, with a conversion price of $0.50 per share (the Conversion Feature) and five-year warrants to acquire shares of common stock at an exercise price of $1.00 per share (the Warrants) in the amount of each installment.
Post-delivery of the Note and Warrant Purchase Agreement, the Company effectuated a thirty-for-one split (the Stock Split) of the authorized number of shares of its common stock and all of its then-issued and outstanding common stock, par value $0.001 per share. The Note and Warrant Purchase Agreement provides that the Note and Warrants issued in exchange for the First Installment will not be affected by the Stock Split and any future installments shall be treated on a post-Stock Split basis.
In connection with the Private Placement, the Company entered in a Registration Rights Agreement with the investor. Under the Registration Rights Agreement, the Company is obligated to register for resale all common shares underlying the Note and the Warrants under the Securities Act. The Company also entered security agreement with the investor to secure the timely payment and performance in full of our obligations whereby all of the assets of the Company were pledged as collateral on the Note. In addition, the investor required the Company’s officers and directors to enter into lock-up and vesting agreements pursuant to which such holders’ shares are subject to vesting and are not permitted to dispose of any of their securities for a period of one year.
The first installment of $334,905 (First Installment) was delivered on the Closing Date and the Company issued 334,905 Warrants. The Note and Warrant Purchase Agreement provides that the investor will lend additional installments to the Company in amounts as requested by the Company; provided however, that the Company provide the proposed use of proceeds for each requested amount. Each proposed use of proceeds for each requested amount shall specify that the majority of the proceeds shall be used for the acquisition of low risk oil and gas rights in geographic regions with stable governments. The investor shall have sole discretion in determining whether the proposed use of proceeds meets those requirements.
The Company allocated the proceeds of the Note, Conversion Feature and Warrants to the individual financial instruments included in the transactions based on their relative estimated fair values, which resulted in an initial discount on the Note totaling $170,936 which is accreted as interest expense - debt discount over the period of the Note.
On February 5, 2010, the Company entered into the second installment of the Note and Warrant Purchase Agreement with the investor for $80,000. The promissory note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The promissory note has an optional conversion feature by which the investor can convert the principal and accrued interest into shares of the Company’s common stock at a conversion price of $0.50 per share. In connection with the above mentioned promissory note, the investor also received warrants to purchase 80,000 shares of the Company's common stock at a purchase price of $1.00 per share. The warrants are exercisable immediately and expire five years from the date of the investment.
On March 4, 2010, we entered into the fourth installment of the Note and Warrant Purchase Agreement with the investor for $300,000. The promissory note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The promissory note has an optional conversion feature by which the investor can convert the principal and accrued interest into shares of the Company's common stock at a conversion price of $0.50 per share. In connection with the above mentioned promissory note, the investor also received warrants to purchase 300,000 shares of the Company's common stock at a purchase price of $1.00 per share. The warrants are exercisable immediately and expire five years from the date of the investment.
On March 25, 2010, we entered into the fifth installment of the Note and Warrant Purchase Agreement with the investor for $100,000. The promissory note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The promissory note has an optional conversion feature by which the investor can convert the principal and accrued interest into shares of the Company's common stock at a conversion price of $0.50 per share. In connection with the above mentioned promissory note, the investor also received warrants to purchase 100,000 shares of the Company's common stock at a purchase price of $1.00 per share. The warrants are exercisable immediately and expire five years from the date of the investment.
On April 15, 2010, we entered into the sixth installment of the Note and Warrant Purchase Agreement with the investor for $250,000. The promissory note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The promissory note has an optional conversion feature by which the investor can convert the principal and accrued interest into shares of the Company's common stock at a conversion price of $0.50 per share. In connection with the above mentioned promissory note, the investor also received warrants to purchase 250,000 shares of the Company's common stock at a purchase price of $1.00 per share. The warrants are exercisable immediately and expire five years from the date of the investment.
On July 22, 2010, we entered into the seventh installment of the Note and Warrant Purchase Agreement with the investor for $175,000. The promissory note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The promissory note has an optional conversion feature by which the investor can convert the principal and accrued interest into shares of the Company's common stock at a conversion price of $0.50 per share. In connection with the above mentioned promissory note, the investor also received warrants to purchase 175,000 shares of the Company's common stock at a purchase price of $1.00 per share. The warrants are exercisable immediately and expire five years from the date of the investment.
On August 12, 2010, the Company entered into a senior secured convertible promissory note with Eurasian Capital Partners Limited (“Eurasian”) in exchange for $25,000 (“Note”). The Note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The Note has an optional conversion feature by which Eurasian can convert the principal and accrued interest into shares of the Company’s common stock at a conversion price of $0.50 per share. In connection with the Note, Eurasian also received warrants to purchase twenty five thousand (25,000) shares of the Company’s common stock at a purchase price of $1.00 per share (“Warrants”). The Warrants expire five years from the date of the investment.
On August 18, 2010, the Company entered into a senior secured convertible promissory note with Eurasian Capital Partners Limited (“Eurasian”) in exchange for $150,000 (“Note”). The Note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The Note has an optional conversion feature by which Eurasian can convert the principal and accrued interest into shares of the Company’s common stock at a conversion price of $0.50 per share. In connection with the Note, Eurasian also received warrants to purchase one hundred fifty thousand (150,000) shares of the Company’s common stock at a purchase price of $1.00 per share (“Warrants”). The Warrants expire five years from the date of the investment.
On September 7, 2010, The Company borrowed an additional $70,000 from Eurasian Capital Partners Limited (“Eurasian”) pursuant to the original $2,000,000 Note and Warrant Purchase Agreement with Eurasian entered into in November 2009. The Company issued a senior secured convertible promissory note to Eurasian in the amount of $70,000 (“Note”). The Note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The Note has an optional conversion feature by which Eurasian can convert the principal and accrued interest into shares of the Company’s common stock at a conversion price of $0.50 per share. In connection with the Note, Eurasian also received warrants to purchase seventy thousand (70,000) shares of the Company’s common stock at a purchase price of $1.00 per share (“Warrants”). The Warrants expire five years from the date of the investment.
On September 24, 2010, The Company borrowed an additional $40,000 from Eurasian Capital Partners Limited (“Eurasian”) pursuant to the original $2,000,000 Note and Warrant Purchase Agreement with Eurasian entered into in November 2009. The Company issued a senior secured convertible promissory note to Eurasian in the amount of $40,000 (“Note”). The Note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The Note has an optional conversion feature by which Eurasian can convert the principal and accrued interest into shares of the Company’s common stock at a conversion price of $0.50 per share. In connection with the Note, Eurasian also received warrants to purchase seventy thousand (40,000) shares of the Company’s common stock at a purchase price of $1.00 per share (“Warrants”). The Warrants expire five years from the date of the investment.
5. Equity
Warrant Activity
A summary of warrant activity for the period from September 1, 2009 (inception) through October 31, 2010 is presented below:
|
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contract Term
|
|
|
Outstanding September 1, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Issued
|
|
|
1,524,905
|
|
|
$
|
1.00
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Outstanding October 31, 2010
|
|
|
1,524,905
|
|
|
$
|
1.00
|
|
4.6 years
|
|
|
Exercisable, October 31, 2010
|
|
|
1,524,905
|
|
|
$
|
1.00
|
|
4.6 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Reserved for Future Issuance
The Company has reserved shares for future issuance upon conversion of convertible notes payable and warrants as follows:
|
Conversion of notes payable
|
3,130,894
|
|
|
Warrants
|
1,524,905
|
|
|
Reserved shares at October 31, 2010
|
4,655,799
|
|
6. Commitments and Contingencies
Going Concern
The Company is in the exploration stage, has little revenue, and has incurred net losses of $971,147 since inception. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's management is implementing plans to sustain the Company’s cash flow from operating activities and/or acquire additional capital funding. The Company will also continue to borrow funds under the November 18, 2009 Note and Warrant Purchase Agreement. No assurances can be given that the Company will obtain to obtain sufficient working capital to sustain ongoing operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Lease Obligations
At October 31, 2010, the Company does not have any leases. The Company uses office space with a value of $500 per month that is contributed by the Company's CEO.
7. Subsequent Events
On December 2, 2010, the Company borrowed an additional $25,000 from Eurasian Capital Partners Limited (“Eurasian”) pursuant to the original $2,000,000 Note and Warrant Purchase Agreement with Eurasian entered into in November 2009. The Registrant issued a senior secured convertible promissory note to Eurasian in the amount of $25,000 (“Note”). The Note is due on November 18, 2012, or upon default, whichever is earlier, and bears interest at the annual rate of 8%. The Note has an optional conversion feature by which Eurasian can convert the principal and accrued interest into shares of the Registrant’s common stock at a conversion price of $0.50 per share.