Investment
in our common stock involves a high degree of risk. You should consider the
following discussion of risks as well as other information in this prospectus.
The risks and uncertainties described below are not the only ones. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial also may impair our business operations. If any of the following
risks actually occur, our business could be harmed. In such case, the trading
price of our common stock could decline.
Except
for historical information, the information contained in this prospectus are
"forward-looking" statements about our expected future business and performance.
Our actual operating results and financial performance may prove to be very
different from what we might have predicted as of the date of this
prospectus.
Risks
Related To Index’s Financial Results
Index
is at an early stage of development and has a limited operating
history.
Index
was
formed in 2003 operating as a private company, Index Ltd, formed under the
laws
of the United Kingdom and through which entity operations were conducted prior
to the revere merger which occurred in 2006. As of the date of this Prospectus,
Index has a limited operating history upon which you can base an evaluation
of
its business and prospects. As a start-up company in the early stage of
development, there are substantial risks, uncertainties, expenses and
difficulties Index is subject to. You should consider an investment in Index
in
light of these risks, uncertainties, expenses and difficulties. To address
these
risks and uncertainties, Index must do the following:
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Successfully
execute its business strategy;
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Continue
to develop its oil exploration and production
assets;
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Respond
to competitive developments; and
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Attract,
integrate, retain and motivate qualified
personnel.
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Index
may
be unable to accomplish one or more of these objectives, which could cause
its
business to suffer. In addition, accomplishing one or more of these objectives
might be very expensive, which could harm its financial results. As a result,
there can be no assurance that Index will be successful in its oil and gas
activities. Index’s future performance will depend upon its management and their
ability to locate and negotiate additional oil and gas opportunities in which
it
is solely involved or participate in as a project partner. There can be no
assurance that it will be successful in its efforts. Its inability to locate
additional opportunities, successfully execute its business strategy, hire
additional management and other personnel, or respond to competitive
developments, could have a material adverse effect on its results of operations.
There can be no assurance that its operations will be profitable.
Index
has incurred significant losses since inception and anticipates that it will
continue to incur losses for the foreseeable future.
As
of
June 30, 2007, Index had incurred a financial loss after taxation of
approximately $436,837 for Q1 of the 2008 fiscal year. Index plans to
significantly increase its corporate expenses and general overhead. Management
believes that its business proposition will be appealing to the oil exploration
and development community. There is no assurance, however, that Index will
be
able to successfully achieve an increase in production and reserves at its
existing properties or future acquisitions, so as to operate in a profitable
manner. If the business of oil and gas well exploration and development slows,
and commodity prices notably decline, its margins and profitability will suffer.
Index is unable to predict whether its operating results will be
profitable.
Management
believes that long-term profitability and growth will depend on its ability
to:
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Develop
the reputation of Index as a successful oil and gas exploration and
production company;
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Successfully
identify and exploit appropriate
opportunities;
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Develop
viable strategic alliances; and
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Maintain
sufficient volume of successful new oil and gas
opportunities.
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Index
will need to raise substantial additional capital to fund its operations, and
its failure to obtain funding when needed may force it to delay, reduce or
eliminate its operations, or cause its business to fail in its
entirety.
Index’s
operations have consumed a substantial amount of cash since inception. Index
expects to continue to spend substantial amounts to:
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identify
and exploit oil and gas
opportunities;
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maintain
and increase the company’s human resource including full time and
consultant resources;
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evaluate
drilling opportunities; and
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evaluate
future projects and areas for long term
development.
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Index
expects that its cash requirement for operations (Capex) will increase
significantly over the next several years. Index will be required to raise
additional capital to meet anticipated needs. Index’s future funding
requirements will depend on many factors, including, but not limited
to:
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success
of ongoing operations;
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forward
commodity prices; and
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operating
costs (including human resource
costs).
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To
date,
Index’s sources of cash have been primarily limited to the sale of equity
securities. Index cannot be certain that additional funding will be available
on
acceptable terms, or at all. To the extent that Index raises additional funds
by
issuing equity securities, its stockholders may experience significant dilution.
Any debt financing, if available, may involve restrictive covenants that impact
Index’s ability to conduct its business. If Index is unable to raise additional
capital, when required, or on acceptable terms, it may have to significantly
delay, scale back or discontinue its operations, or cause its business to fail
in its entirety.
Index
may be unable to effectively maintain its oil and gas exploration
business.
Timely,
effective and successful oil exploration and production is essential to
maintaining Index’s reputation as a developing oil exploration company. Lack of
opportunities or success may significantly affect Index’s viability. The
principal components of Index’s operating costs include salaries paid to
corporate staff, costs of retention of qualified independent engineers and
geologists, annual system maintenance and rental costs, insurance,
transportation costs and substantial equipment and machinery costs. Because
the
majority of these expenses are fixed, a reduction in the number of successful
oil exploration projects, failures in discovery of new opportunities or
termination of ongoing projects will result in lower revenues and margins.
Prior
success in exploration or production of oil wells does not guarantee future
success in similar ventures; thus, its revenues could decline and its ability
to
effectively engage in oil recovery business would be harmed.
Fluctuations
in Index’s operating results and announcements and developments concerning its
business affect its stock price.
Index’s
quarterly operating results, the number of stockholders desiring to sell their
shares, changes in general economic conditions and the financial markets, the
execution of new contracts and the completion of existing agreements and other
developments affecting it, could cause the market price of its common stock
to
fluctuate substantially.
Risks
Related to Index’s Business
Index
may be unable to renew or maintain its contracts with independent purchasers,
which would harm its business and financial results.
Upon
expiration of its independent purchasers’ contracts, Index is subject to the
risk that the oil and natural gas purchasers will cease buying Index’s oil and
gas production output. It is not always possible to immediately obtain
replacement oil and gas purchasers as the industry is extremely competitive.
If
these contracts are not renewed, it could result in a significant negative
impact on Index’s business.
Management
believes that long-term profitability and growth will depend on its ability
to
develop the reputation of Index as a successful oil and gas exploration and
production company.
Index
may
be subject to liability claims. There are currently many known hazards
associated with the exploration, discovery and delivery of natural gas and
oil.
Other significant hazards may be discovered in the future. To protect against
possible liability, Index and its purchasers maintain liability insurance with
coverage that they believe is consistent with industry practice and appropriate
in light of the risks attendant to its business. However, if Index and its
purchasers are unable to maintain insurance in the future at an acceptable
cost
or at all, or if its insurance does not fully cover it and a successful claim
was made against Index and/or its purchasers, Index could be exposed to
liability. Any claim made against Index not fully covered by insurance could
be
costly to defend against, result in a substantial damage award against Index
and
divert the attention of management from Index’s operations, which could have an
adverse effect on its financial performance.
Loss
of key executives and failure to attract qualified managers, technologists,
independent engineers and geologists could limit Index’s growth and negatively
impact its operations.
Index
depends upon its management team to a substantial extent. In particular, Index
depends upon Mr. Lyndon West, its Chief Executive Officer, Mr. Daniel
Murphy, its Chairman of the Board of Directors, and Mr. Andrew Boetius, its
Chief Financial Officer, for their skills, experience, and knowledge of the
company and industry contacts. Currently, Index has employment or non executive
director agreements with all of its directors who are: Lyndon West, Daniel
Murphy, David Jenkins, Michael Scrutton and Andrew Boetius. The loss of any
of
these executives, or other members of Index’s management team, could have a
material adverse effect on its business, results of operations or financial
condition.
As
Index
grows, it may increasingly require field managers with experience in its
industry and skilled engineers, geologists and technologists to operate its
diagnostic, seismic and 3D equipment. It is impossible to predict the
availability of qualified managers, technologists, skilled engineers and
geologists or the compensation levels that will be required to hire them. In
particular, there is a very high demand for qualified technologists who are
particularly necessary to operate systems similar to the ones that Index
operates Index may not be able to hire and retain a sufficient number of
technologists, engineers and geologists and it may be required to pay bonuses
and higher independent contractor rates to its technologists, engineers and
geologists which would increase its expenses. The loss of the services of any
member of its senior management or Index’s inability to hire qualified managers,
technologists, skilled engineers and geologists at economically reasonable
compensation levels could adversely affect Index’s ability to operate and grow
its business.
Complying
with federal and state regulations is an expensive and time-consuming process,
and any failure to comply could result in substantial
penalties.
Index’s
operations are directly or indirectly subject to extensive and continually
changing regulation affecting the oil and natural gas industry. Many departments
and agencies, both federal and state, are authorized by statute to issue, and
have issued, rules and regulations binding on the oil and natural gas
industry and its individual participants. The failure to comply with such
rules and regulations can result in substantial penalties. The regulatory
burden on the oil and natural gas industry increases its cost of doing business
and, consequently, affects its profitability. Index does not believe that we
are
affected in a significantly different manner by these regulations than are
its
competitors.
If
Index’s operations are found to be in violation of any of the laws and
regulations to which it is subject, it may be subject to the applicable penalty
associated with the violation, including civil and criminal penalties, damages,
fines and the curtailment of its operations. Any penalties, damages, fines
or
curtailment of Index’s operations, individually or in the aggregate, could
adversely affect its ability to operate its business and its financial results.
The risk of Index being found in violation of these laws and regulations is
increased by the fact that many of them have not been fully interpreted by
the
regulatory authorities or the courts, and their provisions are open to a variety
of interpretations. Any action against Index for violation of these laws or
regulations, even if it successfully defends against it, could cause Index
to
incur significant legal expenses and divert management’s attention from the
operation of its business.
Index
may experience competition from other oil and gas exploration and production
companies and this competition could adversely affect Index’s revenues and its
business.
The
market for oil and gas recovery projects is generally highly competitive.
Index’s ability to compete depends on many factors, many of which are outside of
its control. These factors include: timing and market acceptance, introduction
of competitive technologies, price and purchaser’s interest in acquiring Index’s
oil and natural gas output.
Many
existing competitors, as well as potential new
competitors, have longer operating histories, greater name recognition,
substantial track records, and significantly greater financial, technical and
technological resources than Index. This may allow them to devote greater
resources to the development and promotion of their oil and gas exploration
and
production projects. Many of these competitors offer a wider range of oil and
gas opportunities not available to Index and may attract business partners
consequently resulting in a decrease of Index’s business opportunities. These
competitors may also engage in more extensive research and development, adopt
more aggressive strategies and make more attractive offers to existing and
potential purchasers, and partners. Furthermore, competitors may develop
technology and oil and gas exploration strategies that are equal or superior
to
Index’s and achieve greater market recognition. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to better address the
needs
of our target market. As a result, it is possible that new competitors may
emerge and rapidly acquire significant market share.
Other
very large companies that are primarily focused on offering competitive products
include Exxon/Mobil, Shell and Yukos and numerous other large oil and gas
recovery companies.
There
can
be no assurance that Index will be able to compete successfully against its
current or future competitors or that competition will not have a material
adverse effect on Index’s business, results of operations and financial
condition.
If
Index is unable to protect its intellectual property effectively, it may be
unable to prevent third parties from using its technologies and methods, which
would impair its competitive advantage.
Index
does not believe that its operations or products infringe on the intellectual
property rights of others. However, there can be no assurance that others will
not assert infringement or trade secret claims against Index with respect to
its
current or future technologies or that any such assertion will not require
it to
enter into a license agreement or royalty arrangement with the party asserting
the claim. Responding to and defending any such claims may distract the
attention of Index’s management and have an adverse effect on its business,
financial condition and results of operations.
Others
may claim in the future that Index has infringed their past, current or future
technologies. Index expects that participants in its markets increasingly will
be subject to infringement claims as the number of competitors grows. Any claim
like this, whether meritorious or not, could be time-consuming, and result
in
costly litigation and possibly result in agreements covering intellectual
property secrets and technologies. These agreements might not be available
on
acceptable terms or at all. As a result, any claim like this could harm Index’s
business.
Index
regards the protection of its copyrights, service marks, trademarks, and trade
secrets as critical to its success. Index relies on a combination of patent,
copyright, trademark, service mark and trade secret laws and contractual
restrictions to protect its proprietary rights in products and services. When
applicable, it will enter into confidentiality and invention assignment
agreements with employees and contractors, and nondisclosure agreements with
parties it conducts business with in order to limit access to and disclosure
of
its proprietary information. These contractual arrangements and the other steps
taken to protect its intellectual property may not prevent misappropriation
of
its technology or deter independent third-party development of similar
technologies. Index intends to pursue the registration of trademarks and service
marks in the U.S. and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country
in
which its services are made available.
Index
will need to increase the size of its organization, and may experience
difficulties in managing growth.
Index
is
a small company with minimal employees as of June 30, 2007. Index expects to
experience a period of significant expansion in headcount, facilities,
infrastructure and overhead and anticipates that further expansion will be
required to address potential growth and market opportunities. Future growth
will impose significant added responsibilities on members of management,
including the need to identify, recruit, maintain and integrate additional
independent contractors and managers. Index’s future financial performance and
its ability to compete effectively will depend, in part, on its ability to
manage any future growth effectively.
Oil
and natural gas prices are volatile, and low prices could have a material
adverse impact on our business.
Our
revenues, profitability and future growth and the carrying value of our
properties depend substantially on prevailing oil and gas prices. Prices also
affect the amount of cash flow available for capital expenditures and our
ability to borrow and raise additional capital. The amount we will be able
to
borrow under any senior revolving credit facility will be subject to periodic
redetermination based in part on changing expectations of future prices. Lower
prices may also reduce the amount of oil and gas that we can economically
produce and have an adverse effect on the value of our properties. Prices for
oil and gas have increased significantly and been more volatile over the past
twelve months. Historically, the markets for oil and gas have been volatile,
and
they are likely to continue to be volatile in the future. Among the factors
that
can cause volatility are:
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the
domestic and foreign supply of oil and gas;
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the
ability of members of the Organization of Petroleum Exporting Countries,
or OPEC, and other producing countries to agree upon and maintain
oil
prices and production levels;
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political
instability, armed conflict or terrorist attacks, whether or not
in oil or
gas producing regions;
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the
level of consumer product demand;
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the
growth of consumer product demand in emerging markets, such as
China;
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labor
unrest in oil and gas producing regions;
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weather
conditions, including hurricanes and other natural
disasters;
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the
price and availability of alternative fuels;
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the
price of foreign imports;
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worldwide
economic conditions; and
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the
availability of liquid natural gas
imports.
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These
external factors and the volatile nature of the energy markets make it difficult
to estimate future prices of oil and gas and our ability to raise
capital.
Index’s
profit margins may be adversely affected by fluctuations in the selling price
and production cost of
gasoline.
Oil
prices are significantly influenced by the supply of and demand for gasoline.
Index’s results of operations may be materially harmed if the demand for or the
price of gasoline decreases. Conversely, a prolonged increase in the price
of or
demand for gasoline could lead the U.S. government to take actions that maybe
adverse to us, such easing the import of foreign oil and gas into the
U.S.
Transportation
delays, including as a result of disruptions to infrastructure, could adversely
affect Index’s operations.
Index’s
business will depend on the availability of a distribution infrastructure.
Any
disruptions in this infrastructure network, whether caused by earthquakes,
storms, other natural disasters or human error or malfeasance, could materially
impact our business. Therefore, any unexpected delay in transportation of
Index’s produced oil and gas could result in significant disruption to Index’s
operations. Index relies upon others to maintain the production of its wells
and
distribution of oil and gas, and any failure on their part to maintain the
wells
and corresponding production could impede the delivery of Index’s oil and gas,
impose additional costs on it or otherwise cause its results of operations
or
financial condition to suffer.
Index’s
business may be influenced by seasonal fluctuations.
Assets
we acquire may prove to be worth less than we paid because of uncertainties
in
evaluating recoverable reserves and potential
liabilities.
Our
initial growth is due to acquisitions of properties and undeveloped leaseholds.
We expect acquisitions will also contribute to our future growth. Successful
acquisitions require an assessment of a number of factors, including estimates
of recoverable reserves, exploration potential, future oil and gas prices,
operating and capital costs and potential environmental and other liabilities.
Such assessments are inexact and their accuracy is inherently uncertain. In
connection with our assessments, we perform a review of the acquired properties
which we believe is generally consistent with industry practices. However,
such
a review will not reveal all existing or potential problems. In addition, our
review may not permit us to become sufficiently familiar with the properties
to
fully assess their deficiencies and capabilities. We do not inspect every well.
Even when we inspect a well, we do not always discover structural, subsurface
and environmental problems that may exist or arise. We are generally not
entitled to contractual indemnification for preclosing liabilities, including
environmental liabilities. Normally, we acquire interests in properties on
an
“as is” basis with limited remedies for breaches of representations and
warranties.
As
a
result of these factors, we may not be able to acquire oil and gas properties
that contain economically recoverable reserves or be able to complete such
acquisitions on acceptable terms.
Estimates
of oil and gas reserves are uncertain and any material inaccuracies in these
reserve estimates will materially affect the quantities and the value of our
reserves.
This
Preliminary Prospectus contains estimates of our proved oil and gas reserves.
These estimates are based upon various assumptions, including assumptions
required by the SEC relating to oil and gas prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds. The process
of
estimating oil and gas reserves is complex. This process requires significant
decisions and assumptions in the evaluation of available geological,
geophysical, engineering and economic data for each reservoir.
Actual
future production, oil and gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and gas
reserves will vary from those estimated. Any significant variance could
materially affect the estimated quantities and the value of our reserves. Our
properties may also be susceptible to hydrocarbon drainage from production
by
other operators on adjacent properties. In addition, we may adjust estimates
of
proved reserves to reflect production history, results of exploration and
development, prevailing oil and gas prices and other factors, many of which
are
beyond our control.
Recovery
of undeveloped reserves requires significant capital expenditures and successful
drilling operations. The reserve data assumes that we will make capital
expenditures to develop our reserves. Although we have prepared estimates of
these oil and gas reserves and the costs associated with development of these
reserves in accordance with SEC regulations, we cannot assure you that the
estimated costs or estimated reserves are accurate, that development will occur
as scheduled or that the actual results will be as estimated.
Our
exploration and development drilling efforts and the operation of our wells
may
not be profitable or achieve our targeted returns.
We
require significant amounts of undeveloped leasehold acreage in order to further
our development efforts. Exploration, development, drilling and production
activities are subject to many risks, including the risk that commercially
productive reservoirs will not be discovered. We invest in property, including
undeveloped leasehold acreage, which we believe will result in projects that
will add value over time. However, we cannot guarantee that all of our prospects
will result in viable projects or that we will not abandon our initial
investments. Additionally, we cannot guarantee that the leasehold acreage we
acquire will be profitably developed, that new wells drilled by us will be
productive or that we will recover all or any portion of our investment in
such
leasehold acreage or wells. Drilling for oil and gas may involve unprofitable
efforts, not only from dry wells but also from wells that are productive but
do
not produce sufficient net reserves to return a profit after deducting operating
and other costs. In addition, wells that are profitable may not achieve our
targeted rate of return. Our ability to achieve our target results are dependent
upon the current and future market prices for oil and gas, costs associated
with
producing oil and gas and our ability to add reserves at an acceptable cost.
We
rely to a significant extent on 3D seismic data and other advanced technologies
in identifying leasehold acreage prospects and in conducting our exploration
activities. The 3D seismic data and other technologies we use do not allow
us to
know conclusively prior to acquisition of leasehold acreage or drilling a well
whether oil or gas is present or may be produced economically. The use of 3D
seismic data and other technologies also requires greater pre-drilling
expenditures than traditional drilling strategies.
In
addition, we may not be successful in implementing our business strategy of
controlling and reducing our drilling and production costs in order to improve
our overall return. The cost of drilling, completing and operating a well is
often uncertain and cost factors can adversely affect the economics of a
project. We cannot predict the cost of drilling, and we may be forced to limit,
delay or cancel drilling operations as a result of a variety of factors,
including:
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unexpected
drilling conditions;
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pressure
or irregularities in formations;
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equipment
failures or accidents;
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adverse
weather conditions, including hurricanes or other natural
disasters;
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compliance
with governmental requirements; and
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shortages
or delays in the availability of drilling rigs and the delivery of
equipment.
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The
unavailability or high cost of drilling rigs, equipment, supplies, personnel
and
oil field services could adversely affect our ability to execute our exploration
and development plans on a timely basis and within our
budget.
Our
industry is cyclical and, from time to time, there is a shortage of drilling
rigs, equipment, supplies or qualified personnel. During these periods, the
costs and delivery times of rigs, equipment and supplies are substantially
greater. In addition, the demand for, and wage rates of, qualified drilling
rig
crews rise as the number of active rigs in service increases. As a result of
increasing levels of exploration and production in response to strong prices
of
oil and natural gas, the demand for oilfield services has risen, and the costs
of these services are increasing, while the quality of these services may
suffer. If the unavailability or high cost of drilling rigs, equipment, supplies
or qualified personnel were particularly severe in Kansas, Texas and Louisiana,
we could be materially and adversely affected because our operations and
properties are concentrated in those areas.
The
marketability of our oil and gas production depends on services and facilities
that we typically do not own or control. The failure or inaccessibility of
any
such services or facilities could result in a curtailment of production and
revenues.
The
marketability of our production depends in part upon the availability, proximity
and capacity of gathering systems, pipelines and processing facilities. Pursuant
to interruptible or short term transportation agreements, we generally deliver
gas through gathering systems and pipelines that we do not own. Under the
interruptible transportation agreements, the transportation of our gas may
be
interrupted due to capacity constraints on the applicable system, for
maintenance or repair of the system, or for other reasons as dictated by the
particular agreements. If any of the pipelines or other facilities becomes
unavailable, we would be required to find a suitable alternative to transport
and process the gas, which could increase our costs and reduce the revenues
we
might obtain from the sale of the gas.
We
are dependent on the skill, ability and decisions of third party
operators.
We
do not
operate any of our properties. The success of the drilling, development and
production of the oil and gas properties are dependent upon the decisions of
such third-party operators and their diligence to comply with various laws,
rules and regulations affecting such properties. The failure of any third-party
operator to make decisions, perform their services, discharge their obligations,
deal with regulatory agencies, and comply with laws, rules and regulations,
including environmental laws and regulations in a proper manner with respect
to
properties in which we have an interest could result in material adverse
consequences to our interest in such properties, including substantial penalties
and compliance costs. Such adverse consequences could result in substantial
liabilities to us or reduce the value of our properties, which could negatively
affect our results of operations.
Our
oil and gas activities are subject to various risks which are beyond our
control.
Our
operations are subject to many risks and hazards incident to exploring and
drilling for, producing, transporting, marketing and selling oil and gas.
Although we may take precautionary measures, many of these risks and hazards
are
beyond our control and unavoidable under the circumstances. Many of these risks
or hazards could materially and adversely affect our revenues and expenses,
the
ability of certain of our wells to produce oil and gas in commercial quantities,
the rate of production and the economics of the development of, and our
investment in the prospects in which we have or will acquire an interest. Any
of
these risks and hazards could materially and adversely affect our financial
condition, results of operations and cash flows. Such risks and hazards
include:
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human
error, accidents, labor force and other factors beyond our control
that
may cause personal injuries or death to persons and destruction or
damage
to equipment and facilities;
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blowouts,
fires, hurricanes, pollution and equipment failures that may result
in
damage to or destruction of wells, producing formations, production
facilities and equipment;
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unavailability
of materials and equipment;
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engineering
and construction delays;
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unanticipated
transportation costs and delays;
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unfavorable
weather conditions;
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hazards
resulting from unusual or unexpected geological or environmental
conditions;
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environmental
regulations and requirements;
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accidental
leakage of toxic or hazardous materials, such as petroleum liquids
or
drilling fluids, into the environment;
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changes
in laws and regulations, including laws and regulations applicable
to oil
and gas activities or markets for the oil and gas
produced;
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fluctuations
in supply and demand for oil and gas causing variations of the prices
we
receive for our oil and gas production; and
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the
internal and political decisions of OPEC and oil and natural gas
producing
nations and their impact upon oil and gas
prices.
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As
a
result of these risks, expenditures, quantities and rates of production,
revenues and cash operating costs may be materially adversely affected and
may
differ materially from those anticipated by us.
Governmental
and environmental regulations could adversely affect our
business.
Our
business is subject to federal, state and local laws and regulations on
taxation, the exploration for and development, production and marketing of
oil
and gas and safety matters. Many laws and regulations require drilling permits
and govern the spacing of wells, rates of production, prevention of waste,
unitization and pooling of properties and other matters. These laws and
regulations have increased the costs of planning, designing, drilling,
installing, operating and abandoning our oil and gas wells and other facilities.
In addition, these laws and regulations, and any others that are passed by
the
jurisdictions where we have production, could limit the total number of wells
drilled or the allowable production from successful wells, which could limit
our
revenues.
Our
operations are also subject to complex environmental laws and regulations
adopted by the various jurisdictions in which we have or expect to have oil
and
gas operations. We could incur liability to governments or third parties for
any
unlawful discharge of oil, gas or other pollutants into the air, soil or water,
including responsibility for remedial costs.
We
could
potentially discharge these materials into the environment in any of the
following ways:
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from
a well or drilling equipment at a drill site;
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from
gathering systems, pipelines, transportation facilities and storage
tanks;
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damage
to oil and gas wells resulting from accidents during normal operations;
and
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blowouts,
hurricanes, cratering and
explosions.
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Because
the requirements imposed by laws and regulations are frequently changed, we
cannot assure you that laws and regulations enacted in the future, including
changes to existing laws and regulations, will not adversely affect our
business. In addition, because we acquire interests in properties that may
have
been operated in the past by others and are currently operated by others, we
may
be liable for environmental damage caused by those operators.
We
cannot be certain that the insurance coverage maintained by us will be adequate
to cover all losses that may be sustained in connection with all oil and gas
activities.
We
maintain general and excess liability policies, which we consider to be
reasonable and consistent with industry standards. These policies generally
cover:
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personal
injury;
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bodily
injury;
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third
party property damage;
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medical
expenses;
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legal
defense costs;
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pollution
in some cases;
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well
blowouts in some cases; and
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workers
compensation.
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There
can
be no assurance that this insurance coverage will be sufficient to cover every
claim made against us in the future. A loss in connection with our oil and
natural gas properties could have a materially adverse effect on our financial
position and results of operation to the extent that the insurance coverage
provided under our policies cover only a portion of any such loss.
Title
to the properties in which we have an interest may be impaired by title
defects.
Our
operators generally obtain title opinions on significant properties that we
have
working interests in. However, there is no assurance that we will not suffer
a
monetary loss from title defects or failure. Generally, under the terms of
the
operating agreements affecting our properties, any monetary loss is to be borne
by all parties to any such agreement in proportion to their interests in such
property. If there are any title defects or defects in assignment of leasehold
rights in properties in which we hold an interest, we will suffer a financial
loss
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We
are subject to compliance with securities law, which exposes us to potential
liabilities, including potential rescission rights
.
We
have
periodically offered and sold our common stock to investors pursuant to certain
exemptions from the registration requirements of the Securities Act of 1933,
as
well as those of various state securities laws. The basis for relying on such
exemptions is factual; that is, the applicability of such exemptions depends
upon our conduct and that of those persons contacting prospective investors
and
making the offering. We have not received a legal opinion to the effect that
any
of our prior offerings were exempt from registration under any federal or state
law. Instead, we have relied upon the operative facts as the basis for such
exemptions, including information provided by investors themselves.
If
any
prior offering did not qualify for such exemption, an investor would have the
right to rescind its purchase of the securities if it so desired. It is possible
that if an investor should seek rescission, such investor would succeed. A
similar situation prevails under state law in those states where the securities
may be offered without registration in reliance on the partial preemption from
the registration or qualification provisions of such state statutes under the
National Securities Markets Improvement Act of 1996. If investors were
successful in seeking rescission, we would face severe financial demands that
could adversely affect our business and operations. Additionally, if we did
not
in fact qualify for the exemptions upon which it has relied, we may become
subject to significant fines and penalties imposed by the SEC and state
securities agencies.
The
following risks relate principally to the Company’s Common Stock and its market
value
There
is a limited market for our common stock which may make it more difficult for
you to dispose of your stock.
Our
common stock has been quoted on the OTC Bulletin Board under the symbol
"IXOG.OB" since December 16, 2005. There is a limited trading market for our
common stock. Furthermore, the trading in our common stock maybe highly
volatile, as for example, approximately more than one-third of the trading
days
during July of 2007 saw trading in our stock of less than 100,000 shares per
day. During that same period, the smallest number of shares trade in one day
was
3,800 and the largest number of shares traded in one day was 582,400.
Accordingly, there can be no assurance as to the liquidity of any markets that
may develop for our common stock, the ability of holders of our Common Stock
to
sell our Common Stock, or the prices at which holders may be able to sell our
Common Stock.
The
trading price of our Common Stock may be highly volatile and could be subject
to
fluctuations in response to a number of factors beyond our control. Some of
these factors are:
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our
results of operations and the performance of our
competitors;
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the
public’s reaction to our press releases, our other public announcements
and our filings with the Securities and Exchange Commission, or
SEC;
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changes
in earnings estimates or recommendations by research analysts who
follow,
or may follow, us or other companies in our industry;
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changes
in general economic conditions;
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changes
in market prices for oil and gas;
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actions
of our historical equity investors, including sales of common stock
by our
directors and executive officers;
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actions
by institutional investors trading in our stock;
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disruption
of our operations;
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any
major change in our management team;
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other
developments affecting us, our industry or our competitors;
and
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U.S.
and international economic, legal and regulatory factors unrelated
to our
performance.
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In
recent
years the stock market has experienced significant price and volume
fluctuations. These fluctuations may be unrelated to the operating performance
of particular companies. These broad market fluctuations may cause declines
in
the market price of our common stock. The price of our Common Stock could
fluctuate based upon factors that have little or nothing to do with our company
or its performance, and those fluctuations could materially reduce our Common
Stock price.
Our
Common
Stock
is subject to the "penny stock" rules of the SEC
and the trading market in our securities is limited, which makes transactions
in
our stock cumbersome and may reduce the value of an investment in our
stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, the rules
require:
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that
a broker or dealer approve a person's account for transactions in
penny
stocks; and
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the
broker or dealer receive from the investor a written agreement to
the
transaction, setting forth the identity and quantity of the penny
stock to
be purchased.
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In
order
to approve a person's account for transactions in penny stocks, the broker
or
dealer must:
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obtain
financial information and investment experience objectives of the
person;
and
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make
a reasonable determination that the transactions in penny stocks
are
suitable for that person and the person has sufficient knowledge
and
experience in financial matters to be capable of evaluating the risks
of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prepared by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities subject to
the
"penny stock" rules. This may make it more difficult for investors to dispose
of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
The
requirements of being a public company, including compliance with the reporting
requirements of the exchange act and the requirements of the Sarbanes Oxley
act,
strains our resources, increases our costs and may distract management, and
we
may be unable to comply with these requirements in a timely or cost-effective
manner.
As
a
public company, we need to comply with laws, regulations and requirements,
including certain corporate governance provisions of the Sarbanes-Oxley Act
of
2002 and related regulations of the SEC and requirements of OTCBB. Complying
with these statutes, regulations and requirements occupies a significant amount
of the time of our board of directors and management. We are or may be required
to:
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institute
a comprehensive compliance function;
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establish
internal policies, such as those relating to disclosure controls
and
procedures and insider trading;
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design,
establish, evaluate and maintain a system of internal controls over
financial reporting in compliance with the requirements of
Section 404 of the Sarbanes-Oxley Act and the related rules and
regulations of the SEC and the Public Company Accounting Oversight
Board;
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prepare
and distribute periodic reports in compliance with our obligations
under
the federal securities laws;
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involve
and retain outside counsel and accountants in the above activities;
and
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establish
an investor relations function.
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In
the
future, when these compliance standards are applicable to us, if we are unable
to accomplish these objectives or achieve required compliance in a timely and
effective fashion, our ability to comply with our financial reporting
requirements and other rules that apply to reporting companies could be
impaired, and we may be subject to sanctions or investigation by regulatory
authorities such as the SEC or Nasdaq. In addition, failure to comply with
Section 404 or a report of a material weakness may cause investors to lose
confidence in us and may have a material adverse effect on our stock
price.
The
Company does not expect to pay dividends in the future. Any return on investment
may be limited to the value of the Company’s stock.
The
Company does not anticipate paying cash dividends on its stock in the
foreseeable future. The payment of dividends on the Company’s stock will depend
on its earnings, financial condition and other business and economic factors
affecting the Company at such time as the board of directors may consider
relevant. If the Company does not pay dividends, its stock may be less valuable
because a return on your investment will only occur if the Company’s stock price
appreciates.
A
sale of a substantial number of shares of the Company’s common stock may cause
the price of its common stock to decline.
If
the
Company’s stockholders sell substantial amounts of the Company’s common stock in
the public market, including shares issued upon the exercise of outstanding
options or warrants, the market price of its common stock could fall. These
sales also may make it more difficult for the Company to sell equity or
equity-related securities in the future at a time and price that the Company
deems reasonable or appropriate. Stockholders who have been issued shares in
the
Acquisition will be able to sell their shares pursuant to Rule 144 under the
Securities Act of 1933, beginning one year after the stockholders acquired
their
shares.
The
exercise of our outstanding warrants and options may depress our stock
price
We
currently have 901,421warrants and 5,077,526 options to purchase shares of
our
common stock outstanding, at June 30, 2007. The exercise of warrants and/or
options by a substantial number of holders within a relatively short period
of
time could have the effect of depressing the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities..
We
may need additional capital that could dilute the ownership interest of
investors.
We
require substantial working capital to fund our business. If we raise additional
funds through the issuance of equity, equity-related or convertible debt
securities, these securities may have rights, preferences or privileges senior
to those of the rights of holders of our common stock and they may experience
additional dilution. We cannot predict whether additional financing will be
available to us on favorable terms when required, or at all. Since our
inception, we have experienced negative cash flow from operations and expect
to
experience significant negative cash flow from operations in the future. The
issuance of additional common stock by our management may have the effect of
further diluting the proportionate equity interest and voting power of holders
of our common stock, including investors in this offering.