NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY
Organization
Index Oil
and Gas, Inc. (“Index Inc.” or “the Company”) is the parent company
with four group subsidiaries: Index Oil & Gas Ltd., a United Kingdom holding
company, which provides management services to the Company, and United States
operating subsidiaries; Index Oil & Gas (USA) LLC (“Index USA”), an
operating company; Index Investments North America Inc. (“Index Investments”);
and Index Offshore LLC (“Index Offshore”), a wholly owned subsidiary of Index
Investments and also an operating company. Index Inc., through its subsidiaries,
is engaged in exploration, appraisal, development, production and sale of oil
and natural gas. The Company does not currently operate any of its properties
and sells its oil and gas production to domestic purchasers.
Operations
The
Company’s initial exploration project is located in Kansas, and is a very low
risk, low cost, low working interest, and limited upside project and which is
not expected to be a significant contributor to future growth. Seven wells were
drilled in Kansas during the fiscal year 2007, of which five wells were
successful and became oil producers and two wells were unsuccessful. Our working
interest (“WI”) in the Kansas AMI wells is either 5% for wells drilled in
Stafford County or 3.25% for wells drilled in Barton County and the net revenue
interest (“NRI”) is either approximately 4.155% or 2.64%, respectively. The
Company has committed to a current program of 14 wells for low-risk prospects in
Stafford and Barton Counties. To-date the Company has participated in six wells,
of which three are now on production (including one Stafford County well which
was drilled under farm in arrangements and in which Index has a 2.5% WI) and
three have been plugged and abandoned. Further activity is expected at
approximately two wells per month dependent on commodity pricing and evaluation
of the program to date.
The
Company has made progress with its onshore drilling program in Texas and
Louisiana with its interest in the Walker 1 discovery well (WI 12.5%,
approximate NRI 9.36%) drilled in Louisiana in Fiscal Year 2006 and which began
producing in August 2006 and its interest in Vieman 1 (19.5% WI, approximate NRI
14.56%) in Brazoria County Texas which began production in February 2007 and is
currently recompleting. The Hawkins 1 well (WI 12.5%, approximate NRI
10.01%), also in Texas, in Matagorda County, began production into the local
pipeline grid in January 2008. The Ruse and Dark wells, also in
Matagorda County, were dry holes.
The
Company also drilled two successful wells in south Texas. The Serrano well,
renamed Friedrich Gas Unit 1 (WI 37.5%, approximate NRI 28.125%) , in Victoria
County, found 13 feet of net gas pay with production, since May 2007,
of 20,550 per Mcfe, with net production of approximately 2,865 Mcfe in December
2007. The Habanero well, renamed Schroeder Gas Unit 1 (WI 37.5%, approximate NRI
28.125%), in Goliad County, found 10 feet of net gas pay and began producing in
August 2007 for total net production of 7,432 Mcfe and net production of 2,051
Mcfe in December 2007.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)
The Ilse
1 well (WI 10% Before Project Payout and WI 8% After Project Payout, approximate
NRI 6%), drilled in the New Taiton Project area in Wharton County, Texas, has
been drilled to total depth of approximately 17,000 feet and logged. Analysis of
the logs revealed two zones of interest in the Wilcox C and Wilcox A,
respectively. The lowest zone, the Wilcox C, has been perforated and stimulated
by a reservoir “fracture” process. Gas flow from the formation to surface has
not been achieved. The preliminary decision from the operator was that this
interval would not be productive and would not have any proved reserves. The
well is currently suspended, pending a possible test to attempt to achieve gas
flows from the upper zone of interest, the Wilcox A.
All
non-operator members of the joint venture (“non-operators”), including Index,
have agreed to a successor operator and have requested an audit of the
accounting records of the original operator be performed in accordance with the
Joint Operating Agreement. The original operator, however, refused to
sign a change in operator form to be filed with the Texas Railroad
Commission. The non-operators filed a Temporary Restraining Order and
a Temporary Injunction against the original operator. This was denied
by the Court with parties ordered to mediate. Mediation was held in
October 2007 with no agreement reached.
An Injunction Hearing was
held in late 2007 and is now in continuance status with dates being sought from
the court for further proceedings. Contemporaneous with these Hearing
proceedings, non-operators have submitted a single-signature P4 (Change of
Operator) Form to the Texas Railroad Commission and will file for binding
arbitration under the Joint Operating Agreement.
Since
July 26, 2007, the Company, as a joint interest owner, has received various
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties by
the operator of the Ilse property. Under Texas case law, the operator is deemed
to be responsible for these unpaid amounts owed to third parties. The Company,
along with other non-operators, is in the data gathering stage and is assessing
the implications and magnitude of these Notices and other legal issues and the
potential financial impact to the Company. The Company was billed for these
services by the operator on their operating statements received to December 2007
and these costs have been accrued in our condensed consolidated financial
statements as costs related to the Ilse well. It is the Company’s position that
no other contingency accrual is currently required.
Capital
costs associated with the Ilse 1 well have been held outside the full cost pool,
because a determination as to whether the well has found proved reserves has not
been completed. At the future point when a determination is made, the costs
associated with Ilse 1 will be included in the full cost pool. To the extent
that Ilse 1 does not find any proved reserves, ignoring all other unrelated
factors, this will lead to higher unit depletion charges in future periods and
makes it likely Index will suffer a ceiling test impairment charge. Index is
carrying approximately $1.2 million of costs at December 31, 2007 related to the
Ilse 1 well.
The
George Cason 1 well, drilled on the Fern Lake prospect in Nacogdoches County,
Texas, spudded on June 22, 2007 and reached a total depth of 11,147 feet on July
14, 2007 and produced approximately 1.0 MMcfe net in December 2007. This is the
first well resulting from the agreements to reprocess seismic data and develop
prospects to drill in up to four areas in Texas, Mississippi, and Alabama. The
Company has drilled the Cason 2 well which has been successfully completed and
tested and recently came on to production. The Cason 3 well spudded in early
February 2008. Index has an approximate after payout interest of 18.36% WI and
13.77% NRI in all three Cason wells. Following this third well, a review will be
undertaken of results and costs to date, prior to participating in any further
leasing or drilling in the area.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)
In
December 2006, the Company announced that it has signed an exploration agreement
to participate at 15% WI, subsequently increased to 20%, in the Supple Jack
Creek lease area (formerly described as West). The first well, now named HNH Gas
Unit 1, targeted gas in the Edwards Limestone in Lavaca County, Texas. The well
reached a total depth of approximately 15,000 feet and is currently being
evaluated following completion and testing operations. Subject to results, the
Company will evaluate additional drilling, particularly in a success case. The
gas unit designated for the well covers 566.59 acres. However, the contract Area
of Mutual Interest (AMI) for the overall prospect extends over a much larger
area, of which approximately 5,000 gross and net acres are currently under
lease.
In April
2007, the Company signed agreements to participate in the Shadyside prospect,
located in St. Mary Parish, Louisiana. Index had an initial 15% WI in the
prospect, reducing to 13.5% after prospect payout. The Shadyside 1 well was
drilled to a total depth of approximately 16,294 feet and due to
non-participation by the former operator, Index now has a 30% working interest
in the well. The well is been hooked up and began flowing to sales in
January 2008 at an initial rate of approximately 1,600 Mcf per day and 134
barrels of oil per day, gross. The Company is considering the potential of both
deeper and shallower prospects on current leases.
In June
2007, the Company announced that it had entered into Participation and Joint
Operating Agreements for the drilling of the Cow Trap project ("Cow Trap") to be
located in Brazoria County, Texas. The Cow Trap well, named Ducroz 1 (WI 7.5%,
approximate NRI 5.25%), targets gas in stacked Miocene objectives at depths
ranging from 4,900 feet to 6,400 feet. The well had a total depth of
approximately 6,500 feet. Ducroz 1 has been drilled, completed and tested at
approximately 4,000 Mcf per day, and has recently been brought on to production
with an initial flow rate of approximately 2,950 Mcf per day, combined from two
intervals, and a small quantity of water production.
The
Company announced in April 2007 that it has signed a Participation Agreement to
explore for gas in the West Wharton prospect. This project could consist of up
to four exploration wells within the area of mutual interest in Wharton County,
Texas. Index has a 12.5% working interest in the project that will reduce to
9.38% after prospect payout. The first well, Outlar 1 (approximate NRI 7.0%),
spudded on August 12, 2007 and reached total depth in September 2007. Testing of
the well achieved test flow rates of approximately 1.6 million cubic feet of gas
per day (mmcfpd) and 77 barrels of condensate per day (bcpd) using a 7/64ths
choke. The Outlar 1 well produced a total of 5.7 MMcfe net in December 2007
. The Company has also participated in additional leasing
opportunities with the operator.
In July
2007, the Company announced that it has signed a Purchase and Sale Agreement to
acquire a 5% WI and approximate 3.5% NRI in the Alligator Bayou exploration
prospect located beneath onshore portions of Brazoria and Matagorda Counties,
Texas. The prospect covers up to several thousand acres. The first well is
planned to spud in the second calendar quarter 2008.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of
Consolidation/Basis of Presentation
The
unaudited condensed consolidated financial statements as of December 31, 2007
and March 31, 2007 and for the nine months ended December 31, 2007 and 2006
include the accounts of the Company and its wholly owned subsidiaries, Index
USA, Index Investments, Index Offshore and Index Limited, after eliminating all
significant intercompany accounts and transactions. Results of operations are
included from the date of incorporation. For the reverse merger between the
Company and Index Ltd. at January 20, 2006, the stockholder’s equity section and
earnings per share in the Condensed Consolidated balance sheet at December 31,
2006 were restated to reflect the exchange of shares using a conversion ratio of
approximately 2.857 shares of the Company to 1 share of Index
Ltd. Certain reclassifications of prior year balances have been made
to conform such amounts to corresponding 2007 classifications. These
reclassifications have no impact on net income.
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles generally accepted in the United States 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 reporting period. Certain accounting policies involve
judgments and uncertainties to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under
different conditions, or if different assumptions had been used. We evaluate our
estimates and assumptions on a regular basis. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates and assumptions used in preparation of our financial statements. The
most significant estimates with regard to these financial statements relate to
the provision for income taxes, dismantlement and abandonment costs, estimates
to certain oil and gas revenues and expenses and estimates of proved oil and
natural gas reserve quantities used to calculate depletion, depreciation and
impairment of proved oil and natural gas properties and equipment.
Interim Financial
Statements
The
accompanying unaudited condensed consolidated financial statements have been
prepared without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been
condensed or omitted, although we believe that the disclosures contained herein
are adequate to make the information presented not misleading. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the entire year. These unaudited condensed consolidated financial
statements included herein should be read in conjunction with the Financial
Statements and Notes included in the Company’s Annual Report on Form 10-KSB for
the year ended March 31, 2007.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents,
and Concentrations of Credit Risk
Cash and
cash equivalents represent cash in banks. The Company considers any highly
liquid debt instruments purchased with a maturity date of six months or less to
be cash equivalents. The Company’s accounts receivable are concentrated among
entities engaged in the energy industry, within the United States. Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. Allowance for doubtful accounts was $0 at
December 31, 2007 and March 31, 2007.
Oil and Gas
Properties
The
Company follows the full cost method of accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of properties within a relatively large geopolitical cost center are capitalized
when incurred and are amortized as mineral reserves in the cost center are
produced, subject to a limitation that the capitalized costs not exceed the
value of those reserves. In some cases, however, certain significant costs, such
as those associated with offshore U.S. operations, are deferred separately
without amortization until the specific property to which they relate is found
to be either productive or nonproductive, at which time those deferred costs and
any reserves attributable to the property are included in the computation of
amortization in the cost center. All costs incurred in oil and gas producing
activities are regarded as integral to the acquisition, discovery, and
development of whatever reserves ultimately result from the efforts as a whole,
and are thus associated with the Company’s reserves. The Company capitalizes
internal costs directly identified with performing or managing acquisition,
exploration and development activities. The Company has not capitalized any
internal costs or interest at December 31, 2007 and 2006. Unevaluated costs are
excluded from the full cost pool and are periodically evaluated for impairment
rather than amortized. Upon evaluation, costs associated with productive
properties are transferred to the full cost pool and amortized. Gains or losses
on the sale of oil and natural gas properties are generally included in the full
cost pool unless the entire pool is sold.
Capitalized
costs and estimated future development costs are amortized on a
unit-of-production method based on proved reserves associated with the
applicable cost center. The Company has assessed the impairment for oil and
natural gas properties for the full cost pool at December 31, 2007 and will
assess quarterly thereafter using a ceiling test to determine if impairment is
necessary. Specifically, the net unamortized costs for each full cost pool less
related deferred income taxes should not exceed the following: (a) the present
value, discounted at 10%, of future net cash flows from estimated production of
proved oil and gas reserves plus (b) all costs being excluded from the
amortization base plus (c) the lower of cost or estimated fair value of unproved
properties included in the amortization base less (d) the income tax effects
related to differences between the book and tax basis of the properties
involved. The present value of future net revenues should be based on current
prices, with consideration of price changes only to the extent provided by
contractual arrangements, as of the latest balance sheet presented. The full
cost ceiling test must take into account the prices of qualifying cash flow
hedges in calculating the current price of the quantities of the future
production of oil and gas reserves covered by the hedges as of the
balance
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
sheet
date. In addition, the use of the hedge-adjusted price should be consistently
applied in all reporting periods and the effects of using cash flow hedges in
calculating the ceiling test, the portion of future oil and gas production being
hedged, and the dollar amount that would have been charged to income had the
effects of the cash flow hedges not been considered in calculating the ceiling
limitation should be disclosed. Any excess is charged to expense during the
period that the excess occurs. The Company did not have any hedging activities
during the nine months ended December 31, 2007 and 2006. Application of the
ceiling test is required for quarterly reporting purposes, and any write-downs
cannot be reinstated even if the cost ceiling subsequently increases by
year-end. No ceiling test write-down was recorded for the nine months ended
December 31, 2007 and 2006. Sales of proved and unproved properties are
accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves of oil and gas, in which case the
gain or loss is recognized in income.
Abandonment of
properties is accounted for as adjustments of capitalized costs with no loss
recognized.
Other Property, Plant and
Equipment
Other
property, plant and equipment primarily includes computer software equipment and
office furniture and fittings, which are recorded at cost and depreciated on a
straight-line basis over useful lives of five and three years respectively.
Repair and maintenance costs are charged to expense as incurred while
acquisitions are capitalized as additions to the related assets in the period
incurred. Gains or losses from the disposal of property, plant and equipment are
recorded in the period incurred. The net book value of the property, plant and
equipment that is retired or sold is charged to accumulated depreciation and
amortization, and the difference is recognized as a gain or loss in the results
of operations in the period the retirement or sale transpires.
Segment
Information
The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information”.
Foreign Currency
Translation
The
Company translates the foreign currency financial statements in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
functional currency is not the U.S. dollar are translated into U.S. dollars at
fiscal period end exchange rates. Revenue and expense items are translated at
average exchange rates prevailing during the fiscal year. Translation
adjustments are included in Accumulated other comprehensive gain /(loss) in the
equity section of the balance sheet, with a cumulative total of $575 and $15,399
at December 31, 2007, and March 31, 2007, respectively, and foreign currency
transaction gains/(losses) are included in the statement of
operations
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock Based
Compensation
On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004)
“Share-Based Payments” (“SFAS-123R”). This statement applies to all awards
granted, modified, repurchased or cancelled after January 1, 2006 and to
the unvested portion of all awards granted prior to that date. The Company
adopted this statement using the modified version of the prospective application
(modified prospective application). Under the modified prospective application,
compensation cost for the portion of awards for which the employee’s requisite
service has not been rendered that are outstanding as of January 1, 2006
must be recognized as the requisite service is rendered on or after that date.
The compensation cost for that portion of awards shall be based on the original
fair market value of those awards on the date of grant as calculated for
recognition under SFAS 123. The compensation cost for these earlier awards shall
be attributed to periods beginning on or after January 1, 2006 using the
attribution method that was used under SFAS 123. The impact of adoption of
SFAS-123R decreased income from operations and income before income taxes and
net income by $205,165 and $563,048 relating to stock option awards for the nine
months ended December 31, 2007 and 2006 respectively and there was no impact on
the Condensed Consolidated Statement of Cash Flows. The effect on net income per
share for basic and diluted is $0.00 and $(0.01) for these respective periods.
See Note 9 of the notes to the Condensed Consolidated Financial Statements for
additional disclosure.
Correction of
Errors
The
Company adopted SFAS 154, “Accounting Changes and Error Corrections—a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”)” in
April 1, 2007, in which it changed the requirements for the accounting for and
the reporting of a change in accounting principle. The Company requires that a
new accounting principle be applied to the balances of assets and liabilities as
of the beginning of the earliest period for which retrospective application is
practicable and that a corresponding adjustment is made to the opening balance
of retained earnings (or other appropriate components of equity or net assets in
the balance sheet) for that period rather than being reported in the statement
of operations. When it is impracticable to determine the cumulative effect of
applying a change in accounting principle to all prior periods, The Company
applies the new accounting principle as if it were adopted prospectively from
the earliest date practicable. The Company will also revise previously issued
financial statements to reflect the correction of an error, should one occur,
and limit the application to the direct effects of the change. Indirect effects
of a change in accounting principle will be recognized in the period of the
accounting change. The Company will continue to account for a change in
accounting estimate in accordance with APB 20. The adoption of this
pronouncement had no impact to the Company’s consolidated financial position or
results of operations.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Certain Hybrid Instruments
.
On February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain
Hybrid Instruments,” which amends SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities,” and SFAS 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155
allows financial instruments that have embedded derivatives to be accounted for
as a whole (eliminating the need to bifurcate the derivative from its host) if
the holder elects to account for the whole instrument on a fair value basis.
SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS
140. This statement is effective for all financial instruments acquired or
issued in fiscal years beginning after September 15, 2006. The Company
adopted this new standard, effective April 1, 2007, with no impact on its
financial position, results of operations or cash flows as it currently does not
have any hybrid instruments outstanding at December 31, 2007 and March 31, 2007,
respectively.
Accounting for Servicing of
Financial Assets
. In March 2006, the FASB issued SFAS No. 156, “
Accounting for Servicing of
Financial Assets—an amendment of FASB Statement No. 140”(“
SFAS No. 156”),
which amends FASB Statement No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,
with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. This Statement requires that all separately recognized
servicing assets and servicing liabilities be initially measured at fair value,
if practicable. The Board concluded that fair value is the most relevant
measurement attribute for the initial recognition of all servicing assets and
servicing liabilities, because it represents the best measure of future cash
flows. This Statement permits, but does not require, the subsequent measurement
of servicing assets and servicing liabilities at fair value. An entity that uses
derivative instruments to mitigate the risks inherent in servicing assets and
servicing liabilities is required to account for those derivative instruments at
fair value. Under this Statement, an entity can elect subsequent fair value
measurement of its servicing assets and servicing liabilities by class, thus
simplifying its accounting and providing for income statement recognition of the
potential offsetting changes in fair value of the servicing assets, servicing
liabilities, and related derivative instruments. An entity that elects to
subsequently measure servicing assets and servicing liabilities at fair value is
expected to recognize declines in fair value of the servicing assets and
servicing liabilities more consistently than by reporting other-than-temporary
impairments. The Company adopted this new standard effective April 1,
2007, with no impact the Company’s Condensed Consolidated financial position or
results of operations as the Company does not have any derivative or hedging
instruments.
Income Taxes.
In June 2006,
the FASB issued FASB Interpretation No 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”, which
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB 109. The
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company adopted the new standard
effective April 1, 2007 with no material impact on the Company’s consolidated
financial position or results of operations.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-
19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with FASB Statement No. 5,
Accounting for Contingencies. FSP 00-19-2 further clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other applicable generally accepted accounting principles
without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement. For registration payment arrangements
and financial instruments subject to those arrangements that were entered into
prior to the issuance of EITF 00-19-2, this guidance shall be effective for
financial statements issued for fiscal years beginning after December 15, 2006
and interim periods within those fiscal years. The Company adopted the new
pronouncement effective April 1, 2007 with no impact Company’s consolidated
financial position or results of operations.
New Accounting
Pronouncements Not Yet Adopted
Business
Combinations
. In December 2007, the FASB issued SFAS No.
141(R), "Business Combinations" ("SFAS 141(R)"), which replaces SFAS No. 141.
SFAS No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the acquiree
and the goodwill acquired. The Statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial
effects of the business combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 141(R) will have an
impact on accounting for business combinations once adopted, but the effect is
dependent upon acquisitions at that time.
Noncontrolling
Interests
. In December 2007, the FASB issued SFAS No. 160,
"Noncontrolling Interests in Consolidated Financial Statements - an amendment of
Accounting Research Bulletin No. 51" ("SFAS 160"), which establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent's ownership
interest and the valuation of retained non-controlling equity investments when a
subsidiary is deconsolidated. The Statement also establishes reporting
requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
non-controlling owners. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. The Company does not currently have any noncontrolling
interests in subsidiaries , but once adopted, the effects will be dependent upon
acquisitions after that time.
Fair Value Measurements.
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. Prior to this Statement, there were different
definitions of fair value and limited guidance for applying those definitions in
GAAP. This Statement provides the definition to increase consistency and
comparability in fair value measurements and for expanded disclosures about fair
value measurements. The Statement emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. The Statement clarifies that
market participant assumptions include assumptions about risk, i.e. the risk
inherent in a particular valuation technique used to measure fair value and/or
the risk inherent in the inputs to the valuation technique. The Statement
expands disclosures about the use of fair vale to measure assets and liabilities
in interim and annual periods subsequent to initial recognition. The disclosures
focus on the inputs used to measure fair value and for recurring fair value
measurements using significant unobservable inputs, the effect of the
measurements on earnings for the period. The Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including the financial statements for an
interim period within that fiscal year. In November207, the FASB deferred the
implementation of SFAS 157 for non-financial assets and liabilities until
October 2008. The Company does not expect adoption of this standard
will have a material impact on its financial position, operations or cash
flows.
The Fair Value Option for Financial
Assets and Financial Liabilities.
In February 2007, the FASB issued SFAS
159, “The Fair Value Option for Financial Assets and Financial
Liabilities—including an amendment of FASB Statement No. 115”, permitting
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting measurement. The statement applies to all entities,
including not-for profit organizations. Most of the provisions of this Statement
apply only to entities that elect the fair value option. However, the amendment
to FASB Statement No. 115, “Accounting for Certain Investments in Debt and
Equity Securities”, applies to all entities with available-for-sale and trading
securities. The Company does not expect adoption of this standard will have a
material impact on its financial position, operations or cash
flows.
INDEX OIL AND GAS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST
Oil and Gas
Properties
Major
classes of oil and gas properties under the full cost method of accounting at
December 31, 2007 and March 31, 2007 consist of the following:
|
|
|
December
31, 2007
|
|
|
March
31,
2007
|
|
|
Proved
properties
|
|
$
|
8,030,395
|
|
|
$
|
3,254,211
|
|
|
Unevaluated
and unproved properties
|
|
|
3,606,287
|
|
|
|
1,927,776
|
|
|
Gross
oil and gas properties-onshore
|
|
|
11,636,682
|
|
|
|
5,181,987
|
|
|
Less: accumulated
depletion
|
|
|
(569,070
|
)
|
|
|
(315,937
|
)
|
|
Net
oil and gas properties-onshore
|
|
$
|
11,067,612
|
|
|
$
|
4,866,050
|
|
Included
in the Company's oil and gas properties are asset retirement obligations of
$73,119 and $41,552 as of December 31, 2007 and March 31, 2007,
respectively.
Depletion
expense was $253,134 and $113,538 or $25.77 and $22.10 per boe, or $4.30 and
$3.68 per mcfe, of production for the nine months ended December 31, 2007 and
2006, respectively.
At
December 31, 2007 and March 31, 2007, the Company excluded the following
capitalized costs from depletion, depreciation and amortization:
|
|
|
December
31, 2007
|
|
|
March
31,
2007
|
|
|
Not
subject to depletion-onshore:
|
|
|
|
|
|
|
|
Exploration
costs
|
|
$
|
2,766,593
|
|
|
$
|
1,669,478
|
|
|
Cost
of undeveloped acreage
|
|
|
839,694
|
|
|
|
258,298
|
|
|
Total
not subject to depletion
|
|
$
|
3,606,287
|
|
|
$
|
1,927,776
|
|
It is
anticipated that the cost of undeveloped acreage of $0.8 million and exploration
costs of $2.8 million will be included in depreciation, depletion and
amortization when the related projects are planned and drilled and completed.
Included in exploration cost and undeveloped acreage costs at December 31, 2007
are approximately: $1.2 million related to the Ilse 1 well that has been
drilled, but not fully tested or completed (see Note 1), $1.1 million related to
undeveloped leasehold for the Supple Jack Creek project area and HNH Gas Unit 1
well, $0.2 million related to seismic reprocessing agreements, $0.1 million
related to the West Wharton prospect area, $0.6 million related to the Cason 2
and 3 wells and $0.3 million related to the Alligator Bayou
prospect.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST (continued)
Acquisitions and
Dispositions
In the
third quarter 2007, the Company announced that it plans to drill 14 low-risk
wells in Stafford and Barton counties, Kansas. To-date the Company has
participated in six wells, of which three are now on production and three have
been plugged and abandoned. Further activity is expected at approximately two
wells per month dependent on commodity pricing and evaluation of the program to
date.
The
Company announced in April 2007 that it has signed a Participation Agreement to
explore for gas in the West Wharton prospect. This project could consist of up
to four exploration wells within the area of mutual interest in Wharton County,
Texas and the Company has recently participated in additional leasing
opportunities with the operator.
In April
2007, the Company signed agreements to participate in the Shadyside prospect,
located in St. Mary Parish, Louisiana.
In June
2007, the Company announced that it had entered into Participation and Joint
Operating Agreements for the drilling of the Cow Trap project ("Cow Trap") to be
located in Brazoria County, Texas.
In July
2007, the Company announced that it has signed a Purchase and Sale Agreement to
acquire a 5% WI and approximate 3.5% NRI in the Alligator Bayou exploration
prospect located beneath onshore portions of Brazoria and Matagorda Counties,
Texas. The prospect covers up to several thousand acres. The first well is
planned to spud in the second calendar quarter 2008.
See also
Note 1 - Organization and Operations of the Company.
Other Property and
Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over their
estimated useful lives of the assets. Maintenance, repairs, and minor renewals
are charged against earnings when incurred. Additions and major renewals are
capitalized. Major assets at December 31, 2007 and March 31, 2007 were as
follows:
|
|
|
December
31, 2007
|
|
|
March
31,
2007
|
|
|
Computer
costs and furniture and fixtures, including foreign translation
adjustment
|
|
$
|
31,204
|
|
|
$
|
23,858
|
|
|
Less:
accumulated depreciation
|
|
|
(14,359
|
)
|
|
|
(11,365
|
)
|
|
Total
other property and equipment
|
|
$
|
16,845
|
|
|
$
|
12,493
|
|
Depreciation
expenses from continuing operations amounted to $2,863 and $489 for the nine
months ended December 31, 2007 and 2006, respectively. There was no interest
capitalized in property, plant and equipment at December 31, 2007 and
2006.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
4 - COMPREHENSIVE LOSS
For the
nine months ended December 31, 2007 and 2006, comprehensive income (loss)
consisted of the amounts listed below.
|
|
|
For
the Nine Months Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Net
loss
|
|
$
|
(1,437,739
|
)
|
|
$
|
(1,282,574
|
)
|
|
Foreign
currency translation gain / (loss)
|
|
|
(14,824
|
)
|
|
|
(1,804
|
)
|
|
Comprehensive
Loss
|
|
$
|
(1,452,563
|
)
|
|
$
|
(1,284,378
|
)
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
5 - NOTES PAYABLE
Index
Ltd. had incurred debt and raised capital through a series of rounds of
fundraising from inception through December 31, 2006. The entire Index Ltd.
convertible debt stockholder funding has been converted to common stock at par
and additional paid in capital. After all conversion of stock, notes payable at
December 31, 2007 and March 31, 2007 were $0. There was no debt issue
cost incurred during the nine months ended December 31, 2007 and 2006 and no
debt issue amortization expense in the nine months ended December 31, 2007 and
2006. There was no unamortized debt issue cost at December 31, 2007
and March 31, 2007. There were no outstanding bank loans at December 31, 2007
and March 31, 2007.
NOTE
6 - ASSET RETIREMENT OBLIGATION
Activity
related to the Company’s Asset Retirement Obligation (“ARO”) during the nine
months ended December 31, 2007 is as follows:
|
|
|
For
the Nine Months Ended December 31, 2007
|
|
|
ARO
as of beginning of period
|
|
$
|
41,552
|
|
|
Liabilities
incurred during period
|
|
|
31,567
|
|
|
Liabilities
settled during period
|
|
|
-
|
|
|
Accretion
expense
|
|
|
-
|
|
|
Balance
of ARO as of end of period
|
|
$
|
73,119
|
|
Of the
total ARO, $73,119 is classified as a long-term liability at December 31, 2007.
For each of the nine months ended December 31, 2007 and 2006, the Company
recognized no accretion expense related to its ARO, due to the assumption of a
full offset of salvage values.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
7 - COMMITMENTS AND CONTINGENCIES
The
Company has various commitments to oil and gas exploration and production
capital expenditures, with ongoing expenditures on the Kansas properties, and
expenditures and commitments relating to wells in Texas and Louisiana arising
out of the normal course of business.
Lease
Commitments
The
Company does not have any capital lease commitments. The Company rents its main
operating office in Houston on a month-to-month basis for which payments began
in November 2005. The Company also has an original nine month lease, committed
to in April 2007, and recently extended to May 2008, related to corporate
housing for UK based officers while periodically working at the corporate
office.
Consulting
Agreements
The
Company has held consulting agreements with outside contractors, certain of whom
are also Company stockholders. The Agreements are generally for a fixed term
from inception and renewable from time to time unless either the Company or
Consultant terminates such engagement by written notice.
Stockholder
Matters
There
were no stockholder matters during the quarter ended December 31,
2007.
Litigation
The
Company is subject to various legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on its financial position,
results of operations or liquidity. Consequently, the Company has not recorded
any reserve for legal matters.
All
non-operator members of the joint venture drilling the Ilse well
(“non-operators”), including Index, have agreed to the appointment of a
successor operator and have requested an audit of the accounting records of the
original operator be performed in accordance with the Joint Operating
Agreement. The original operator, however, refused to sign a change
in operator form to be filed with the Texas Railroad Commission. The
non-operators filed a Temporary Restraining Order and a Temporary Injunction
against the original operator. This was denied by the Court with
parties ordered to mediate. Mediation was held in October 2007 with
no agreement reached.
An Injunction Hearing was
held in late 2007 and is now in continuance status with dates being sought from
the court for further proceedings. Contemporaneous with these Hearing
proceedings, non-operators have submitted a single-signature P4 (Change of
Operator) Form to the Texas Railroad Commission and will file for binding
arbitration under the Joint Operating Agreement.
Since
July 26, 2007, the Company, as a joint interest owner, has received various
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties by
the operator of the Ilse property. Under Texas case law, the operator
is deemed to be responsible for these unpaid amounts owed to third
parties. The Company, along with other non-operators, is in the
data gathering stage and is assessing the implications and magnitude of these
Notices and other legal issues and the potential financial impact to the
Company. The Company was billed for these services by the operator on
their operating statements received to December 2007 and these costs have been
accrued in our condensed consolidated financial statements as costs related to
the Ilse well. It is the Company’s position that no other contingency accrual is
currently required.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
8 - CAPITAL STOCK
During
the three months ended December 31, 2007, there were no stock transactions as
follows:
|
Balance
at September 30, 2007
|
|
|
65,803,698
|
|
|
|
|
|
|
|
|
Issuance
of stock
|
|
|
-
|
|
|
Sale
of stock
|
|
|
-
|
|
|
Balance
of December 31, 2007
|
|
|
65,803,698
|
|
During
the nine months to December 31, 2007 an executive officer and board member
acquired, on the open market, 56,947 shares of our common stock, $0.001 par
value, at an average price of $0.70 per share. In addition, another
executive officer and board member, acquired, on the open market, 10,000 shares
of our common stock, $0.001 par value, at a price of $0.70 per
share.
On August
13, 2007, Mr. John G. Williams informed the Company that he was resigning from
his position as Executive Vice President Exploration and Production effective as
of November 1, 2007. As such, 25,000 unvested shares previously
awarded to Mr. Williams in March 2007 were forfeited. This
resulted in a revision in our previous estimate of forfeiture rate for stock
awards with a corresponding reduction in compensation expense of approximately
$7,000 from grant date through December 30, 2007 and zero compensation expense
in the quarter ended December 31, 2007. In addition, compensation
expense for the forfeiture of this award in the future will be reduced by
approximately $23,400.
During
the nine months ended December 31, 2007, the Company issued a stock award of
25,000 shares of common stock to an employee contingent on 183 days of
continuous service. Upon satisfaction of the terms of the award, the
employee will be issued 25,000 shares of restricted common stock of the
Company.
The net
stock compensation expense for all stock award transactions for the quarter
ended December 31, 2007 and 2006 was $10,242 and $35,844,
respectively.
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
The Board
of Directors of Index Inc. agreed to the adoption of the 2006 Incentive Stock
Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006,
effective as of January 20, 2006, providing for the issuance of up to 5,225,000
shares of Common Stock of Index Inc. to officers, directors, employees and
consultants of Index Inc. and/or its subsidiaries. Pursuant to the Stock Option
Plan, Index Inc. has allowed for the issuance of options to purchase 4,952,526
shares of Common Stock as at December 31, 2007. Total compensation
expense recorded for the issuance of stock options under the Stock Option Plan
in the quarter and nine months ended December 31, 2007 was $53,183 and $194,255,
respectively.
The
principal terms and conditions of the share options granted under the Stock
Option Plan are that vesting of the options granted occurs in three stages: (1)
50% on grant; (2) 25% one year after grant; and (3) 25% two years after grant.
Furthermore, the share options granted under the Share Option Plan are generally
non-transferable other than to a legal or beneficial holder of the options upon
the option holder’s death. The rights to vested but unexercised options cease to
be effective: (1) 18 months after death of the stock options holder; (2) 6
months after Change of Control of Index Inc.; (3) 12 months after loss of
office due to health
related incapacity or redundancy; or (4) 12 months after the retirement of the
options holder from a position with Index Inc. All options have a 5 year
expiring term.
INDEX OIL AND GAS,
INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION (continued)
During
the nine months ended December 31, 2007, the Company also issued stock options
to purchase 125,000 shares of common stock to a new employee, of which 62,500
options vested on date of grant. In March 2007, stock options to
purchase 500,000 shares of common stock were awarded to John Williams, of which
250,000 options vested on date of grant.
On August
13, 2007, Mr. John G. Williams informed the Company that he was resigning from
his position as Executive Vice President Exploration and Production effective as
of November 1, 2007. As such, 250,000 unvested options previously
awarded to Mr. Williams in March 2007 were forfeited and the term of exercise
for the remaining 250,000 vested options is now approved by the Index Board to
end on July 31, 2008. This resulted in a revision in our previous estimate of
forfeiture rate for stock options with a corresponding reduction in compensation
expense of approximately $20,000 from grant date through September 30, 2007, net
of a correction to previously recorded compensation expense on this award of
approximately $8,000 during the quarter ended December 31, 2007. No
other compensation expense for this award was recorded in the current
quarter. In addition, total compensation expense related to the
forfeiture of this award of approximately $79,400 will no longer be
recorded.
The
remaining compensation expense associated with total unvested stock and stock
option awards as of December 31, 2007, including transactions described above,
was approximately $37,000, and will be recognized over the remaining weighted
average vesting period. Total overall stock based compensation
expense was $63,425 and $208,047 for the three months ended December 31, 2007
and 2006, respectively.
Effective
January 1, 2006, the Company began accounting for stock-based compensation
under SFAS-123R, whereby the Company records compensation expense based on the
fair value of awards described below.
Stock
Options
The
following tables summarize the changes in options outstanding and exercised and
the related exercise prices for the shares of the Company's common stock issued
to certain directors, employees and stockholders at December 31,
2007:
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Outstanding
at March 31, 2007
|
|
|
5,077,526
|
|
|
$
|
0.46
|
|
|
Granted
|
|
|
125,000
|
|
|
$
|
0.83
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Canceled,
forfeited or expired
|
|
|
(250,000
|
)
|
|
$
|
1.42
|
|
|
Outstanding
at December 31, 2007
|
|
|
4,952,526
|
|
|
$
|
0.42
|
|
The
Company has assumed an annual forfeiture rate of 5% for the awards granted based
on the Company’s history for this type of award to various employee groups.
Compensation expense is recognized ratably over the requisite service period and
immediately for retirement-eligible employees.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION (continued)
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.35
|
|
|
|
4,577,526
|
|
|
|
3.08
|
|
|
$
|
0.35
|
|
|
|
3,433,145
|
|
|
$
|
0.35
|
|
|
$
|
1.42
|
|
|
|
250,000
|
|
|
|
0.58
|
|
|
$
|
1.42
|
|
|
|
250,000
|
|
|
$
|
1.42
|
|
|
$
|
0.83
|
|
|
|
125,000
|
|
|
|
4.75
|
|
|
$
|
0.83
|
|
|
|
62,500
|
|
|
$
|
0.83
|
|
|
$
|
0.42
|
|
|
|
4,952,526
|
|
|
|
3.00
|
|
|
$
|
0.42
|
|
|
|
3,745,645
|
|
|
$
|
0.43
|
|
Warrants
The
following tables summarize the changes in warrants outstanding and exercised and
the related exercise prices for the shares of the Company's common stock issued
as follows:
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Outstanding
and Exercisable March 31, 2007
|
|
|
968,083
|
|
|
$
|
0.13
|
|
|
Exercised
|
|
|
(66,662
|
)
|
|
|
(0.14
|
)
|
|
Exchanged
|
|
|
-
|
|
|
|
-
|
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
and Exercisable at December 31, 2007
|
|
|
901,421
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.07
|
|
|
|
138,655
|
|
|
|
2.75
|
|
|
$
|
0.07
|
|
|
|
138,655
|
|
|
$
|
0.07
|
|
|
$
|
0.14
|
|
|
|
143,037
|
|
|
|
2.75
|
|
|
$
|
0.14
|
|
|
|
143,037
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
|
253,961
|
|
|
|
2.75
|
|
|
$
|
0.14
|
|
|
|
253,961
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
|
339,033
|
|
|
|
2.75
|
|
|
$
|
0.14
|
|
|
|
339,033
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
|
26,735
|
|
|
|
2.75
|
|
|
$
|
0.14
|
|
|
|
26,735
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
901,421
|
|
|
|
2.75
|
|
|
$
|
0.13
|
|
|
|
901,421
|
|
|
$
|
0.13
|
|
In June
2007, a total of 66,662 warrants were exercised at a price of $0.14 for a total
of $9,333 and a total of 66,662 shares of common stock, $0.001 par value, were
issued to a director.
NOTE 10 - EARNINGS PER
SHARE
Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock and related stock options were exercised at the
end of the period. For the periods ended December 31, 2007 and 2006, excluded
from diluted earnings per share are 901,421 and 1,092,676, respectively of
warrants to acquire common stock. As of both December 31, 2007 and 2006, there
are 4,577,526 of options to acquire the Company’s common stock that were
excluded from the computation of diluted earnings per share and which at
September 2007 excluded 375,000 of out of the money options.
The
following is a calculation of basic and diluted weighted average shares and/or
options and warrants outstanding:
|
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Shares—basic
|
|
|
65,803,698
|
|
|
|
65,383,822
|
|
|
|
65,782,366
|
|
|
|
65,383,822
|
|
|
Dilution
effect of stock option and awards at end of period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Shares—diluted
|
|
|
65,803,698
|
|
|
|
65,383,822
|
|
|
|
65,782,366
|
|
|
|
65,383,822
|
|
|
Stock
awards and shares excluded from diluted earnings per share due to
anti-dilutive effect
|
|
|
5,478,947
|
|
|
|
5,670,202
|
|
|
|
5,478,947
|
|
|
|
5,670,202
|
|
|
Earnings
per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
(unaudited)
NOTE
11 - OPERATING SEGMENTS
The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information.” See below for
information by geographic location.
Geographic
Area Information
During
the nine months ended December 31, 2007 and as of December 31, 2007, the Company
owned oil and natural gas interests in three main geographic areas in the United
States. Geographic revenue and oil and gas property information below is based
on physical location of the assets at the end of each period.
|
|
|
December
31, 2007
|
|
|
|
|
Total Oil & Gas
Revenue
|
|
|
Total Oil
and Gas Assets (1)
|
|
|
Kansas
|
|
$
|
123,843
|
|
|
$
|
828,416
|
|
|
Louisiana
|
|
|
124,316
|
|
|
|
2,706,403
|
|
|
Texas
|
|
|
226,104
|
|
|
|
8,116,292
|
|
|
Total
|
|
$
|
474,263
|
|
|
$
|
11,651,111
|
|
|
(1)
|
Total
oil and gas property assets at December 31, 2007 are reported gross. Under
the full cost method of accounting for oil and gas properties,
depreciation, depletion and amortization and impairment is not allocated
to properties. Asset Retirement Obligation assets are also not
included.
|
NOTE
12 - SUBSEQUENT EVENTS
In
January 2008 the Company committed to participate in the drilling of the Cason 3
well, and which spudded in early February 2008.