Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): April 6, 2006
FOOTHILLS
RESOURCES, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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001-31546
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98-0339560
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(I.R.S.
Employer
Identification
Number)
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11902
Shanklin Street
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Bakersfield,
California
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93312
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(Address
of principal executive offices)
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(Zip
Code)
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(832) 567-0766
(Registrant’s
telephone number, including area code)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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FORWARD
LOOKING STATEMENTS
This
Current Report on Form 8-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. This Current Report
includes statements regarding our plans, goals, strategies, intent, beliefs
or
current expectations. These statements are expressed in good faith and based
upon a reasonable basis when made, but there can be no assurance that these
expectations will be achieved or accomplished. These forward looking statements
can be identified by the use of terms and phrases such as “believe,” “plan,”
“intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or
future-tense or conditional constructions (“will,” “may,” “could,” “should,”
etc.). Items contemplating or making assumptions about, actual or potential
future sales, market size, collaborations, and trends or operating results
also
constitute such forward-looking statements.
Although
forward-looking statements in this report reflect the
good faith judgment of management, forward-looking statements are inherently
subject to known and unknown risks, business, economic and other risks and
uncertainties that may cause actual results to be materially different from
those discussed in these forward-looking statements. Readers are urged not
to
place undue reliance on these forward-looking statements, which speak only
as of
the date of this report. We assume no obligation to update any forward-looking
statements in order to reflect any event or circumstance that may arise after
the date of this report, other than as may be required by applicable law or
regulation. Readers are urged to carefully review and consider the various
disclosures made by us in our reports filed with the Securities and Exchange
Commission which attempt to advise interested parties of the risks and factors
that may affect our business, financial condition, results of operation and
cash
flows. If one or more of these risks or uncertainties materialize, or if the
underlying assumptions prove incorrect, our actual results may vary materially
from those expected or projected.
EXPLANATORY
NOTE
Upon
the
consummation of the Transactions (as defined and described more fully below),
Foothills Resources, Inc. became the parent company and sole stockholder of
Brasada California, Inc. The business operations of Foothills following the
Transactions are primarily those of its wholly-owned subsidiary, Brasada
California, Inc. Unless otherwise indicated or the context otherwise requires,
the terms “Company,” “Brasada,” “we,” “us,” and “our” refer to Brasada
California, Inc. and its affiliates, including Foothills Resources, Inc., after
giving effect to the Transactions. Unless otherwise indicated or the context
otherwise requires, references to “Foothills” refer to Foothills Resources, Inc.
before giving effect to the Transactions. This Current Report on Form 8-K
contains summaries of the material terms of various agreements executed in
connection with the transactions described herein. The summaries of these
agreements are subject to, and qualified in their entirety by, reference to
these agreements, all of which are incorporated herein by
reference.
Item
1.01. Entry
into a Material Definitive Agreement.
On
April
6,
2006,
Foothills completed a merger and an offering of common stock and warrants in
a
private placement transaction. For a description of the merger and the offering,
and the material agreements entered into in connection therewith, please see
Item 2.01 of this Current Report, which disclosure is incorporated herein by
reference.
Item
2.01. Completion
of Acquisition or Disposition of Assets.
THE
MERGER AND RELATED TRANSACTIONS
The
Merger
On
April
6,
2006
(the “Closing Date”), Foothills, Brasada Acquisition Corp. (“Acquisition Sub”),
a wholly owned subsidiary of Foothills, and Brasada entered into a Merger
Agreement and Plan of Reorganization (the “Merger Agreement”). On the Closing
Date, Acquisition Sub merged with and into Brasada, with Brasada remaining
as
the surviving corporation and a wholly-owned subsidiary of Foothills (the
“Merger”). Prior to their entry into the Merger Agreement, no material
relationship previously existed among the parties to the Merger Agreement.
The
Merger Agreement has been attached as an exhibit hereto and is incorporated
herein by reference.
On
the
Closing Date, the holders of Brasada’s issued and outstanding capital stock
before the Merger (the “Brasada Stockholders”) surrendered all of their issued
and outstanding capital stock of Brasada and received 17,375,000 shares
of
common stock of Foothills, par value $0.001 per share (“Common Stock”). The
stockholders of Foothills before the Merger (the “Foothills Stockholders”)
retained 12,625,000 shares of Common Stock.
The
Merger Agreement contains customary representations, warranties and covenants
of
Brasada, Foothills and, as applicable, Acquisition Sub, for like transactions.
Breaches of representations and warranties are secured by customary
indemnification provisions. The Merger Agreement contains a post-closing
adjustment to the number of shares of Common Stock issued to the Brasada
Stockholders in an amount up to 2,000,000 shares of Common Stock issued on
a pro
rata basis for any breach of the Merger Agreement by Foothills discovered during
the two year period following the Closing Date.
The
Merger will be treated as a recapitalization of Foothills for financial
accounting purposes. Accordingly, the historical financial statements of
Foothills before the Merger will be replaced with the historical financial
statements of Brasada before the Merger in all future filings with the
Securities and Exchange Commission.
On
the
Closing Date, the then-current officers and directors of Foothills resigned
and
new executive officers designated by the Brasada Stockholders were appointed.
In
addition, the sole member of the Foothills board of directors (the “Board”)
appointed one new member to the Board and resigned, effective 10 days after
the
Closing Date. Following the Merger, the Board consists of two members and is
expected to increase to five members. The Foothills Stockholders received the
right to designate one of the members of the Board.
Prior
to
the Closing Date, the Board and the Foothills Stockholders approved and adopted
a stock option plan (the “Plan”), which is expected to be ratified and adopted
by the Company’s stockholders soon after the consummation of the Merger. Under
the Plan, 2,000,000 shares of Common Stock are reserved for issuance as
incentive awards granted to executive officers, key employees and directors
after the Closing Date.
The
Offering and Bridge Financing
Concurrently
with the Merger, Foothills closed a private offering of 15,383,009
units
(“Units”) consisting of one share of Common Stock and a warrant to acquire
three-quarters of a share of Common Stock for five years at a purchase price
of
$1.00 per whole share (the “Offering”). On the Closing Date of the Merger, the
investors in the Offering collectively purchased 15,383,009
Units
for
total consideration of $10,768,106
(the
“PPO Closing”). Some of the consideration for the Units was in the form of
Foothills Debentures which converted into Units on a dollar-for-dollar basis
upon the PPO Closing and the closing of the Merger. The Foothills Debentures
are
described more fully below.
The
debenture holders’ Units were issued at the same price as the Units issued to
other accredited investors as the fair value of the Units issued was equal
to
the carrying amount of the debt extinguished. No gain or loss was recorded
on
the repayment of the debentures. Therefore, the consideration we received on
the
Closing Date consisted of approximately $6,780,606 in
cash
and $3,987,500
in
cancelled debt. The investors participating in the PPO Closing hold 15,383,009
shares
of
Common Stock and warrants to acquire 11,537,251 shares
of
Common Stock.
The
sale
of Units in the Offering was exempt from registration under Section 4(2) of
the
Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of
Regulation D as promulgated by the SEC. The Merger, the Offering and the other
transactions related thereto are collectively referred to herein as the
“Transactions.”
To
facilitate the completion of the Merger and to enable Brasada to meet certain
specific working capital requirements, Foothills agreed to provide bridge
financing (the “Bridge Financing”) to Brasada. The Bridge Financing was provided
to Brasada from the proceeds of the sale of debentures convertible into Units
(the “Foothills Debentures”) upon the closing of the Offering and the Merger
(collectively, the “Transactions”). Foothills Debentures in the aggregate face
amount of $3,987,500 were
issued to investors in the Bridge Financing on March 17 and March 23,
2006.
The
Bridge Financing was evidenced by a secured promissory note (the “Bridge Note”)
which was to mature 120 days from the closing of the Bridge Financing and bear
interest at the rate of 9% per annum. Brasada’s obligations related to the
Bridge Financing were secured by a security interest in all of the assets of
Brasada, evidenced by a Security Agreement entered into among Brasada and
Foothills. To further secure Brasada’s obligations, the Brasada Stockholders
pledged such number of shares of the common stock of Brasada as represented
51%
of the total number of shares of common stock issued and outstanding at that
time. The security interest and the pledged shares were released (and the Bridge
Note forgiven) on the Closing Date, upon the consummation of the
Transactions.
In
connection with the completion of the Offering, our placement agents in
connection with the offering, Sanders Morris Harris Inc., Canaccord Capital,
Inc. and GEM Advisors, Inc. (the “Placement Agents”) received fees $275,000 and
GEM Advisors, Inc. was issued 500,000 shares of Common Stock (the “Finder Fee”).
Registration
Rights
Within
120 days of the Closing Date, Foothills will be required to file a registration
statement (the “Registration Statement”) registering for resale the shares of
Common Stock purchased by the investors in the Offering, the shares of Common
Stock issuable on exercise of the warrants issued to the investors in the
Offering and the shares of Common Stock to be issued on the Closing Date as
the
Finder Fee, which shares will also include the shares and warrants underlying
the Foothills Debentures.
Split-Off
Agreement
Contemporaneously
with the closing of the Merger, Foothills split-off its wholly-owned subsidiary,
Foothills Leaseco, Inc., a Nevada corporation (“Leaseco”), through the sale of
all of the outstanding capital stock of Leaseco (the “Split-Off”). We executed a
split-off agreement with J. Earl Terris and Leaseco, a copy of which is attached
to this Current Report on Form 8-K and incorporated herein by
reference.
Lock-Up
Agreements
The
Brasada Stockholders have agreed not to offer, pledge, sell, contract to sell
or
grant any option to purchase, or otherwise transfer or dispose of, directly
or
indirectly, any of their shares of Common Stock or any securities convertible
into or exercisable for shares of Common Stock for a period ending on the
12-month anniversary of the Closing Date. Such agreements were set forth in
written Lock-Up Agreements, executed as of the Closing Date, with the Brasada
Stockholders.
Pro
Forma Ownership
Immediately
after giving effect to the Merger and Offering, there are issued and outstanding
on a fully diluted basis (including shares of Common Stock underlying warrants
and shares reserved for issuance under the Company’s 2006 Equity Incentive
Plan), 59,420,266 shares of Common Stock, as follows:
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the
pre-Merger Brasada Stockholders hold 17,375,000 shares of Common
Stock
from the Merger;
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the
pre-Merger Foothills Stockholders hold 12,625,000 shares
of Common Stock;
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the
investors in the Offering, including the holders of converted Foothills
Debentures, hold 15,383,009 shares of Common Stock and warrants to
acquire 11,537,257 shares of Common
Stock;
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GEM
Advisors, Inc. holds 500,000 shares of Common Stock received as part
of
the Finder Fee; and
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the
Company’s 2006 Equity Incentive Plan has 2,000,000 shares of Common Stock
authorized for issuance.
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PART
I
1.
DESCRIPTION OF BUSINESS
Company
Overview
The
primary operations of the Company are those of Brasada California, Inc. (f/k/a
Brasada Resources LLC), our wholly-owned subsidiary (“Brasada”). Brasada is a
private oil and gas exploration company engaged in the acquisition, exploration
and development of oil and natural gas properties. Brasada was formed on
December 29, 2005 as Brasada Resources LLC, a Delaware limited liability
company, and converted to a corporation in Delaware on February 28, 2006. On
April
6,
2006,
Brasada merged with Brasada Acquisition Corp., a Delaware corporation and our
wholly owned subsidiary, leaving Brasada as the surviving entity and our wholly
owned subsidiary. Unless otherwise indicated or the context otherwise requires,
the terms “Brasada,” “we,” “us,” and “our” refer to Brasada California, Inc. and
its affiliates, including Foothills Resources, Inc., after giving effect to
the
Transactions.
Our
business strategy is to identify and exploit low risk resources in and adjacent
to existing or indicated producing areas that can be quickly developed and
put
on production at low cost, including the acquisition of producing properties
with exploitation and exploration potential. We will also take advantage of
our
expertise to develop exploratory projects in focus areas and to participate
with
other companies in those areas to explore for oil and natural gas using
state-of-the-art 3D seismic technology.
Our
management will use its extensive domestic and international oil and gas
experience to establish and grow the Company. Our initial focus is on oil and
natural gas properties located in the Eel River Basin, California and the
Anadarko Basin, Oklahoma. We expect to have access to additional opportunities
on a worldwide scale through a contractual relationship with Moyes & Co.,
Inc.
California
We
believe that the oil and gas industry has in effect overlooked California in
recent years because of the perceived difficulties of conducting operations
in
the state. This situation creates opportunities.
California
has abundant and long-lived oil and gas resources with prolific hydrocarbon
basins. Infrastructure supporting oil and gas exploration, development and
production activities is in place, consisting of contractors, suppliers,
pipelines and refineries. Most oil and gas basins in the state are significantly
under-explored even near large fields, with operators concentrating on a few,
large, heavy oil resources. Offset exploration in and near fields has frequently
been ignored. There is a dramatic lack of use of 3D seismic and other latest
seismic technologies in many of the basins, and in some areas (such as the
Eel
River Basin) there has been insufficient attention to drilling and drilling
fluid engineering. Through the experience and relationships of its management,
Brasada has strong ties to other significant oil and gas companies operating
in
California.
Oklahoma
The
Anadarko Basin in western Oklahoma and the Texas panhandle is one of the most
prolific oil and natural gas producing basins in the United States. Most of
the
shallow shelf portion of the basin can be characterized as very mature. However,
much promise remains in the deeper portion of the basin that is characterized
by
stratigraphic traps in the Pennsylvanian Morrow formation and structural traps
in the Ordovician Hunton formation, two of the formations targeted by
Brasada.
Project
Status
Eel
River Basin
The
Eel
River Basin is the northernmost of the California sedimentary basins. Most
of
the basin exists offshore of northern California and southern Oregon. However,
a
portion of the basin is present onshore in Humboldt County, California.
Hydrocarbons generated in the deeper offshore part of the basin have migrated
updip into the Miocene and Pliocene rocks present in this area. The onshore
portion of the basin contains the Tompkins Hill natural gas field that was
discovered by Texaco in 1937. It is now owned and operated by Occidental, has
produced in excess of 120 billion cubic feet (“BCF) of natural gas, and
continues to produce.
The
Grizzly Bluff area approximately five miles south of the Tompkins Hill Field
was
initially proven to contain natural gas in well drilled by Zephyr in the
mid-1960s. In the early 1970s, Chevron drilled a deep well seeking oil but
found
strong indications of natural gas. In the early 1990s, ARCO drilled several
wells and found natural gas in the shallow zones. These wells were successfully
tested at rates of up to 5 million cubic feet (“MMCF”) of gas per day, but the
wells were never put into production due to the lack of a natural gas market
and
pipeline connection.
In
the
past decade, the industry has overlooked the hydrocarbon potential and
production within the Eel River Basin due to its relatively isolated position
in
California. INNEX Energy, L.L.C. recognized this overlooked potential in the
form of multiple low resistivity, low contrast sands that possibly define part
of a widespread, basin-centered natural gas play. INNEX began acquiring oil
and
gas leases in the area in 2000 to test this concept and entered into a joint
venture with Forexco, Inc. in 2002. A subsequent 10-well drilling program in
2003 by Forexco encountered drilling and completion problems, but established
production from four wells in the Grizzly Bluff area that are now producing
approximately 500,000 cubic feet of gas per day. This field was brought on
line
in late 2003 with the completion of a natural gas gathering system and a new
pipeline that connects to the PG&E backbone grid for northern California.
INNEX and Forexco terminated their joint venture in 2004.
The
Tompkins Hill Field is the analog field in the basin for the Eel River Project.
This production is from similar age rocks at similar depths that will be tested
in the Grizzly Bluff Prospect, the first prospect that we plan to drill in
the
Eel River Project. Our mapping indicates that substantial natural gas reserves
occur above the lowest tested gas in the Grizzly Bluff Field in multiple stacked
Pliocene sandstone reservoirs. Shallow proved producing, proved undeveloped,
and
probable reserves overlie additional deeper potential, defining a project that
will involve drilling between 3,000 and 10,500 feet. Reserve analysis indicates
that the Grizzly Bluff Prospect could contain in excess of 100 BCF of natural
gas recoverable reserves from relatively shallow Pliocene reservoirs. Much
of
this gas is categorized as proved undeveloped. Additional significant upside
potential in the range of 500 BCF to 1 trillion cubic feet (“TCF”) of natural
gas exists in the Grizzly Bear Prospect which is a deep exploratory prospect
that underlies the shallow Grizzly Bluff Prospect.
We
believe that numerous
defined prospects, including several with direct hydrocarbon indicators on
the
seismic data, can add one to two TCF of gas resources in the basin.
The
Eel
River Project is the centerpiece of a large exploitation-exploration
opportunity. There is presently minimal competition in the basin, providing
us
with an opportunity to effectively control the entire basin.
Consequently,
on January 3, 2006, we entered into a Farmout and Participation Agreement (the
“INNEX Agreement”) with INNEX California, Inc. (“INNEX”) to acquire, explore and
develop oil and natural gas properties located in the basin, the material terms
of which are as follows:
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Brasada
serves as operator of a joint venture with INNEX, and has the right
to
earn an interest in approximately 3,500 existing leasehold acres
held by
INNEX in the basin, and to participate as operator with INNEX in
oil and
gas acquisition, exploration and development activities within an
area of
mutual interest consisting of the entire Eel River
Basin.
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The
INNEX Agreement provides for “drill-to-earn” terms, and consists of three
phases.
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In
Phase I, Brasada will pay 100% of the costs of drilling two wells,
acquiring 1,000 acres of new leases, and certain other activities.
Upon
completion of Phase I, Brasada will receive an assignment from INNEX
of a
75% working interest (representing an approximate 56.3% net revenue
interest) in the leases held by INNEX in the two drilling units to
the
deepest depth drilled in the two Phase I obligation
wells.
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Brasada
will then have the option, but not the obligation, to proceed into
Phase
II. In Phase II, Brasada will pay 100% of the costs of drilling one
well
and conducting a 3-D seismic survey covering not less than 15 square
miles. Upon completion of Phase II, Brasada will receive an assignment
from INNEX of a 75% working interest (representing an approximate
56.3%
net revenue interest) in the leases held by INNEX in the drilling
unit and
a 75% working interest (representing an approximate 59.3% net revenue
interest) in all remaining leases held by INNEX to the deepest depth
drilled in the three Phase I and II obligation
wells.
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Brasada
will then have the option, but not the obligation, to proceed into
Phase
III. In Phase III, Brasada will pay 100% of the costs of drilling
one deep
well. Upon completion of Phase III, Brasada will receive an assignment
from INNEX of a 75% working interest (representing an approximate
56.3%
net revenue interest) in the leases held by INNEX in the drilling
unit and
a 75% working interest (representing an approximate 59.3% net revenue
interest) in all remaining leases held by INNEX with no depth
limitation.
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After
completion of Phase III, the two parties will each be responsible
for
funding their working interest share of the joint venture’s costs and
expenses. Brasada will generally have a 75% working interest in activities
conducted on specified prospects existing at the time of execution
of the
INNEX Agreement, and a 70% working interest in other activities.
A party
will be able to elect not to participate in exploratory wells on
a
prospect-by-prospect basis, and a non-participating party will lose
the
opportunity to participate in development activities and all rights
to
production relating to that
prospect.
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Brasada
is also entitled to a proportionate assignment from INNEX of its
rights to
existing permits, drill pads, roads, rights-of-way, and other
infrastructure, as well as its pipeline access and marketing
arrangements.
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INNEX
has an option to participate for a 25% working interest in certain
producing property acquisitions by Brasada in the area of mutual
interest.
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We
are
completing drilling plans for the two Phase I wells, including location
selection, well design, and services and equipment procurement. We are also
initiating a leasing program to extensively expand the joint venture’s leasehold
position in the basin. Further, we have identified two strategic opportunities
to acquire existing producing fields in the basin. If consummated, these
acquisitions will provide immediate cash flow from existing production, as
well
as access to proved undeveloped and probable reserves and deeper exploration
potential through new drilling. Because both acquisition targets have existing
proved developed producing reserves and production, we would expect to fund
some
portion of the acquisition costs with reserve-based debt financing.
Anadarko
Basin
The
initial focus of our activity within the Anadarko Basin will be in the area
covered by a 75 square mile 3D seismic survey in Roger Mills County, Oklahoma.
Through a license held by one of our officers, Brasada has semi-exclusive access
to this survey, which was shot by Texaco in 1998. The 3D seismic survey was
initially shot to define stratigraphic traps in the Pennsylvanian sedimentary
section in an area of substantial Pennsylvanian natural gas production. Only
one
well has been drilled to date using the 3D seismic data set. The well, drilled
by Texaco, encountered wet Morrow sand and was plugged and abandoned. Texaco
subsequently exited oil and gas exploration activity in the MidContinent region.
Numerous exploratory ideas remain to be exploited on this data set, both in
the
Pennsylvanian section as well as the deeper Ordovician section. The best wells
completed in these rocks typically flow in excess of 10 MMCF of natural gas
per
day and contain reserves in the 20 to 50 BCF range.
We
are
completing preliminary geological and geophysical interpretations of the 3D
seismic data, and plan to reprocess the 3D data, finalize the interpretations,
and identify drillable prospects. We then plan to acquire oil and gas leases
over those prospects, and to negotiate joint ventures with other companies,
who
will be able to earn interests in the leases by drilling one or more exploratory
wells on the prospects.
Markets
and Customers
The
market for oil and natural gas that we will produce depends on factors beyond
our control, including the extent of domestic production and imports of oil
and
natural gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, demand for oil and natural gas, the marketing of
competitive fuels and the effects of state and federal regulation. The oil
and
gas industry also competes with other industries in supplying the energy and
fuel requirements of industrial, commercial and individual
consumers.
Our
oil
production is expected to be sold at prices tied to the spot oil markets. Our
natural gas production is expected to be sold under short-term contracts and
priced based on first of the month index prices or on daily spot market prices.
Regulations
General
Our
business is affected by numerous laws and regulations, including energy,
environmental, conservation, tax and other laws and regulations relating to
the
energy industry. Most of our drilling operations will require permit or
authorizations from federal, state or local agencies. Changes in any of these
laws and regulations or the denial or vacating of permits could have a material
adverse effect on our business. In view of the many uncertainties with respect
to current and future laws and regulations, including their applicability to
us,
we cannot predict the overall effect of such laws and regulations on our future
operations.
We
believe that our operations comply in all material respects with applicable
laws
and regulations. There are no pending or threatened enforcement actions related
to any such laws or regulations. We believe that the existence and enforcement
of such laws and regulations will have no more restrictive an effect on our
operations than on other similar companies in the energy industry.
Proposals
and proceedings that might affect the oil and gas industry are pending before
Congress, the Federal Energy Regulatory Commission (“FERC”), state legislatures
and commissions and the courts. We cannot predict when or whether any such
proposals may become effective. In the past, the natural gas industry has been
heavily regulated. There is no assurance that the regulatory approach currently
pursued by various agencies will continue indefinitely. Notwithstanding the
foregoing, we do not anticipate that compliance with existing federal, state
and
local laws, rules and regulations will have a material adverse effect upon
our
capital expenditures, earnings or competitive position.
Federal
Regulation of Sales and Transportation of Natural Gas
Historically,
the transportation and sale of natural gas and its component parts in interstate
commerce has been regulated under several laws enacted by Congress and the
regulations passed under these laws by FERC. Our sales of natural gas, including
condensate and liquids, may be affected by the availability, terms and cost
of
transportation. The price and terms of access to pipeline transportation are
subject to extensive federal and state regulation. From 1985 to the present,
several major regulatory changes have been implemented by Congress and FERC
that
affect the economics of natural gas production, transportation and sales. In
addition, FERC is continually proposing and implementing new rules and
regulations affecting those segments of the natural gas industry, most notably
interstate natural gas transmission companies that remain subject to FERC’s
jurisdiction. These initiatives may also affect the intrastate transportation
of
gas under certain circumstances. The stated purpose of many of these regulatory
changes is to promote competition among the various sectors of the natural
gas
industry.
The
ultimate impact of the complex rules and regulations issued by FERC cannot
be
predicted. In addition, many aspects of these regulatory developments have
not
become final but are still pending judicial and final FERC decisions. We cannot
predict what further action FERC will take on these matters. Some of FERC’s more
recent proposals may, however, adversely affect the availability and reliability
of interruptible transportation service on interstate pipelines. We do not
believe that we will be affected by any action taken materially differently
than
other natural gas producers, gatherers and marketers with whom we
compete.
State
Regulation
Our
operations are also subject to regulation at the state and in some cases,
county, municipal and local governmental levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements
in
order to drill or operate wells and regulating the location of wells, the method
of drilling and casing wells, the surface use and restoration of properties
upon
which wells are drilled, the plugging and abandonment of wells and the disposal
of fluids used and produced in connection with operations. Our operations are
also subject to various conservation laws and regulations pertaining to the
size
of drilling and spacing units or proration units and the unitization or pooling
of oil and gas properties.
In
addition, state conservation laws, which frequently establish maximum rates
of
production from oil and gas wells, generally prohibit the venting or flaring
of
gas and impose certain requirements regarding the rates of production. State
regulation of gathering facilities generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take requirements,
but, except as noted above, does not generally entail rate regulation. These
regulatory burdens may affect profitability, but we are unable to predict the
future cost or impact of complying with such regulations.
Environmental
Matters
General
We
are
subject to extensive federal, state and local environmental laws and regulations
relating to water, air, hazardous substances and wastes, and threatened or
endangered species that restrict or limit our business activities for purposes
of protecting human health and the environment. Compliance with the multitude
of
regulations issued by federal, state, and local administrative agencies can
be
burdensome and costly. State environmental regulatory programs are generally
very similar to the corresponding federal environmental regulatory programs,
and
federal environmental regulatory programs are often delegated to the
states.
Our
oil
and gas exploration and production operations are subject to state and/or
federal solid waste regulations that govern the storage, treatment and disposal
of solid and hazardous wastes. However, much of the solid waste that will be
generated by our oil and gas exploration and production activities is exempt
from regulation under federal, and many state, regulatory programs. To the
extent our operations generate solid waste, such waste is generally subject
to
state regulations. We will comply with solid waste regulations in the normal
course of business.
In
addition to solid and hazardous waste, our production operations may generate
produced water as a waste material. This water can sometimes be disposed of
by
discharging it to surface waters under discharge permits issued pursuant to
the
Clean Water Act, or an equivalent state program. Another common method of
produced water disposal is subsurface injection in disposal wells. Such disposal
wells are permitted under the Safe Drinking Water Act, or an equivalent state
regulatory program. The drilling, completion, and operation of produced water
disposal wells are integral to oil and gas operations.
Air
emissions and exhaust from gas-fired generators and from other equipment, such
as gas compressors, are potentially subject to regulations under the Clean
Air
Act, or equivalent state regulatory programs. To the extent that our air
emissions are regulated, they are generally regulated by permits issued by
state
regulatory agencies. We will obtain air permits, where needed, in the normal
course of business.
In
the
event that spills or releases of crude oil or produced water occur, we would
be
subject to spill notification and response regulations under the Clean Water
Act, or equivalent state regulatory programs. Depending on the nature and
location of our operations, we may also be required to prepare spill prevention,
control and countermeasure response plans under the Clean Water Act, or
equivalent state regulatory programs. Response costs could be high and may
have
a material adverse effect on our operations. We may not be fully insured for
these costs.
Failure
to comply with environmental regulations may result in the imposition of
substantial administrative, civil, or criminal penalties, or restrict or
prohibit our desired business activities. Environmental laws and regulations
impose liability, sometimes strict liability, for environmental cleanup costs
and other damages. Other environmental laws and regulations may delay or
prohibit exploration and production activities in environmentally sensitive
areas or impose additional costs on these activities.
Costs
associated with responding to a major spill of crude oil or produced water,
or
costs associated with remediation of environmental contamination, are the most
likely occurrences that could result in a material adverse effect on our
business, financial condition and results of operations. In addition, changes
in
applicable federal, state and local environmental laws and regulations
potentially could have a material adverse effect on our business, financial
condition and results of operations.
Competition
The
oil
and gas industry is highly competitive. Competitors include major oil companies,
other independent energy companies and individual producers and operators,
many
of which have financial resources, personnel and facilities substantially
greater than we have. We face intense competition for the acquisition of oil
and
gas leases and properties. For a more thorough discussion of how competition
could impact our ability to successfully complete our business strategy, see
“Risk Factors — Competition in Obtaining Rights to Explore and Develop Oil and
Gas Reserves and to Market Our Production May Impair Our Business.”
Employees
As
of
March 1, 2006 we had three full-time employees. None of our employees is
represented by a labor union, and we consider our employee relations to be
good.
Legal
Proceedings
From
time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings or claims are pending against or involve us
that, in the opinion of our management, could reasonably be expected to have
a
material adverse effect on our business and financial condition.
Available
Information
We
are
subject to the reporting requirements of the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”). Reports filed with the SEC pursuant to the
Exchange Act, including proxy statements, annual and quarterly reports, and
other reports we file, can be inspected and copied at the public reference
facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549.
Investors may obtain information on the operation of the public reference room
by calling the SEC at 1-800-SEC-0330. Investors can request copies of these
documents upon payment of a duplicating fee by writing to the SEC. The reports
we file with the SEC are also available on the SEC’s Internet site
(http://www.sec.gov).
RISK
FACTORS
An
investment in the Company involves a high degree of risk. Investors should
carefully consider the risks below before making an investment decision. Our
business, financial condition or results of operations could be materially
adversely affected by any of these risks. In such case, the trading price of
the
Common Stock could decline and investors could lose all or part of their
investment.
As
used in this section, and unless the context clearly indicates otherwise, “we,”
“us,” “our,” “Brasada” and the “Company,” prior to giving effect to the Merger,
refer to Brasada California, Inc., the operations of which are expected to
be
the primary operations of the combined Foothills - Brasada entity following
the
Merger. After giving effect to the Merger, the combined Brasada - Foothills
entity is referred to in this section as “Foothills,” “we,” “us,” “our” and the
“Company.” Please refer to the other information contained in this Current
Report on Form 8-K (including the financial statements) for further details
pertaining to the Company’s business and financial condition.
RISKS
RELATED TO OUR BUSINESS
We
are a
new enterprise engaged in the business of oil and gas exploration and
development. The business of acquiring, exploring for, developing and producing
oil and natural gas reserves is inherently risky.
We
are a Development Stage Company With Limited Operating History for Investors
to
Evaluate Our Business. We May Never Attain Profitability.
We
are a
development stage company and have limited current oil or natural gas
operations. As an oil and gas acquisition, exploration and development company
with limited operating history, it is difficult for potential investors to
evaluate our business. Our proposed operations are therefore subject to all
of
the risks inherent in light of the expenses, difficulties, complications and
delays frequently encountered in connection with the formation of any new
business, as well as those risks that are specific to the oil and gas industry.
Investors should evaluate us in light of the delays, expenses, problems and
uncertainties frequently encountered by companies developing markets for new
products, services and technologies. We may never overcome these
obstacles.
Our
business is speculative and dependent upon the implementation of our business
plan and our ability to enter into agreements with third parties for the rights
to exploit potential oil and natural gas reserves on terms that will be
commercially viable for us.
Our
Lack of Diversification Will Increase the Risk of an Investment in Foothills,
and
Our Financial Condition and Results of Operations May Deteriorate if We Fail
to
Diversify.
Our
business will focus on the oil and gas industry in a limited number of
properties, initially in California and Oklahoma with the intention of expanding
elsewhere. Larger companies have the ability to manage their risk by
diversification. However, we will lack diversification, in terms of both the
nature and geographic scope of our business. As a result, we will likely be
impacted more acutely by factors affecting our industry or the regions in which
we operate than we would if our business were more diversified, enhancing our
risk profile. If we cannot diversify our operations, our financial condition
and
results of operations could deteriorate.
Strategic
Relationships Upon Which We May Rely are Subject to Change, Which May Diminish
Our Ability to Conduct Our Operations.
Our
ability to successfully acquire additional properties, to discover reserves,
to
participate in drilling opportunities and to identify and enter into commercial
arrangements with customers will depend on developing and maintaining close
working relationships with industry participants and on our ability to select
and evaluate suitable properties and to consummate transactions in a highly
competitive environment. These realities are subject to change and may impair
our ability to grow.
To
develop our business, we will endeavor to use the business relationships of
our
management to enter into strategic relationships, which may take the form of
joint ventures with other private parties and contractual arrangements with
other oil and gas companies, including those that supply equipment and other
resources that we will use in our business. We may not be able to establish
these strategic relationships, or if established, we may not be able to maintain
them. In addition, the dynamics of our relationships with strategic partners
may
require us to incur expenses or undertake activities we would not otherwise
be
inclined to in order to fulfill our obligations to these partners or maintain
our relationships. If our strategic relationships are not established or
maintained, our business prospects may be limited, which could diminish our
ability to conduct our operations.
Competition
in Obtaining Rights to Explore and Develop Oil and Gas Reserves and to Market
Our Production May Impair Our Business.
The
oil
and gas industry is highly competitive. Other oil and gas companies may seek
to
acquire oil and gas leases and other properties and services we will need to
operate our business in the areas in which we expect to operate. This
competition is increasingly intense as prices of oil and natural gas on the
commodities markets have risen in recent years. Additionally, other companies
engaged in our line of business may compete with us from time to time in
obtaining capital from investors. Competitors include larger companies, which,
in particular, may have access to greater resources, may be more successful
in
the recruitment and retention of qualified employees and may conduct their
own
refining and petroleum marketing operations, which may give them a competitive
advantage. In addition, actual or potential competitors may be strengthened
through the acquisition of additional assets and interests. If we are unable
to
compete effectively or adequately respond to competitive pressures, this
inability may materially adversely affect our results of operation and financial
condition.
We
May Be Unable to Obtain Additional Capital That We Will Require to Implement
Our
Business Plan, Which Could Restrict Our Ability to Grow.
We
expect
that our current capital and our other existing resources will be sufficient
only to provide a limited amount of working capital, and the revenues generated
from our properties in California and Oklahoma alone will not alone be
sufficient to fund our operations or planned growth. We will require additional
capital to continue to operate our business beyond the initial phase of our
current properties, and to expand our exploration and development programs
to
additional properties. We may be unable to obtain additional capital required.
Furthermore, inability to maintain capital may damage our reputation and
credibility with industry participants in the event we cannot close previously
announced transactions.
Future
acquisitions and future exploration, development, production and marketing
activities, as well as our administrative requirements (such as salaries,
insurance expenses and general overhead expenses, as well as legal compliance
costs and accounting expenses) will require a substantial amount of additional
capital and cash flow.
We
plan
to pursue sources of such capital through various financing transactions or
arrangements, including joint venturing of projects, debt financing, equity
financing or other means. We may not be successful in locating suitable
financing transactions in the time period required or at all, and we may not
obtain the capital we require by other means. If we do not succeed in raising
additional capital, the capital received through the Offering may not be
sufficient to fund our operations going forward without obtaining additional
capital financing.
Any
additional capital raised through the sale of equity may dilute the ownership
percentages of existing stockholders. This could also result in a decrease
in
the fair market value of our equity securities because our assets would be
owned
by a larger pool of outstanding equity. The terms of securities we issue in
future capital transactions may be more favorable to our new investors, and
may
include preferences, superior voting rights and the issuance of warrants or
other derivative securities, and issuances of incentive awards under equity
employee incentive plans, which may have a further dilutive effect.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets (both generally and in the oil and gas industry in particular),
our status as a new enterprise without a demonstrated operating history, the
location of our oil and natural gas properties and prices of oil and natural
gas
on the commodities markets (which will impact the amount of asset-based
financing available to us) and/or the loss of key management. Further, if oil
and/or natural gas prices on the commodities markets decrease, then our revenues
will likely decrease, and such decreased revenues may increase our requirements
for capital. If the amount of capital we are able to raise from financing
activities, together with our revenues from operations, is not sufficient to
satisfy our capital needs (even to the extent that we reduce our operations),
we
may be required to cease our operations.
We
may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities
we
may issue, such as convertible notes and warrants, which may adversely impact
our financial condition.
We
May Not Be Able To Effectively Manage Our Growth, Which May Harm Our
Profitability.
Our
strategy envisions expanding our business. If we fail to effectively manage
our
growth, our financial results could be adversely affected. Growth may place
a
strain on our management systems and resources. We must continue to refine
and
expand our business development capabilities, our systems and processes and
our
access to financing sources. As we grow, we must continue to hire, train,
supervise and manage new employees. We cannot assure investors that we will
be
able to:
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meet
our capital needs;
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expand
our systems effectively or efficiently or in a timely manner;
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allocate
our human resources optimally;
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identify
and hire qualified employees or retain valued employees; or
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incorporate
effectively the components of any business that we may acquire in
our
effort to achieve growth.
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If
we are
unable to manage our growth, our operations and our financial results could
be
adversely affected by inefficiency, which could diminish our profitability.
Our
Business May Suffer If We Do Not Attract and Retain Talented
Personnel.
Our
success will depend in large measure on the abilities, expertise, judgment,
discretion integrity and good faith of our management and other personnel in
conducting the business of the Company. We have a small management team, and
the
loss of a key individual or inability to attract suitably qualified staff could
materially adversely impact our business.
Our
success depends on the ability of our management and employees to interpret
market and geological data correctly and to interpret and respond to economic
market and other conditions in order to locate and adopt appropriate investment
opportunities, monitor such investments, and ultimately, if required, to
successfully divest such investments. Further, no assurance can be given that
our key personnel will continue their association or employment with us or
that
replacement personnel with comparable skills can be found. We have sought to
and
will continue to ensure that management and any key employees are appropriately
compensated; however, their services cannot be guaranteed. If we are unable
to
attract and retain key personnel, our business may be adversely affected.
Our
Management Team Does Not Have Extensive Experience in Public Company Matters,
Which
Could Impair Our Ability to Comply With Legal and Regulatory
Requirements.
Our
management team has had limited U.S. public company management experience or
responsibilities, which could impair our ability to comply with legal and
regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable
federal securities laws including filing required reports and other information
required on a timely basis. There can be no assurance that our management will
be able to implement and affect programs and policies in an effective and timely
manner that adequately respond to increased legal, regulatory compliance and
reporting requirements imposed by such laws and regulations. Our failure to
comply with such laws and regulations could lead to the imposition of fines
and
penalties and further result in the deterioration of our business.
Risks
Related to our Prior Business May Adversely Affect our
Business.
Foothills’
business prior to the Merger involved mineral exploration. In 2001, Foothills
acquired a mining lease on a total of five unpatented lode mineral claims
property located in the State of Nevada. Subsequent to Foothills’ fiscal year
ended December 31, 2004, Foothills decided to abandon the property and terminate
the claims and has since been in the process of reviewing other potential
resource and non-resource assets for acquisition. We have determined not to
pursue this line of business following the Merger, but could still be subject
to
claims arising from the former Foothills business. These claims may arise from
Foothills’ operating activities (such as employee and labor matters), financing
and credit arrangements or other commercial transactions. While no claims are
pending and we have no actual knowledge of any threatened claims, it is possible
that third parties may seek to make claims against us based on Foothills’ former
business operations. Such claims are unlikely because the five mineral claims
were never operated and Foothills was released by the lessor of the claims.
Even
if such asserted claims were without merit and we were ultimately found to
have
no liability for such claims, the defense costs and the distraction of
management’s attention may harm the growth and profitability of our business.
While the relevant definitive agreements executed in connection with the Merger
provide indemnities to us for liabilities arising from the prior business
activities of Foothills, these indemnities may not be sufficient to fully
protect us from all costs and expenses.
RISKS
RELATED TO OUR INDUSTRY
Our
Exploration for Oil and Gas Is Risky and May Not Be Commercially Successful,
Impairing Our Ability to Generate Revenues from Our
Operations.
Oil
and
gas exploration involves a high degree of risk. These risks are more acute
in
the early stages of exploration. Our expenditures on exploration may not result
in new discoveries of oil or natural gas in commercially viable quantities.
It
is difficult to project the costs of implementing an exploratory drilling
program due to the inherent uncertainties of drilling in unknown formations,
the
costs associated with encountering various drilling conditions, such as
over-pressured zones and tools lost in the hole, and changes in drilling plans
and locations as a result of prior exploratory wells or additional seismic
data
and interpretations thereof. If exploration costs exceed our estimates, or
if
our exploration efforts do not produce results which meet our expectations,
our
exploration efforts may not be commercially successful, which could adversely
impact our ability to generate revenues from our operations.
We
May Not Be Able to Develop Oil and Gas Reserves on an Economically Viable Basis,
and Our Reserves and Production May Decline as a Result.
To
the
extent that we succeed in discovering oil and/or natural gas reserves, we cannot
assure that these reserves will be capable of production levels we project
or in
sufficient quantities to be commercially viable. On a long-term basis, our
viability depends on our ability to find or acquire, develop and commercially
produce additional oil and natural gas reserves. Without the addition of
reserves through acquisition, exploration or development activities, our
reserves and production will decline over time as reserves are produced. Our
future reserves will depend not only on our ability to develop then-existing
properties, but also on our ability to identify and acquire additional suitable
producing properties or prospects, to find markets for the oil and natural
gas
we develop and to effectively distribute our production into our
markets.
Future
oil and gas exploration may involve unprofitable efforts, not only from dry
wells, but from wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery
of
drilling, completion and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and various
field operating conditions may adversely affect the production from successful
wells. These conditions include delays in obtaining governmental approvals
or
consents, shut-downs of connected wells resulting from extreme weather
conditions, problems in storage and distribution and adverse geological and
mechanical conditions. While we will endeavor to effectively manage these
conditions, we cannot be assured of doing so optimally, and we will not be
able
to eliminate them completely in any case. Therefore, these conditions could
diminish our revenue and cash flow levels and result in the impairment of our
oil and natural gas interests.
Estimates
of Oil and Natural Gas Reserves that We Make May Be Inaccurate and Our Actual
Revenues May Be Lower than Our Financial Projections.
We
will
make estimates of oil and natural gas reserves, upon which we will base our
financial projections. We will make these reserve estimates using various
assumptions, including assumptions as to oil and natural gas prices, drilling
and operating expenses, capital expenditures, taxes and availability of funds.
Some of these assumptions are inherently subjective, and the accuracy of our
reserve estimates relies in part on the ability of our management team,
engineers and other advisors to make accurate assumptions. Economic factors
beyond our control, such as interest rates, will also impact the value of our
reserves. The process of estimating oil and natural gas reserves is complex,
and
will require us to use significant decisions and assumptions in the evaluation
of available geological, geophysical, engineering and economic data for each
property. As a result, our reserve estimates will be inherently imprecise.
Actual future production, oil and natural gas prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable
oil
and natural gas reserves may vary substantially from those we estimate. If
actual production results vary substantially from our reserve estimates, this
could materially reduce our revenues and result in the impairment of our oil
and
natural gas interests.
Drilling
New Wells Could Result in New Liabilities, Which Could Endanger Our Interests
in
Our Properties and Assets.
There
are
risks associated with the drilling of oil and natural gas wells, including
encountering unexpected formations or pressures, premature declines of
reservoirs, blow-outs, craterings, sour gas releases, fires and spills. The
occurrence of any of these events could significantly reduce our revenues or
cause substantial losses, impairing our future operating results. We may become
subject to liability for pollution, blow-outs or other hazards. We intend to
obtain insurance with respect to these hazards; however, such insurance has
limitations on liability that may not be sufficient to cover the full extent
of
such liabilities. The payment of such liabilities could reduce the funds
available to us or could, in an extreme case, result in a total loss of our
properties and assets. Moreover, we may not be able to maintain adequate
insurance in the future at rates that are considered reasonable. Oil and natural
gas production operations are also subject to all the risks typically associated
with such operations, including premature decline of reservoirs and the invasion
of water into producing formations.
Decommissioning
Costs Are Unknown and May be Substantial; Unplanned Costs Could Divert Resources
from Other Projects.
We
may
become responsible for costs associated with abandoning and reclaiming wells,
facilities and pipelines which we use for production of oil and natural gas
reserves. Abandonment and reclamation of these facilities and the costs
associated therewith is often referred to as “decommissioning.” We have not yet
determined whether we will establish a cash reserve account for these potential
costs in respect of any of our properties or facilities, or if we will satisfy
such costs of decommissioning from the proceeds of production in accordance
with
the practice generally employed in onshore and offshore oilfield operations.
If
decommissioning is required before economic depletion of our properties or
if
our estimates of the costs of decommissioning exceed the value of the reserves
remaining at any particular time to cover such decommissioning costs, we may
have to draw on funds from other sources to satisfy such costs. The use of
other
funds to satisfy such decommissioning costs could impair our ability to focus
capital investment in other areas of our business.
Our
Inability to Obtain Necessary Facilities Could Hamper Our
Operations.
Oil
and
gas exploration and development activities are dependent on the availability
of
drilling and related equipment, transportation, power and technical support
in
the particular areas where these activities will be conducted, and our access
to
these facilities may be limited. To the extent that we conduct our activities
in
remote areas, needed facilities may not be proximate to our operations, which
will increase our expenses. Demand for such limited equipment and other
facilities or access restrictions may affect the availability of such equipment
to us and may delay exploration and development activities. The quality and
reliability of necessary facilities may also be unpredictable and we may be
required to make efforts to standardize our facilities, which may entail
unanticipated costs and delays. Shortages and/or the unavailability of necessary
equipment or other facilities will impair our activities, either by delaying
our
activities, increasing our costs or otherwise.
We
May Have Difficulty Distributing Our Production, Which Could Harm Our Financial
Condition.
In
order
to sell the oil and natural gas that we are able to produce, we will have to
make arrangements for storage and distribution to the market. We will rely
on
local infrastructure and the availability of transportation for storage and
shipment of our products, but infrastructure development and storage and
transportation facilities may be insufficient for our needs at commercially
acceptable terms in the localities in which we operate. This could be
particularly problematic to the extent that our operations are conducted in
remote areas that are difficult to access, such as areas that are distant from
shipping and/or pipeline facilities. These factors may affect our ability to
explore and develop properties and to store and transport our oil and natural
gas production and may increase our expenses.
Furthermore,
weather conditions or natural disasters, actions by companies doing business
in
one or more of the areas in which we will operate, or labor disputes may impair
the distribution of oil and/or natural gas and in turn diminish our financial
condition or ability to maintain our operations.
Prices
and Markets for Oil and Natural Gas Are Unpredictable and Tend to Fluctuate
Significantly, Which Could Reduce Profitability, Growth and the Value of Our
Business.
Oil
and
natural gas are commodities whose prices are determined based on world demand,
supply and other factors, all of which are beyond our control. World prices
for
oil and natural gas have fluctuated widely in recent years, and rose to
near-record levels in 2005. The average price for West Texas Intermediate oil
in
1999 was $22 per barrel. In 2002 it was $27 per barrel. In 2005, it was $57
per
barrel. We expect that prices will fluctuate in the future. Price fluctuations
will have a significant impact upon our revenue, the return from our reserves
and on our financial condition generally. Price fluctuations for oil and natural
gas commodities may also impact the investment market for companies engaged
in
the oil and gas industry. Prices may not remain at current levels. Future
decreases in the prices of oil and natural gas may have a material adverse
effect on our financial condition, the future results of our operations and
quantities of reserves recoverable on an economic basis.
Increases
in Our Operating Expenses will Impact Our Operating Results and Financial
Condition.
Exploration,
development, production, marketing (including distribution costs) and regulatory
compliance costs (including taxes) will substantially impact the net revenues
we
derive from the oil and natural gas that we produce. These costs are subject
to
fluctuations and variation in different locales in which we will operate, and
we
may not be able to predict or control these costs. If these costs exceed our
expectations, this may adversely affect our results of operations. In addition,
we may not be able to earn net revenue at our predicted levels, which may impact
our ability to satisfy our obligations.
Penalties
We May Incur Could Impair Our Business.
Failure
to comply with government regulations could subject us to civil and criminal
penalties, could require us to forfeit property rights, and may affect the
value
of our assets. We may also be required to take corrective actions, such as
installing additional equipment or taking other actions, each of which could
require us to make substantial capital expenditures. We could also be required
to indemnify our employees in connection with any expenses or liabilities that
they may incur individually in connection with regulatory action against them.
As a result, our future business prospects could deteriorate due to regulatory
constraints, and our profitability could be impaired by our obligation to
provide such indemnification to our employees.
Environmental
Risks May Adversely Affect Our Business.
All
phases of the oil and gas business present environmental risks and hazards
and
are subject to environmental regulation pursuant to a variety of federal, state
and municipal laws and regulations. Environmental legislation provides for,
among other things, restrictions and prohibitions on spills, releases or
emissions of various substances produced in association with oil and gas
operations. The legislation also requires that wells and facility sites be
operated, maintained, abandoned and reclaimed to the satisfaction of applicable
regulatory authorities. Compliance with such legislation can require significant
expenditures and a breach may result in the imposition of fines and penalties,
some of which may be material. Environmental legislation is evolving in a manner
we expect may result in stricter standards and enforcement, larger fines and
liability and potentially increased capital expenditures and operating costs.
The discharge of oil, natural gas or other pollutants into the air, soil or
water may give rise to liabilities to governments and third parties and may
require us to incur costs to remedy such discharge. The application of
environmental laws to our business may cause us to curtail our production or
increase the costs of our production, development or exploration
activities.
Our
Insurance May Be Inadequate to Cover Liabilities We May Incur.
Our
involvement in the exploration for and development of oil and gas properties
may
result in our becoming subject to liability for pollution, blow-outs, property
damage, personal injury or other hazards. Although we will obtain insurance
in
accordance with industry standards to address such risks, such insurance has
limitations on liability that may not be sufficient to cover the full extent
of
such liabilities. In addition, such risks may not, in all circumstances, be
insurable or, in certain circumstances, we may choose not to obtain insurance
to
protect against specific risks due to the high premiums associated with such
insurance or for other reasons. The payment of such uninsured liabilities would
reduce the funds available to us. If we suffer a significant event or occurrence
that is not fully insured, or if the insurer of such event is not solvent,
we
could be required to divert funds from capital investment or other uses towards
covering our liability for such events.
Our
Business Will Suffer if We Cannot Obtain or Maintain Necessary
Licenses.
Our
operations will require licenses, permits and in some cases renewals of licenses
and permits from various governmental authorities. Our ability to obtain,
sustain or renew such licenses and permits on acceptable terms is subject to
change in regulations and policies and to the discretion of the applicable
governments, among other factors. Our inability to obtain, or our loss of or
denial of extension, to any of these licenses or permits could hamper our
ability to produce revenues from our operations.
Challenges
to Our Properties May Impact Our Financial Condition.
Title
to
oil and gas interests is often not capable of conclusive determination without
incurring substantial expense. While we intend to make appropriate inquiries
into the title of properties and other development rights we acquire, title
defects may exist. In addition, we may be unable to obtain adequate insurance
for title defects, on a commercially reasonable basis or at all. If title
defects do exist, it is possible that we may lose all or a portion of our right,
title and interests in and to the properties to which the title defects
relate.
If
our
property rights are reduced, our ability to conduct our exploration, development
and production activities may be impaired.
We
Will Rely on Technology to Conduct Our Business and Our Technology Could Become
Ineffective Or Obsolete.
We
rely
on technology, including geographic and seismic analysis techniques and economic
models, to develop our reserve estimates and to guide our exploration,
development and production activities. We will be required to continually
enhance and update our technology to maintain its efficacy and to avoid
obsolescence. The costs of doing so may be substantial, and may be higher than
the costs that we anticipate for technology maintenance and development. If
we
are unable to maintain the efficacy of our technology, our ability to manage
our
business and to compete may be impaired. Further, even if we are able to
maintain technical effectiveness, our technology may not be the most efficient
means of reaching our objectives, in which case we may incur higher operating
costs than we would were our technology more efficient.
RISKS
RELATED TO OUR COMMON STOCK
There
Has Been No Established Trading Market for the Common Stock.
There
has
been no established trading market for the Common Stock in the context of the
business that the Company will operate after the Merger. The lack of an active
market may impair investors’ ability to sell their shares at the time they wish
to sell them or at a price that they consider reasonable. The lack of an active
market may also reduce the fair market value of investors’ shares. An inactive
market may also impair our ability to raise capital by selling shares of capital
stock and may impair our ability to acquire other companies or technologies
by
using Common Stock as consideration.
Investors
May Have Difficulty Trading and Obtaining Quotations for Our Common Stock.
The
Common Stock is currently quoted on the NASD’s Over-the-Counter Bulletin Board
under the symbol “FTRS.OB.” The Common Stock is not actively traded, and the bid
and asked prices for our Common Stock have fluctuated widely. As a result,
investors may find it difficult to dispose of, or to obtain accurate quotations
of the price of, our securities. This severely limits the liquidity of the
Common Stock, and would likely reduce the market price of the Common Stock
and
our hamper ability to raise additional capital.
The
Market Price of Our Common Stock Is, and Is Likely to Continue to Be, Highly
Volatile and Subject to Wide Fluctuations.
The
market price of the Common Stock following the Closing Date is likely to be
highly volatile and could be subject to wide fluctuations in response to a
number of factors that are beyond our control, including:
| |
§
|
dilution
caused by our issuance of additional shares of Common Stock and other
forms of equity securities, which we expect to make in connection
with
future capital financings to fund our operations and growth, to attract
and retain valuable personnel and in connection with future strategic
partnerships with other companies;
|
| |
§
|
announcements
of new acquisitions, reserve discoveries or other business initiatives
by
our competitors;
|
| |
§
|
fluctuations
in revenue from our oil and gas business as new reserves come to
market;
|
| |
§
|
changes
in the market for oil and natural gas commodities and/or in the capital
markets generally;
|
| |
§
|
changes
in the demand for oil and natural gas, including changes resulting
from
the introduction or expansion of alternative fuels;
|
| |
§
|
quarterly
variations in our revenues and operating
expenses;
|
| |
§
|
changes
in the valuation of similarly situated companies, both in our industry
and
in other industries;
|
| |
§
|
changes
in analysts’ estimates affecting our company, our competitors and/or our
industry;
|
| |
§
|
changes
in the accounting methods used in or otherwise affecting our
industry;
|
| |
§
|
additions
and departures of key personnel;
|
| |
§
|
announcements
of technological innovations or new products available to the oil
and gas
industry;
|
| |
§
|
announcements
by relevant governments pertaining to incentives for alternative
energy
development programs;
|
| |
§
|
fluctuations
in interest rates and the availability of capital in the capital
markets;
and
|
| |
§
|
significant
sales of our Common Stock, including sales by the investors following
registration of the shares of Common Stock issued in this Offering
and/or
future investors in future offerings we expect to make to raise additional
capital.
|
These
and
other factors are largely beyond our control, and the impact of these risks,
singly or in the aggregate, may result in material adverse changes to the market
price of our Common Stock and/or our results of operations and financial
condition.
Our
Operating Results May Fluctuate Significantly, and These Fluctuations May Cause
Our Stock Price to Decline.
Our
operating results will likely vary in the future primarily as the result of
fluctuations in our revenues and operating expenses, including the coming to
market of oil and natural gas reserves that we are able to develop, expenses
that we incur, the prices of oil and natural gas in the commodities markets
and
other factors. If our results of operations do not meet the expectations of
current or potential investors, the price of our Common Stock may
decline.
We
Do
Not Expect to Pay Dividends In the Foreseeable Future.
We
do not
intend to declare dividends for the foreseeable future, as we anticipate that
we
will reinvest any future earnings in the development and growth of our business.
Therefore, investors will not receive any funds unless they sell their Common
Stock, and stockholders may be unable to sell their shares on favorable terms
or
at all. Investors cannot be assured of a positive return on investment or that
they will not lose the entire amount of their investment in the Common
Stock.
Investors
Will Experience Dilution Upon the Exercise of Warrants or
Options.
There
are
11,537,257
shares
of
common stock underlying warrants issued to purchasers of the Units, which if
exercised or converted, could decrease the net tangible book value of investors’
Common Stock. In addition, there are 2,000,000 shares of Common Stock underlying
options that may be granted pursuant to the Plan. If the holders of those
options exercise those options, investors may experience dilution in the net
tangible book value of their Common Stock. Further, the sale or availability
for
sale of the underlying shares in the marketplace could depress our stock price.
We have registered or agreed to register for resale all of the underlying shares
described above. Holders of registered underlying shares could resell the shares
immediately upon registration, resulting in significant downward pressure on
our
stock price.
Directors
and Officers of the Company Will Have a High Concentration of Common Stock
Ownership.
Based
on
the 45,883,009
shares
of
Common Stock that are outstanding as of the Closing Date, our officers and
directors will beneficially own approximately 28.0%
of our
outstanding Common Stock. Such a high level of ownership by such persons may
have a significant effect in delaying, deferring or preventing any potential
change in control of Foothills. Additionally, as a result of their high level
of
ownership, our officers and directors might be able to strongly influence the
actions of the Board and the outcome of actions brought to our shareholders
for
approval. Such a high level of ownership may adversely affect the voting and
other rights of our shareholders.
Applicable
SEC Rules Governing the Trading of “Penny Stocks” Limit the Trading and
Liquidity of the Common Stock, Which May Affect the Trading Price of the Common
Stock.
Shares
of
Common Stock may be considered a “penny stock” and be subject to SEC rules and
regulations which impose limitations upon the manner in which such shares may
be
publicly traded and regulate broker-dealer practices in connection with
transactions in “penny stocks.” Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer’s account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock, the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have
the
effect of reducing the level of trading activity in the secondary market for
a
stock that becomes subject to the penny stock rules which may increase the
difficulty investors may experience in attempting to liquidate such securities.
2.
MANAGEMENT’S PLAN OF OPERATION
A
discussion of our past financial results is not pertinent to the business plan
of the Company on a going forward basis, as the result of the change in our
business and operations from a pre-exploration stage company prior to the Merger
and Split-off to a company engaged in the acquisition, exploration and
development of oil and natural gas properties following the
Transactions.
After
giving effect to the Transactions, our cash balance is expected to be
approximately $9 million, representing net proceeds received from the private
placement of securities, less amounts expended to date from the proceeds of
the
Bridge Financing and costs associated with the Transactions. This
amount is expected to be sufficient to complete Phase I and a portion of Phase
II under the INNEX Agreement, and to conduct certain other activities during
the
next 12 months.
The
following describes our current business plan, including a summary of planned
acquisition, exploration and development opportunities, our ability to satisfy
our cash requirements, and our need to raise additional funds over the next
year.
|
·
|
In
Phase I of the Eel River Project, we have an obligation to pay 100%
of the
costs of drilling two wells, acquiring additional leasehold acres,
and
certain other activities. We are completing drilling plans for the
two
Phase I wells, including location selection, well design, and services
and
equipment procurement. We expect to drill these wells during the
second
quarter of 2006. We have also initiated a leasing program to significantly
expand the joint venture’s leasehold position in the basin. Following the
drilling of the first two wells and the completion of Phase I, we
will
have the option, but not the obligation, to proceed into Phase II.
If we
elect to proceed into Phase II, we will have an obligation to pay
100% of
the costs of drilling another well to be commenced by the end of
2006 and
of conducting a 3D seismic survey covering not less than 15 square
miles.
Subject to the completion of permitting and regulatory requirements,
we
expect to conduct the 3D seismic survey in the fall of 2006 and to
commence the drilling of the Phase II well in late 2006. Our existing
financial resources are expected to be adequate to complete the Phase
I
activities and a portion of the Phase II activities.
|
|
·
|
On
the Anadarko Project, we are completing preliminary geological and
geophysical interpretations of the 3D seismic data, and plan to reprocess
the 3D data, finalize the interpretations, and identify drillable
prospects. We then plan to acquire oil and gas leases over those
prospects, and to negotiate joint ventures with other companies,
who will
be able to earn interests in the leases by paying some or all of
the costs
of drilling one or more exploratory wells on the prospects. Our existing
financial resources are expected to be adequate to conduct these
activities during the remainder of 2006, although it is possible
that we
will elect to defer some of these activities in order to utilize
the
required funds for other planned activities or
opportunities.
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|
·
|
We
have identified strategic opportunities to acquire existing producing
fields in the United States, including in the Eel River Basin. If
consummated, these acquisitions will provide immediate cash flow
from
existing production, as well as access to proved undeveloped and
probable
reserves and deeper exploration potential through new drilling. Because
the acquisition targets have existing proved developed producing
reserves
and production, we would expect to fund some portion of the acquisition
costs with reserve-based debt financing. Assuming that mutually
satisfactory agreements can be reached with the existing owners of
the
fields, our existing financial resources are expected to be adequate
to
conduct the evaluation of these opportunities, but not sufficient
to
complete the acquisitions.
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|
·
|
We
plan to continue to evaluate exploration and development opportunities
and
appropriate acquisitions. Successful completion of acquisitions will
provide additional cash flow which will allow us to expand our activities
and capabilities, and advance exploration and development
opportunities.
|
|
·
|
We
expect a gradual increase in general and administrative expenses
to
approximately $150,000 per month in the second half of 2006. We expect
to
expand our staff from three to seven employees with additions in
the areas
of land and legal, geoscience, accounting and administration.
|
|
·
|
It
is likely
that we will need to (i) raise additional equity and/or debt financing
during the next 12 months in order to complete these planned activities
or
to access additional opportunities, or (ii) adjust the scope and
extent of
our plans to correspond with our available financial resources.
|
Off-Balance
Sheet Arrangements
We
have
no off-balance sheet arrangements.
3.
DESCRIPTION OF PROPERTY
Our
business strategy is to identify and exploit low risk resources in and adjacent
to existing or indicated producing areas that can be quickly developed and
put
on production at low cost, including the acquisition of producing properties
with exploitation and exploration potential. We will also take advantage of
our
expertise to develop exploratory projects in focus areas and to participate
with
other companies in those areas to explore for oil and natural gas using
state-of-the-art 3D seismic technology. Our management will use its extensive
domestic and international oil and gas experience to establish and grow the
Company.
Our
initial focus is on oil and natural gas properties located in the Eel River
Basin, California and the Anadarko Basin, Oklahoma. We expect to have access
to
additional opportunities on a worldwide scale through a contractual relationship
with Moyes & Co., Inc.
On
January 3, 2006 we entered into the INNEX Agreement. Our assets consist
primarily of the right to acquire interests in existing leasehold acreage
pursuant to the terms of the INNEX Agreement, and certain rights to a 75-square
mile 3D seismic survey covering a portion of the Anadarko Basin in Roger Mills
County, Oklahoma.
Our
principal executive offices are located at 11902 Shanklin Street, Bakersfield,
California 93303 and our phone number is (832) 567-0766. We
are
negotiating a lease for approximately 3,200 square feet of office space which
will serve as our headquarters in Bakersfield, California. We believe that
suitable additional space to accommodate our anticipated growth will be
available in the future on commercially reasonable terms.
4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the expected beneficial
ownership of the Common Stock as of the Closing Date, calculated in accordance
with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended. The table sets forth the beneficial ownership of (i) each person who,
to our knowledge, beneficially owns more than 5% of the outstanding shares
of
Common Stock; (ii) each of the directors and executive officers of the Company;
and (iii) all of our executive officers and directors as a group. Unless
otherwise indicated, the address of each of our directors and executive officers
is 11902 Shanklin Street, Bakersfield, California 93312.
|
Name
and Address of Beneficial Owner
|
|
Number
of Shares Beneficially Owned (1)
|
|
Percentage
of
Common Stock Outstanding
|
|
|
|
|
|
|
|
|
|
John
L. Moran (2)
|
|
|
4,961,719
|
|
|
10.80
|
%
|
|
Dennis
B. Tower (3)
|
|
|
4,899,219
|
|
|
10.63
|
%
|
|
Christopher
P. Moyes (4)
|
|
|
4,403,250
|
|
|
9.59
|
%
|
|
W.
Kirk Bosché (5)
|
|
|
3,331,212
|
|
|
7.24
|
%
|
|
|
|
|
|
|
|
|
|
|
Executive
Officers and Directors as Group
|
|
|
13,192,150
|
|
|
28.52
|
%
|
| |
|
|
|
|
|
|
|
|
(1)
|
Beneficial
ownership is calculated based on 45,883,009
shares
of Common Stock issued and outstanding as of the Closing Date. Beneficial
ownership is determined in accordance with Rule 13d-3 of the SEC.
The
number of shares beneficially owned by a person includes shares of
Common
Stock underlying options or warrants held by that person that are
currently exercisable or exercisable within 60 days of the Closing
Date.
The shares issuable pursuant to the exercise of those options or
warrants
are deemed outstanding for computing the percentage ownership of
the
person holding those options and warrants but are not deemed outstanding
for the purposes of computing the percentage ownership of any other
person. The persons and entities named in the table have sole voting
and
sole investment power with respect to the shares set forth opposite
that
person’s name, subject to community property laws, where applicable,
unless otherwise noted in the applicable footnote.
|
|
(2)
|
Includes
options exercisable within 60 days to acquire 75,000 shares of Common
Stock, granted under the Company’s 2006 Equity Incentive
Plan.
|
|
(3)
|
Includes
warrants to acquire 112,500 shares of Common Stock exercisable within
60
days, and options exercisable within 60 days to acquire 75,000 shares
of
Common Stock, granted under the Company’s 2006 Equity Incentive Plan.
|
|
(4)
|
Includes
4,343,750 shares of Common Stock distributed to affiliates of MMP
LLP, a
Brasada Stockholder, the holders of which have executed an irrevocable
proxy giving Mr. Moyes sole voting power over the shares through
April 6,
2007. Also includes 34,000 shares of Common Stock and warrants to
acquire
25,500 shares of Common Stock exercisable within 60 days, which shares
and
warrants were purchased by Choregus Master Trust, Plan I, Money Purchase
and Choregus Master Trust, Plan II, Profit Sharing in the Offering,
and of
which shares and warrants Mr. Moyes is deemed to be the beneficial
owner.
|
|
(5)
|
Includes
warrants to acquire 54,000 shares of Common Stock exercisable within
60
days, and options exercisable within 60 days to acquire 50,000 shares
of
Common Stock, granted under the Company’s 2006 Equity Incentive
Plan.
|
5.
DIRECTORS AND EXECUTIVE OFFICERS
On
the
Closing Date, the then-current officers of Foothills resigned and,
simultaneously, new officers were elected by the Board. Also on the Closing
Date, J. Earl Terris, the then-sole director of Foothills, appointed Dennis
B.
Tower to the Board. Ten days after the Closing Date, Mr. Terris is expected
to
resign as a member of the Board, and Mr. Tower is expected to name two new
directors to the Board. For more information regarding the changes to our Board,
please see our Information Statement Pursuant to Section 14(F) of the Securities
Exchange Act of 1934, filed with the SEC on April 6, 2006 and incorporated
herein by reference.
Officers
and Directors
The
following persons are executive officers and directors of Foothills following
the Merger, and hold the offices set forth opposite their names:
|
Name
|
|
Age
|
|
Position
|
| |
|
|
|
|
|
Dennis
B. Tower
|
|
59
|
|
Chief
Executive Officer, Director
|
| |
|
|
|
|
|
John
L. Moran
|
|
60
|
|
President
|
| |
|
|
|
|
|
W.
Kirk Bosché
|
|
55
|
|
Chief
Financial Officer
|
| |
|
|
|
|
|
J.
Earl Terris
|
|
60
|
|
Director
|
| |
|
|
|
|
Dennis
B. Tower
Before
joining Brasada as its Chief Executive Officer in 2006, Mr. Tower had extensive
involvement in all phases of new venture exploration, appraisal, project
evaluation and development, asset acquisition and disposal, strategic goals
setting and human resource evaluation. During 2005, Mr. Tower, together with
Messrs. Moran and Bosché, evaluated opportunities that would be appropriate for
launching a new oil and gas exploration and development company, which
ultimately led to the formation of Brasada at the end of 2005. From 2000 through
2004, Mr. Tower served as President and Chief Executive Officer at First
International Oil Corporation, a privately held independent oil company with
extensive holdings in Kazakhstan, where he led the company to a successful
sale
with a major Chinese oil company. Previously, Mr. Tower held several Vice
President, Manager, Director and Geologist positions at Atlantic Richfield
Company (“ARCO”), where he was responsible for the company’s Mozambique drilling
operations, managed the company’s exploration licenses in Myanmar and the
Philippines, coordinated exploration efforts in other Asian countries and
evaluated field redevelopment and asset acquisition opportunities. Mr. Tower
led
ARCO’s North Sea exploration activities for a nine-year period during which ARCO
made numerous new oil and natural gas discoveries in the United Kingdom, Norway
and the Netherlands. During the course of his career, Mr. Tower has been
directly involved in the discovery of 35 oil and gas fields in 11 different
countries. Mr. Tower holds both MSc and BSc degrees in Geology from Oregon
State
University.
John
L. Moran
Prior
to
joining Brasada in 2006, Mr. Moran, together with Messrs. Tower and Bosché,
evaluated opportunities during 2005 that would be appropriate for launching
a
new oil and gas exploration and development company, which ultimately led to
the
formation of Brasada at the end of 2005. In May of 2000, Mr. Moran formed and
later served as President and Exploration Manager of Carneros Energy, Inc.,
a
private oil and gas exploration company with exploration and acquisition
emphasis in the San Joaquin and Sacramento Basins of California, where he was
responsible for obtaining $75 million in equity funding. From 1997 through
1998,
Mr. Moran founded and acted President of Integrated Petroleum Exploration
(“IPX”) which merged with and into Prime Natural Resources (“Prime”) in 1998,
where he served as Vice President of Exploration. Prior to his time at IPX
and
Prime, Mr. Moran served as both Vice President Exploration/Chief Geologist
and
Exploration Manager/MidContinent Region for Apache Corporation. In 1995 Mr.
Moran founded TeTra Exploration, an oil and gas exploration and development
company using 3D seismic data base in the Anadarko Basin in Oklahoma. He was
responsible for the acquisition of the right to use 13,000 miles of 2D seismic
data base for exploration purposes and was instrumental in developing a 75
square-mile 3D seismic data base that was later sold to a major oil and gas
company. Mr. Moran holds both Bachelors and Masters Degrees in Geology with
a
major in Stratigraphy and a minor in Petrology from Oregon State
University.
W.
Kirk Bosché
Mr.
Bosché has diversified experience as a financial and accounting executive
officer in public and private oil and gas exploration and production
organizations. Mr. Bosché joined Brasada in 2006 as its Chief Financial Officer.
During 2005, Mr. Bosché, together with Messrs. Tower and Moran, evaluated
opportunities that would be appropriate for launching a new oil and gas
exploration and development company, which ultimately led to the formation
of
Brasada at the end of 2005. Mr. Bosché served as Chief Financial Officer of
First International Oil Corporation from 1997 through 2004. From 1986 through
1997, Mr. Bosché was Vice President and Treasurer for Garnet Resources
Corporation, a NASDAQ National Market System independent oil and gas exploration
and production company with activities in seven foreign countries. He began
his
career with Price Waterhouse & Co., and has been a Certified Public
Accountant since 1975. Mr. Bosché holds a BBA in Accounting from the University
of Houston.
J.
Earl Terris
J.
Earl
Terris is the founder of our company. Mr. Terris was the President,
Secretary-Treasurer and Director from the company's inception on November 17,
2000. On the Closing Date, Mr. Terris resigned from all offices, and resigned
as
a director effective 10 days after the Closing Date. He is currently employed
as
the president and owner of Sirret Investments, Ltd., a Canadian private
investment company, and as a development manager for Berkshire Young
Enterprises. Between September 1999 and January 2000 he was employed as the
deputy store manager for Thresher Wine Stores. From November 1998 through August
1999 he was employed as a sales advisor and sales administrator for Comet
Stores, Inc. From September 1996 through April 1998 he was employed as the
president of Koda Resources, Ltd., a Canadian public resources company. From
1994 through 1997 Mr. Terris was a partner in Franchise Sales Associates and
Franchise Conxions.
Changes
in Directors and Principal Officers
On
the
Closing Date, J. Earl Terris, the sole member of the Board on that date,
appointed Dennis B. Tower as a member of the Board. On the same date, Mr. Terris
submitted a written resignation to the Company expressing his intent to resign
from the Board as of 10 days following the Closing Date. Also on the Closing
Date, Mr. Terris resigned as President and Secretary-Treasurer of the Company,
effective upon submission. Concurrent with its acceptance of Mr. Terris’
resignation, the Board elected Mr. Tower as Chief Executive Officer, Mr. Moran
as President, and Mr. Bosché as Chief Financial Officer of the Company.
Board
Committees
The
Board
intends to appoint such persons and form such committees as are required to
meet
the corporate governance requirements imposed by the national securities
exchanges. Therefore, we intend that a majority of our directors will eventually
be independent directors and at least one director will qualify as an “audit
committee financial expert.” Additionally, the Board is expected to appoint an
audit committee, nominating committee and compensation committee, and to adopt
charters relative to each such committee. Until further determination by the
Board, the full Board will undertake the duties of the audit committee,
compensation committee and nominating committee. We do not currently have an
“audit committee financial expert” since we currently do not have an audit
committee in place.
Code
of Ethics
The
Company has not formally adopted a written code of ethics that applies to the
Company’s principal executive officer, principal financial officer or
controller, or persons performing similar functions. Based on the Company’s
small size, early development stage and limited financial and human resources,
Foothills did not adopt a written code of ethics prior to the Merger. We intend
to formalize and adopt a written code of ethics as soon as practicable following
the Closing Date.
6.
EXECUTIVE COMPENSATION
Executive
Compensation
Brasada
was formed in December 2005, and its business activities did not commence until
January 2006. Accordingly, no compensation was paid to its executive officers
during the year ended December 31, 2005. The executive officers of Brasada
became the executive officers of Foothills on the Closing Date. Therefore,
there
was no compensation paid to the “Named Executive Officers” for any of the fiscal
years ended 2005, 2004 or 2003.
Compensation
of Directors
There
are
currently no compensation arrangements in place for the members of the Board.
We
expect to establish these arrangements as additional members are appointed
to
the Board.
Agreements
with Executive Officers
Foothills
entered into executive employment agreements with all members of our current
management team on the Closing Date. The employment agreements entered into
between Foothills and Dennis B. Tower, John L. Moran and W. Kirk Bosché have
identical terms except for the position held by, the annual salary for, and
the
options granted to each such person. The respective employment agreements
provide for an initial annual base salary of $190,000 each for Messrs. Tower
and
Moran and $175,000 for Mr. Bosché, for option grants of 300,000 shares of Common
Stock each for Messrs. Tower and Moran and 200,000 shares of Common Stock for
Mr. Bosché, and for unspecified annual bonuses as warranted. The options granted
to each of Messrs. Tower, Moran and Bosché vest according to the following
schedule: 25% of the options vest on the date of grant, 25% vest on the first
anniversary of the date of grant, 25% vest on the second anniversary of the
date
of grant, and the remaining 25% vest on the third anniversary of the date of
grant.
The
executive employment agreements have unspecified terms of service subject to
termination for cause and without cause, and provide for severance payments
to
each employee in the event he is terminated without cause or the employee
terminates the agreement for good reason, in the amount of two times total
compensation for the prior year. “Good reason” includes an adverse change in the
executive’s position, title, duties or responsibilities, or any failure to
re-elect him to such position (except for termination for “cause”). All of these
employment agreements include standard indemnity, insurance, non-competition
and
confidentiality provisions.
2006
Equity Incentive Plan
Summary
The
Board
reserved a total of 2,000,000 shares of our Common Stock for issuance under
our
2006 Equity Incentive Plan (the “2006 Plan”). If an incentive award granted
under the 2006 Plan expires, terminates, is unexercised or is forfeited, or
if
any shares are surrendered to us in connection with an incentive award, the
shares subject to such award and the surrendered shares will become available
for further awards under the 2006 Plan.
Shares
issued under the 2006 Plan through the settlement, assumption or substitution
of
outstanding awards or obligations to grant future awards as a condition of
acquiring another entity will not reduce the maximum number of shares available
under the 2006 Plan. In addition, the number of shares of Common Stock subject
to the 2006 Plan, any number of shares subject to any numerical limit in the
2006 Plan, and the number of shares and terms of any incentive award may be
adjusted in the event of any change in our outstanding Common Stock by reason
of
any stock dividend, spin-off, split-up, stock split, reverse stock split,
recapitalization, reclassification, merger, consolidation, liquidation, business
combination or exchange of shares or similar transaction.
Administration
The
compensation committee of the Board (or the Board in the absence of such a
committee), will administer the 2006 Plan. Subject to the terms of the 2006
Plan, the compensation committee will have complete authority and discretion
to
determine the terms of awards under the 2006 Plan.
Grants
The
2006
Plan authorizes the grant to participants of nonqualified stock options,
incentive stock options, restricted stock awards, restricted stock units,
performance grants intended to comply with Section 162(m) of the Internal
Revenue Code (the “Code”), and stock appreciation rights, as described below:
| |
§
|
Options
granted under the 2006 Plan entitle the grantee, upon exercise, to
purchase a specified number of shares from us at a specified exercise
price per share. The exercise price for shares of Common Stock covered
by
an option cannot be less than the fair market value of the Common
Stock on
the date of grant unless we agree otherwise at the time of the grant.
|
| |
§
|
Restricted
stock awards and restricted stock units may be awarded on terms and
conditions established by the compensation committee, which may include
performance conditions for restricted stock awards and the lapse
of
restrictions on the achievement of one or more performance goals
for
restricted stock units.
|
| |
§
|
The
compensation committee may make performance grants, each of which
will
contain performance goals for the award, including the performance
criteria, the target and maximum amounts payable, and other terms
and
conditions.
|
| |
§
|
The
2006 Plan authorizes the granting of stock awards. The compensation
committee will establish the number of shares of Common Stock to
be
awarded and the terms applicable to each award, including performance
restrictions.
|
| |
§
|
Stock
appreciation rights (“SARs”) entitle the participant to receive a
distribution in an amount not to exceed the number of shares of Common
Stock subject to the portion of the SAR exercised multiplied by the
difference between the market price of a share of Common Stock on
the date
of exercise of the SAR and the market price of a share of Common
Stock on
the date of grant of the SAR.
|
Duration,
Amendment and Termination
The
Board
may suspend or terminate the 2006 Plan without stockholder approval or
ratification at any time or from time to time. Unless sooner terminated, the
2006 Plan will terminate 10 years after it is adopted. The Board may also amend
the 2006 Plan at any time. No change may be made that increases the total number
of shares of Common Stock reserved for issuance pursuant to incentive awards
or
reduces the minimum exercise price for options or exchange of options for other
incentive awards, unless such change is authorized by our
stockholders.
7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We
anticipate entering into an agreement with Moyes & Co., Inc. to identify
potential acquisition, development, exploitation and exploration opportunities
that fit with our strategy. Moyes & Co. is expected to screen opportunities
and perform detailed evaluation of those opportunities that we decide to pursue,
as well as assist with due diligence and negotiations with respect to such
opportunities. Christopher P. Moyes, the President of Moyes & Co., Inc.,
will be appointed to the Board on April 16, 2006.
8.
DESCRIPTION OF SECURITIES.
Authorized
Capital Stock
As
of
March 1, 2006, the Articles of Incorporation of Foothills authorized the
issuance of 100,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, par value $0.001 per share.
Capital
Stock Issued and Outstanding
As
of the
date of the Closing Date, there were issued and outstanding 45,883,009
shares
of
Common Stock, including: (i) 17,375,000 shares issued to the Brasada
Stockholders, (ii) 12,625,000 shares issued to the Foothills Stockholders,
(iii) 15,383,009
shares
issued in the Offering, and 500,000 shares issued as a finder fee in connection
with the Transactions. In addition, there were outstanding warrants to
acquire 11,537,257
shares
of
Common Stock issued to investors in the Offering. These warrants are exercisable
at any time following the Closing Date. Further, 2,000,000 shares of Common
Stock have been reserved for issuance under the 2006 Equity Incentive Plan.
The
following description of Foothills capital stock is derived from various
provisions of Foothills’ Articles of Incorporation and By-laws as well as
provisions of applicable law. Such description is not intended to be complete
and is qualified in its entirely by reference to the relevant provisions of
Foothills’ Articles of Incorporation and By-laws included as exhibits to the
registration statement on Form SB-2/A filed with the SEC on June 18, 2001.
Description
of Common Stock
Holders
of the Common Stock are entitled to one vote for each share held on all matters
submitted to a stockholder vote. Holders of Common Stock do not have cumulative
voting rights. Therefore, holders of a majority of the shares of Common Stock
voting for the election of directors can elect all of the directors. Holders
of
the Common Stock representing a majority of the voting power of the capital
stock issued, outstanding and entitled to vote, represented in person or by
proxy, are necessary to constitute a quorum at any meeting of stockholders.
A
vote by the holders of a majority of the outstanding shares of Common Stock
is
required to effectuate certain fundamental corporate changes such as
liquidation, merger or an amendment to the articles of incorporation.
Holders
of Common Stock are entitled to share in all dividends that the Board, in its
discretion, declares from legally available funds. In the event of a
liquidation, dissolution or winding up, each outstanding share entitles its
holder to participate pro rata in all assets that remain after payment of
liabilities and after providing for each class of stock, if any, having
preference over the Common Stock. Holders of the Common Stock have no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to the Common Stock.
Description
of Preferred Stock
Foothills
is authorized to issue 10,000,000 shares of “blank check” preferred stock, par
value $0.001 per share, none of which are issued and outstanding as of the
Closing Date. The Board is vested with authority to divide the shares of
preferred stock into series and fix and determine the relative rights and
preferences of the shares of any such series. Once authorized, the dividend
or
interest rates, conversion rates, voting rights, redemption prices, maturity
dates and similar characteristics of the preferred stock will be determined
by
the Board, without the necessity of obtaining approval of the
stockholders.
Description
of Warrants
As
of the
Closing Date there were warrants issued and outstanding representing the right
to purchase 11,537,257
shares
of
Common Stock. The outstanding warrants were issued to the investors in
connection with the Offering. The warrants are exercisable at a price of $1.00
per whole share for a period of five years. Each warrant has customary
provisions. The shares of Common Stock underlying the outstanding warrants
issued in connection with the purchase of Units in the Offering are subject
to
registration under the Securities Act of 1933 by the Company, within 120 days
of
the Closing Date.
Description
of Options
As
of the
Closing Date, there were options outstanding to purchase 800,000
shares
of Common Stock. Under the terms of our 2006 Equity Incentive Plan, we may
issue
incentive awards that may include the issuance of up to 2,000,000 shares of
Common Stock. The 2006 Equity Incentive Plan was adopted by the Board and
Foothills Stockholders prior to the Merger, and we anticipate that our
stockholders after the Merger will ratify and adopt the 2006 Equity Incentive
Plan and any awards that have been made under the Plan through the Closing
Date.
PART
II
1.
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY AND OTHER STOCKHOLDER
MATTERS
The
Common Stock is quoted on the NASD OTC Bulletin Board under
the
symbol “FTRS.OB.” There
is
currently no established market for the Common Stock.
As
of the
Closing Date, there were approximately 20 holders
of record of shares of the Common Stock.
Trades
in
the Common Stock may be subject to Rule 15g-9 of the Exchange Act, which rule
imposes certain requirements on broker/dealers who sell securities subject
to
the rule to persons other than established customers and accredited investors.
For transactions covered by the rule, brokers/dealers must make a special
suitability determination for purchasers of the securities and receive the
purchaser’s written agreement to the transaction prior to sale. The SEC also has
rules that regulate broker/dealer practices in connection with transactions
in
“penny stocks.” Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in that security is provided by the
applicable exchange or system). The penny stock rules require a broker/dealer,
before a transaction in a penny stock not otherwise exempt from the rules,
to
deliver a standardized risk disclosure document prepared by the SEC that
provides information about penny stocks and the nature and level of risks in
the
penny stock market. The broker/dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker/dealer and salesperson
compensation information, must be given to the customer orally or in writing
before effecting the transaction, and must be given to the customer in writing
before or with the customer’s confirmation. These disclosure requirements may
have the effect of reducing the level of trading activity in the secondary
market for shares of the Common Stock. As a result of these rules, investors
may
find it difficult to sell their shares.
As
of the
Closing Date, there are 45,883,009
shares
of
Common Stock issued and outstanding. The shares of Common Stock issued in
connection with the Transactions, are “restricted securities” which may be sold
or otherwise transferred only if such shares are first registered under the
Securities Act or are exempt from such registration requirements. As discussed
elsewhere in this Current Report on Form 8-K, we have agreed to file a
registration statement within 120 days of the Closing Date to register certain
of these shares.
In
addition, there are 2,000,000 shares of Common Stock reserved for issuance
of
stock options and other incentive awards pursuant to the 2006 Equity Incentive
Plan. We expect to file a registration statement on Form S-8 to register the
shares of Common Stock reserved for issuance of incentive awards under the
2006
Equity Incentive Plan. This registration statement is expected to become
effective on filing.
Dividend
Policy
Foothills
has never declared or paid dividends. We intend to retain earnings, if any,
to
support the development of the business and therefore do not anticipate paying
cash dividends for the foreseeable future. Payment of future dividends, if
any,
will be at the discretion of the Board after taking into account various
factors, including current financial condition, operating results and current
and anticipated cash needs.
Securities
Authorized for Issuance Under Equity Compensation Plans
We
had no
securities authorized for issuance under any equity compensation plan as of
the
end of fiscal year 2005.
From
time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings or claims are pending against us or involve
us
that, in the opinion of our management, could reasonably be expected to have
a
material adverse effect on our business or financial condition.
3.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
4.
RECENT
SALES OF UNREGISTERED SECURITIES
Shares
Issued in Connection with the Merger and the Offering
On
the
Closing Date, the Brasada Stockholders surrendered all of the issued and
outstanding shares of Brasada and received 17,375,000 shares
of
Common Stock. The Foothills Stockholders retained 12,625,000 shares of Common
Stock.
In
connection with the Offering, we sold 15,383,009
shares
of
Common Stock and warrants to purchase up to 11,537,257
shares
of
Common Stock for five years at a price of $1.00 per whole share, to accredited
investors, for a total purchase price of $10,768,106.
In
connection with the Closing, Foothills issued warrants to acquire 500,000 shares
of Common Stock to the Placement Agent, which warrants are exercisable for
five
years at $1.00 per whole share.
Concurrently
with the Merger, Foothills granted options to purchase 800,000
shares
of Common Stock under the 2006 Equity Incentive Plan to the Named Executive
Officers.
Except as otherwise described herein, the options are issuable pursuant to
the
2006 Equity Incentive Plan at an exercise price of $0.70
per
share and will vest over the three-year period following the date of
grant.
The
transactions discussed above are exempt from registration under Section 4(2)
of
the Securities Act and Rule 506 of Regulation D as promulgated by the
SEC.
5.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Nevada
Revised Statutes (“NRS”) Sections 78.7502 and 78.751 provide Foothills with the
power to indemnify any of its directors and officers. The director or officer
must have conducted himself/herself in good faith and reasonably believe that
his/her conduct was in, or not opposed to, our best interests. In a criminal
action the director, officer, employee or agent must not have had a reasonable
cause to believe his/her conduct was unlawful.
Under
NRS
Section 78.751, advances for expenses may be made by agreement if the director
or officer affirms in writing that he/she believes he/she has met the standards
and will personally repay the expenses if it is determined such officer or
director did not meet the standards.
Foothills’
By-laws include an indemnification provision under which Foothills has the
power
to indemnify its directors, officers and former directors and officers
(including heirs and personal representatives) against all costs, charges and
expenses actually and reasonably incurred, including an amount paid to settle
an
action or satisfy a judgment to which the director or officer is made a party
by
reason of being or having been a director or officer of Foothills or any of
its
subsidiaries.
Foothills’
By-laws also provide that the directors may cause Foothills to purchase and
maintain insurance for the benefit of a person who is or was serving as a
director, officer, employee or agent of Foothills or any of its subsidiaries
(including heirs and personal representatives) against a liability incurred
by
him/her as a director, officer, employee or agent.
Foothills’
Articles of Incorporation provide a limitation of liability in that no director
or officer shall be personally liable to Foothills or any of its stockholders
for damages for breach of fiduciary duty as director or officer involving any
act or omission of any such director or officer, provided there was no
intentional misconduct, fraud or a knowing violation of the law, or payment
of
dividends in violation of NRS Section 78.300.
PART
III
See
Item
9.01(d) below, which is incorporated by reference herein.
2.
DESCRIPTION OF EXHIBITS
See
Exhibit Index below and the corresponding exhibits, which are incorporated
by
reference herein.
Item
3.02. Recent
Sales of Unregistered Securities.
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated herein by reference.
Item
5.01. Changes
in Control of Registrant.
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated herein by reference.
Item
5.02. Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers.
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated herein by reference.
Item
5.06. Change
in Shell Company Status.
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated herein by reference. As a result
of
the Merger described under Item 2.01 of this Current Report on Form 8-K, we
believe that Foothills Resources, Inc. is no longer a shell corporation as
that
term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange
Act.
Item
9.01. Financial
Statements and Exhibits.
|
(a)
|
Financial
Statements of Businesses
Acquired.
|
|
(b)
|
Pro
Forma Financial
Information.
|
The
financial statements of Foothills for the periods and dates indicated below
are
filed with this report.
| |
Page
|
|
Audited
Financial Statements:
|
|
|
Brasada
California, Inc. (f/k/a Brasada Resources LLC):
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-9
|
|
|
|
|
Unaudited
Pro forma Financial Information:
|
|
|
Foothills
Resources, Inc.:
|
|
|
|
F-10
|
|
|
F-11
|
|
|
F-12
|
|
|
F-13
|
(d) Exhibits.
|
Exhibit
No.
|
Description
|
Reference
|
|
|
Agreement
and Plan of Merger and Reorganization, dated as of April 6, 2006,
by and
between Foothills Resources, Inc., a Nevada corporation, Brasada
Acquisition Corp., a Delaware corporation and Brasada California,
Inc., a
Delaware corporation.*
|
|
|
3.1
|
Articles
of Incorporation of Foothills Resources, Inc.
|
Incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
3.2
|
Certificate
of Amendment of the Articles of Incorporation of Foothills Resources,
Inc.
|
Incorporated
by reference to Exhibit 3.2 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
3.2
|
Bylaws
of Foothills Resources, Inc.
|
Incorporated
by reference to Exhibit 3.3 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
4.1
|
Specimen
Stock Certificate of Foothills Resources, Inc.
|
Incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
|
Form
of Warrant issued to the Investors in the Private Placement Offering,
April 6, 2006.*
|
|
|
|
Form
of Lock-Up Agreement by and between Foothills Resources, Inc. and
the
Brasada Stockholders.*
|
|
|
|
Form
of Subscription Agreement by and between Foothills Resources, Inc.
and the
investors in the Offering.*
|
|
|
|
Form
of Registration Rights Agreement by and between Foothills Resources,
Inc.
and the investors in the Offering.*
|
|
|
|
Split
Off Agreement, dated April 6, 2006, by and among Foothills Resources,
Inc., J. Earl Terris, Foothills Leaseco, Inc. and Brasada California,
Inc.*
|
|
|
|
Employment
Agreement , dated April 6, 2006, by and between Foothills Resources,
Inc.
and Dennis B. Tower.*
|
|
|
|
Employment
Agreement , dated April 6, 2006, by and between Foothills Resources,
Inc.
and John L. Moran.*
|
|
|
|
Employment
Agreement , dated April 6, 2006, by and between Foothills Resources,
Inc.
and W. Kirk Bosché.*
|
|
|
|
Form
of Indemnity Agreement by and between Foothills Resources, Inc. and
the
Directors and Officers of Foothills Resources, Inc.*
|
|
|
10.8
|
Farmout
and Participation Agreement, dated as of January 3, 2006, by and
between
INNEX California, Inc. and Brasada Resources, LLC.*
|
|
|
10.9
|
Notice
and Acknowledgement of Increase of Offering.* |
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
| |
|
|
| |
FOOTHILLS
RESOURCES, INC. |
|
|
|
| |
By: |
/s/ Dennis
B.
Tower |
| |
Name: Dennis
B. Tower |
| |
Title: Chief
Executive Officer |
Dated:
April 6, 2006
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
Reference
|
|
|
Agreement
and Plan of Merger and Reorganization, dated as of April 6, 2006,
by and
between Foothills Resources, Inc., a Nevada corporation, Brasada
Acquisition Corp., a Delaware corporation and Brasada California,
Inc., a
Delaware corporation.*
|
|
|
3.1
|
Articles
of Incorporation of Foothills Resources, Inc.
|
Incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
3.2
|
Certificate
of Amendment of the Articles of Incorporation of Foothills Resources,
Inc.
|
Incorporated
by reference to Exhibit 3.2 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
3.2
|
Bylaws
of Foothills Resources, Inc.
|
Incorporated
by reference to Exhibit 3.3 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
4.1
|
Specimen
Stock Certificate of Foothills Resources, Inc.
|
Incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form
SB-2/A filed with the Securities and Exchange Commission on June
18, 2001
(File No. 333-59708).
|
|
|
Form
of Warrant issued to the Investors in the Private Placement Offering,
April 6, 2006.*
|
|
|
|
Form
of Lock-Up Agreement by and between Foothills Resources, Inc. and
the
Brasada Stockholders.*
|
|
|
|
Form
of Subscription Agreement by and between Foothills Resources, Inc.
and the
investors in the Offering.*
|
|
|
|
Form
of Registration Rights Agreement by and between Foothills Resources,
Inc.
and the investors in the Offering.*
|
|
|
|
Split
Off Agreement, dated April 6, 2006, by and among Foothills Resources,
Inc., J. Earl Terris, Foothills Leaseco, Inc. and Brasada California,
Inc.*
|
|
|
|
Employment
Agreement , dated April 6, 2006, by and between Foothills Resources,
Inc.
and Dennis B. Tower.*
|
|
|
|
Employment
Agreement , dated April 6, 2006, by and between Foothills Resources,
Inc.
and John L. Moran.*
|
|
|
|
Employment
Agreement , dated April 6, 2006, by and between Foothills Resources,
Inc.
and W. Kirk Bosché.*
|
|
|
|
Form
of Indemnity Agreement by and between Foothills Resources, Inc. and
the
Directors and Officers of Foothills Resources, Inc.*
|
|
|
10.8
|
Farmout
and Participation Agreement, dated as of January 3, 2006, by and
between
INNEX California, Inc. and Brasada Resources, LLC.*
|
|
|
10.9
|
Notice and
Acknowledgement of Increase of Offering.* |
|
| |
Page
|
|
Audited
Financial Statements:
|
|
|
Brasada
California, Inc. (f/k/a Brasada Resources LLC):
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-9
|
| |
|
|
Unaudited
Pro forma Financial Information:
|
|
|
Foothills
Resources, Inc.:
|
|
|
|
F-10
|
|
|
F-11
|
|
|
F-12
|
|
|
F-13
|
To
the
Audit Committee
Brasada
California, Inc.
Successor
in interest Brasada Resources, LLC
Houston,
Texas
We
have
audited the balance sheet of Brasada Resources, LLC, a development stage
company, as of December 31, 2005, and the related statements of operations,
member’s capital and cash flows for the period from inception on December 29,
2005 through December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly in all
material respects the financial position of Brasada Resources, LLC, a
development stage company, at December 31, 2005, and the results of its
operations and its cash flows for the period from inception on December 29,
2005
through December 31, 2005, in conformity with accounting principles generally
accepted in the United States of America.
BROWN
ARMSTRONG PAULDEN
McCOWN
STARBUCK THORNBURGH & KEETER
ACCOUNTANCY
CORPORATION
Bakersfield,
California
March
21,
2006
FINANCIAL
STATEMENTS
Set
forth
below are the audited financial statements of Brasada Resources LLC, the
predecessor company to Brasada, as of December 31, 2005. The business operations
of Brasada will be the business operations of Foothills following the Merger.
|
BRASADA
RESOURCES LLC
|
|
(A
DEVELOPMENT STAGE COMPANY)
|
| |
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2005
|
|
Assets
|
|
|
|
| |
|
|
|
|
Property
and equipment, at cost:
|
|
|
|
|
Oil
and gas properties, using full cost accounting -
|
|
|
|
|
Unproved
properties not being amortized
|
|
$
|
54,856
|
|
|
Total
assets
|
|
$
|
54,856
|
|
| |
|
|
|
|
|
Liabilities
and Members' Capital
|
|
|
|
|
| |
|
|
|
|
|
Accounts
payable
|
|
$
|
4,856
|
|
| |
|
|
|
|
|
Members'
capital:
|
|
|
|
|
|
Members'
capital
|
|
|
50,000
|
|
|
Total
liabilities and members' capital
|
|
$
|
54,856
|
|
| |
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
|
BRASADA
RESOURCES LLC
|
|
(A
DEVELOPMENT STAGE COMPANY)
|
| |
|
|
|
|
|
|
|
|
|
|
FOR
THE PERIOD FROM INCEPTION
|
|
(DECEMBER
29, 2005) THROUGH DECEMBER 31,
2005
|
|
Income
|
|
$
|
—
|
|
|
Costs
and expenses
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
|
|
|
BRASADA
RESOURCES LLC
|
|
(A
DEVELOPMENT STAGE COMPANY)
|
| |
|
|
|
|
|
|
|
|
|
|
FOR
THE PERIOD FROM INCEPTION
|
|
(DECEMBER
29, 2005) THROUGH DECEMBER 31,
2005
|
|
Contributions
|
|
$
|
50,000
|
|
|
Net
income (loss) for the period from inception
|
|
|
|
|
|
(December
29, 2005) through December 31, 2005
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
$
|
50,000
|
|
| |
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
|
BRASADA
RESOURCES LLC
|
|
(A
DEVELOPMENT STAGE COMPANY)
|
| |
|
|
|
|
|
|
|
|
|
|
FOR
THE PERIOD FROM INCEPTION
|
|
(DECEMBER
29, 2005) THROUGH DECEMBER 31,
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
income (loss)
|
|
$
|
—
|
|
|
Net
cash provided by operating activities
|
|
|
|
|
| |
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
Additions
to oil and gas properties
|
|
|
(50,000
|
)
|
|
Net
cash used for investing activities
|
|
|
(50,000
|
)
|
| |
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Capital
contributions by members
|
|
|
50,000
|
|
|
Net
cash provided by financing activities
|
|
|
50,000
|
|
| |
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
|
|
| |
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
|
|
The
accompanying notes are an integral part of these financial
statements
BRASADA
RESOURCES LLC
(A
DEVELOPMENT STAGE COMPANY)
DECEMBER
31, 2005
Note
1 - Summary of Operations and Going Concern
Brasada
Resources LLC (the “Company”) was organized December 29, 2005 as a limited
liability company under the laws of the state of Delaware. The Company’s
principal business is to pursue opportunities in oil and gas acquisition,
exploration and development. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development
Stage Enterprises, the Company is considered to be a development stage
company.
The
Company’s ability to continue as a going concern is dependent upon obtaining the
necessary financing to acquire, explore and develop oil and gas interests and
to
generate profitable operations from its oil and gas interests in the future.
To
address these matters, management intends to:
| |
·
|
borrow
from Foothills Resources, Inc., a Nevada company (“Foothills”), under a
bridge loan facility to fund its planned initial acquisition, exploration
and development activities (see Note 3);
and
|
| |
·
|
pursue
a merger with Foothills, which will allow the Company to raise additional
capital through the sale and issuance of common shares of its corporate
successor-in-interest (see Note 3).
|
Should
the going concern assumptions not be appropriate and the Company not be able
to
realize its assets and settle its liabilities in the normal course of
operations, these financial statements would require adjustments to the amounts
and classifications of assets and liabilities.
Note
2 - Significant Accounting Policies
Principles
of consolidation
The
Company accounts for its investments in oil and gas joint ventures using the
proportionate consolidation method, whereby the Company’s proportionate share of
each entity’s assets, liabilities, revenues and expenses is included in the
appropriate classification in the financial statements.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from such estimates. Changes in such
estimates may affect amounts reported in future periods.
Oil
and gas properties
The
Company follows the full-cost method of accounting for oil and gas properties.
Under this method, all productive and nonproductive costs incurred in connection
with the acquisition, exploration and development of oil and gas reserves are
capitalized in separate cost centers for each country in which the Company
has
operations. Such capitalized costs include leasehold acquisition, geological,
geophysical and other exploration work, drilling, completing and equipping
oil
and gas wells, asset retirement costs, internal costs directly attributable
to
property acquisition, exploration and development, and other related costs.
The
Company also capitalizes interest costs related to unevaluated oil and gas
properties.
The
capitalized costs of oil and gas properties in each cost center are amortized
using the unit-of-production method. Sales or other dispositions of oil and
gas
properties are normally accounted for as adjustments of capitalized costs.
Gains
or losses are not recognized in income unless a significant portion of a cost
center’s reserves is involved. Capitalized costs associated with the acquisition
and evaluation of unproved properties are excluded from amortization until
it is
determined whether proved reserves can be assigned to such properties or until
the value of the properties is impaired. Unproved properties are assessed at
least annually to determine whether any impairment has occurred. If the net
capitalized costs of oil and gas properties in a cost center exceed an amount
equal to the sum of the present value of estimated future net revenues from
proved oil and gas reserves in the cost center and the costs of properties
not
being amortized, both adjusted for income tax effects, such excess is charged
to
expense.
Asset
retirement obligations
The
fair
value of an asset retirement obligation is recognized in the period in which
it
is incurred if a reasonable estimate can be made. The Company’s asset retirement
obligations primarily relate to the abandonment of oil and gas wells and
producing facilities.
Members'
capital
The
operations of the Company are governed by the provisions of an operating
agreement executed by and among its members. The total capital contributed
by
the members as of December 31, 2005 was $50,000.
Revenue
recognition
Oil
and
gas revenues from producing wells are recognized when title and risk of loss
is
transferred to the purchaser of the oil or gas.
New
accounting pronouncements
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). SFAS 123(R) is a
revision of SFAS No. 123, Accounting for Stock Based Compensation (“SFAS 123”),
and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (“APB 25”). Among other items, SFAS 123(R) eliminates the
use of APB 25 and the intrinsic value method of accounting, and requires
companies to recognize the cost of employee services received in exchange for
awards of equity instruments based on the grant date fair value of those awards.
SFAS 123(R) permits the use of the Black-Scholes model as well as other standard
option pricing models. The compliance date for SFAS 123(R) has been amended
such
that the standard will be effective for the first full fiscal year beginning
after June 15, 2005. The Company has not yet determined which model it will
use
to measure the fair value of employee stock options upon the adoption of SFAS
123(R) and has not yet determined the impact on the Company’s future operating
results.
In
March
2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin (“SAB”) No. 107 on SFAS No. 123(R) (“SAB 107”). SAB 107 reinforces the
flexibility allowed by SFAS 123(R) to choose an option pricing model, provides
guidance on when it would be appropriate to rely exclusively on either
historical or implied volatility in estimating expected volatility and provided
examples and simplified approaches to determining the expected term. In April
2005, the SEC extended the date by which companies are required to adopt SFAS
123(R) from the first reporting period beginning on or after June 15, 2005
to
the first reporting period of the first full fiscal year beginning on or after
June 15, 2005.
Note
3 - Subsequent Events
In
January 2006, the Company’s members contributed an additional $50,000 to its
capital.
In
January 2006, the Company entered into a Farmout and Participation Agreement
providing for a joint venture for exploration, development and production of
oil
and gas in the Eel River Basin, California (the “Eel River Agreement”). Under
the terms of the Eel River Agreement, the Company will serve as operator of
the
joint venture. To earn interests in certain of the leases held by its joint
venture partner, the Company must (a) drill two exploratory wells no later
than
June 30, 2006, subject to rig availability, (b) acquire 1,000 additional
leasehold acres in the area of mutual interest, and (c) conduct certain other
operations. Following successful completion of these activities, the Company
has
the right, but not the obligation, to conduct additional activities in
accordance with the Eel River Agreement to earn additional leasehold
interests.
In
February 2006, the Company was converted into a Delaware corporation named
Brasada California, Inc. (“Brasada”). Under Delaware law, all of the Company’s
assets, liabilities, rights and obligations were acquired and assumed by
Brasada, and the capital of the Company’s members was exchanged for shares of
Brasada’s common stock.
In
March
2006, Brasada entered into a binding term sheet with Foothills providing for
(a)
a private placement of $7,000,000 of common stock and warrants of Foothills,
(b)
the merger of Brasada into a wholly owned subsidiary of Foothills, in exchange
for the issuance of 42.9% of the issued and outstanding common stock of
Foothills to the shareholders of Brasada, and (c) the bridge loan facility
described in the following paragraph.
In
March
2006, Brasada entered into agreements with Foothills, pursuant to which Brasada
may borrow up to $3,000,000 from Foothills to meet agreed working capital
commitments. The loans are evidenced by a promissory note (the “Bridge Note”),
which matures 120 days from the date of the loans, bears interest at 9% per
annum payable monthly commencing 30 days from the date of the loans, and is
secured by all of Brasada’s assets and shares of its common stock equal to 51%
of such stock issued and outstanding. Upon the closing of the transaction
described in the preceding paragraph, all amounts outstanding under the Bridge
Note will be forgiven, and the Bridge Note will be deemed repaid in
full.
(unaudited)
The
following tables set forth information about the Company’s oil and gas producing
activities pursuant to the requirements of SFAS No. 69, “Disclosures About Oil
and Gas Producing Activities.” All of the Company’s oil and gas producing
activities are within the United States.
Capitalized
Costs as of December 31, 2005
| |
|
|
|
|
|
Proved
properties
|
|
$
|
—
|
|
|
Unproved
properties
|
|
|
54,856
|
|
| |
|
|
54,856
|
|
| |
|
|
|
|
|
Accumulated
depreciation, depletion and amortization
|
|
|
|
|
|
Net
capitalized costs
|
|
$
|
54,856
|
|
| |
|
|
|
|
Costs
Incurred for the Period from Inception (December 29, 2005) through December
31,
2005
|
Property
acquisition:
|
|
|
|
|
Proved
properties
|
|
$
|
—
|
|
|
Unproved
properties
|
|
|
54,072
|
|
|
Exploration
|
|
|
784
|
|
|
Development
|
|
|
|
|
|
Total
costs incurred
|
|
$
|
54,856
|
|
Oil
and Gas Reserve Quantities
Proved
reserves represent estimated quantities of crude oil and natural gas which
geological and engineering data demonstrate to be reasonably recoverable in
the
future from known reservoirs under existing economic and operating conditions.
Proved developed reserves can be expected to be recovered through existing
wells, with existing equipment and operating methods.
The
Company had no proved reserves as of December 31, 2005.
PRO
FORMA FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2005
AND
FOR THE YEAR ENDED DECEMBER 31, 2005
The
accompanying unaudited pro forma consolidated financial statements (“pro forma
statements”) reflect the acquisition of Brasada by Foothills using the purchase
method of accounting. The acquisition is accounted as a reverse takeover of
Foothills by Brasada, as the shareholders of Brasada will control the
consolidated entity after the acquisition.
Subsequent
to December 31, 2005, Foothills advanced funds through a bridge financing
facility to Brasada to enable Brasada to meet certain specific working capital
requirements. The bridge financing facility has not been included in the pro
forma statements as the amount due to Foothills by Brasada and the amount due
by
Brasada to Foothills are eliminated on consolidation.
The
pro
forma statements have been prepared from, and should be read in conjunction
with, Brasada’s audited financial statements for the period from inception
(December 29, 2005) through December 31, 2005, and Foothills’ audited financial
statements for the year ended December 31, 2005.
PRO
FORMA CONSOLIDATED BALANCE SHEET
DECEMBER
31, 2005
(Unaudited)
| |
|
|
|
|
|
Pro
Forma
|
|
Note
|
|
Pro
Forma
|
|
| |
|
Brasada
|
|
Foothills
|
|
Adjustments
|
|
Ref
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
$
|
3,188
|
|
$
|
10,093,106
|
|
|
2b
|
|
$
|
10,096,294
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas properties, using full cost accounting -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved
properties not being amortized
|
|
|
54,856
|
|
|
-
|
|
|
50,000
|
|
|
2a
|
|
|
104,856
|
|
| |
|
$
|
54,856
|
|
$
|
3,188
|
|
$
|
10,143,106
|
|
|
|
|
$
|
10,201,150
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
4,856
|
|
$
|
10,048
|
|
$
|
(10,048
|
) |
|
2c
|
|
$
|
4,856
|
|
|
Due
to related party
|
|
|
-
|
|
|
2,500
|
|
|
(2,500
|
) |
|
2c
|
|
|
-
|
|
|
Loans
payable
|
|
|
-
|
|
|
313,051
|
|
|
(313,051
|
) |
|
2c
|
|
|
-
|
|
| |
|
|
4,856
|
|
|
325,599
|
|
|
(325,599
|
) |
|
|
|
|
4,856
|
|
|
MEMBERS'
CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members'
capital
|
|
|
50,000
|
|
|
-
|
|
|
(50,000
|
) |
|
2a
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
100
|
|
|
2a
|
|
|
|
|
|
Common
stock
|
|
|
-
|
|
|
39,356
|
|
|
15,383
|
|
|
2b
|
|
|
45,883
|
|
| |
|
|
|
|
|
|
|
|
(8,956
|
) |
|
2c
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
99,900
|
|
|
2a
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
-
|
|
|
104,562
|
|
|
10,077,723
|
|
|
2b
|
|
|
10,150,411
|
|
| |
|
|
|
|
|
|
|
|
(131,774
|
) |
|
2c
|
|
|
|
|
|
Deficit
accumulated during the development stage
|
|
|
-
|
|
|
(466,329
|
) |
|
466,329
|
|
|
2c
|
|
|
-
|
|
|
|
|
|
|
|
|
(322,411
|
) |
|
10,518,705
|
|
|
|
|
|
10,196,294
|
|
| |
|
$
|
54,856
|
|
$
|
3,188
|
|
$
|
10,143,106
|
|
|
|
|
$
|
10,201,150
|
|
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR
ENDED DECEMBER 31, 2005
(Unaudited)
| |
|
|
|
|
|
Pro
Forma
|
|
Note
|
|
Pro
Forma
|
|
| |
|
Brasada
|
|
Foothills
|
|
Adjustments
|
|
Ref
|
|
Consolidated
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting
and audit fees
|
|
$
|
-
|
|
|
|
|
$
|
18,346
|
|
|
|
|
$
|
18,346
|
|
|
Bank
charges
|
|
|
-
|
|
|
|
|
|
195
|
|
|
|
|
|
195
|
|
|
Deferred
acquisition costs written off
|
|
|
-
|
|
|
|
|
|
280,100
|
|
|
|
|
|
280,100
|
|
|
Interest
|
|
|
-
|
|
|
|
|
|
6,658
|
|
|
|
|
|
6,658
|
|
|
Legal
(recovery)
|
|
|
-
|
|
|
|
|
|
(3,000
|
)
|
|
|
|
|
(3,000
|
)
|
|
Management
fees
|
|
|
-
|
|
|
|
|
|
19,500
|
|
|
|
|
|
19,500
|
|
|
Office
and miscellaneous
|
|
|
-
|
|
|
|
|
|
6,000
|
|
|
|
|
|
6,000
|
|
|
Transfer
agent and filing fees
|
|
|
-
|
|
|
|
|
|
4,042
|
|
|
|
|
|
4,042
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
-
|
|
|
|
|
$
|
(331,841
|
)
|
|
|
|
$
|
(331,841
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share
|
|
$
|
-
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
$
|
(0.01
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
411
|
|
|
|
|
|
35,566,972
|
|
|
|
|
|
45,883,009
|
|
FOOTHILLS
RESOURCES, INC.
AS
OF DECEMBER 31, 2005
AND
FOR THE YEAR ENDED DECEMBER 31, 2005
These
pro
forma consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America
(“GAAP”) and Brasada’s accounting policies, as disclosed in Note 2 of the
audited financial statements of Brasada for the period ended December 31,
2005.
The
pro
forma consolidated financial statements are based on the estimates and
assumptions included in these notes and include all adjustments necessary for
the fair presentation of the transactions in accordance with GAAP.
These
pro
forma consolidated financial statements are not intended to reflect results
of
operations or the financial position which would have actually resulted had
the
acquisition been effected on the dates indicated. These pro forma statements
do
not include any cost savings or other operations or financial position which
may
be obtained in the future.
|
2.
|
PRO
FORMA ADJUSTMENTS TO THE CONSOLIDATED BALANCE
SHEET
|
The
following adjustments have been made as of December 31, 2005 to reflect the
transactions described below, as if these transactions occurred on December
31,
2005 for purposes of the pro forma consolidated balance sheet.
|
a.
|
Additional
contributions in January 2006 to Brasada’s limited liability company
predecessor by its members totaling $50,000, consummation of the
INNEX
Agreement and payment of the remaining $50,000 INNEX project fee
in
January 2006, and conversion of Brasada’s predecessor to a corporation in
February 2006, including the issuance of 100,000 shares of Brasada’s
common stock in exchange for the capital of the members of Brasada’s
predecessor.
|
|
b.
|
Sale
of 15,383,009 Units
of Foothills at $0.70 per Unit for total proceeds of $10,768,106,
and
net proceeds of $10,093,106
after
estimated issue costs of $675,000.
|
|
c.
|
Exchange
of common shares of Brasada for Common Stock of Foothills resulting
in the
acquisition of Foothills by Brasada, accounted for as a reverse takeover,
and consummation of the merger, including the effect of the Stock
Split,
the surrender of 15,000,000
shares of outstanding Common Stock of Foothills by stockholders prior
to
the merger, the surrender of 45,945,769 shares of outstanding Common
Stock
of Foothills in connection with the split off of Foothills Leaseco,
Inc.,
the elimination of all liabilities of
Foothills, and the issuance of 500,000 shares of Common Stock as
the
Finder Fee.
|
|
3.
|
PRO
FORMA ADJUSTMENTS TO THE CONSOLIDATED STATEMENT OF
OPERATIONS
|
No
adjustments were necessary to reflect the transactions described above, as
if
the transactions occurred on January 1, 2005 for purposes of the pro forma
consolidated statement of operations for the year ended December 31,
2005.